Loan acceptance and repayment through journal entries & penalty provision u/s 271D

Loan acceptance and repayment through journal entries & penalty provision u/s 271D




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Loan acceptance and repayment through journal entries & penalty provision u/s 271D

 
 
 
Section 271D provides for levy of penalty if the loan amount of Rs. 20,000/- or more is accepted or repaid by any mode other than account payee instruments or digital mode. The question arises as to whether the acceptance or repayment by journal entries would attract the penalty u/s 271D or not?
 
This was the issue involved before ITAT Mumbai in the case of DCIT Vs Macrotech Developers Ltd. (successor to M/s. Bellissimo Crown Buildmart Pvt. Ltd wherein there were transactions which were carried out by journal entries. It was carried out as an act of assigning of receivables or extinguishment of mutual liability of paying / receiving the amounts by the assessee and its sister concern and its sister concerns to third parties.
AO has levied penalty u/s 269SS in such cases. The ld. CIT(A) held that even assuming that this act is in contravention of provisions of Section 269SS of Act, there is reasonable cause for doing the same and therefore, would not attract the provisions of Section 269SS of the Act. The ld. CIT(A) also took cognizance of the fact that the expression “reasonable cause” has not been defined in the Act, but it has got a wider connotation and thus a sufficient cause. He placed reliance on the decision of the Hon‟ble Supreme Court in the case of Azadi Bachao Andolan vs. Union of India reported in 252 ITR 471 wherein it was held that reasonable cause is a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances without negligence or in connection or want of bonafide. The ld. CIT(A) also placed reliance on the decision of the Hon‟ble Delhi High Court in the case of Woodward Governor India Pvt. Ltd., vs. CIT reported in 118 Taxman 433 wherein the expression “reasonable cause” was described as a probable cause and it means “ an honest belief founded upon the reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do.”
CIT(A) also placed reliance on the decision of the Jurisdictional High Court in the case of Ajinath Hitech Builders Pvt. Ltd, and others (Group company of the assessee) dated 06/02/2018 in ITA Nos. 171, 172, 202, 203, 218 & 2019/Mum/2015 wherein it was clearly held that since the decision of the Hon‟ble Bombay High Court in the case of Triumph International Finance (I) (345 ITR 270) was rendered on 12/06/2012, it is to be held for prior to that, the assessee was under a bonafide belief that the transactions through journal entries were not hit by the provisions of Section 269SS and 269T of the Act. Hence, there was a reasonable cause available to the assessee within the meaning of Section 273B of the Act. The ld. CIT(A) also gave a categorical finding that neither the ld. AO nor the Addl. CIT (who levied the penalty) had made out a case of any malafide intention on the part of the assessee nor any adverse finding has been brought on record with regard to journal entries passed by the assessee in its books for adjustment / assigning of receivables. Accordingly, the ld. CIT(A) deleted the levy of penalty u/s.271D of the Act. Aggrieved, the Revenue is in appeal before us.
ITAT held as under:
We find the entire gamut of the case had been dealt in detail by the ld. CIT(A) in his order which have already been narrated hereinabove. The same are not reiterated herein for the sake of brevity as they remain undisputed. We find from the aforesaid factual narration and the basis of passing journal entries by the assessee in its books that these entries are merely passed for squaring up of transactions or adjustment of entries. This categorical finding given by the ld. CIT(A) in his order has not been controverted by the Revenue before us. Yet another categorical finding recorded by the ld. CIT(A) which remain uncontroverted by the Revenue before us is that these transactions were not made by the assessee with a malafide intent to evade tax and that there is no evidence brought on record to even remotely suggest that the assessee company by passing the aforesaid journal entries had sought to introduce its unaccounted income into the system. We find that these are genuine transactions carried out in the normal course of the business of the assessee.
Hence, if the aforesaid transactions are looked into from the perspective of the object and intention behind introduction of provisions of section 269SS and 269T of the Act , then the provisions of section 269SS and 269T of the Act cannot be made applicable to the facts of the instant case.
Moreover, from the detailed explanation of the aforesaid transactions together with the purpose for which those journal entries were passed, it could be safely concluded that these entries neither reflect any receipt of loan nor repayment of loan.

 

The copy of the order is as under:
ITAT Mumbai
DCIT 
Vs
Macrotech Developers Ltd.
(successor to M/s. Bellissimo Crown Buildmart Pvt. Ltd.
ITA No. 3038/Mum/2019
Order Dated 25/11/2021

 

These appeals in ITA Nos. 3038/M um/2019, 3046/Mu m/2019, 3049/Mum/2019 & 4054/Mum/2019 for A.Y.2014-15 & 2015-16 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-49, M umbai in appeal No.CIT(A)-49/IT-84/2017-18, CIT(A)-49/IT­85/DC.CC.7(3)/20 17-18, CIT(A)-49/IT-81/DC.CC. 7(3)/2017- 18 & CIT(A)- 49/IT-***/****_** respectively dated 12/02/2019, 25/02/2019 & 05/03/2019 (ld. CIT(A) in short) in the matter of imposition of penalty u/s.271D & 271E respectively of the Income Tax Act, 1961 (hereinafter referred to as Act).
All the four appeals are taken up together and disposed of by this common order for the sake of convenience.
ITA No.3038/Mum/2019 (A.Y.2014-15)
  1. The only effective issue involved in this appeal is as to whether the CIT(A) was justified in deleting the levy of penalty u/s.271D of the Act in the facts and circumstances of the instant case.
  2. We have heard the rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of construction and development of real estate. The scrutiny assessment for the A.Y.2014-15 was completed u/s.143(3) of the Act wherein the ld. AO observed that in respect of loan transactions, it was noticed that the same were taken / settled otherwise done by account payee cheques, for which an explanation was sought for. The assessee filed an explanation for each of the entries as under:-
SN
Name of the sister concern
Amount
(Credits) (Rs.)
1.
Jawala Real Estate Private Limited
27,333
2.
Shreeniwas Cotton Mills Limited
31,95,703
3.
Lodha Developers Private Limited
33,78,671
TOTAL
66,01,707
3.1. The transactions were explained by the assessee as under:-
  • Jawala Real Estate Pvt. Ltd. a sister concern of the assessee had given advance to employee for expenses to be incurred at project being developed by assessee. However, bills received were for the project being developed in Sahajanand Hi-Tech Constructions Pvt. Ltd. This adjustment was given effect by way of the above mentioned journal entry.
  • Alakh Advertising and Publicity (AAP) is a vendor which provides service of advertisement on hoardings. The assessee had amount payable to AAP on account of advertisements. AAP has booked flats in project being developed by Shreeniwas Cotton Mills Limited (SNCML), a sister concern of the assessee. The amount payable to AAP by the assessee was adjusted against the amount receivable from flat booking in SNCML.
  • HT Media Ltd. is a vendor which provides advertisement service in The assessee had amount payable to HT Media Ltd. on account of advertisement. HT Media Ltd. had received advance from Lodha Developers Pvt Ltd, a holding company of the assessee. Amount payable to HT Media Ltd by the assesses was adjusted against the advance paid by Lodha Developers Pvt Ltd.
  • Maninder Chhabra is an employee of the assessee company who has booked flat in project being developed by Lodha Developers Ltd., a holding company of the assessee company. The amount payable to him was adjusted against the amount receivable from flat booking in Lodha Developers Pvt Ltd.
  • M/s Mangal Paper Mart (MPM) is a vendor which provides advertisement and publicity material, printing of visiting cards etc. The assessee had amount payable to MPL on account of printing & advertisements. MPL has booked flats in project being developed by Lodha Novel Buildfarms Private Limited, a sister concern of the The amount payable to MPL by the assessee was adjusted against the amount receivable from flat booking in LNBPL.
3.2. The ld. AO while completing the scrutiny assessment u/s.143(3) of the Act accepted the genuineness of the aforesaid transactions and also accepted the fact that these entries were passed by the assessee company in the normal course of its business. Accordingly, the ld AO did not proceed to make any addition with regard to the aforesaid transactions. Even the claim of deduction on account of advertisement expenses incurred by the assessee company through the passing of adjustment entries as detailed above, were duly allowed as deduction by the ld. AO. After the completion of assessment, the ld. AO forwarded the papers to the ld. Addl. CIT for initiating penalty proceedings u/s.271D of the Act, as, in his opinion, the aforesaid adjustment entries were passed by way of journal entries which are in violation of provisions of Section 269SS of the Act. Accordingly, the ld. Addl. CIT proceeded to levy the penalty u/s.271D of the Act amounting to Rs.66,01,707/- being the value of credit entries of the transactions with aforesaid three parties. The assessee submitted that there is no violation of provisions of Section 269SS of the Act in respect of the aforesaid transactions. It was specifically pointed out that the assessee had passed journal entries for creation / assigning of debt and liabilities and that the creation / assigning of debt and liabilities vide journal entries does not attract the provisions of Section 269SS of the Act. The ld. CIT(A) gave a categorical finding that this is not a case of loan or deposit taken or repaid and that it is only a case of assigning of receivables. The ld. CIT(A) observed that M/s. HT Media Ltd. (HTML) entered into an agreement with Lodha Developers Pvt. Ltd.(LDPL) according to which 75% of the value of invoices raised by HTML for advertising services have to be adjusted against the part payment by LDPL to HTML and the balance amount of 25% is to be paid by the assessee company. Accordingly, the assessee company transferred 75% of the value of advertisement services to LDPL for adjustment against the down payment paid by LDPL to HTML and the balance amount was paid through proper banking channels. M/s. Mangal Paper Mart (MPM) entered into an agreement with Lodha Novel Buildfarms Pvt Ltd. (LNBPL) according to which 50% of the value of advertisement services in case of each invoice is to be adjusted against the flat booked by MPM in LNBPL and the balance amount of the invoice is to be paid.
Accordingly, the assessee company transferred 50% of the value of advertisement services to LNBPL for adjustment against the flat booked in LNBPL and the balance amount was paid through proper banking channels. Mr. Maninder Chhabra is an employee of the assessee company who booked a flat in a project which was developed by Lodha Developers Pvt. Ltd., the amounts payable to Mr. Maninder Chabbra on account of vested employee benefits were adjusted against the amounts receivable from flat booking in Lodha Developers Pvt. Ltd. M/s. Alakh Advertising & Publicity Pvt Ltd (AAPPL) entered into an agreement with Shreeniwas Cotton Mills Ltd (SNCML) according to which 50% of the value of advertisement services in case of each invoice is to be adjusted against the flat booked by AAPPL in SNCML and the balance amount of the invoice is to be paid. Accordingly, the assessee company transferred 50% of the value of advertisement services to SNCML for adjustment against the flat booked in SNCML and the balance amount was paid through proper banking channels. Jawala Real Estate Pvt. Ltd. is a sister concern of the assessee which had given advance to employee for expenses to be incurred at the project developed by the assessee. However, the bills received were for the project being developed in Sahajanand Hi-Tech Constructions Pvt. Ltd. Therefore, adjustment was given effect by way of a journal entry.
3.3. The ld. CIT(A) placed reliance on the decision of the Hon‟ble Jurisdictional High Court in the case of CIT vs. Triumph International (I) Finance Ltd., reported in 345 ITR 270 wherein it was held that the transactions through journal entries are also hit by the provisions of 269SS and 269T of the Act. The decision of the Hon‟ble Bombay High Court rendered on 12/06/2012 is significant and prior to this judgment, there were series of consistent decisions on Sections 269SS and 269T of the Act holding that mere passing of journal entries will not amount to receipts / payments otherwise done by account payee cheques or draft and accordingly, the same were not in contravention of provisions of 269SS and 269T of the Act and consequently no penalty u/s.271D and 271E of the Act could be levied for the same respectively. The Hon‟ble Jurisdictional High Court held that the reliance placed on these series of consistent decisions of 269SS and 269T of the Act constituted reasonable cause and accordingly, it held that though journal entries fall within the ambit of provisions of 269SS and 269Tof the Act, still in view of series of consistent decisions rendered on the said subject, the Hon‟ble High Court held that the same would constitute reasonable cause within the meaning of Section 273B of the Act as assessee was made to believe by way of series of decisions rendered on the subject. The ld. CIT(A) also placed reliance on the Mumbai Tribunal decision in the case of Lodha Builders Pvt. Ltd.,(Group company of the assessee on the very same issue) wherein this Tribunal had given seven instances of journal entries which could be considered as a reasonable cause within the meaning of Section 273B of the Act. The same are as under:-
a) Alternate mode of raising funds
b) Assignment of receivables
c) Squaring up of transactions
d) Operational efficiencies / MIS purpose
e) Consolidation of family member debts
f) Correction of errors g) Loans taken in cash
3.4. The ld. CIT(A) gave a categorical finding that the transactions carried out with the aforesaid three parties i.e. Jawala Real Estate Pvt. Ltd., Shreeniwas Cotton Mills Limited & Lodha Developers Private Limited, which are subject matter of levy of penalty u/s.271D of the Act were carried out as an act of assigning of receivables or extinguishment of mutual liability of paying / receiving the amounts by the assessee and its sister concern and its sister concerns to third parties. The ld. CIT(A) held that even assuming that this act is in contravention of provisions of Section 269SS of Act, there is reasonable cause for doing the same and therefore, would not attract the provisions of Section 269SS of the Act. The ld. CIT(A) also took cognizance of the fact that the expression “reasonable cause” has not been defined in the Act, but it has got a wider connotation and thus a sufficient cause. He placed reliance on the decision of the Hon‟ble Supreme Court in the case of Azadi Bachao Andolan vs. Union of India reported in 252 ITR 471 wherein it was held that reasonable cause is a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances without negligence or in connection or want of bonafide. The ld. CIT(A) also placed reliance on the decision of the Hon‟ble Delhi High Court in the case of Woodward Governor India Pvt. Ltd., vs. CIT reported in 118 Taxman 433 wherein the expression “reasonable cause” was described as a probable cause and it means “ an honest belief founded upon the reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do.” Thereafter, the ld. CIT(A) also placed reliance on the decision of the Jurisdictional High Court in the case of Ajinath Hitech Builders Pvt. Ltd, and others (Group company of the assessee) dated 06/02/2018 in ITA Nos. 171, 172, 202, 203, 218 & 2019/Mum/2015 wherein it was clearly held that since the decision of the Hon‟ble Bombay High Court in the case of Triumph International Finance (I) (345 ITR 270) was rendered on 12/06/2012, it is to be held for prior to that, the assessee was under a bonafide belief that the transactions through journal entries were not hit by the provisions of Section 269SS and 269T of the Act. Hence, there was a reasonable cause available to the assessee within the meaning of Section 273B of the Act. The ld. CIT(A) also gave a categorical finding that neither the ld. AO nor the Addl. CIT (who levied the penalty) had made out a case of any malafide intention on the part of the assessee nor any adverse finding has been brought on record with regard to journal entries passed by the assessee in its books for adjustment / assigning of receivables. Accordingly, the ld. CIT(A) deleted the levy of penalty u/s.271D of the Act. Aggrieved, the Revenue is in appeal before us.
3.5. We find the entire gamut of the case had been dealt in detail by the ld. CIT(A) in his order which have already been narrated hereinabove. The same are not reiterated herein for the sake of brevity as they remain undisputed. We find from the aforesaid factual narration and the basis of passing journal entries by the assessee in its books that these entries are merely passed for squaring up of transactions or adjustment of entries. This categorical finding given by the ld. CIT(A) in his order has not been controverted by the Revenue before us. Yet another categorical finding recorded by the ld. CIT(A) which remain uncontroverted by the Revenue before us is that these transactions were not made by the assessee with a malafide intent to evade tax and that there is no evidence brought on record to even remotely suggest that the assessee company by passing the aforesaid journal entries had sought to introduce its unaccounted income into the system. We find that these are genuine transactions carried out in the normal course of the business of the assessee. Hence, if the aforesaid transactions are looked into from the perspective of the object and intention behind introduction of provisions of section 269SS and 269T of the Act , then the provisions of section 269SS and 269T of the Act cannot be made applicable to the facts of the instant case. Moreover, from the detailed explanation of the aforesaid transactions together with the purpose for which those journal entries were passed, it could be safely concluded that these entries neither reflect any receipt of loan nor repayment of loan.
3.6. We find from pages 5-7 of the impugned penalty order u/s.271D of the Act that assessee has given complete explanation of the transactions before the ld. Addl. CIT by way of detailed explanation together with the purpose of passing a journal entry including relevant journal entry passed in the books of accounts of the assessee company. The same are not reiterated for the sake of brevity herein as they are already forming part of the records. Hence it could be safely concluded that these entries were passed out of business constraints and exigencies and for administrative convenience with no malafide intent to evade payment of tax. In our considered opinion, this business constraint and exigency and administrative convenience itself constitutes reasonable cause within the meaning of section 273B of the Act . Hence no penalty u/s 271D and 271E of the Act could be invoked for the same. In this regard, we find that the Hon‟ble Jurisdictional High Court had addressed the similar issue whether the aforesaid behaviour of the assessee would constitute reasonable cause u/s 273B of the Act to escape from the rigors of applicability of provisions of section 269SS and 269T of the Act in the case of CIT vs Triumph International Finance (I) Ltd reported in 208 Taxman 299 (Bom). The relevant operative portion of the said decision is reproduced hereunder:-
“23. The expression ‘reasonable cause’ used in Section 273B is not defined under the Act. Unlike the expression ‘sufficient cause’ used in Section 249(3), 253(5) and 260A(2A) of the Act, the legislature has used the expression ‘reasonable cause’ in Section 273B of the Act. A cause which is reasonable may not be a sufficient cause. Thus, the expression ‘reasonable cause’ would have wider connotation than the expression ‘sufficient cause’. Therefore, the expression ‘reasonable cause’ in Section 2 73B for non-imposition of penalty under Section 271E would have to be construed liberally depending upon the facts of each case.
  1. In the present case, the cause shown by the assessee for repayment of the loan/deposit otherwise than by account-payee cheque/bank draft was on account of the fact that the assessee was liable to receive amount towards the sale price of the shares sold by the assessee to the person from whom loan/deposit was received by the assessee. It would have been an empty formality to repay the loan/deposit amount by account-payee cheque/draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted in the regular assessment. There is nothing on record to suggest that the amounts advanced by Investment Trust of India to the assessee represented the unaccounted money of the Investment Trust of India or the assessee. The fact that the assessee company belongs to the Ketan Parekh Group which is involved in the securities scam cannot be a ground for sustaining penalty imposed under Section 271E of the Act if reasonable cause is shown by the assessee for failing to comply with the provisions of Section 269T. It is not in dispute that settling the claims by making journal entries in the respective books is also one of the recognized modes of repaying loan/deposit. Therefore, in the facts of the present case, in our opinion, though the assessee has violated the provisions of Section 269T, the assessee has shown reasonable cause and, therefore, the decision of the Tribunal to delete the penalty imposed under Section 271E of the Act deserves acceptance.
  2. In the result, we hold that the Tribunal was not justified in holding that repayment of loan/deposit through journal entries did not violate the provisions of Section 269T of the Act. However, in the absence of any finding recorded in the assessment order or in the penalty order to the effect that the repayment of loan/deposit was not a bonafide transaction and was made with a view to evade tax, we hold that the cause shown by the assessee was a reasonable cause and, therefore, in view of Section 273B of the Act, no penalty under Section 271E could be imposed for contravening the provisions of Section 269T of the Act.
3.7. We also find that the Hon ‟ble Delhi High Court in the case of CIT vs Worldwide Township Projects Ltd reported in 229 Taxman 560 (Del) in the similar set of facts and circumstances had categorically observed as under:-
  1. A plain reading of the aforesaid Section indicates that (the import of the above provision is limited) it applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. The ambit of the Section is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. The object of the Section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the explanation to Section 269SS of the Act which defines loan or deposit to mean “loan or deposit of money”. The liability recorded in the books of accounts by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of accounts, is clearly outside the ambit of the provision of Section 269SS of the Act, because passing such entries does not involve acceptance of any loan or deposit of money. In the present case, admittedly no money was transacted other than through banking channels. M/s PACL India Ltd. made certain payments through banking channels to land owners. This payment made on behalf of the assessee was recorded by the assessee in its books by crediting the account of M/s PACL India Ltd. In view of this admitted position, no infringement of Section 269SS of the Act is made out. This Court, in the case of Noida Toll Bridge Co. Ltd. (supra), considered a similar case where a company had paid money to the Government of Delhi for acquisition of a land on behalf of the assessee therein. The Assessing Officer levied a penalty under Section 271D of the Act for alleged violation of the provisions of Section 269SS of the Act since the books of the assessee reflected the liability on account of the lands acquired on its behalf. On appeal, the CIT (Appeals) affirmed the penalty. The order of the CIT was successfully impugned by the assessee before the ITAT. On appeal, this Court held as under:
“While holding that the provisions of Section 269SS of the Act were not attracted, the Tribunal has noticed that: (i) in the instant case, the transaction was by an account payee cheque, (ii) no payment on account was made in cash either by the assessed or on its behalf, (iii) no loan was accepted by the assessee in cash, and (iv) the payment of Rs. 4.85 crores made by the assessee through IL & FS, which holds more than 30 per cent. of the paid-up capital of the assessee, by journal entry in the books of account of the assessed by crediting the account of IL & FS.
Having regard to the aforenoted findings, which are essentially findings of fact, we are in complete agreement with the Tribunal that the provisions of section 269SS were not attracted on the facts of the case. Admittedly, neither the assessee nor IL & FS had made any payment in cash. The order of the Tribunal does not give rise to any question of law, much less a substantial question of law.
We accordingly decline to entertain the appeal. Dismissed.”
  1. In our view, the present appeal is bereft of any merit and is, accordingly,
3.8. We find that though the ultimate finding recorded by the Hon‟ble Delhi High Court had been subsequently reversed by the decision of Hon‟ble Jurisdictional High Court in the case of Triumph International supra, still the observations made by the Hon‟ble Delhi High Court on the genuineness of the transactions in the ordinary course of business and the element of „reasonable cause‟ thereon, would still remain applicable and would have more persuasive value.
3.9. In view of our aforesaid observations and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the ld. CIT(A) had rightly held that no penalty u/s.271D of the Act could be levied in respect of transactions with Jawala Real Estate Pvt. Ltd., Shreeniwas Cotton Mills Limited & Lodha Developers Private Limited totaling to Rs.66,01,707/- in the facts and circumstances of the instant case. Accordingly, the grounds raised by the Revenue are dismissed.
  1. In the result, appeal of the Revenue in ITA No.3038/Mum/2019 is dismissed.
ITA No.3046/Mum/2019 (A.Y.2014-15)
  1. The only effective issue involved in this appeal is as to whether the CIT(A) was justified in deleting the levy of penalty u/s.271E of the Act in the facts and circumstances of the instant case.
  2. We have heard rival submissions and perused the materials available on record. The scrutiny assessment for the A.Y.2014-15 was completed u/s.143(3) of the Act wherein the ld. AO observed that in respect of loan transactions, it was noticed that the same were taken / settled otherwise than by account payee cheques, for which an explanation was sought for. The assessee filed an explanation for each of the entries as under:-
Sr.
Name of the Sister Concerns
Debit (Rs.)
1
Sanathnagar Enterprises Ltd (SEL )
4,16,589
2
Shreeniwas Cotton Mills Limited (SNCML )
1,49,18,965
3
National Standard India Ltd (NSIL)
15,40,133
4
Sahajanand Hi Tech Construction Pvt Ltd (SHTCPL)
31,88,759
TOTAL
2,00,64,445/-
6.1. The transactions were explained by the assessee as under:-
“M/s Bennett Coleman & Co. (BCCL), is a vendor through which advertisements are provided in the newspaper. During the year under consideration M/s. Madison Communication Pvt Ltd, broker of BCCL raised invoices on the SEL, SNCML, NSIL and SHTCPL in respect of advertisement services provided during the year by BCCL. As per the term of the advertisement agreement entered into between BCCL and assessee Company, 66.67% of the value of advertisement services in case of each invoice is to be adjusted against the down payment made by LCBPL to BCCL of Rs.12,41,91,964/- and the balance amount of 33.33% is to be paid by the respective company on which the invoice is raised.
Accordingly, the SEL, SNCMP, NSIL and SHTCPL transferred 66.67% of value of advertisement services to LCBPL for adjustment against the down payment paid by LCBPL to BCCL and the balance amount was paid through proper banking channels. This adjustment was given effect by way of the above mentioned journal entry.
6.2. The ld. AO while completing the scrutiny assessment u/s.143(3) of the Act accepted the genuineness of the aforesaid transactions and also accepted the fact that these entries were passed by the assessee company in the normal course of its business. Accordingly, the ld AO did not proceed to make any addition with regard to the aforesaid transactions. Even the claim of deduction on account of advertisement expenses incurred by the assessee company through the passing of adjustment entries as detailed above were duly allowed as deduction by the ld. AO. After the completion of assessment, the ld. AO forwarded the papers to the ld. Addl. CIT for initiating penalty proceedings u/s.271E of the Act, as, in his opinion, the aforesaid adjustment entries were passed by way of journal entries which are in violation of provisions of Section 269T of the Act. Accordingly, the ld. Addl. CIT proceeded to levy the penalty u/s.271E of the Act amounting to Rs.2,00,64,445/- being the value of the transactions with aforesaid four parties. The assessee submitted that there is no violation of provisions of Section 269T of the Act in respect of the aforesaid transactions. It was specifically pointed out that the assessee had passed journal entries for creation / assigning of debt and liabilities and that the creation / assigning of debt and liabilities vide journal entries does not attract the provisions of Section 269T of the Act. The ld. CIT(A) gave a categorical finding that this is not a case of loan or deposit taken or repaid and that it is only a case of assigning of receivables. The CIT(A) observed that the assessee had entered into an advertisement contract with M/s. Bennett Coleman & Co. (BCCL) according to which the down payment in respect of advertisement services was to be made to BCCL. As and when invoices are raised by BCCL on the assessee or any of its group companies covered by the agreement, 66.67% of the same would be adjusted against the down payment made earlier by the assessee. Accordingly, the amount payable by Sanathnagar Enterprises Ltd, Shreeniwas Cotton Mills Limited, National Standard India Ltd and Sahajanand Hi-Tech Construction Pvt Ltd. to BCCL was adjusted against the down payment made by the assessee. This adjustment was given effect by way of a journal entry.
6.3. The ld. CIT(A) based on the same reasoning given by him while deleting the penalty u/s.271D of the Act for the A.Y.2014-15, proceeded to delete penalty u/s.271E of the Act also, by categorically holding that assessee indeed had sufficient reasonable cause within the meaning of section 273B of the Act while passing journal entries with a bonafide belief. Hence, there cannot be any levy of penalty u/s.271E of the Act in the facts and circumstances of the instant case.
6.4. We find the entire gamut of the case had been dealt in detail by the ld. CIT(A) in his order which have already been narrated hereinabove. The same are not reiterated herein for the sake of brevity as they remain undisputed. We find from the aforesaid factual narration and the basis of passing journal entries by the assessee in its books that these entries are merely passed for squaring up of transactions or adjustment of entries. This categorical finding given by the ld. CIT(A) in his order has not been controverted by the Revenue before us. Yet another categorical finding recorded by the ld. CIT(A) which remain uncontroverted by the Revenue before us, is that these transactions were not made by the assessee with a malafide intent to evade tax and that there is no evidence brought on record to even remotely suggest that the assessee company by passing the aforesaid journal entries had sought to introduce its unaccounted income into the system. We find that these are genuine transactions carried out in the normal course of the business of the assessee. Hence if the aforesaid transactions are looked into from the perspective of the object and intention behind introduction of provisions of section 269T of the Act , then the provisions of section 269T of the Act cannot be made applicable to the facts of the instant case. Moreover, from the detailed explanation of the aforesaid transactions together with the purpose for which those journal entries were passed, it could be safely concluded that these entries neither reflect any receipt of loan nor repayment of loan.
6.5. We find from pages 5-7 of the impugned penalty order u/s.271E of the Act that assessee has given complete explanation of the transactions before the ld. Addl. CIT by way of detailed explanation together with the purpose of passing a journal entry including relevant journal entry passed in the books of accounts of the assessee company. The same are not reiterated for the sake of brevity herein as they are already forming part of the records. Hence, it could be safely concluded that these entries were passed out of business constrains and exigencies and for administrative convenience with no malafide intent to evade payment of tax. In our considered opinion, these business constraints and exigencies and administrative convenience itself constitutes reasonable cause within the meaning of Section 273B of the Act. Hence, no penalty u/s.271E of the Act could be invoked for the same. In this regard, we find that the Hon‟ble Jurisdictional High Court had addressed the similar issue where the aforesaid behavior of the assessee would constitute reasonable cause u/s.273B of the Act to escape from the records of applicability of provisions of Section 269T of the Act in the case of Triumph International Finance(I) Ltd., reported in 345 ITR 270; the Hon‟ble Delhi High Court in the case of CIT vs Worldwide Township Projects Ltd., reported in 229 Taxman 560 which are already detailed hereinabove.
6.6. In view of our aforesaid observations and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the ld. CIT(A) had rightly held that no penalty u/s.271E of the Act could be levied in respect of transactions with Sanathnagar Enterprises Ltd (SEL), Shreeniwas Cotton Mills Limited (SNCML), National Standard India Ltd (NSIL) & Sahajanand Hi Tech Construction Pvt. Ltd., (SHTCPL) totaling to Rs.2,00,64,445/- in the facts and circumstances of the instant case. Accordingly, the grounds raised by the Revenue are dismissed.
  1. In the result, appeal of the Revenue in ITA No.3046/Mum/2019 for A.Y.2014-15 is dismissed.
ITA No.3049/Mum/2019 (A.Y.2014-15)
  1. The only effective issue involved in this appeal is as to whether the CIT(A) was justified in deleting the penalty u/s.271E of the Act in the facts and circumstances of the instant case.
  2. We have heard the rival submissions and perused the materials available on record. We find that assessee is engaged in the business of construction and development of real estate. The transactions for which penalty u/s.271E of the Act were levied by the ld.AO are as under:-
(i) Lodha Developers Pvt. Ltd.
Rs.1,17,58,427/-
(ii) Shreeniwas Cotton Mills Ltd.
Rs. 14,210/-
Rs.1,17,72,637/-
9.1. The assessee explained before the ld. AO as well as before the ld. Addl. CIT that M/s Brand Equities Treaties Ltd (BETL), is a vendor through which advertisement are provided. M/s Brand Equities Treaties Ltd(BETL) and M/s Macrotech Cnstructions Pvt Ltd (MCPL) (Merged into Bellissimo Hi-Rise Builders Pvt Ltd) entered into an advertisement agreement (Copy of Advertisement agreement is enclosed as Annexure -1).  As per the term of the advertisement agreement MCPL was to pay down payment in respect of advertisement services to be received from the BETL. Further, as and when the invoices are raised by BETL or by any of its brokers on the MCPL or any of its group companies as covered by the agreement, a certain proportion of the said invoice would be adjusted against the down payment made earlier and the balance amount of invoice after adjustment would be paid by the respective company on which the invoice is raised, Accordingly the amount payable by Lodha Developers Limited to BETL was adjusted against the down payment made by MCPL. This adjustment was given effect by way of the journal entry.
9.2. The Addl. CIT however, did not agree to the contentions of the assessee and proceeded to levy penalty u/s.271E of the Act amounting to Rs.1,17,72,637/-, as, according to him, the assessee by passing journal entries had violated the provisions of 269T of the Act. This was deleted by the ld. CIT(A) by repeating the same observations as were recorded by him in the case of M/s. Macrotech Developers Pvt. Ltd., (successor to Bellissimo Crown Buildmart Pvt.Ltd.,) which are narrated hereinabove.
Since, the facts are identical with ITA Nos.3046/Mum/2019 discussed hereinabove, the decision rendered thereon shall apply mutatis mutandis to this assessee for this A.Y.2014-15 also. Accordingly, the grounds raised by the Revenue are dismissed.
  1. In the result, appeal of the Revenue in ITA No.3049/Mum/2019 for A.Y.2014-15 is dismissed.
  2. The only effective issue involved in this appeal is as to whether the CIT(A) was justified in deleting the penalty u/s.271D of the Act in the facts and circumstances of the instant case.
  3. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of construction and development of real estate. The ld. Addl. CIT proceeded to levy penalty u/s.271D of the Act in respect of the following transactions:-
SN
Name of the sister concern
Amount (Credits)(Rs.)
1.
Lodha Developers Pvt. Ltd.,
4,72,84,144
2.
Palava Dwellers Pvt. Ltd.,
1,7,1579
TOTAL
4,74,55,723
12.1. The assessee explained the aforesaid transactions in the following manner:-
  • “M/s Bennett Coleman & Co. Ltd (BCCL), is a vendor through which advertisement are provided in the newspaper. During the year under consideration invoices were raised on the assessee company in respect of advertisement services provided during the year by BCCL. As per the term of the barter agreement (Copy of Barter agreement is enclosed as Annexure – l) entered into between BCCL and LPLDPL,66.67% of the value of advertisement services in case of each invoice (excluding commission and Service tax ) is to be adjusted against the flat booked by BCCL in LPLDPL and the balance amount of the invoice is to be paid. Accordingly the assessee Co. transferred 66.67% of value of advertisement services to LPLDPL for adjustment against the flat booked in LPLDPL by BCCL and the balance amount was paid through proper banking channels.
  • Niraj Khanna is a customer who had booked flat in the assessee Company as well as in Palava Dwellers Pvt Ltd, a sister concern of the assessee Company (The copy of the flat sale agreements in respect of sale of Flat to Niraj Khanna by assessee Co. is enclosed herein as Annexure – 2 and copy of sale agreement in respect of Flat booked in Palava Dwellers Pvt Ltd is enclosed as Annexure – 3).  During the year under consideration two flats booked by Niraj Khanna in the aassessee company was cancelled and the amount received by the assessee company in respect of cancelled flats was payable by the assessee company to Niraj Khanna. However since Niraj khanna, had also booked a flat in Palava Dwellers Pvt Ltd, sister concern of the aassessee Co., the said amount payable by assessee Co, to Niraj Khanna was adjusted against the consideration receivable by Palava Dwellers Pvt Ltd from Niraj Khanna. Accordingly, for squaring Up the mutual transactions, the amount payable by assessee company to Niraj Khanna was adjusted by passing the above journal entry. The Addl. CIT however, did not agree to the contentions of the assessee and proceeded to levy penalty u/s.271D of the Act amounting to Rs.474,55,723/- as according to him the assessee by passing journal entries had violated the provisions of 269SS of the Act. This was deleted by the ld. CIT(A) by repeating the same observations as were recorded by him in the case of M/s. Macrotech Developers Pvt. Ltd., (successor to Bellissimo Crown Buildmart Pvt.Ltd., which are narrated hereinabove.
12.2. Since, the facts are identical with ITA Nos.3038/Mum/2019 discussed hereinabove, the decision rendered thereon shall apply mutatis mutandis to this assessee for this A.Y.2014-15 also. Accordingly, the grounds raised by the Revenue are dismissed.
To sum up:
S.No.
ITA No.
AY
Appeal By
Result
1.  
3038/Mum/2019
2014-15
Revenue
Dismissed
2.  
3046/Mum/2019
2014-15
Revenue
Dismissed
3.  
3049/Mum/2019
2014-15
Revenue
Dismissed
4.  
4054/Mum/2019
2015-16
Revenue
Dismissed
Order pronounced on 25/ 11 /2021 by way of proper mentioning in the notice board.




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