ITO, Tirunelveli v. M/s. Eagle Book Centre, Tirunelveli

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI D BENCH CHENNAI. BEFORE SHRI.U.B.S. BEDI J.M. & SHRI. ABRAHAM P. GEORGE A.M. I.T.A. NOS. 1054 AND 1055/MDS/2010 ASSESSMENT YEARS: 2004-05 AND 05-06 THE INCOME TAX OFFICER WARD I (1) TIRUNELVELI. VS. M/S. EAGLE BOOK CENTRE 39 RAJA BUILDING TIRUNELVELI JUNCTION. [PAN:AABFE6247J] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.E.B. RANGAR AJAN JR. STANDING COUNSEL ASSESSEE BY : SHRI S. SRIDHAR ORDER PER U.B.S. BEDI J.M . THESE TWO APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER PASSED BY THE LD. CIT(A) II M ADURAI DATED 18.03.2010 FOR THE ASSESSMENT YEARS 2004-05 AND 05-06 RESPECTIVELY WHEREBY DELETION OF PENALTIES OF ` .50 000/- AND ` .3 80 000/- IMPOSED UNDER SE CTION 271D FOR THE A SSESSMENT YEARS 2004-05 AND 05-06 RESPECTIVELY HAVE BEEN CHALLENGED. 2. THESE APPEALS HAVE BEEN HEARD T OGETHER AND INVOLVE IDENTICAL FACTS AND COMMON ISSUE THEREFORE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE FIRM ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF STATIONERY ARTICLES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS 2004-05 AND 05-06 THE ASSESSING OFFICER FOUND THAT CERTAIN PORTION OF THE BUILDING OWNED BY THE A SSESSEE FIRM WERE RENTED OUT AND DEPOSITS EXCEEDS ` .20 000/- WHICH WERE RECEIVED BY THE ASSESSEE BY WAY OF CASH. FOR THIS CONTRAVENTION OF THE PROVISIONS OF SECT ION 269SS OF THE ACT THE ASSESSING OFFICER I.T.A. NOS.1054 & 1055/MDS/10 2 INITIATED PENALTY PROCEEDINGS UNDER SECT ION 271D AND IMPOSED PENALTIES OF ` .50 000/- FOR THE ASSE SSMENT YEAR 2004-05 AND ` .3 80 000/- FOR THE ASSESSMENT YEAR 2005-06 UNDER SECTION 271D OF THE ACT. 4. THE ASSESSEE TOOK UP THE MATTERS IN APPEAL AND IT WAS C ONTENDED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE RECEIVED THE AMOUNTS BY WAY OF RENTAL ADVANCE AND IT NEITHER PARTA KE THE NATURE OF LOAN NOR DEPOSIT ATTRACTING THE PROVISIONS OF SECTION 269SS OF THE INCOME TAX ACT. THE ASSESSING OFFICER HELD THAT THE AMOUNT IS TO BE TREATED AS DEPOSIT WITH OW NER OF THE BUILDING. IT WAS ALSO HELD BY THE ASSESSING OFFICER THAT NON-REFUNDABLE NATU RE OF THE DEPOSIT WILL NOT PREVENT THE OPERATION OF SECTION 269S S OF THE ACT. THE SCOPE AND RATIONAL BEHIND THE INTRODUCTION OF THIS SECTION WAS EXPLAINED BY THE BOARD IN CIRCULAR NO. 387 DATED 06.07.1984 WHICH IS AS UNDER: UNACCOUNTED CASH FOUND IN THE COURSE OF SEARCHES CARRIED OUT BY THE INCOME-TAX DEPARTMENT IS OFTEN EXPLAINED BY TAX PAYERS AS REPRESENTING LOANS TAKEN BROUGHT INTO T HE BOOKS OF ACCOUNT IN THE FORM OF SUCH LOANS AND DEPOSITS AND TAX PAYERS ARE ALSO ABLE TO GET CONFIRMA TORY LETTERS FROM SUCH PERSONS IN SUPPORT OF THEIR EXPLANATION. WITH A VIEW TO COUNTERING THE DEV ICE WHICH ENABLES TAX PAYERS TO EXPLAIN AWAY UNACCOUNTED CASH OR UNAC COUNTED DEPOSITS THE FINANCE ACT HAS INSERTED A NEW SECTION 269SS IN THE INCOME-TAX ACT DEBARRING PERSONS FROM TAKING OR ACCEPTING FROM ANY OTHER PERSON ANY LOAN OR DEPOSIT . 4.1 RELYING UPON THE DECISION OF THE HONBL E MADRAS HIGH COURT IN THE CASE OF CIT V. KUNDRATHUR FINANCE AND CHIT CO. (2006) 283 ITR 329 IN WH ICH IT WAS HELD THAT THERE WAS GENUI NE AND BONAFIDE TRANSACTION AND T HE TAX PAYER COULD NOT GET LOAN OR DEPOSIT BY ACCOUNT PAYEE CHEQ UE OR DEMAND DRAFT FO R A BONAFIDE REASON I.T.A. NOS.1054 & 1055/MDS/10 3 THE AUTHORITY VESTED WITH THE POW ER TO IMPOSE A PENALTY HAS A DISCRETION NOT TO LEVY PENALTY UNDER SECTION 271D OF THE ACT. 5. THE LD. CIT(A) WHILE CONSIDERING AND ACCEPTING BOTH THE APPEALS OF THE ASSESSEE CONCLUDED IN LAST PAR A AT PAGE 3 OF HIS ORDER AS UNDER: IN THE PRESENT CASE THE AMOUNT RE CEIVED IS RENTAL ADVANCE AND THERE IS NO DISPUTE ON THAT. THE TRANSACTIONS AR E GENUINE. THE NATURE OF RECEIPT BY THE APPELLANT ACCORDING TO ME IS NOT LOAN OR DEPOSIT AS CONTEMPLATED IN SECTION 269SS OF THE ACT. I AM THEREFORE OF THE CONSIDERED VIEW THAT THE PENALTY IS NOT EXIGIBLE IN THIS CASE. EVEN IF IT IS HELD AS A DEPOSIT I FIND THAT THE APPELLANT HAS ESTABLISHED THE REASONABL E CAUSE AND IT IS ALSO CLEAR THAT ALL THE TRANSACTIONS WERE DULY RECORDED IN THE BOOKS OF THE APPELLANT. TAKING INTO ACCOUNT THE TOTALITY OF FACTS AND KEEPING IN MIND THE RATIO OF THE JUDGMENT OF THE JURISDICTIONAL MADRAS HIGH COUR T DECISION I HOLD THAT THERE IS REASONABLE CAUSE FOR NOT STRICTLY COMPLY ING WITH THE PROVISIONS OF SECTION 269SS AND IN SUCH CIRCUMSTANCES NO PENA LTY IS EXIGIBLE. THEREFORE THE PENALTY ORDER FOR BOTH THE YEARS I.E. ASSESSMENT YEAR 2004-05 AND 2005-06 ARE HEREBY CANCELLED. 6. THE LD. COUNSEL FOR THE ASSESSEE AT T HE VERY OUTSET SUBMITTED THAT FIRSTLY IN THE FIRST APPEAL FOR THE ASSESSMENT YEAR 2004-05 THE TAX EFFECT IS LESS THAN ` .2 LAKHS LIMIT AS PROVIDED IN VIEW OF THE LA TEST DECISION OF CBDT AND VARIOUS DECISIONS OF MADRAS HIGH COURT WH ICH IS BEING FOLLOWED BY THE CHENNAI BENCHES AND THE APPEAL OF THE DEPARTMENT IS NOT MAINTAINABLE AND SECONDL Y WHAT THE ASSESSEE HAS RECEIVED FROM THE TENANT IS RENTAL ADVANCE WHICH CANNOT BE TAKEN OR TREATED AS LOAN OR DEPOSIT. THEREFORE THERE WAS NO OCCA SION FOR THE ASSESSING OFFICER TO IMPOSE PENALTIES OF ` .50 000/- AND ` .3 80 000/- FOR THE ASSESSM ENT YEARS 2004-05 AND 05- 06 RESPECTIVELY AND WHILE RE LYING UPON THE ORDER OF THE LD . CIT(A) IT WAS PLEADED FOR DISMISSAL OF BOTH THE APPEAL S OF THE REVENUE. 7. THE LD. DR RELIED UPO N THE GROUNDS RAISED AND T HE ORDER OF THE ASSESSING OFFICER TO PLEAD FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RE STORING THAT OF THE ASSESSING OFFICER WITH RESPECT TO BOTH THE YEARS. I.T.A. NOS.1054 & 1055/MDS/10 4 8. WE HAVE HEARD BOTH THE SIDES CONSIDERED THE MATERIAL ON RECORD AND FIND THAT THE ASSESSING OFFICER IMPOS ED PENALTIES UNDER SECTION 27 1D IN VIEW OF STATED CONTRAVENTION OF PROVISION OF SECTION 269SS OF THE ACT BY TREATING THE RENTAL ADVANCE RECEIVED BY THE ASSESSEE FOR BOTH THE Y EARS UNDER CONSIDERATION AS LOANS OR DEPOSITS WHICH WERE RECEIVED BY THE A SSESSEE AT THE TIME OF EXECUTING RENT AGREEMENT AND THESE PENALTIES WERE CAME TO BE DELETED BY THE LD. CIT(A) ON THE GROUND OF REASONABLE CAUSE FOR ACCEPTING THE AMOUNTS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR DRAFTS. WE AFTER HAVING CONSIDERED THE RIVA L SUBMISSIONS AND MATERIAL ON RECORD FIND THAT THE ASSESSEE IS STATED TO HAVE RECEIVED RENTAL ADVANCE FOR THE PROPERTIES LET OUT TO THE TENANTS WHICH FACT HAS NO T BEEN REFUTED BY THE LD. DR BEFORE US OR BEFORE LOWER AUTHORITIES AND THE ASSESSEE HAS CATEGORICALLY STATED BEFORE THE LOWER AUTHORITIES TH AT IT IS NON-REFUNDABLE AM OUNT OF RENTAL ADVANCE. HENCE IN OUR VIEW NON-REFUNDABLE AMOUNT OF RENTAL ADVANCE CANNOT BE TERMED OR TREATED AS DEPOSIT OR LOANS AS ENVISAGED UN DER SECTION 269SS AND AS HELD BY THE LD. CIT(A) THEREFORE WHILE C ONCURRING WITH THE FINDING OF THE LD. CIT(A) TO THIS EXTENT WE UPHOLD HIS ORDER AND DISMISS BOTH THE APPEALS OF THE REVENUE. 9. IN THE RESULT BOT H THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED SOON AFTER THE CONCLUSION OF HEARING ON 09.02.2011 SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI DATED THE. 09.02.2011 VM/- TO:THE ASSESSEE//A.O./CIT(A)/CIT/D.R.