Commissioner of Income Tax vs Madhav Enterprise Pvt. Ltd.

Mukesh R. Shah, J.—The present appeal has been preferred by the Revenue challenging the impugned judgment and order passed by the income tax Appellate Tribunal (hereinafter to be referred to as "the ITAT") dated December 14, 2012, by which the income tax Appellate Tribunal has dismissed the said appeal preferred by the Revenue confirming the order passed by the Commissioner of income tax (Appeals) quashing and setting aside the order passed by the Assessing Officer imposing penalty u/s 271E of the income tax Act, 1961, (hereinafter referred to as "the Act") with the proposed following question of law:

Whether the Appellate Tribunal has substantially erred in holding that advances against the booking of shops and offices is not deposit within the meaning of section 269SS and section 269T of the income tax Act, against the decision of the Allahabad High Court, Chaubey Overseas Corporation Vs. The Commissioner of Income Tax and thereby deleting the penalty of Rs. 15,92,940 u/s 271E of the Act?

The facts leading to the present appeal in a nut-shell are as under:

2.1 That with respect to the assessment year 2006-07, the assessment in the case of the assessee u/s 143(3) of the Act was completed on December 24, 2008, by the Assessing Officer. During the course of scrutiny assessment, the Assessing Officer noticed that certain deposits were repaid in cash exceeding Rs. 20,000, i.e., otherwise than by an account payee cheque or bank draft to various persons amounting to Rs. 15,92,940 and, thus, the assessee violated the provisions of section 269T of the Act and, therefore, the Assessing Officer made reference to the Additional Commissioner of income tax, Bhavnagar Range-1, Bhavnagar, for initiation of penalty proceedings u/s 271E of the Act.

2.2 That the Additional Commissioner of income tax initiated penalty proceedings u/s 271E of the Act. Show-cause notice was issued upon the assessee on January 22, 2009, to show cause as to why penalty u/s 271E of the Act should not be levied for the contravention of the provisions of section 269T of the Act.

2.3 That the Additional Commissioner of income tax passed the final order on April 9, 2009, imposing penalty of an equal amount of Rs. 15,92,940 being penalty u/s 271E of the Act.

At this stage, it is required to be noted that it was the specific case on behalf of the assessee that the amount of Rs. 15,92,940, which was repaid was by way of advance taken from different persons and, on the other hand, the Department treated it as loan and/or deposit.

Feeling aggrieved by and dissatisfied with the order of penalty imposed by the Additional Commissioner of income tax, the assessee preferred an appeal before the Commissioner of income tax (Appeals) and by an order dated July 14, 2009, the Commissioner of income tax (Appeals) allowed the said appeal preferred by the assessee and quashed and set aside the order of penalty by observing in paragraph 2.3 as under:

2.3 I have carefully considered the contentions of the learned counsel for the appellant and have also carefully gone through the assessment order as well as penalty order. The appellant is an enterprise constructing several building like, flats, shops, offices, etc. During the last five years, the appellant has constructed two projects. The total units constructed by the appellant are 264 including flats, shops, offices, etc. For these projects, the appellant used to take earnest money for booking of flats, shop, office, etc., from the interested parties and it has almost allotted every persons/parties, the office/shop/flats, they booked with the appellant. The learned authorised representative has clarified that the amount which were repaid to the parties, were reflected as advance from customers in the books of account and was accordingly reported as advance from customers in the audit report prepared by a chartered accountant for the year under consideration. The learned authorised representative also placed before me a paper book containing a copy of account and confirmation of the parties to whom the booking advance were returned, stating that the same were furnished before the Additional Commissioner of income tax. Only 25 parties were refunded their advance money (without interest) because of various reasons. The provisions of section 269SS and section 269T are applicable where loan or deposit have been accepted or repaid otherwise than account payee cheque. Here, the customers had given earnest money (booking advance) for purchase of shop/office/flat. Many of the advances money received by cheques and in some cases by cash. Considering the nature of the repayment, which does not fall under the category of loan or deposit, the provisions of section 269T read with section 271E are not applicable to this case. Here, it is also interesting to note that while accepting the advance money, in some of the cases, the appellant has accepted the same in cash exceeding Rs. 20,000 which was in the knowledge of the Assessing Officer at the relevant time but the Assessing Officer has not applied the provisions of section 271D of the Act. The Assessing Officer has considered the advance-money taken by the appellant as return of loan or deposit which is actually not the fact in this case. It cannot be termed as deposits as held by the Assessing Officer because the same were advance money and were refunded to the parties without interest. Had there been any loan or deposit, the appellant certainly would have paid interest on it which is not the case here. Moreover, there is no bar in the Act against accepting the cash for sale of an immovable asset. In this case, it is also not the fact that the advance money received from the customers have been converted into loan or deposit and, hence, the case law relied upon by the appellant in the case of Sunflower Builders (P.) Ltd. v. Deputy CIT in I.T.A. No. 623/Pune/1995 of the Pune income tax Appellate Tribunal is also applicable to the present facts of the case. Further, the Assessing Officer has not commented on the detailed submissions filed before him during the course of penalty proceedings and without appreciating the full facts has imposed penalty only because the refunds were made by bearer cheques. From the above facts and circumstances of the case and in the light of the case law cited by the appellant, I am of the considered view that the Assessing Officer was not justified in levying the penalty of Rs. 15,92,940 u/s 271E which is hereby cancelled.

Feeling aggrieved and dissatisfied with the order passed by the Commissioner of income tax (Appeals), the Revenue preferred an appeal before income tax Appellate Tribunal and by the impugned judgment and order the income tax Appellate Tribunal has dismissed the said appeal preferred by the Revenue by observing in paragraphs 9 to 12 as under:

We have heard the rival submissions and perused the material on record. The factual matrix of the case is that the assessee is engaged in the business of building properties of various sites. The assessee has sold 264 units in his project and in the case of 18 parties the amount aggregating to Rs. 15,92,940 was returned to the parries in cash. It is a fact that the amount returned represented the earnest money received by it on sale of units. The assessee has reflected the advance received in its balance-sheet and the same has been accepted by the Department in the earlier years. The advances received also included receipt in cash. The amounts refunded did not include any interest.

In the case of the Commissioner of Income Tax Vs. Rugmini Ram Ragav Spinners P. Ltd., the hon''ble Madras High Court held that the penalty u/s 271E is not automatic and is to be levied only in the absence of reasonable cause . . . The rationale behind the provisions of section 269SS and section 269T is to prevent the tax evasion, i.e., the laundering of concealed income by the parties in the guise of cash loans or deposits in or outside the accounts. The provisions of section 269SS and section 269T, therefore, have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan. The provisions of section 269SS and section 269T have no application at all.

The term ''loan or deposit'', as per the Explanation to section 269T, means any loan or deposit of money which is repayable after notice or repayable after a period. In the case of the assessee the advance money/earnest money was not accepted with any pre-conditions of repayment on or after an interval of time. The Commissioner of income tax (Appeals) has given a finding that considering the nature of repayment the amount returned does not fall under the narration of loan or deposit. Further, he has also given a finding that the advance money received from the customers has not been converted into loan or deposit. He has further observed that in some cases the assessee had accepted the advance money in cash in excess of Rs. 20,000 which was in the knowledge of the Assessing Officer but the Assessing Officer had not applied the provisions of section 271D of the Act. He has further held that there is no ban in the Act against accepting cash for sale of an immovable asset. In the present case, the advance is for purchase of shop/premises which is accepted asset. The Commissioner of income tax (Appeals) has further observed that the Assessing Officer has not commented on the detailed submissions filed before him during the course of penalty proceedings and without appreciating the full facts. The Assessing Officer has levied penalty only for the reason that the refunds were made by the cheques. Nothing has been brought on record by the Revenue to controvert the findings of the Commissioner of income tax (Appeals) further the case law relied on by the Revenue are also distinguishable on facts.

In the case of Shiv Enterprises (I.T.A. No. 291/Ahd/2009 order dated October 14, 2011), the co-ordinate Bench relying on theCentral Board of Direct Taxes Circular No. 387, dated July 6, 1984 (see Hyderabad Vanaspati Limited Vs. Income Tax Officer, Central Circle, Hyderabad and Another, , held receiving advance and repayment of advances is a business transaction. The provisions of section 269SS is confined to loans and deposits only and does not extend to purchase/sale transaction.

Feeling aggrieved by and dissatisfied with the judgment and order passed by the income tax Appellate Tribunal, the Revenue has preferred the present appeal.

Having heard Ms. Mauna Bhatt, learned counsel appearing for the Revenue, and considering the orders passed by the income tax Appellate Tribunal as well as the Commissioner of income tax (Appeals), and as observed by the income tax Appellate Tribunal and the Commissioner of income tax (Appeals), an amount of Rs. 15,92,940 returned by the assessee to various parties was by of advance and the assessee also reflected the said amount of advance received in its balance-sheet, which came to be accepted by the Department in the earlier years, it is rightly held that section 269T of the Act would not be applicable and, therefore, no penalty u/s 271E of the Act can be levied for breach of section 269T of the Act so far as the assessee is concerned. Considering the aforesaid facts, we see no reason to interfere with the impugned judgment and order passed by the income tax Appellate Tribunal in confirming the order passed by the Commissioner of income tax (Appeals), quashing and setting aside the order impugned order of penalty passed by the Additional Commissioner of income tax. No question of law much less any substantial question of law arise in the present appeal. Accordingly, the present tax appeal is dismissed.