ITO, Bangalore v. M/s Bhandari Precision Forgings (P) Ltd.,, Bangalore

ITA 778/BANG/2010 | 2005-2006
Pronouncement Date: 28-02-2011 | Result: Dismissed

Appeal Details

RSA Number 77821114 RSA 2010
Bench Bangalore
Appeal Number ITA 778/BANG/2010
Duration Of Justice 8 month(s) 17 day(s)
Appellant ITO, Bangalore
Respondent M/s Bhandari Precision Forgings (P) Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-02-2011
Date Of Final Hearing 23-02-2011
Next Hearing Date 23-02-2011
Assessment Year 2005-2006
Appeal Filed On 11-06-2010
Judgment Text
PAGE 1 OF 10 ITA NOS.777 & 778/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K J.M. AND SHRI A MOHAN ALANKAMONY A.M ITA NOS.777 & 778/BANG/2010 (ASSESSMENT YEAR 2005-06) THE INCOME TAX OFFICER WARD-11(1) BANGALORE. - APPELLANT VS M/S BHANDARI PRECISION FORGINGS (P) LTD. NO.271 2 ND STAGE PEENYA INDUSTRIAL ESTATE BANGALORE. - RESPONDENT APPELLANT BY : SHRI H N KHINCHA C.A. RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI ADD L. CIT ORD ER PER GEORGE GEORGE K : THESE APPEALS INSTITUTED BY THE REVENUE ARE DIREC TED AGAINST THE COMMON ORDER OF THE LEARNED CIT(A)-I B ANGALORE DATED 15/02/2010. THE ASST. YEAR CONCERNED IS 2005-06. ITA NO.777/BANG/2010 EMANATE FROM THE ORDER OF ADDL. CI T PASSED U/S 271D OF THE ACT WHEREAS ITA NO.778/BANG/2010 A RISE OUT OF THE ORDER PASSED U/S 271E OF THE ACT. 2. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. PAGE 2 OF 10 ITA NOS.777 & 778/BANG/2010 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A PRIVATE LIMITED COMPANY. FOR T HE ASST. YEAR CONCERNED RETURN OF INCOME WAS FILED ON 30/10/2005 DECLARING A TOTAL INCOME OF RS.8 24 709/-. ASSESSM ENT WAS COMPLETED VIDE ORDER DATED 27/12/2007. THE AO TOOK THE VIEW THAT THERE IS A VIOLATION OF SECTION 269SS AND SECT ION 269T OF THE ACT AND ACCORDINGLY REFERRED THE PROCEEDINGS TO THE ADDL. CIT U/S 271D AND 271E FOR THE PURPOSE OF ASCERTAINING WHETH ER THE ASSESSEE WAS LIABLE FOR PENALTY. THE ASSESSEE COMPANY WAS SERVED NOTICE DATED 19/3/2008 REGARDING THE PENALTY PROCEEDINGS U/S 271D AND 271E OF THE ACT FROM THE ADDL. CIT. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD TAKEN LOAN OF RS.17 35 392/- FROM ITS DIRECTOR SRI SURESH BHANDARI ON VARIOUS DATES AND ALSO REPAID TH E SAME IN CASH. PENAL PROCEEDINGS U/S 271D AND 271E OF THE ACT FOR ACCEPTING LOAN FROM THE DIRECTOR SRI SURESH BHANDARI AND REPAYMENT OF THE SAME TO THE DIRECTOR WERE INITIATED FOR VIOLATING THE PR OVISIONS OF SECTION 269SS AND 269T OF THE ACT. 4. BEFORE THE ADDL. CIT THE ASSESSEE TOOK UP THE FOLLOWING PLEA:- THE COMPANY INSTALLED NEW PLANT AND MACHINERY AND ITS TURNOVER HAD GONE UP SUBSTANTIALLY. THIS REQUIRED HUGE WORKING CAPITAL WHICH COULD NOT BE MET WITHIN THE MAXIMUM PERMISSIBLE LOAN LIMITS PAGE 3 OF 10 ITA NOS.777 & 778/BANG/2010 3 SANCTIONED BY THEIR BANKS. THERE WAS A NEED TO PAY TO THEIR CREDITORS SUPPLIERS ETC. AND THE COMPANY TIDED OVER THE CASH CRUNCH SITUATION BY TAKING LOANS FROM ITS DIRECTORS FROM TIME TO TIME. SIMILARLY THE DIRECTOR HAD ALSO DRAWN MONIES FROM THE COMPANY IN CASH FROM TIME TO TIME. SOME TRANSACTIONS OF THE DIRECTORS WERE IN CHEQUE AND ONLY SOME WERE IN CASH AND THIS WAS DUE TO EXIGENCIES OF THE SITUATION. THE COMPANY ALSO MENTIONED IN ITS REPLY THAT IT DID NOT BORROW ANY AMOUNT FROM ANY OUTSIDER BY WAY OF CASH AND ITS DIRECTOR SRI SURESH BHANDARI WITH WHOM THESE TRANSACTIONS WERE ENTERED INTO IS ALSO AN INCOME- TAX ASSESSEE AND THE TRANSACTIONS WERE ACCOUNTED IN HIS ACCOUNTS AS WELL. 5. AFTER CONSIDERING THE REPLY OF THE ASSESSEE COMP ANY THE ADDL. CIT RANGE II LEVIED A SUM OF RS.17 35 3 92/- U/S 271D OF THE ACT AND A SUM OF RS.17 30 000/- U/ 271E OF THE ACT. 6. AGGRIEVED BY THE IMPOSITION OF THE PENALTY THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 7. IT WAS SUBMITTED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE TRANSACTIONS ARE BETWEEN TWO IDENTIFIABLE PERSONS AND TOTALLY GENUINE AND BONAFIDE. THE TRANSACTIONS HAVE BEEN ACCEPTED BY THE AO AND NO ADDITIONS HAVE BEEN MADE ON THIS CO UNT IN THE ORDER PASSED U/S 143(3) OF THE ACT. THE EXTRACT OF RELEVANT CASH BOOK WAS ENCLOSED TO SHOW THAT CASH WAS TAKEN FROM THE MANAGING DIRECTOR DUE TO THE EXIGENCIES OF THE BUSINESS. MO ST OF THE TIMES CASH WAS TAKEN TO DEPOSIT IN BANK TO ENABLE CLEARAN CE OF CHEQUES PAGE 4 OF 10 ITA NOS.777 & 778/BANG/2010 4 WHICH WERE ISSUED BY THE ASSESSEE COMPANY. IT WAS SU BMITTED THAT THE PERUSAL OF THE ACCOUNTS WILL SHOW THAT THE ASSE SSEE NEITHER OBTAINED ANY LOAN NOR ANY DEPOSIT FROM THE MANAGING D IRECTOR. THE TRANSACTIONS WERE TOTALLY ON CURRENT ACCOUNT BASIS. THESE TRANSACTIONS WERE NEVER IN THE NATURE OF LOANS/DEPO SITS. 8. THE ASSESSEE REFERRING TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ADA INVESTIGAT ION V KUMAR A B SHANTI 255 ITR 258 SUBMITTED THAT THE OBJECTS OF INTRODUCING SECTION 269SS OF THE I T ACT 1961 WAS TO ENSURE TH AT A TAX PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UN ACCOUNTED MONEY OR IF HE HAS GIVEN SOME FALSE ENTRIES IN HIS ACCOUN TS HE SHALL NOT ESCAPE BY GIVING FALSE EXPLANATION FOR THE SAME. IT WAS SUBMITTED THAT IN THE INSTANT CASE ENTRIES ARE ALL GENUINE A ND THERE IS NO FICTITIOUS ENTRIES INVOLVED. HE ALSO RELIED ON VARI OUS JUDGEMENTS OF VARIOUS HIGH COURTS AND ORDER OF THE TRIBUNAL WHICH ARE EXTRACTED FROM PAGES 4 TO 6 OF THE IMPUGNED ORD ER OF THE CIT(A). 9. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE A ND DELETED THE PENALTY LEVIED U/S 271D AND U/S 271E OF THE ACT. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS:- 2.2 THUS THE BASIC QUESTION TO BE ANSWERED HERE IS WHETHER THE AMOUNTS GIVEN BY THE DIRECTOR TO THE APPELLANT IS A LOAN OR DEPOSIT IN CASH OR NO T? THE AO HELD THE CASH PAYMENTS AS LOAN ONLY AND THEREFORE I AM NOT DISCUSSING THE ISSUE WHETHER PAGE 5 OF 10 ITA NOS.777 & 778/BANG/2010 5 THE CASH PAYMENTS TO THE COMPANY IS DEPOSIT OR NOT? A LOAN ALWAYS PRESUPPOSES THE EXISTENCE OF RELATIONSHIP OF A LENDER/BORROWER AND A DEBTOR. IT ALSO INVARIABLY ENTAILS AN ELEMENT OF INTEREST. OFTEN IT ALSO IF THE AMOUNTS ARE VERY HIGH OR THE STAKE IS DIFFICULT IT IS GIVEN AFTER MAKING AN AGREEMENT STIPULATING THEREON TERMS AND CONDITIONS OF REPAYMENT AND IN CASE OF FAILURE TO REPAY ON FIXED DATE PAYMENTS OF DAMAGES THEREON. IF SUCH IS EXAMINED HERE NOTHING OF THIS SORT IS FOUND. EVEN THE CASH PAID BACK TO THE DIRECTOR IS NOT AT REGULAR INTERVALS OR NO INTEREST HAS BEEN PAID. THUS I FIND EVEN IF THE DIRECTOR SRI SURESH BHANDARI AND THE APPELLANT COMPANIES ARE SEPARATE LEGAL PERSONALITY IN THE EYE OF LAW THEY ARE DEFACTO SAME PERSONALITY THE DIRECTOR BEING 98% SHAREHOLDER AND THEREFORE FOR ALL PRACTICAL PURPOSES THE PAYMENTS AND REPAYMENTS WERE VIRTUALLY CHANGING FROM LEFT POCKET TO RIGHT POCKET AND VICE VERSA OF THE SAME PERSON. THUS FROM PRACTICAL INTERPRETATION OF THE FACTS AND SITUATION INVOLVED I UPHOLD THAT SUCH TRANSACTIONS ARE NOT I N THE NATURE OF LOAN OR REPAYMENTS OF LOAN. 2.3 FROM LEGAL POINT-IN-VIEW ALSO I FIND THE TRANSACTIONS ARE IN THE CURRENT ACCOUNTS BETWEEN TWO GENUINE AND IDENTIFIED PERSONS AND DOES NOT DESERVE TO BE COVERED U/S 271D/271E IN VIEW OF THE RATIO OF THE SEVERAL CASE LAWS CITED BY THE A.R . IN THE WRITTEN SUBMISSION WHICH I DO NOT INTEND TO REPEAT. HOWEVER IT IS WORTH POINTING OUT THAT IN THE CASE OF - M/S CANARA HOUSING DEVELOPMENT CO. V ADDITIONAL CIT (BANG) IN ITA NO.1425/BANG/2008 (AY 2005-06) DATED 13 TH FEBRUARY 2009 THE LEARNED JURISDICTIONAL ITAT HAS HELD THAT TRANSACTIONS IN CASH EXCEEDING THE PRESCRIBED LIMIT PAGE 6 OF 10 ITA NOS.777 & 778/BANG/2010 6 BETWEEN TWO SISTER CONCERNS IN CURRENT A/C CANNOT BE EQUATED WITH LOAN OR DEPOSIT AND HENCE THE PROVISIONS OF SECTION 269SS/269T ARE NOT ATTRACTED SO AS TO ENABLE THE REVENUE TO LEVY PENALTY U/S 271D/271E OF I T ACT. WHAT IS INTENDED TO BE POINTED OUT HERE IS THAT HERE ALSO THE TRANSACTION IS IN CURRENT A/C AND TRANSACTION I S MORE SUBTLER THAN BETWEEN TWO SISTER CONCERNS I.E. ALMOST BY THE SAME PERSONS LEFT HAND AND RIGHT HAND. HENCE ON ANALOGY THE PROVISIONS OF SECTION 269SS/269T IS NOT APPLICABLE AND THEREFORE CONSEQUENT PENALTIES LEVIED DESERVE TO BE DELETED. 10. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEF ORE US. 11. THE LEARNED DR SUBMITTED THAT THE CIT(A) IS NO T JUSTIFIED IN HOLDING THAT THE TRANSACTIONS ARE CURR ENT ACCOUNT TRANSACTIONS BETWEEN SRI SURESH BHANDARI AND THE AS SESSEE COMPANY AND SUCH TRANSACTIONS ARE NOT IN THE NATURE OF LOAN OR REPAYMENTS OF LOAN WITHOUT APPRECIATING THE PROVISI ONS OF SECTION 269SS OF THE I T ACT. IT WAS SUBMITTED THAT THE CI T(A) HAS FAILED TO RECOGNIZE THAT THE LENDER AND LOANEE WERE TWO DISTINCT ENTITIES UNDER THE I T ACT 1961 EVEN THOUGH THE LE NDER IS A DIRECTOR OF THE ASSESSEE COMPANY AND LOANEE IS THE A SSESSEE COMPANY ITSELF. 12. THE LEARNED AR REFERRING TO THE LEDGER EXTRAC TS OF SRI SURESH BHANDARI WITH THE ASSESSEE COMPANY CONTE NDED THAT THE ASSESSEE NEITHER OBTAINED ANY LOAN NOR ANY DEPOS IT FROM THE MANAGING DIRECTOR SHRI SURESH BHANDARI. IT WAS SU BMITTED THAT THE TRANSACTIONS ARE TOTALLY ON CURRENT ACCOUNT BASE D AND NEVER IN PAGE 7 OF 10 ITA NOS.777 & 778/BANG/2010 7 THE NATURE OF LOAN OR DEPOSITS. HE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND ALSO SUPPORTE D THE FINDING OF THE FIRST APPELLATE AUTHORITY. 13. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE SUPREME COURT IN T HE CASE OF ADA INVESTIGATION V KUMAR A B SHANTI 255 ITR 258 EXPLAI NED THE OBJECTS OF INTRODUCING SEC.269SS OF THE I T ACT 19 61. THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENSURE THAT A TAXPAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY OR IF HE HAS GIVEN SOME FALSE ENTRIES IN HIS ACCOUNTS HE SHALL NOT ESCAPE BY GIVING FALSE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZURES UNACCOUNTED MONEY IS UNEARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE EXPLANATION THAT HE HAD BORROWED OR RECEIVED DEPOSITS FROM HIS RELATIVES OR FRIENDS AND IT IS EASY FOR THE SO-CALLED LEADER ALSO TO MANIPULATE HIS RECORDS LATER TO SUIT THE PLEA OF TH E TAXPAYER. THE MAIN OBJECT OF SECTION 269SS WAS TO CURB THIS MENACE. 13.1 SIMILAR VIEWS WERE ALSO EXPRESSED BY THE GUJA RAT HIGH COURT IN THE CASE OF CIT V BHAWATIPRASAD BAJORIA 26 3 ITR 487 WHEREIN IT WAS HELD THAT THE OBJECT OF THE INTRODUC ING SECTION 269SS IS TO ENSURE THAT THE TAX PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR THE UNACCOUNTED MONEY. THESE VIEWS WERE ALSO ECHOED BY KARNATAKA HIGH COURT IN THE CASE OF CHAMUN DI GRANITES PVT. LTD. V CIT 239 ITR 694. THE CRUX OF THE DECIS ION IS THAT THE PAGE 8 OF 10 ITA NOS.777 & 778/BANG/2010 8 LAW IS ENACTED TO ENSURE PREVENTION OF EVASION OF T AX AND AVOIDING OF FICTITIOUS ENTRIES IN THE BOOKS OF ACCOUNTS. 13.2 IN THE INSTANT CASE THE TRANSACTIONS ARE BET WEEN TWO IDENTIFIABLE PERSONS AND TOTALLY GENUINE AND BONAFID E. THE TRANSACTIONS HAVE BEEN ACCEPTED BY THE AO AND NO ADD ITIONS HAVE BEEN MADE ON THIS COUNT IN THE ORDER PASSED U/S 143 (3) OF THE ACT. THEREFORE ALL ENTRIES ARE GENUINE AND NO FICTITIOU S ENTRIES ARE INVOLVED. 13.3 WE HAVE PERUSED THE LEDGER ACCOUNT OF THE MAN AGING DIRECTOR THAT IS APPEARING IN THE ASSESSEE COMPANY. CASH WAS TAKEN DUE TO THE EXIGENCIES OF THE BUSINESS AS IT IS EVID ENT THAT CHEQUES WERE ISSUED IMMEDIATELY TO THE CREDITORS UPON RECEIP T OF THE CASH FROM THE MANAGING DIRECTOR. MOREOVER WE ARE ALSO OF THE VIEW THAT TRANSACTIONS THAT ARE APPEARING IN THE LEDGER ACCOUNT ARE MORE OF CURRENT ACCOUNT NATURE RATHER THAN IN THE NATURE OF LOAN OR DEPOSITS. 13.4 THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V IDHAYAM PUBLICATIONS LTD. 285 ITR 221 HAS CATEGORICA LLY HELD THAT TRANSACTION WHICH IS IN THE NATURE OF CURRENT ACCOU NT AND WHERE NO INTEREST HAS BEEN CHARGED FOR THE ABOVE TRANSACTION S IT CANNOT BE STATED THAT THE AMOUNTS RECEIVED FROM THE PAYER ARE IN THE NATURE OF LOAN OR DEPOSIT. THE RELEVANT FINDING OF THE H ONBLE MADRAS HIGH COURT READS AS FOLLOWS:- PAGE 9 OF 10 ITA NOS.777 & 778/BANG/2010 9 WE HEARD THE ARGUMENTS OF LEARNED COUNSEL FOR THE REVENUE. WE HAVE PERUSED THE MATERIALS AVAILABLE IN RECORD. ADMITTEDLY MR. S V S MANIAN WAS ONE OF THE DIRECTORS. THEREFORE THE ORDER OF THE LOWER AUTHORITY CLEARLY SHOWS THAT THERE WAS A RUNNING CURRENT ACCOUNT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE NAME OF MR. S V S MANIAN. MR. S V S MANIAN USED TO PAY THE MONEY IN THE CURRENT ACCOUNT AND USED TO WITHDRAW THE MONEY ALSO FROM THE CURRENT ACCOUNT. 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 WITHI N THE MEANING OF LOAN OR ADVANCE THERE IS NO VIOLATION OF SECTION 269SS OF THE INCOME-TAX ACT. WE FIND NO ERROR IN THE ORDER OF THE TRIBUNAL AND THE SAME REQUIRES NO INTERFERENCE. HENCE NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N OF THIS COURT. ACCORDINGLY WE DISMISS THE ABOVE TAX CASE. PAGE 10 OF 10 ITA NOS.777 & 778/BANG/2010 10 13.4 IN THE LIGHT OF THE ABOVE REASONING WE HOLD THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WI TH LAW AND NO INTERFERENCE IS CALLED FOR. 14. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ORDER PRONOUNCED ON MONDAY THE 28 TH DAY OF FEBRUARY 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/25/2. BY ORDER ASST. REGISTRAR ITAT BANGALORE.