Acceptance of Cash from Wife is not Loan

R.I.S. Gill and B.R.R. Kumar for the Appellant. Ajay Wadhwa, Adv. for the Respondent.

ORDER

I.T.A. No. 3085/Del/2013.

G.D. Agrawal, Vice-President – This appeal by the Revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXVI, New Delhi, dated February 13, 2013, for the assessment year 2008-09.

2. The only ground raised by the Revenue in this appeal reads as under :

“The Commissioner of Income-tax (Appeals) has erred in deleting the penalty of Rs. 5,85,70,875 levied by the Assessing Officer under section 271D for violation of provisions of section 269SS of the Income-tax Act 1961.”

3. The facts of the case are that the assessee is an individual and during the course of assessment proceedings under section 143(3), the Assessing Officer noticed that the assessee had accepted loan or deposit amounting to Rs. 5,85,70,875 otherwise than by account payee cheque or account payee draft. The details of such loan accepted otherwise than account payee cheque/bank draft are as under :

4. During penalty proceedings, it was explained by learned counsel that all the above credit entries in the assessee’s books of account are only by journal entry and no monetary transaction had actually taken place between the assessee and the abovementioned lenders. Since the assessee’s explanation with regard to each and every lender is more or less similar, it would be appropriate to reproduce the assessee’s explanation with regard to the credit entry in the name of GMS Real Estate (P.) Ltd. (hereinafter referred to as GMS) :

“(i ) The assessee is a partner of M/s. DNK. M/s. DNK received/paid cheque from/to GMS Real Estate from time to time on behalf of the assessee as advance for property. On February 4, 2008, the net amount from GM Real Estate transferred to Inderpal Singh account. Thus, the assessee has not received any loan/advance otherwise than by account payee cheque/account payee bank order. It would not be out of place to mention that all the payments were received through account payee cheques only from GM Real Estate. A partnership-firm can receive payment on the behalf of the partner. M/s. DNK received the advance for property on the behalf of the assessee, which is not contradictory to the provision of section 269SS read with section 271D of the Income-tax Act, 1961. Copy of ledger account of GMS Real Estate (P) Ltd. and DNK in the books of the assessee and ledger account of GMS Real Estate and Inderpal Singh in the books of M/s. DNK are enclosed herewith as annexure-‘B’.”

5. The Assessing Officer did not accept the assessee’s contention with the following finding :

“The contentions of the assessee have been examined. The loan has been taken by the assessee which is quite clear from the ledger account of GMS Real Estate in the books of the assessee Inderpal Singh wherein GMS Real Estate account has been credited dated February 4, 2008, by Rs. 1,90,000. It is not the case of the assessee that the assessee has taken loan from GMS Real Estate by account payee cheque or account payee bank draft drawn in the name of the assessee. That makes it clear that he has taken loan from GMS Real Estate otherwise than by an account payee cheque or account payee bank draft drawn in the name of the assessee. Now in the facts of the case it is clear that the assessee has taken loan from GMS Real Estate otherwise than by an account payee cheque or account payee bank draft drawn in the name of the assessee and is using artifice to camouflage this transaction. This camouflaging transaction is merely a colourable device to hide the original transaction which is quite clear from the ledger account of GMS Real Estate in the books of the assessee Inderpal Singh wherein GMS Real Estate’s account has been credited dated February 4, 2008, by Rs. 1,90,000. Thus it is quite clear that the assessee’s contention has no force in it.”

6. Accordingly, the Assessing Officer levied the penalty of Rs. 5,85,70,875 which is deleted by the learned Commissioner of Income-tax (Appeals). Hence, this appeal by the Revenue.

7. At the time of hearing before us, it is stated by the learned Departmental representative that there is no dispute that there is a credit entry in the assessee’s books of account in the name of abovementioned persons. As per section 269SS, the assessee is supposed to accept loan or deposit either by account payee cheque or by account payee bank draft. Admittedly, the above credit entries by the assessee were accepted neither by account payee cheque nor by bank draft and therefore, there is clear violation of section 269SS and the Assessing Officer rightly levied penalty under section 271D. The Commissioner of Income-tax (Appeals) cancelled the penalty without properly appreciating the facts. Therefore, his order should be reversed and that of the Assessing Officer may be restored.

8. Learned counsel for the assessee, on the other hand, stated that the assessee is a partnership of M/s. DNK. M/s. DNK received/paid cheques from/to GMS from time to time on behalf of the assessee for advance for property. In the assessee’s books of account, a journal entry is passed in respect of net amount of Rs. 1,90,000 by which the account of GMS was credited and the account of M/s. DNK was debited. There was no monetary transaction between the assessee and GMS. The monetary transaction was only between M/s. DNK and GMS from time to time and all those transactions were by account payee cheques. When there was no monetary transaction between M/s. DNK and GMS, the question of accepting the money by account payee cheque/bank draft did not arise. He further submitted that this issue has been considered by various courts and the Tribunal and they have taken the unanimous view that the provisions of section 269SS cannot be said to have been violated in the case of book entry. In support of his contention, he relied upon the following decisions :

9. We have carefully considered the submissions of both sides and perused relevant material placed before us. Admittedly, in the case of the assessee, for the year under consideration, in respect of all the credit entries amounting to Rs. 5,85,70,875, the credit was by way of journal entries and not on account of receipt of any cash money by the assessee from the lenders. So far as credit in the account of GMS is concerned, M/s. DNK, which is a partnership-firm in which the assessee is a partner, received/paid cheque from GMS time to time on behalf of the assessee. In respect of the net amount, a journal entry was passed by crediting to GMS and debiting to M/s. DNK. Similarly, M/s. DNK also received cheque from Godsons Shoes on behalf of the assessee and then by way of journal entry in the assessee’s books of account. Godsons Shoes was credited with debit to M/s. DNK. In the case of Godsons Bros., there was a transaction by cheque between Vardaan Fashion, a partnership-firm in which the assessee is a partner and Godsons Bros. and in the books of the assessee, there was only a journal entry. In the case of M.S. Appreal Pvt. Ltd., the journal entry was passed only as a rectification entry. These facts were duly stated before the Assessing Officer during penalty proceedings and the assessee’s submission which is reproduced by the Assessing Officer in the penalty order is reproduced below for ready reference :

“(v ) The assessee has wrongly credited the cheque received from M. S. Appreal Pvt. Ltd. in the ledger of Mr. Manjinder Singh, who is a director of M. S. Appreal Pvt. Ltd. dated January 16, 2007. When mistake became known a rectification entry has been made in the year under consideration. The assessee has not received loan/advance amounting to Rs. 40,00,000 from M. S. Appreal Pvt. Ltd. during the financial year 2007-08. All loan/advances amounts were received through account payee cheque only. The assessee has wrongly by mistake reduced the loan/advance amount of G. S. Batra during the financial year 2006-07 by wrongly entering a cheque received from M.S. Appreal Pvt. Ltd. copy of ledger account of M.S. Appreal Pvt. Ltd. and Sh. Majinder Singh in the books of the assessee an ledger account of the Shri Mahinder Singh for the financial year 2006-07 in the books of the assessee are enclosed herewith as annexure ‘F’.”

10. Similar is the position for credit in the name of Vardaan Fashion. M/s. Vardaan Fashion is the partnership-firm in which the assessee is a partner. M/s. Vardaan Fashion made payment on behalf of the assessee to others by account payee cheques and in the books of the assessee, only the journal entry is passed crediting the account of M/s. Vardaan Fashion and debiting the account of the person to whom the payment is made by M/s. Vardaan Fashion. The Revenue has also not disputed that all the above credit entries are by way of journal entries but their contention is that as per section 269SS, the assessee is supposed to accept loan or deposit by account payee cheque or account payee bank draft. Since there is a credit entry in the assessee’s books of account which is neither by account payee cheque nor by bank draft, therefore, there was violation of section 269SS and consequently, the penalty is leviable under section 271D. We are unable to accept this contention of the Revenue. Section 269SS and Explanations thereto read as under :

“269SS. Mode of taking or accepting certain loans and deposits .—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 or use of electronic clearing system through a bank account if,—

is twenty thousand rupees or more :

Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,—

Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation.—For the purposes of this section,—

11. As per section 269SS, no person is supposed to take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft. The term “loan or deposit” has also been defined by way of an Explanation by which loan or deposit means “loan or deposit of money”. Thus, for the purpose of section 269SS, loan or deposit of money only is to be considered. Now, in the case of all the credit entries in the accounts of the assessee which are considered for levy of penalty under section 271D, we find that there is no monetary transaction between the assessee and the creditors. The monetary transaction had taken place between the creditors and some third party which were all by account payee cheques. In the books of the assessee, there is only a journal entry by debiting the account of some other party and crediting to the account of the creditor. In these circumstances, in our opinion, when there is no monetary transaction between the assessee and creditor, it cannot be said that assessee accepted loan or deposit from the creditor in violation of section 269SS.

12. We also find that the hon’ble jurisdictional High Court has considered this issue in the case of Noida Toll Bridge Co. Ltd. (supra ) and held as under (headnote) :

“Where the Tribunal had noticed that (i) the transaction was by an account payee cheque, (ii) no payment on account was made in cash either by the assessee or on its behalf, (iii) no loan was accepted by the assessee in cash, and (iv) the payment of Rs. 4.85 crores was made by the assessee through ILFS, which held more than 30 per cent., of the paid-up capital of the assessee, by journal entry in the books of account of the assessee by crediting the account of ILFS :

Held , that the provisions of section 269SS of the Income-tax Act, 1961, were not attracted and penalty could not be imposed.”

13. In the case of Worldwide Township Projects Ltd. (supra ), the hon’ble jurisdictional High Court held as under (headnote) :

“A plain reading of section 269SS of the Income-tax Act, 1961, indicates that the import of the provisions 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 a 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 account 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 moneys are receivable in the books of account, is clearly outside the ambit of the provisions of section 269SS of the Act because passing such entries does not involve acceptance of any loan or deposit of money.”

14. In the case of National Clothing Co. (supra ), the hon’ble jurisdictional High Court reiterated the same view and held as under :

“The issue in question is covered by decision of this court dated November 20, 2014, in I. T. A. No. 33 of 2002 titledCIT v. Ruchika Commercials and Investment Pvt. Ltd. This decision follows two earlier decisions of this Court in CITv. Noida Toll Bridge Co. Ltd. [2003] 262 ITR 260 (Delhi) and CIT v. Worldwide Township Projects Ltd. [2014] 367 ITR 433 (Delhi). In the said decisions, in view of the language of the Explanation to section 269SS, it has been held that the provision would apply to loan or deposit of money, and not mere formal entries resulting in debit or credit. Other reasons and grounds have been elucidated.”

15. Thus, the hon’ble jurisdictional High Court has consistently held that section 269SS is not applicable in the case of credit by way of journal entry or book entry. We, therefore, respectfully following the above decisions of the hon’ble jurisdictional High Court, hold that the learned Commissioner of Income-tax (Appeals) was fully justified in cancelling the penalty levied under section 271D of the Act. His order is upheld and the Revenue’s appeal is dismissed.

I. T. A. No. 2258/Del/2013

16. The only ground raised in this appeal by the Revenue reads as under :

“The Commissioner of Income-tax (Appeals) has erred in deleting the penalty of Rs. 3,26,97,283 made by the Assessing Officer under section 271E for violation of provisions of section 269T of the Income-tax Act 1961.”

17. The Assessing Officer had levied the penalty under section 271E in respect of following payments made by the assessee :

18. The penalty levied has been cancelled by the learned Commissioner of Income-tax (Appeals). Hence, this appeal by the Revenue.

19. We have heard the arguments of both sides and perused relevant material placed before us. So far as the debit in the books of account of the assessee through book entry is concerned, our discussion in paragraph Nos. 10 to 15 above would be applicable and for the detailed discussion therein, we hold that when there is no monetary transaction between the assessee and the person whose account is credited and there is only journal entry, it cannot be said that there is violation of section 269T.

20. So far as the payments by pay orders is concerned, we find that the Commissioner of Income-tax (Appeals) deleted the penalty in respect of payment through pay orders with the following finding :

“6. Penalty of Rs. 1,91,80,000 on repayment through pay orders

‘Ground No. 2 of the appeal reads as under : “2. That the learned lower court erred in facts and legal aspects of the case in treating amount of Rs. 27,674 paid by account payee pay order (which is bankers cheque) as cash and disallowing 20 per cent. of the same under section 40A(3)’.

The assessee is engaged in the business of buying day old chicks, growing them and then producing the chicks. During the course of assessment proceedings, the Assessing Officer found that the assessee made payment of Rs. 27,674 on October 27, 2004 (pay order) otherwise than account payee cheque/draft to M/s. Ram Saran Rakesh Saran. In response to the query, the assessee submitted that no cash payment has been made to party for Rs. 27,674. The Assessing Officer, therefore disallowed 20 per cent. of the same under section 40A(3) of the Income-tax Act, 1961 (in short “the Act”). On appeal, the learned Commissioner of Income-tax (Appeals) confirmed the addition.

We have heard the rival submissions. Shri Prakash Narain, Advocate and Shri S. D. Seth, advocate, learned counsels for the assessee submitted that payment made to M/s. Ram Saran Rakesh Kumar, as the Assessing Officer has himself stated, was made by pay order. Shri Prakash Narain, advocate and Shri S. D. Seth, advocate, learned counsels for the assessee submitted that the authorities below have failed to understand the fact that pay order is a banker cheque and is account payee only and the provisions of section 40A(3) do not apply to payment by pay order.

In view of the above submissions of Shri Prakash Narain, advocate and Shri S. D. Seth, advocate, learned counsels for the assessee, we allow ground No. 2 of the appeal.’

21. After considering the arguments of both sides and the facts of the case, we do not find any infirmity in the above finding of the learned Commissioner of Income-tax (Appeals). The assessee had claimed before the Commissioner of Income-tax (Appeals) that on all the pay orders, after the name of the payee, the word “only” has been used and therefore, the said pay orders were neither negotiable nor transferable. In support of his contention, the certificate dated June 10, 2010, issued by the Punjab National Bank was filed. The Commissioner of Income-tax (Appeals) called the remand report of the Assessing Officer in which the Assessing Officer reiterated their earlier stand, i.e., the payment was not by account payee cheque or account payee draft. The Commissioner of Income-tax (Appeals) rejected the objection of the Assessing Officer on the ground that the pay order is nothing but bankers cheque and when in the pay order after the name of the payee, the word “only” is used, then the pay order becomes equivalent to account payee cheque which is payable to the person named in the pay order and not to any other person. The bank in the said certificate has also confirmed that the payments were actually made to the account of the payees only. The Commissioner of Income-tax (Appeals) has also relied upon the decision of the Income-tax Appellate Tribunal, Lucknow Bench in the case of Devlok Hatcheries [I. T. Appeal No. 544 (Lkw) of 2010. In the said case, the Income-tax Appellate Tribunal was considering the applicability of section 40A(3) wherein certain expenditure if paid otherwise than by account payee cheque or account payee bank draft is to be disallowed. The Income-tax Appellate Tribunal held that the pay order is a bankers cheque and when in the pay order, “only” is mentioned, the provisions of section 40A(3) do not apply to payment by such pay order. In our opinion, the ratio of the above decision would be squarely applicable in respect of levy of penalty under section 271E also and the learned Commissioner of Income-tax (Appeals), rightly applying the above decision, deleted the penalty. In view of above facts and the decision of the Income-tax Appellate Tribunal, Lucknow Bench, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals). The same is upheld and the Revenue’s appeal is dismissed.

I. T. A. No. 2253/Del/2013

22. In this appeal by the Revenue, following grounds have been raised :

23. The facts of the case are that the assessee is a partnership-firm. The Assessing Officer had levied the penalty of Rs. 2,45,59,221 for accepting loan or deposit otherwise than through account payee cheque or account payee bank draft. The details of loan or deposit taken or accepted otherwise than by account payee cheque or account payee bank draft are as under :

24. The learned Commissioner of Income-tax (Appeals) cancelled the penalty. Hence, this appeal by the Revenue.

25. We have heard the arguments of both sides and perused relevant material placed before us. After going through the arguments of both sides and perusal of the order of authorities below, we find that the credit entries in the books of account can be divided in three categories :

26. So far as the credit by way of journal entry is concerned, this issue has been discussed by us in detail while considering the penalty in the case of Shri Inderpal Singh Wadhawan. For the detailed discussion in paragraphs 10 to 15 above, we are of the opinion that on account of credit by journal entry (book entry), there is no violation of section 269SS and therefore, penalty under section 271D is not leviable.

27. So far as the credit by way of pay orders is concerned, this issue has also been discussed by us while considering penalty in the case of Shri Inderpal Singh Wadhawan. At the time of hearing before us, it was admitted by the parties that the facts in the case of the assessee are identical to the facts in the case of Shri Inderpal Singh Wadhawan. Therefore, our finding in this regard in the case of Shri Inderpal Singh Wadhawan vide paragraphs 20 and 21 above would be squarely applicable and for the detailed discussion therein, we find no infirmity in the order of the learned Commissioner of Income-tax (Appeals) wherein he cancelled the penalty under section 271D levied in respect of credit by way of receipt of pay orders.

28. So far as the receipt by way of cash is concerned, it was argued by learned counsel that the assessee M/s. Vardaan Fashion is a partnership-firm and Shri Inderpal Singh Wadhawan is the partner of the assessee-firm. There was a cash transaction of receipt of money as well as payment between the partnership-firm and Shri Inderpal Singh Wadhawan. Money was credited as well as debited to his capital account. Thus, the receipt of money from Shri Inderpal Singh Wadhawan was not by way of loan or advance but it was a capital contribution. Therefore, it was not in the nature of loan and advance. He further stated that the firm is not a legal person though for the purpose of income-tax, it has been considered as a separate assessee. But, the receipt of money from the partners cannot be said to be loan by the partner to the firm. In support of his contention, he relied upon the following decisions :

29. The learned Departmental representative, on the other hand, relied upon the order of the Assessing Officer and stated that for the purpose of income-tax, firm and partner are separate assessable units and therefore, acceptance of money by the partnership-firm from the partner is in the nature of loan and advance by the partner to the firm.

30. We have carefully considered the submissions of both sides and perused relevant material placed before us. We find that the hon’ble apex court has considered the nature of partnership-firm as well as partners under the general law as well as under the Income-tax Act in the case of R. M. Chidambaram Pillai (supra ). In the above case, the partnership-firm claimed the deduction of salary paid to the partner and in that context, their lordships considered the relationship between the firm and the partners under the general law vis-a-vis under the Income-tax Act. The relevant observations of their Lordships at page 295 of 106 ITR read as under :

“Here the first thing that we must grasp is that a firm is not a legal person even though it has some attributes of personality. Partnership is a certain relation between persons, the product of agreement to share the profits of a business. ‘Firm’ is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law a firm is a unit of assessment, by special provisions, but is not a full person which leads to the next step that since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners.”

31. Similar observations were made at page 299 which read as under :

“The necessary inference from the premise that a partnership is only a collective of separate persons and not a legal person in itself lends to the further conclusion that the salary stipulated to be paid to a partner from the firm is in reality a mode of division of the firm’s profits, no person being his own servant in law since a contract of service postulates two different persons.”

32. Thus, their lordships of the apex court clearly held that the partnership-firm is only a collective name of separate persons and not a legal person in itself and therefore, a partner cannot be a servant of the firm because no person can be his own servant in law. The ratio of the above decision would be squarely applicable in the case under appeal before us. Similar to the contract for employment where two distinct persons employee and employer are required, for the purpose of giving and acceptance of loan or deposit also, two different persons are required-(i) the lender, and (ii) the debtor, i.e., the borrower. As per hon’ble apex court, firm and partner are not two different persons, therefore, credit in the books of firm in the account of partner, it cannot be said that firm has taken loan or deposit from partner. Admittedly, in the assessee’s books of account, the amount has been credited in the capital account of Shri Inderpal Singh Wadhawan. The firm and partners have also treated the transaction as of contribution of capital from the partner to the firm and not as a loan by an individual to the partnership-firm.

33. That the hon’ble Rajasthan High Court in the case of Lokhpat Film Exchange (Cinema) (supra ) has considered the issue of levy of penalty under sections 271D and 271E in respect of cash transactions between the firm and the partners, and their lordships held as under :

“Held , dismissing the appeals, that the assessee had acted bona fide and its plea that inter se transactions between the partners and the firm were not governed by the provisions of sections 269SS and 269T was a reasonable explanation. Penalty could not be imposed.”

34. The Income-tax Appellate Tribunal, Ahmedabad Bench, in the case of Shrepak Enterprises (supra ) held as under :

“Therefore, the payment of the amount was made by a partner to a firm is the payment itself to self and does not partake the character of loan or deposit in general law. Therefore, the provisions of section 269SS are not applicable to the facts of the case, and no penalty is imposable under section 271D. The assessee could be under genuine impression that advancing of loan by a partner to firm is not a transfer from one person to the another and hence, there is no violation of provisions of section 269SS. In view of the above, the penalty is cancelled.”

35. The ratio of the above decision of the Income-tax Appellate Tribunal, Ahmedabad Bench, the hon’ble Rajasthan High Court and the hon’ble apex court would be squarely applicable to the case under appeal before us. Respectfully following the same, we hold that the learned Commissioner of Income-tax (Appeals) was fully justified in cancelling the penalty levied under section 271D in respect of capital contribution by the partner to the firm. Accordingly, the Revenue’s appeal is dismissed.

I. T. A. No. 2259/Del/2013

36. The grounds raised by the Revenue in this appeal read as under :

“1. The Commissioner of Income-tax (Appeals) has erred in deleting the penalty of Rs. 1,70,70,000 levied by the Assessing Officer under section 271E for violation of provision of section 269T of the Income-tax Act 1961.

2. The Commissioner of Income-tax (Appeals) has erred in holding that partner and partnership-firm are not different from each other and the provisions of section 269T cannot be made applicable between the transaction of the partner and the firm.”

37. The Assessing Officer had levied penalty under section 271E amounting to Rs. 1,70,70,000 in respect of the following debit in the assessee’s books of account :

38. The learned Commissioner of Income-tax (Appeals) cancelled the penalty. Hence, this appeal by the Revenue.

39. We have heard the arguments of both sides and perused relevant material placed before us. From the analysis of the debit entries in the assessee’s books of account, the same can be divided in four categories-(i) debit by journal entry, (ii) debit by pay order, (iii) debit for payment in cash to partner, and (iv) debit in cash in the name of Rups Craft Inc.

40. So far as first three debits are concerned, i.e., debit by way of journal entry (book entry), pay order as well as payment to the partner is concerned, identical issue is considered by us in the assessee’s own case for the same assessment year while dealing with the penalty levied under section 271D. Our observations and finding in respect of credit by way of journal entry (book entry), pay order as well as credit from the partners would be squarely applicable in respect of debit by way of journal entry, pay order and payment to the partners which is debited in their capital account. Therefore, for the detailed discussion in the assessee’s own case, while considering the penalty levied under section 271D, we are of the opinion that the learned Commissioner of Income-tax (Appeals) was justified in cancelling the penalty levied under section 271E for debit by way of journal entry, debit by way of pay order as well as debit on account of payment to partner debited to capital account.

41. With regard to debit of cash in the account of M/s. Rups Craft Inc, the learned Commissioner of Income-tax (Appeals) while deleting penalty levied under section 271D observed as under :

“11.3 Regarding the repayment of Rs. 15,45,000 to M/s. Rups Craft Inc. I find that the Assessing Officer’s observation that there was a violation of the provisions of section 269T is not correct. In fact the appellant was doing business with the M/s. Rups Craft Inc. and all the transactions with this party related to business only and there was no transaction of loan or deposit. I also find that in the course of business Sh. Inderpal Singh, partner of the appellant-firm had paid Rs. 15,45,000 though an account payee cheque No. 57308 to M/s. Rups Craft Inc. on behalf of the appellant and consequently a journal entry dated November 3, 2006, was passed by increasing the capital of Sh. Inderpal Singh and reducing the credit balance of Rs. 7,64,292 which was already appearing in his name. In view of these facts since the repayment was not in respect of any loan or deposit but related to business transactions there was no violation of the provisions of section 269T of the Income-tax Act, 1961.”

42. At the time of hearing before us, the above factual finding recorded by the Commissioner of Income-tax (Appeals) has not been controverted. The Commissioner of Income-tax (Appeals) has clearly recorded the finding that there was the business transaction between the assessee-firm and M/s. Rups Craft Inc. and all the transactions with the said party were business transactions only and there was no transaction of loan or deposit. It was also observed that in fact there was no cash payment. On the other hand, the payment of Rs. 15,45,000 was made by account payee cheque No.57308 to M/s. Rups Craft Inc. by Shri Inderpal Singh Wadhawan, partner of the firm and consequently, the entry was passed in the assessee’s books of account. Therefore, there was no cash transaction. Both these findings recorded by the Commissioner of Income-tax (Appeals) remained uncontroverted before us. We, therefore, find no justification to interfere with the order of the learned Commissioner of Income-tax (Appeals) in this regard. The same is sustained and the appeal of the Revenue is dismissed.

I. T. A. No. 3084/Del/2013

43. The only ground raised in this appeal by the Revenue reads as under :

“The Commissioner of Income-tax (Appeals) has erred in deleting the penalty of Rs. 4,04,79,453 levied by the Assessing Officer under section 271E for violation of provisions of section 269T of the Income-tax Act 1961.

2. The Commissioner of Income-tax (Appeals) has erred in holding that partner and partnership-firm are one and the same person in the eyes of law and provision of section 269T are not applicable on the transaction entered by the partner with the firm.”

44. The Assessing Officer had levied the penalty under section 271E in respect of the following debit entries in the assessee’s books of account holding the same to be the repayment of loan or deposit in violation of section 269T of the Act :

45. The learned Commissioner of Income-tax (Appeals) cancelled the penalty. Hence, this appeal by the Revenue.

46. We have heard the arguments of both sides and perused relevant material placed before us. With regard to repayment of Rs. 19,50,000 in the name of M/s. Deepak Fabrics, the Commissioner of Income-tax (Appeals) has recorded the following finding :

“6.9 Entry dated May 7, 2007, of Rs. 19,50,000 in the name of M/s. Deepak Fabrics : In this case, I find that the appellant was doing business with M/s. Deepak Fabrics as proprietor of M/s. DNK Creation. It was on account of business transaction that the appellant had paid Rs. 19,50,000 vide an account payee cheque No. 344561, dated May 7, 2007 to M/s. Deepak Fabrics on behalf of the proprietary concern M/s. DNK Creations. During the course of penalty proceedings, these facts were duly brought to notice of the Assessing Officer along with the copy of account of M/s. DNK Creations in the books of the appellant, copy of account of M/s. Deepak Fabrics and copy of account of the appellant in the books of M/s. DNK Creation. The observation of the Assessing Officer that this payment was made to a lender and was not a business transaction was merely based on the report of the special auditor. On the contrary, the appellant had filed copies of the accounts which clearly showed that the transaction with M/s. Deepak Fabrics was a business transaction and not a repayment of loan as held by the Additional Commissioner of Income-tax. No independent finding was given by the Additional Commissioner of Income-tax to state that this is a repayment of loan. Since, the transaction in question is not a repayment of loan the provisions of section 269T read with section 271E are not applicable against this transaction.”

47. Thus, the Commissioner of Income-tax (Appeals) has recorded the finding that the appellant was doing the business of clothes in the proprietary concern named M/s. DNK Creations. M/s. DNK Creations, proprietary concern of the assessee had the business transactions with M/s. Deepak Fabrics. The assessee made the payment of Rs. 19,50,000 by account payee cheque to M/s. Deepak Fabrics on behalf of the proprietary concern M/s. DNK Creations. Thus, the Commissioner of Income-tax (Appeals) has recorded the finding that it was not the repayment of loan within the provisions of section 269T. The above finding of fact recorded by the Commissioner of Income-tax (Appeals) has not been controverted before us. From this finding, it is evident that there was a business transaction between M/s. DNK Creations, the proprietary concern of the assessee and M/s. Deepak Fabrics. The payment was made in furtherance to such business transactions and moreover, the payment was made by account payee cheque. Thus, there was neither the cash payment nor there was repayment of the loan or deposit so as to levy penalty under section 271E of the Act.

48. With regard to entry relating to M/s. Dewana Dairy, the Commissioner of Income-tax (Appeals) has recorded the finding in paragraphs 6.10 and 6.11 of his order which read as under :

“6.10 Entry dated November 14, 2007 of Rs. 25,00,000 in the name of M/s. Dewana Dairy : The facts in this regard are that M/s. Vardaan Fashion, a partnership-firm in which the appellant was a partner, paid Rs. 25,00,000 vide an account payee cheque No. 498989, dated November 14, 2007 to M/s. Dewana Dairy on behalf of the appellant. These transactions were business transactions and to prove it the appellant had filed copy of account of M/s. Vardaan Fashion and M/s. Dewana Dairy in the books of the appellant and the ledger account of the appellant in the books of M/s. Vardaan Fashion. Under the Indian Partnership Act, the partnership-firm is not a juristic person and it works through its partners. Any payment made by the firm amounts to the payment made by the partner. Since, the partner and his partnership-firm are one and the same person in the eye of law, there is no legality in making the payment by the firm on behalf of his partner. Hence, the provisions of section 269T do not apply to the transaction in question. The authorised representative of the appellant in support of his case relied on the judgments of the hon’ble High Court of Rajasthan in the case of CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.) and of the Income-tax Appellate Tribunal A-Bench, Ahmedabad, in the case of Shrepak Enterprises v. Deputy CIT [1998] 60 TTJ (Ahd) 199. Even otherwise, there was no contravention of the provisions of section 269T as the repayment was made only through an account payee cheque.

6.11 Entries dated December 7, 2007, February 1, 2008 and February 1, 2008, of Rs. 30,00,000, Rs. 21,00,000 and Rs. 1,40,000 in the name of M/s. Dewana Dairy : The nature of all these entries was same as discussed above while dealing with entry of Rs. 25,00,000 as all these payments have been made by M/s. Vardaan Fashion, a partnership-firm in which the appellant is a partner, on behalf of the appellant through account payee cheques. Therefore, as discussed above the provisions of section 269T read with section 271E are not applicable to these transactions.”

49. From the above, it is evident that all these payments were made by M/s. Vardaan Fashion, a partnership-firm in which the assessee is a partner. All the payments were made by account payee cheque and in the assessee’s books of account, there was only a journal entry (book entry). We have already discussed at length in paragraphs 10 to 15 above that in respect of book entry, the provisions of section 269SS/269T cannot be said to have been violated. For the detailed discussion therein, we uphold the order of the learned Commissioner of Income-tax (Appeals) wherein he cancelled the penalty relating to debit in the name of M/s. Dewana Dairy, by journal entry (book entry).

50. The debit relating to M/s. B. K. Bros. is also by way of book entry. Similar is the debit in the name of M/s. God Sons Bros. The finding of fact recorded by the learned Commissioner of Income-tax (Appeals) that the debit in the name of M/s. B. K. Bros. and M/s. God Sons Bros. were by book entry only has not been controverted by the Revenue before us. Therefore, for the detailed discussion in paragraphs 10 to 15 above, we hold that the provisions of section 269T cannot be said to have been violated in respect of book entry.

51. With regard to debit of Rs. 10,75,000 in the name of M/s. Molycoddle Fashion Pvt. Ltd., the Commissioner of Income-tax (Appeals) has recorded the finding that the appellant paid an account payee cheque of Rs. 10,75,000 on February 1, 2007 to M/s. Molycoddle Fashion Pvt. Ltd. but wrongly debited to Estate Officer, HUDA. When the mistake was realised, a journal entry was passed on May 25, 2007, by crediting the account of Estate Officer, HUDA and debiting to M/s. Molycoddle Fashion Pvt. Ltd. Thus, the debit entry in the case of M/s. Molycoddle Fashion Pvt. Ltd. was only by way of book entry and for such debit entry, the provisions of section 269T cannot be said to have been violated.

52. The debit of Rs. 4,00,000 on March 15, 2008 in the name of M/s. Molycoddle Fashion Pvt. Ltd. was as share application money. Admittedly, when an assessee applies for allotment of shares in some company, the payment is not loan or advance to that company. The factual finding recorded by the Commissioner of Income-tax (Appeals) that the payment was for share application money has not been controverted by the Revenue before us. Therefore, the same is accepted and we have no hesitation in holding that payment for allotment of shares as share application money cannot be said to be repayment of loan or advance so as to violate provisions of section 269T.

53. So far as transaction with M/s. Vardaan Fashion is concerned, we have already discussed similar issue in paragraphs 30 to 35 above. The assessee is a partner in M/s. Vardaan Fashion and the transaction between the partner and the firm, i.e., when the assessee makes a capital contribution to the firm or withdraws the money from his capital account, it cannot be said to be either loan or advance by the partner to the firm or the repayment of loan or advance by the firm to the partner. Therefore, for the detailed discussion in paragraphs 30 to 35 above, we hold that in respect of payment by the assessee to the partnership-firm M/s. Vardaan Fashion, it cannot be said that there is violation of section 269T.

54. In view of the above, we are of the opinion that the Commissioner of Income-tax (Appeals) rightly cancelled the penalty levied under section 269T amounting to Rs. 4,04,79,453. Accordingly, we uphold the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal filed by the Revenue.

I. T. A. No. 2252/Del/2013

55. The grounds raised by the Revenue in this appeal read as under :

56. The Assessing Officer had levied the penalty under section 271D amounting to Rs. 95,25,000 in respect of the following credit entries in the assessee’s books of account :

57. The learned Commissioner of Income-tax (Appeals) cancelled the penalty. Hence, this appeal by the Revenue.

58. We have heard the arguments of both sides and perused relevant material placed before us. So far as credit entry by way of journal entry (book entry) is concerned, we have considered this issue in detail in the assessee’s own case in paragraphs 10 to 15 and have taken the view that there is no violation of provisions of section 269SS when there is a credit entry by way of journal entry (book entry).

59. So far as the acceptance of cash money from Nirupama Wadhawan is concerned, the Commissioner of Income-tax (Appeals) has deleted the penalty with the following finding :

“7.8 As regards the cash received from Smt. Nirupama Wadhawan, wife of the appellant, I find that the appellant had received this cash aggregating to Rs. 30,50,000 on six different dates. It has been explained by the appellant that he along with his wife, Smt. Nirupama Wadhawan, were intending to jointly purchase a house property and for this purpose he had taken the cash totalling to Rs. 30,50,000 from his wife which was available with her. It was explained that since the deal could not be materialised, the said amount was refunded to her through cheques. It was submitted that the said receipt of Rs. 30,50,000 from Smt. Nirupama Wadhawan during the period June 2, 2006, to March 31, 2007, was neither the loan nor deposit as observed by the Additional Commissioner of Income-tax whereas on the contrary the funds were taken from her with the intention to purchase the property in a joint venture. It was also submitted that the amount in question taken from wife was a bona fide act with commercial expediency.

7.9 The hon’ble Calcutta High Court in the case of Dr. B. G. Panda v. Deputy CIT [2000] 111 Taxman 86 (Cal.) (Mag.) held that where the assessee obtained certain loan from his wife in cash for construction of house property which was naturally a joint venture for prosperity of the family and the transaction did not involve any interest element and there was no promise to return the amount with or without interest it could be said that there was a reasonable cause for not complying with section 269SS.

7.10 In the case of ITO v. Tarlochan Singh [2003] 128 Taxman 20 (Amritsar) (Mag) , it has been held that where the assessee had received a loan of Rs. 70,000 in cash from his wife for investment in acquisition of immovable properties, and the assessee was under the bona fide belief that the amount was not to be refunded, no penalty was leviable.

7.11 In the following cases, the Ahmedabad Bench of the hon’ble Income-tax Appellate Tribunal have also cancelled the penalties levied under section 271D even where loans/deposits were taken in cash.

(a ) Shreenathji Corporation v. Asst. CIT [1997] 58 TTJ (Ahd) 611 ; and

(b ) ITO v. Ganesh Wooden Industries I. T. A. No. 1626/Ahd/1997, Bench “SMC” order dated July 8, 2002 [2003] 1 SOT 44 (Ahd).

7.12 In view of the facts of the case and the nature of the transactions and also respectfully following the above decisions and the decisions cited by the authorised representative of the appellant, I hold that there was a reasonable cause for not complying with the provisions of section 269SS of the Income-tax Act, 1961. The Assessing Officer was therefore not justified in imposing penalty under section 271D in respect of cash received by the appellant from his wife.”

60. After considering the facts of the case and the arguments of both sides, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals). Smt. Nirupama Wadhawan is the wife of the assessee who had some surplus cash which she gave to the assessee because the assessee and his wife intended to jointly purchase a house property. Smt. Nirupama Wadhawan had given the surplus cash available with her for the purpose of purchase of such house property. However, when the deal for purchase of the house property could not be materialised, the said amount was refunded to her through cheque. We find that the similar issue was considered by the Income-tax Appellate Tribunal, Amritsar Bench, in the case of ITO v. Tarlochan Singh [2003] 128 Taxman 20 (Mag). In the said case, the husband had taken the cash of Rs. 70,000 from his wife for the purpose of investment in the acquisition of immovable property. The Assessing Officer had levied the penalty under section 271D which was cancelled by the Income-tax Appellate Tribunal holding as under :

“Even keeping in view the contents of the Departmental Circular No. 387 [1985] 152 ITR (St.) 1), it was never the intention of the Legislature to punish a party involved in a genuine transaction. Therefore, by taking a liberal view in the instant case, the assessee had a reasonable cause within the meaning of section 273D.

Thus, keeping in view the entire facts of the instant case, and also keeping in view the intention of the Legislature in enacting the provisions of section 269SS, it was to be held that the assessee was prevented by sufficient cause from receiving the money by an account payee cheque or account payee bank draft.

In the instant case, the assessee was of the opinion that the amount in question did not require to be received by an account payee cheque or account payee draft. Thus, there was a reasonable cause and no penalty should have been levied.

From the above, it would be clear that the assessee had taken plea that firstly there was no violation of the provisions of section 269SS. Secondly, there was a reasonable cause. Thirdly, the assessee was under the bona fide belief that he was not required to receive the amount otherwise than by an account payee cheque or account payee draft. As an alternative submission, it was contended that the default could be considered either technical or venial breach of the provisions of law and, therefore, no penalty under section 271D was leviable.

In view of the above discussion, no penalty under section 271D was leviable. It is well-settled that penalty provision should be interpreted as it stands and, in case of doubt, in a manner favourable to the taxpayer. If the court finds that the language is ambiguous or capable of more meaning that the one, then the court has to adopt the provision which favours the assessee, more particularly where the provisions relate to the imposition of penalty.

In view of the above, the penalty sustained by the Commissioner (Appeals) was cancelled.”

61. That the ratio of the above decision of the Income-tax Appellate Tribunal, Amritsar Bench, would be squarely applicable to the facts of the assessee’s case. Here also, the wife had given the money to the husband for acquisition of a property which was supposed to be purchased jointly. It is a different matter that ultimately the deal could not materialise. However, the claim of the assessee that amount was taken by the assessee from her wife for purchase of the property has not been disputed by the Revenue. Therefore, the ratio of the above decision of the Income-tax Appellate Tribunal, Amritsar Bench, would be squarely applicable to the appeal under consideration before us.

62. In the case of CIT v. Sunil Kumar Goel [2009] 315 ITR 163/183 Taxman 53 , the hon’ble Punjab and Haryana High Court held as under (headnote) :

“A family transaction, between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof was contained in the compilation of accounts, and which had no tax effect, established ‘reasonable cause’ under section 273B of the Act. Since the assessee had satisfactorily established ‘reasonable cause’ under section 273B of the Act, he must be deemed to have established sufficient cause for not invoking the penal provisions of sections 271D and 271E of the Act against him. The deletion of penalty by the Tribunal was valid.”

63. That the ratio of the above decision of the hon’ble Punjab and Haryana High Court would also be squarely applicable in respect of cash transaction between the assessee and his wife. No contrary decision of any High Court or the Tribunal has been brought to our knowledge. Admittedly, the transaction was between the husband and wife with the intention to purchase a property jointly. When the deal for purchase of the property could not materialise, the husband, i.e., the assessee refunded the amount to his wife. Thus, in our opinion, the acceptance of the cash by the husband from his wife cannot be said to be taking of the loan or advance in strict sense of section 269SS. We, therefore, find no infirmity in the order of the learned Commissioner of Income-tax (Appeals) wherein he cancelled the penalty levied under section 271D for the acceptance of cash by the assessee from his wife. We, therefore, uphold the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal filed by the Revenue.

64. In the result, all the appeals of the Revenue are dismissed.

PAMPA