M K Road, Mumbai – 400 020 v. M/S.triumph International Finance (I) Limited

agk IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.5745 OF 2010 The Commissioner of Income Tax, Central IV, 6[th] Floor, 660 Aayakar Bhavan, M K Road, Mumbai – 400 020 ..Appellant. Versus M/s.Triumph International Finance (I) Limited, Oxford Centre, 10, Shroff Lane, Colaba Causeway, Mumbai – 400 023..Respondent. Mr.Suresh Kumar, Advocate for the appellant.Mr.Percy J Pardiwala, Senior Advocate with Mr.Atul K Jasani for the respondent. CORAM : J.P. Devadhar & A.R. Joshi, JJ. Reserved on :25[th] July 2012. Pronounced on :17[th] August 2012. ORAL JUDGMENT : (Per J.P. Devadhar, J.) 1.This appeal was admitted on 13[th] September 2010 on the following substantial questions of law :- “1.Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that transactions amounting to Rs.22,99,17,748/- effected through journal entries in the books of the assessee would not amount to acceptance of any loan or deposit otherwise than by account payee cheque or account payee bank draft within the meaning of Section 269SS to attract levy of penalty under Section 271D of the Income Tax Act, 1961 ?Tribunal was justified in law in holding that transactions amounting to Rs.22,99,17,748/- effected through journal entries in the books of the assessee would not amount to acceptance of any loan or deposit otherwise than by account payee cheque or account payee bank draft within the meaning of Section 269SS to attract levy of penalty under Section 271D of the Income Tax Act, 1961 ? 2.Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting penalty of Rs.2,10,00,000/- levied under Section 271D of the Income Tax Act, by accepting the additional evidence filed before it by the assessee without giving opportunity to the Additional Commissioner of Income Tax, Central Range – 6, who levied the aforesaid penalty ?Tribunal was justified in law in deleting penalty of Rs.2,10,00,000/- levied under Section 271D of the Income Tax Act, by accepting the additional evidence filed before it by the assessee without giving opportunity to the Additional Commissioner of Income Tax, Central Range – 6, who levied the aforesaid penalty ? 2.The assessment year involved herein is AY 2000-2001. 3.The respondent – assessee is a public limited company and is a member of the National Stock Exchange. Triumph Securities Limited is a group concern of the assessee, carrying on the business as a member of the Bombay Stock Exchange. Both the assessee as well as Triumph Securities Limited have common customers who purchase and sell shares and securities through the assessee as well as Triumph Securities Limited. As a result of the sale / purchase transactions, some customers were liable to pay to the assessee on account of purchase of shares and securities on behalf of the customers. Similarly, the Triumph Securities Limited were liable to pay to the customers the amounts received by them by selling shares / securities belonging to the customers. 3.The respondent – assessee is a public limited company and is a member of the National Stock Exchange. Triumph Securities Limited is a group concern of the assessee, carrying on the business as a member of the Bombay Stock Exchange. Both the assessee as well as Triumph Securities Limited have common customers who purchase and sell shares and securities through the assessee as well as Triumph Securities Limited. As a result of the sale / purchase transactions, some customers were liable to pay to the assessee on account of purchase of shares and securities on behalf of the customers. Similarly, the Triumph Securities Limited were liable to pay to the customers the amounts received by them by selling shares / securities belonging to the customers. 4.In the assessment year in question, it was mutually agreed by and between the common customers, the assessee & Triumph Securities Limited that the assessee instead of paying the amounts due to the said common customers and the Triumph Securities Limited receiving the amounts recoverable from the said customers, the accounts of the assessee and the Triumph Securities Limited be settled through journal entries so that the respective credit / debit liabilities of the assessee and Triumph Securities Limited towards their common customers are discharged. Accordingly, the assessee effected transfer entries in its books to the extent of Rs.66,43,43,609/- in the name of Triumph Securities Limited out of which Rs.43,44,25,860/- represented aggregate of creditors balances transferred and Rs.22,99,17,749/- represented aggregate of debtors balances transferred. 5.The accounts of the asessee for AY 2000-2001 were audited through a auditor appointed under Section 142(2A) of the Income Tax Act, 1961. In the special audit report it was stated that in the assessment year in question, the assessee had received from Vijay Diamond Private Limited a sum of Rs.2.10 crores from Vijay Diamond Private Limited as and by way of loan / deposit otherwise than by cheque or demand draft in contravention of Section 269SS of the Income Tax Act, 1961. On the basis of the said report, proceedings were initiated and by an order dated 30[th] July 2004 penalty amounting to Rs.2.10 crores was imposed under Section 271D for receiving loan / deposit of Rs.2.10 crores otherwise than by cheque or demand draft. 6.Challenging the aforesaid order imposing penalty of Rs.2.10 crores, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). By order dated 2[nd] March 2005, the Commissioner of Income Tax (Appeals) while confirming the penalty of Rs.2.10 crores held that since transfer of balances of debtors amounting to Rs.22.99 crores constituted accepting loan or deposit otherwise than by cheque or demand draft in violation of Section 269SS and, therefore, the assessee was also liable to pay penalty of Rs.22.99 crores under Section 271D of the Act. 7.On further appeal filed by the assessee, the Tribunal by the impugned order deleted both the penalties on the ground that the said transactions did not constitute violation of the provisions of Section 269SS of the Act. Challenging the aforesaid order, the present Appeal is filed by the Revenue. 8.Mr.Suresh Kumar, learned counsel appearing on behalf of the Revenue submitted that the assessee belongs to Ketan Parekh Group who were the principal players in the Stock Market Scam 2001. He submitted that transfer of balances of debtors amounting to Rs.22.99 crores by way of journal entries constitute receiving loan or deposit in violation of Section 269SS and, hence, penalty was leviable under Section 271D of the Act. Counsel for the Revenue further submitted that in the absence of any opportunity to the officer who levied the penalty of Rs.2,10,00,000/- to verify the documents furnished before the Tribunal, the penalty of Rs.2,10,00,000/- imposed under Section 271D of the Act ought not to have been deleted by the Tribunal. 8.Mr.Suresh Kumar, learned counsel appearing on behalf of the Revenue submitted that the assessee belongs to Ketan Parekh Group who were the principal players in the Stock Market Scam 2001. He submitted that transfer of balances of debtors amounting to Rs.22.99 crores by way of journal entries constitute receiving loan or deposit in violation of Section 269SS and, hence, penalty was leviable under Section 271D of the Act. Counsel for the Revenue further submitted that in the absence of any opportunity to the officer who levied the penalty of Rs.2,10,00,000/- to verify the documents furnished before the Tribunal, the penalty of Rs.2,10,00,000/- imposed under Section 271D of the Act ought not to have been deleted by the Tribunal. 9.The question as to whether loans / deposits can be repaid by debiting the accounts through journal entries has been considered by this Court in the assessee's own case in Income Tax Appeal No.5746 of 2010 decided on 12[th] June 2012. Applying the ratio laid down therein we hold that receiving loans / deposits through journal entries would be in violation of Section 269SS of the Act. However, as rightly contended by Mr.Pardiwala, learned Senior Advocate appearing on behalf of the assessee, 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 of Rs.22.99 crores. 10.As regards the deletion of penalty of Rs.2.10 crores is concerned, a specific finding of fact recorded by the Tribunal is that the loan of Rs.2.10 crores were received by the assessee by way of a cheque. The above finding is based on the documents produced before the Tribunal. Though there is some dispute regarding the opportunity being given to the assessing officer to verify the documents, nothing is brought on record even in this appeal to suggest that the loan was received otherwise than account payee cheque. Accordingly, deletion of the penalty of Rs.2.10 crores cannot be faulted. 11.In this view of the matter, we answer both the questions in favour of the assessee and against the Revenue. The appeal is disposed of in the above terms with no order as to costs. (A.R. Joshi, J.) (J.P. Devadhar, J.)