Gujarat H.C : Advances against the booking of shops and offices is not deposit within the meaning of section 269SS and 269T of the I.T. Act, against the decision of Allahabad High Court, 303 ITR 9 in the case of Chaubey Overseas Corp. and thereby deleting the penalty of Rs. 15,92,940/- under section 271E of the Act

High Court Of Gujarat

CIT–VI vs. Madhav Enterprise (P.) Ltd.

Assessment Year : 2006-07

Section : 269T, 271E

M.R. Shah And Ms. Sonia Gokani, JJ.

Tax Appeal No. 561 Of 2013

July  3, 2013

ORDER

M.R. Shah, J. – 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 “ITAT”) dated 14.12.2012 by which ITAT has dismissed the said appeal preferred by the Revenue confirming the order passed by CIT(A) quashing and setting aside the order passed by the Assessing Officer imposing penalty under section 271E of the Income Tax Act, (hereinafter referred to as “the Act”) with 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 269T of the I.T. Act, against the decision of Allahabad High Court, 303 ITR 9 in the case of Chaubey Overseas Corp. and thereby deleting the penalty of Rs. 15,92,940/- under section 271E of the Act ?”

2. Facts leading to the present appeal in nutshell are as under:

2.1 That with respect to Assessment Year 2006-07, the assessment in the case of the assessee under section 143(3) of the Act was completed on 24.12.2008 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 then by an account payee cheque or bank draft to various persons amounting to Rs.15,92,940/- and thus 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 under section 271E of the Act.

2.2 That the Additional Commissioner of Income-tax initiated penalty proceedings under section 271E of the Act. Show-cause notice was issued upon the assessee on 22.1.2009 to show cause as to why penalty under section 271E of the Act should not be levied for contravention of provisions of section 269T of the Act.

2.3 That the Additional Commissioner of Income-tax passed the final order on 9.4.2009 imposing penalty of an equal amount of Rs.15,92,940/- being penalty under section 271E of the Act.

3. 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.

4. Feeling aggrieved by and dissatisfied with the order of penalty imposed by the Additional Commissioner of Income-tax, the assessee preferred appeal before CIT(A) and by order dated 14.7.2009, the CIT(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 AR also placed before me a paper book containing copy of account and confirmation of the parties to whom the booking advance were returned, stating that the same were furnished before the Addl. CIT. Only 25 parties were refunded their advance money (without interest) because of various reasons. The provisions of sec. 269SS and 269T are applicable where loan or deposit have been accepted or repaid otherwise than account payee cheque. Here, 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 sec.269T r.w.s. 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 AO at the relevant time but the AO has not applied the provisions of section 271D of the Act. The AO 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 AO 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. DCIT in ITA No.623/Pn 1995 of Pune I.T.A.T. is also applicable to the present facts of the case. Further, the AO 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-laws cited by the appellant, I am of the considered view that the AO was not Justified in levying the penalty of Rs.15,92,940/- under section 271E which is hereby cancelled.”

5. Feeling aggrieved and dissatisfied with the order passed by CIT(Appeals), the Revenue preferred appeal before ITAT and by impugned judgment and order the ITAT has dismissed the said appeal preferred by the Revenue by observing in paragraphs 9 to 12 as under:—

“9. 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 parties 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.

10. In the case of the CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. (2008) 304 ITR 417 Hon’ble Madras High Court held ” the penalty u/s. 271E is not automatic and is to be levied only in the absence of reasonable cause. The rationale behind provisions of Sec.269SS and 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 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 269T have no application at all.

11. The term loan or deposit as per 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. CIT(A) 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 A.O but A.O had not applied the provisions of sec.271D of the Act. He has further held that there is no ban in the Act against accepting cash for sale of an immoveable asset. In the present case the advance is for purchase of shop/premises which is accepted asset. CIT(A) has further observed that A.O has not commented on the detailed submissions filed before him during the course of penalty proceedings and without appreciating the full facts. A.O has levied penalty only for the reason that the refunds were made by the cheques. Nothing has been brought on record by Revenue to controvert the findings of CIT(A) further the case laws relied by the Revenue are also distinguishable on facts.

12. In the case of Shiv Enterprises (ITA No.291/Ahd/2009 order dated 14-10-2011), the coordinate Bench relying on the CBDT Circular No.387 dated 06-07-1984 held receiving advance and re-payment of advances is a business transaction. Provisions of Sec.269SS is confined to loans and deposits only and does not extend to purchase/sale transaction.”

6. Feeling aggrieved by and dissatisfied with the judgment and order passed by the ITAT, the Revenue has preferred the present appeal.

7. Having heard Ms. Mauna Bhatt, learned counsel appearing for the Revenue and considering the orders passed by ITAT as well as CIT(A), and as observed by ITAT and CIT(A), 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 under section 271E of the Act can be levied for breach of section 269T of the Act so far as the assessee is concerned.

8. Considering the aforesaid facts, we see no reason to interfere with the impugned judgment and order passed by the ITAT in confirming the order passed by the CIT(A), 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, present Tax Appeal is dismissed.

[Citation : 356 ITR 588]

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