Income Tax Appellate Tribunal - Ahmedabad
Softouch Hygeine Products(Mkt.) Ltd, ... vs Department Of Income Tax on 28 January, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BENCHES
"C" BENCH: AHMEDABAD
(BEFORE S/SHRI MAHAVIR SINGH, JM AND A N PAHUJA, AM)
ITA No. 929/Ahd/2009
A Y: 2004-05
Income Tax Officer,Ward 8(2), Vs Softouch Hygiene Products (Mktg.)
4th floor Ajanta Commercial Centre, Ltd.,294/1, Hansol, P.O.
'A' Wing, Ashram Road, Sardanagar,Ahmedabad
Ahmedabad [PAN: AACCS 9973P]
Appellant Respondent
C.O. No.85/Ahd/2009
(In ITA No. 929/Ahd/2009)
Softouch Hygiene Products (Mktg.) Vs Income Tax Officer,Ward 8(2),
Ltd.,294/1, Hansol, P.O. Sardanagar 4th floor Ajanta Commercial Centre,
Ahmedabad 'A' Wing, Ashram Road,
PA No. AACCS 9973P Ahmedabad
Cross Objector Respondent
Revenue by Shri Sanjeev Kashyap,DR
Assessee by Shri G. S. Patel, AR
ORDER
A N PAHUJA: This appeal by the Revenue and cross-objection by the assessee against an order dated 28-01-2009 of the learned CIT(A)-XIV, Ahmedabad, raise the following grounds:
ITA No.929/Ahd/2009"1. The Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing to delete penalty U/s 271 D of the I. T. Act of Rs.2,25,710/- levied by the A. O. for contravention of provisions of section 269SS.ITA No.929/Ahd/2009 2
Softouch Hygiene Products (Mkt.) Ltd.
2. On the facts and in the circumstances of the case, the ld.
Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.
3. It is therefore, prayed that the order of the ld. Commissioner of Income-tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored."
C. O. NO.85/Ahd/2009 "1. (i) The respondents submits that the ld. CIT(A) has erred in confirming the order of u/s. 271D passed by the Addl. CIT on 22-09-2008 which is time barred u/s 275(1)(c) of I. T. Act.
(ii) The respondents submit that the showcause notice was issued by the AO dated 13-02-2006 and accordingly the order u/s 271D should have been passed before 30-09-2006 as per time limit provided u/s 275(1)(c). However, the Addl. C I T passed the order u/s 271D on 22-09-2008 which is time barred as per section 275(1)(c) and hence be cancelled.
2. Without prejudice to the above, the respondents support the order of the ld CIT(A) dated 28-01-2009 cancelling the penalty of Rs.225710/- levied by the Addl. CIT u/s 271D".
2. Facts, in brief, as per relevant orders are that return declaring income of Rs. 65,515/- filed on 31-10-2004 was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Subsequently, the assessment reopened u/s 147 of the Act,was completed vide order dated 20-11-2007 determining total income of Rs.18,91,871/-. During the course of assessment proceedings, the Assessing Officer [AO in short] noticed that the assessee obtained the following loans in cash for a sum exceeding Rs. 20,000/- each, in violation of the provisions of section 269SS of the Act.
1. Shri K. A. Takhtawala : Rs. 1,80,500/-
2. Shri S. K. Takhtawala : Rs. 23,210/-
3. Shri B. K. Takhtawala : Rs. 22,000/-
In the audit report in Annexure G relating to particulars of loan or deposits accepted, the auditors pointed out that the aforesaid loans/deposits were received otherwise than by account payee cheque/draft in violation of the ITA No.929/Ahd/2009 3 Softouch Hygiene Products (Mkt.) Ltd.
provisions of section 269SS of the Act. On receipt of communication from the AO, the Addl. CIT initiated penalty proceedings u/s 271D of the Act on 18-3- 2008. In response, the assessee submitted vide reply dated 28-3-2008 that the aforesaid three persons were directors of the company and were operating current accounts in the company. Therefore, these amounts were not loans/deposits. As regards cash receipt of Rs.1,80,500/- from the Managing Director, Shri K. A. Taktawala , the assessee explained that the MD was acting as an intermediary of the company for transferring the amount from HDFC Bank, Ahmedabad to Delhi branch of the company, for opening a branch there. There was no facility available to the company in the HDFC bank for transferring the amount from Ahmedabad to Delhi, the facility being available in the individual accounts. In this case, the company had credited an amount of Rs.1,58,000/- in the bank account of the MD at Ahmedabad, which was withdrawn in cash by Shri K. A. Taktawala at Delhi and returned to the company. The assessee also enclosed copie of relevant ledger accounts.For the balance amount of Rs.3000,Rs.4,500/- and Rs. 15,000/- the assessee explained that the said amount was incurred in cash by the MD for meeting the expenses.Thus, there was no question of any payment of deposit or loan by Managing Director to the company. As regards amount of Rs.23,210/- received from Ms. S. K. Takhtawala, the assessee explained that the said amount was given to Delhi Office by Ms. S.K. Takhtawala as revealed from the following entries in the ledger account No.000103:
Cr. 13 Dt. 18-06-03 for Rs. 5,000/-
Cr. 14 Dt. 04-07-03 for Rs. 1,700/-
Cr. 15 Dt. 08-07-03 for Rs. 4,000/-
Cr. 18 Dt. 18-07-03 for Rs. 7,000/-
Cr. 20 Dt. 29-07-03 for Rs. 1,500/-
Cr. 21 Dt. 06-08-03 for Rs. 4,000/-
Cr. 37 Dt. 17-02-04 for Rs. 5,710/-
Total Rs.28,910-5,700=23,910/-
Regarding Rs.22,000/- from Mrs. B. K. Takhtawala, the assessee submitted that under similar circumstances, an amount of Rs.15,000/- and Rs.7,000/- received ITA No.929/Ahd/2009 4 Softouch Hygiene Products (Mkt.) Ltd.
from Mrs. B. K. Kakhtawala were given to their Delhi Branch for establishment expenses purpose. However the Addl. CIT did not accept the aforesaid explanation of the assessee on the ground that these circumstances narrated by the assessee, were not supported by any evidence. Accordingly, the Addl. CIT levied penalty of Rs. 2,25,710/- u/s. 271D of the Act.
3. On appeal, the learned AR on behalf of the assessee relied upon the decisions in the case of Ashwinkumar Vs. ITO 118 TTJ 483 (Delhi), Sharda Educational Trust Vs. ACIT (Agra) reported in BCAJ Vol.39-Apart-1 and Keshu Ramsay Vs JCIT, 5 SOT 9 (Mum) in support of their contentions that since no proceedings were pending when penalty was initiated u/s 271 D of the Act, the initiation of penalty itself was bad in law. However, the ld. CIT(A) rejected these contentions in following terms:
"2.1 I have carefully considered the facts of the case and the submissions of the A R. However, I am not convinced with the arguments of the A R. and as I find that initially the ITO Ward 8(2) issued a letter on 13-2-1006, copy of which has been filed by the A. R. at page 9 of the paper book. It is noticed that in the said letter the appellant was asked to confirm whether the receipt of money was in cash and nowhere in the said letter the A.O. has mentioned the provisions of section 271D of the Act nor the appellant was asked to showcause why penalty should not be levied, therefore, it can not be said that the same was a showcause notice nor it can be said that penalty proceedings u/s 271 (1) (D) were initiated by that letter dated 13-2-2006. The showcause notice was issued by the Addl. CIT on 18-03-2008 as mentioned in para 2 of the impugned order. Therefore I hold that the order of penalty passed u/s. 271D was within the time limit prescribed as per provisions of I. T. Act and no interference whatsoever is called for. This ground of the appellant is dismissed. As regards the contention of the A. R. that no proceedings were pending when the penalty proceedings u/s. 271D were initiated, the case laws cited by the A. R. are on different facts. In the case of Sharda Educational Trust V. ACIT (Agra), the ITAT observed that penalty proceedings should have been initiated during the course of assessment proceedings or some other proceedings. In the case of Keshu Ramsay cited by the A. R., it was a case of processing of return u/s. 143(1) and there was no scrutiny assessment, thus no proceedings were pending. It has been held in that case that some proceedings referred in section 275 of the I. T. Act need not be assessment proceedings as the legislature has not used the words "assessment proceedings". It has been held by the courts that appeal ITA No.929/Ahd/2009 5 Softouch Hygiene Products (Mkt.) Ltd.
proceedings are continuation of assessment proceedings as it has been held so in Omprakash Bagaria 287 ITR 523 (MP). Hence as appeal proceedings were pending in this case, it can not be said that no proceedings were pending at the time of initiation of penalty u/s. 271D of the I. T. Act. Hence this contention of the A. R. is rejected.
4. As regards merits, the ld. CIT(A) cancelled the penalty holding as under:
3.2. The AR of the appellant, during the course of appellate proceedings submitted that there was no breach of section 271D r. w. s. 269SS of the Act as the said accounts of the Directors were neither deposit accounts nor loan accounts but were current accounts and this fact has not been contradicted by the Addl. CIT. The Addl. CIT according to the A. R. has not disputed the facts of the letters dated 13-3-2006 & 28-3-2008 filed by the appellant and has not controverted the fact that those accounts were current accounts as claimed by the appellant. The A R. also submitted that the company and the Directors are one and the same person and not third parties and since the accounts were current accounts, the appellant bonafidely believed that provisions of Sec. 269SS were not applicable in its case and this was a reasonable cause. Hence, the A. R. submitted that penalty levied u/s. 271D was illegal and be canceled. For the contention that the company and the Directors are one and the same person and hence receipt from a director cannot be considered as a deposit or loan u/s.269SS, th8e A. R. relied upon the following decisions:
i) Sharda Educatinal Trust 2005-06) BCAJ-Vol-39A-Part-1-16)Agra)
ii) Ebers Pharmaceuticals Ltd. V. ACIT (2004) BCAJ-vol-37-part 4- 375(Mum)
iii) Mangala Builders Pvt. Ltd. 9 SOT 23 (Bang) (URO)
iv) Premier Art Silk Processor Pvt. Ltd. (2004) Ahd. C. A. Journal, vol-
27-part-11-627 (Ahd) For the contention that under the companies (Acceptance of Deposits) Rules 1975, under rule 2(b)(ix) deposits do not include any amount received from a director, the A. R. relied upon decision of CIT V. Idhyam Publications Ltd. -285 ITR 221 (Mad).
It was further submitted that the A. O. has verified all the transactions and accepted the same as genuine. The A. R. relied upon the following ITA No.929/Ahd/2009 6 Softouch Hygiene Products (Mkt.) Ltd.
decisions for the contention that penalty should not be levied on ground that the transactions are genuine, and there is bonafide belief and reasonable cause;
i) Shreenath Builders V. DCIT (Ahd) 111 Taxman Mag 142
ii) Star Electroplaters V. ITO 15 SOT 28 (Ahd)
iii) Omec Engineers V. CIT 294 ITR 599 (Jharkhand)
iv) CIT V. Laxmi Trust Co. 303 ITR 99 (Mad)
v) CIT V. Bhagwati Prasad Bajoria 263 OTR 487 (Gau)
vi) Addl. CIT V. M/s. Maha Developers (Ahd) dated 7-7-2006 in I.T.A.
NO.1113/Ahd/2002.
It was submitted that there was no finding in the order that the explanation offered by the appellant was false of not bonafide and there was also no finding in the order that those accounts were either deposit accounts or loan accounts and there was breach of provisions of Sec. 269SS r. w. s. 271D of the Act. In support of this contention, the A. R. relied upon the decision of Motilal & Co. V. ITO reported in 102 Taxman 108 (Ahd). The AR therefore, contended that the appellant had not committed any default or violation of sec. 269SS, which attracts levy of penalty u/s. 271D of the Act and therefore, the penalty levied may be deleted.
3.3 I have carefully considered the facts of the case as well as the submissions of the A. R. of the appellant and the various case laws relied upon. It is a fact that the appellant received amounts on various dates from three Directors. However, as explained by the A. R. of the appellant, there was no other course of action than to withdraw the money from the individual account of the Director with HDFC Bank at Ahmedabad and deposit the same in his account at Delhi branch, so as to open a branch at Delhi, as there was no provision with HDFC Bank in the case of the company for transferring the amounts from Ahmedabad to Delhi. It is further seen that the other amounts received from the directors were on various dates in small amounts for meeting the expenses for staff at Nagpur, Bombay and Goa offices. Further, the appellant has also furnished the details of amounts received from other two Directors on various dates. I find force in the contention of the appellant that the accounts maintained by the Directors are current accounts and the advances received are not loans/deposits so as to attract provisions of section 269SS of the I. T. Act. Further the appellant had bonafide belief that provisions of section 271D are not applicable. By following the case laws, relied upon by the A. R., I am of the view that there was a reasonable cause in accepting amounts other than by a/c. payee cheque/draft, and the appellant had bonafide belief that the provisions of Sec. 271D are not applicable, because the amounts have been received by the company from the Directors by withdrawing the same from their accounts maintained with HDFC Bank, Delhi. Further the default if any is ITA No.929/Ahd/2009 7 Softouch Hygiene Products (Mkt.) Ltd.
of technical and venial nature. In the light of the above discussions, I hold that the appellant did not commit any default while accepting the amount in cash from three Directors of the company, so as to attract penalty u/s. 271D of the I. T. Act, hence I direct the A. O. to delete the penalty levied in this case to the tune of Rs.2,25,710/-."
4. The Revenue is now in appeal against the foresaid findings of the learned CIT(A) in para 3.3 of the impugned order while the assessee in his CO raised grounds against the findings of the ld. CIT(A) in para 2.1 of the said order. At the outset, the learned AR on behalf of the assessee, while submitting a copy of decision in the case of CIT Vs. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad) pointed out that the amounts received from the Managing Director/Directors of the company, being not loans or deposits, do not come under the purview of provisions of section 269SS of the Act. On the other hand, the learned DR did not dispute these submissions of the learned AR.
5. We have heard rival submissions and gone through the facts of the case as also the decisions relied upon . Before proceeding further, we may have a look at the relevant provisions of sec. 269SS of the Act, which read as under:
" No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,-
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:
.....................................................................................................................................................ITA No.929/Ahd/2009 8
Softouch Hygiene Products (Mkt.) Ltd.
Explanation: For the purpose of this section,
(iii) 'Loan or deposit' means loan or deposit of money."
5.1 The aforesaid provisions of s. 269SS say that if the stipulated amount of loan or deposit is otherwise than by crossed cheque or account payee bank draft, there is a violation of the said provisions. In the case under consideration, the ld. CIT(A) concluded as regards amount of Rs. 1,58,000/- received from the MD that there was no other course of action than to withdraw the money from the individual account of the Director with HDFC Bank at Ahmedabad and deposit the same at Delhi branch, so as to open a branch at Delhi, as there was no provision with HDFC Bank in the case of the company for transferring the amounts from Ahmedabad to Delhi. The remaining amounts are stated to have been brought in by the directors for meeting various expenses for staff at Nagpur, Bombay and Goa offices. There is nothing on record to show that these transactions were attached with certain conditions or stipulation as to period of repayment, rate of interest, manner of repayment, etc. so as to treat the said transactions as loan or deposit. Revenue have not placed before us any material, rebutting the findings of facts recorded by the ld. CIT(A). Since there is nothing on record to suggest that the transactions are in the nature of loan or deposit, apparently, the provisions of section 269SS are not attracted. The meaning of "
deposit " and " loan " has been explained on page 8454 of the Chaturvedi and Pithisaria's Income-tax Law. Fifth Edition, Volume 5, as under:
" 'Deposit' and 'loan'- these two are not identical in meaning. - It is true that both in the case of a loan and in the case of a deposit there is a relationship of a debtor and a creditor between the party giving money and the party receiving money. But in the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money - the benefit normally being earning of interest from a party who customarily accepts deposits. Deposits could also be for safe-keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person who lends the money may also stand to gain thereby by earning interest on the amount lent. Ordinarily, though not always, in ITA No.929/Ahd/2009 9 Softouch Hygiene Products (Mkt.) Ltd.
the case of a deposit, it is the depositor who is the prime mover while in the case of a loan, it is the borrower who is the prime mover. The other and more important distinction is in relation to the obligation to return the amount so received. In the case of a deposit which is payable on demand, the deposit would become payable when a demand is made. In the case of a loan, however, the obligation to repay the amount arises immediately on receipt of the loan. It is possible that in case of deposits which are for a fixed period or loans which are for a fixed period, the point of repayment may arise in a different manner. But by and large, the transaction of a loan and the transaction of making a deposit are not always considered identical. "
In the light of aforesaid distinction between loan and deposit, especially when there is nothing to suggest the aforesaid transactions are in the nature of loan or deposit, we are of the opinion that provisions of sec. 269SS are not attracted in this case.
5.2 We find that Hon'ble Madras High Court in similar circumstances, held as under:
"The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated September 29, 1997, and in that letter he explained that the amount received from Mr. S.V.S. Manian had been shown as "unsecured loan from directors" in the balance-sheet. As per the Companies Act, under the Companies (Acceptance of Deposits) Rules, 1975, under rule 2(b)(ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore the transaction between the appellant and the director cum shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction.
In the foregoing conclusions, we are of the view that since the said transaction does not fall within the meaning of loan or advance, there is no violation of section 269SS of the Income-tax Act."
5.3 In view of the foregoing, we have no hesitation in upholding the findings of the ld. CIT(A) in para 3.3 of the impugned order.Therefore, ground no. 1 in the appeal of the Revenue is dismissed.
6. Ground nos. 2 & 3 in the appeal of the Revenue, being general in nature, do not require any separate adjudication and are ,accordingly, dismissed.
ITA No.929/Ahd/2009 10Softouch Hygiene Products (Mkt.) Ltd.
7. Since grounds raised in the cross-objection were not pressed by the ld. AR on behalf of the assessee at the time of hearing, therefore, these grounds are dismissed as withdrawn.
8. In the result, appeal of the Revenue as well as cross-objection of the assessee, are dismissed .
Order pronounced in Open Court on 27th July, 2009.
Sd/- Sd/- (MAHAVIR SINGH) (A.N.PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Ahmedabad Date : 27-7-2009 Copy of the order forwarded to: 1. The assessee
2. Income Tax Officer,Ward 8(2),4th floor Ajanta Commercial Centre, 'A' Wing, Ashram Road,Ahmedabad
3. CIT(A)-XIV,Ahmedabad
4. The CIT concerned
5. The D.R. ITAT, Ahmedabad,
6. Guard File BY ORDER DR / AR, ITAT, Ahmedabad