Section 269SS/269T and section 271D/E – Transactions involving the receipts and payments of loans and advances among the group settled by way of “journal entries” – Penalty imposed deleted on the ground of “reasonable cause.”
Facts:
The assessees and five other appellants belong to the Lodha group which is engaged in the business of land development and construction of real estate properties. There were large number of transactions aggregating to Rs. 495.23 crore involving the receipts and payments of loans and advances among the group settled by way of “journal entries”. During the assessment proceedings, the AO asked the assessee to show cause as to why loans were accepted/repaid otherwise than by the account payee cheque/draft.
In this regard, assessee informed that the said loans/advances were transacted with the sister concerns only by way of “journal entries” and there were no cash transactions involved. The core transactions were undertaken by way of cheques only. It was further explained that the assessees resorted to the journal entries for transfer/assignment of loan among the group companies for business consideration. Journal entries were passed to transfer/ assign liabilities or to take effect of actionable claims/ payments received by group companies on behalf of the assessee. It was contended by the assessee that the said transactions with the sister concerns were for commercial expediencies which should be kept outside the scope of the provisions of sections 269SS/269T of the Act. The journal entries were also passed in thebooks of accounts for reimbursement of expenses and for sharing of the expenses within the group to which the provisions of section 269SS of the Act have no application and for this, the assesses relied on the judgment of the Madras High Court in the case of CIT vs. Idhayam Publications Ltd. [2007] 163 Taxman 265. It also relied on the CBDT Circular No.387, dated 6th July, 1984 and contended that the purpose of introducing section 269SS of the Act was to curb cash transactions only and the same was not aimed at transfer of money by transfer/assignment of loans of other group companies.
The Addl. CIT relied on the decision of the Bombay High Court in the case of Triumph International (I) Ltd., dated 12-06-2012 reported in 22 taxmann.com 138/345 ITR 370 where it was held that where the loan/deposit were repaid by debiting the amount through journal entries, it must be held that the assessee has contravened the relevant provisions. According to him even bona fide and genuine transactions, if carried out in violation of provisions of section 269SS of the Act would attract the provisions of section 271D of the Act. Accordingly, he levied a penalty of Rs. 495.24 crore u/s. 271D.
On appeal, the CIT(A) relied on the judgment of the Bombay High Court in the case of Triumph International (I) Ltd. dated 17-08-2012, for the proposition that receiving loans and repayments through “journal entries” constitutes “violation” within the meaning of provisions of section 269SS and 269T of the Act.
Held:
According to the Tribunal, the CIT(A) ignored the finding of the Bombay High Court in the case of Triumph International (I) Ltd. which judgment was relied on by him viz., that “the transactions in question were undertaken not with a view to receive loans/deposits in contravention of section 269SS but with a view to extinguish the mutual liability of paying/receiving the amounts by the assessee and its sister concern to the customers. In the absence of any material on record to suggest that the transactions in question were not reasonable or bona fide and in view of section 273B of the Act, we see no reason to interfere with the order of the Tribunal in deleting the penalty..”. Further, referring to the judgment of the Bombay High Court in the case of Triumph International (I) Ltd. dated 12-06-2012, the Tribunal agreed with the revenue that the journal entries are hit by the relevant provisions of section 269SS of the Act. However, it added that as per the said judgment completing the “empty formalities” of payments and repayments by issuing/receiving cheque to swap/square up the transactions, was not the intention of the provisions of section 269SS of the Act, when the transactions were otherwise bona fide or genuine. Such reasons of the assessee constitute “reasonable cause within the meaning of section 273B of the Act. The Tribunal further noted that there is no finding of AO that the impugned transactions constituted unaccounted money and are not bona fide or not genuine. In the language of the Bombay High court, “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”.
According to the Tribunal, admittedly, the transactions by way of journal entries were aimed at the extinguishment of the mutual liabilities between the assessees and the sister concerns of the group and such reasons constitute a reasonable cause. The Tribunal further noted that the causes shown by the assessee for receiving or repayment of the loan/deposit otherwise than by accountpayee cheque/bank draft, was on account of the following, namely: alternate mode of raising funds; assignment of receivables; squaring up transactions; operational efficiencies/ MIS purpose; consolidation of family member debts; and correction of errors. According to it, all these reasons were, prima facie, commercial in nature and they cannot be described as non-business by any means. The tribunal agreed with the assessee as to why should the assessee under consideration take up issuing number of account payee cheques/bank drafts which can be accounted by the journal entries. What is the point inissuing hundreds of account payee cheques/account payee bank drafts betweenthe sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? In its opinion, on the factual matrix of these cases under consideration, journal entries should enjoy equal immunity on par with account payee cheques or bank drafts. Therefore, the tribunal held that though the assessee had violated the provisions of section 269SS/269T of the Act in respect of journal entries, the assessee had shown reasonable cause and, therefore, the penalty imposed u/s. 271D/E of the Act were not sustainable.
