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From the Courts »
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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

COMMISSIONER OF INCOME TAX-VI Vs. WORLDWIDE TOWNSHIP PROJECTS LTD
June, 13th 2014
           THE HIGH COURT OF DELHI AT NEW DELHI
%                               Judgment delivered on: 21.05.2014
+       ITA 232/2014

COMMISSIONER OF INCOME TAX-VI                             ..... Appellant

                                   versus
WORLDWIDE TOWNSHIP PROJECTS LTD                     ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Rohit Madan, Mr P. Roy Choudhary
                    and Mr Akash Vajpai.
For the Respondent: None.

CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU

                                JUDGMENT

VIBHU BAKHRU, J (ORAL)

1.        This is an appeal filed by the Revenue under Section 260A of the
Income Tax Act, 1961 (hereinafter referred to as `the Act'). The appellant
impugns the order dated 31.10.2013 passed by the Income Tax Appellate
Tribunal (ITAT), whereby the ITAT had held that the penalty order passed
by the Assessing Officer under Section 271D of the Act was unsustainable,
as it was passed beyond the period of six months as prescribed under
Section 275(1)(c) of the Act.

2.      The learned counsel for the Revenue contends that the ITAT erred in
holding that Section 275(1)(c) of the Act was applicable in the present case.
According to the Revenue, Section 275(1)(a) of the Act would be
applicable in respect of the penalty imposed in the facts and circumstances


ITA 232/2014                                                     Page 1 of 10
of the case and not Section 275(1)(c) of the Act.

3.      Briefly stated the facts are:-

3.1     That the respondent/assessee filed its return of income for the
assessment year 2007-08 on 30.10.2007. The return was taken up for
scrutiny and the Assessing Officer found that during the year in question,
the assessee had shown purchases of land worth `14.22 crores which was
reflected as closing stock in trade. The assessee had also reflected a sum of
`14,25,74,302/- as Sundry Creditors. The assessee explained that the
Sundry Creditor reflected in its books was M/s PACL India Ltd., which had
purchased lands on behalf of assessee from several land owners. M/s PACL
India Ltd. had made payments through demand drafts to various land
owners from whom the land was acquired on behalf of the assessee. The
Assessing Officer concluded, that the transaction as disclosed by the
assessee amounted to M/s PACL India Ltd. extending a loan to the
assessee. The Assessing Officer further concluded that the said transaction
fell foul of the provisions of Section 269SS/269T of the Act, which
proscribed any person from accepting any loan or deposit exceeding
`20,000/- otherwise than by an account payee cheque. Since no funds had
passed through the bank accounts of the assessee for acquisition of the
lands or the alleged loan extended by M/s PACL India Ltd, the Assessing
Officer concluded that penalty proceedings under Section 271D of the Act
were liable to be initiated.        Although, the Assessing Officer, by its
assessment order dated 30.12.2009, accepted the income as returned by the
assessee he issued directions for initiating penalty proceedings under
Section 271D of the Act for alleged violation of the provisions of Section



ITA 232/2014                                                     Page 2 of 10
269SS/269T of the Act.

3.2      The assessment order dated 30.12.2009 was carried in appeal by the
assessee, inter alia, on the ground that the conclusion of the Assessing
Officer, that the assessee had infringed the provisions of Section
269SS/269T of the Act was erroneous, as no cash payments had been made
or received by the appellant. The assessee also challenged initiation of
penalty proceedings under Section 271(1)(c) and 271D of the Act. The CIT
(Appeals) rejected the appeal filed by the assessee by an order dated
23.02.2012, whereby it held that since no penalty had been levied by the
Assessing Officer under Section 271(1)(c) or 271D of the Act, the appeal
filed by the assessee was pre-mature and could not be adjudicated.




3.3     Thereafter, the Assessing Officer passed a penalty order dated
10.03.2012 under Section 271D of the Act whereby the Assessing Officer
held that the assessee had violated the provisions of Section 269SS of the
Act as sums aggregating `14,25,74,302/- were transferred to the loan
account in the form of book entries, otherwise than through an account
payee cheque or a account payee draft. This according to the Assessing
Officer contravened the provisions of Section 269SS of the Act and,
accordingly, a penalty of `14,25,74,302/- was imposed.

3.4     This order was also carried in appeal before the CIT (Appeals). The
assessee impugned the penalty order on the grounds that it was barred by
limitation as well as on merits. The CIT (Appeals) rejected the contentions
of the assessee that penalty order was beyond the prescribed period of
limitation and held that the order fell within the purview of Section
271(1)(a) and not Section 275(1)(c) of the Act. However, on merits the



ITA 232/2014                                                   Page 3 of 10
CIT (Appeals) referred to the decision of this Court in CIT v. Noida Toll
Bridge Co. Ltd.: 262 ITR 260 and negated the finding of the Assessing
Officer that Section 269SS of the Act was violated in the given
circumstances of the case.

3.5     The aforementioned order of CIT (Appeals) dated 28.01.2013 was
challenged by both the Revenue as well as the assessee. Whilst the assessee
was aggrieved with the conclusion of CIT (Appeals) that the penalty order
was within time, the Revenue was aggrieved by the finding that Provisions
of Section 269SS of the Act were not violated. The ITAT accepted the
contention of the assessee that penalty order under Section 271D of the Act
was barred by time as the provisions of Section 271(1)(c) of the Act were
applicable in the given facts of the case. In view of this finding, the ITAT
concluded that the appeal preferred by the Revenue has become
infructuous.

4.      The learned counsel for the Revenue has contended that the
assessment order for the assessment year 2007-08 was passed on
30.12.2009.    The assessee's appeal, impugning this order before CIT
(Appeals), was rejected on 23.02.2012. According to the Revenue, an order
imposing penalty under Section 271D of the Act could be passed till
31.03.2013 (i.e. one year after the end of the financial year 2011-12 during
which the appeal order was passed). It was submitted that since the penalty
order under Section 271D of the Act was passed on 10.03.2012, the same
was within the period prescribed under Section 275(1)(a) of the Act. The
said contention is permitted on the basis that provisions of Section
275(1)(a) of the Act are applicable. This was disputed by the assessee. It is




ITA 232/2014                                                     Page 4 of 10
the assessee's case that in the given facts and circumstances, Section
275(1)(c) of the Act is applicable which provides that the penalty order has
to be passed in the financial year in which the proceedings for imposing the
penalty are initiated or within six months of initiation of such proceedings,
whichever is later. Initiation of proceedings was referred to in the
assessment order dated 30.12.2009. Thus, the time period for imposing
penalty expired on 31.03.2010. The penalty order refers to a show cause
notice dated 07.03.2011. There is some controversy whether this show
cause notice was in fact, issued. However, without going into this
controversy, it is apparent that if Section 275(1)(c) of the Act is applicable
then in any view the period for passing the penalty order would expire
within six months of the said date.

5.      Concededly, if Section 275(1)(c) of the Act is applicable, the penalty
order is beyond the prescribed period. In the present case, the penalty
sought to be imposed on the assessee is for alleged violation of Section
269SS of the Act. It is well settled that a penalty under this provision is
independent of the assessment. The action inviting imposition of penalty is
granting of loans above the prescribed limit otherwise than through banking
channels and as such infringement of Section 269SS of the Act is not
related to the income that may be assessed or finally adjudicated. In this
view Section 275(1)(a) of the Act would not be applicable and the
provisions of Section 275(1)(c) would be attracted. The Rajasthan High
Court in the case of Commissioner of Income-Tax v. Hissaria Bros.:
(2007) 291 ITR 244 (Raj.) after examining a case which was factually
similar to the present one, expressed similar view and held as under:-




ITA 232/2014                                                      Page 5 of 10
               "The expression other relevant thing used in Section
        275(1)(a) and clause (b) of Sub-section (1) of section 275 is
        significantly missing from clause (c) of section 275(1) to
        make out this distinction very clear.

               We are, therefore, of the opinion that since penalty
        proceedings for default in not having transactions through the
        bank as required under sections 269SS and 269T are not
        related to the assessment proceeding but are independent of it,
        therefore, the completion of appellate proceedings arising out
        of the assessment proceedings or the other proceedings during
        which the penalty proceedings under sections 271D and 271E
        may have been initiated has no relevance for sustaining or not
        sustaining the penalty proceedings and, therefore, clause (a) of
        sub-section (1) of section 275 cannot be attracted to such
        proceedings. If that were not so clause (c) of section 275(1)
        would be redundant because otherwise as a matter of fact
        every penalty proceeding is usually initiated when during
        some proceedings such default is noticed, though the final fact
        finding in this proceeding may not have any bearing on the
        issues relating to establishing default e.g. penalty for not
        deducting tax at source while making payment to employees,
        or contractor, or for that matter not making payment through
        cheque or demand draft where it is so required to be made.
        Either of the contingencies does not affect the computation of
        taxable income and levy of correct tax on chargeable income;
        if clause (a) was to be invoked, no necessity of clause (c)
        would arise."

6.      The ITAT, following the aforesaid decision allowed the appeal
preferred by the assessee. We do not find any infirmity with this view.

7.      More importantly, we are unable to appreciate as to how in the given
circumstance of the case an offence under Section 269SS of the Act is
made out. At this stage, we may refer to Section 269SS of the Act. The
relevant extract of the same reads as under:-




ITA 232/2014                                                       Page 6 of 10
        "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 if,--
        (a) the amount of such loan or deposit or the aggregate amount
            of such loan and deposit; or
        (b) on the date of taking or accepting such loan or deposit, any
               loan or deposit taken or accepted earlier by such person
               from the depositor is remaining unpaid (whether
               repayment has fallen due or not), the amount or the
               aggregate amount remaining unpaid; or
        (c) the amount or the aggregate amount referred to in clause
            (a) together with the amount or the aggregate amount
            referred to in clause (b),
        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,--
        (a) Government;
        (b) any banking company, post office savings bank or co-
            operative bank;
        (c) any corporation established by a Central, State or
            Provincial Act;
        (d) any Government company as defined in section 617 of the
            Companies Act, 1956 (1 of 1956);
        (e) such other institution, association or body or class of
             institutions, associations or bodies which the Central
             Government may, for reasons to be recorded in writing
             notify in this behalf in the Official Gazette:
        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


ITA 232/2014                                                      Page 7 of 10
        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,--
               (i)     "banking company" means a company to which
                       the Banking Regulation Act, 1949 (10 of 1949),
                       applies and includes any bank or banking
                       institution referred to in section 51 of that Act;
               (ii)    "co-operative bank" shall have the meaning
                       assigned to it in Part V of the Banking Regulation
                       Act, 1949 (10 of 1949);
               (iii)   "loan or deposit" means loan or deposit of
                       money."




8.      A plain reading of the aforesaid Section indicates that (the import of
the above provision 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 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 accounts 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 monies are receivable in the books of
accounts, is clearly outside the ambit of the provision of Section 269SS of
the Act, because passing such entries does not involve acceptance of any
loan or deposit of money. In the present case, admittedly no money was
transacted other than through banking channels. M/s PACL India Ltd.



ITA 232/2014                                                       Page 8 of 10
made certain payments through banking channels to land owners. This
payment made on behalf of the assessee was recorded by the assessee in its
books by crediting the account of M/s PACL India Ltd. In view of this
admitted position, no infringement of Section 269SS of the Act is made out.
This Court, in the case of Noida Toll Bridge Co. Ltd. (supra), considered a
similar case where a company had paid money to the Government of Delhi
for acquisition of a land on behalf of the assessee therein. The Assessing
Officer levied a penalty under Section 271D of the Act for alleged violation
of the provisions of Section 269SS of the Act since the books of the
assessee reflected the liability on account of the lands acquired on its
behalf. On appeal, the CIT (Appeals) affirmed the penalty. The order of
the CIT was successfully impugned by the assessee before the ITAT. On
appeal, this Court held as under:-

               "While holding that the provisions of Section 269SS of
        the Act were not attracted, the Tribunal has noticed that: (i) in
        the instant case, the transaction was by an account payee
        cheque, (ii) no payment on account was made in cash either
        by the assessed or on its behalf, (iii) no loan was accepted by
        the assessee in cash, and (iv) the payment of Rs. 4.85 crores
        made by the assessee through IL & FS, which holds more
        than 30 per cent. of the paid-up capital of the assessee, by
        journal entry in the books of account of the assessed by
        crediting the account of IL & FS.
               Having regard to the aforenoted findings, which are
        essentially findings of fact, we are in complete agreement
        with the Tribunal that the provisions of section 269SS were
        not attracted on the facts of the case. Admittedly, neither the
        assessee nor IL & FS had made any payment in cash. The
        order of the Tribunal does not give rise to any question of law,
        much less a substantial question of law.




ITA 232/2014                                                        Page 9 of 10
             We accordingly decline to entertain the appeal.
        Dismissed."

9.      In our view, the present appeal is bereft of any merit and is,
accordingly, dismissed.



                                            VIBHU BAKHRU, J




                                          S. RAVINDRA BHAT, J
MAY 21, 2014
RK




ITA 232/2014                                               Page 10 of 10

 
 
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