JICE Academy for Excellence Pvt. Ltd Vs NFAC (ITAT Bangalore)
ITAT Bangalore held that levy of penalty u/s 271D, for violation of provisions of section 269SS of the Income Tax Act, is unwarranted as the loan was advanced by the Executive Directors to the company in cash to meet the urgent requirements of the company.
Facts-
During the scrutiny proceedings, the Assessing Officer noted the cash loan received from the 2 Directors viz. Akhil Anand Biraj of Rs. 14,62,470/-and K V Kanaghavi of Rs. 27,00,000/-. Hence, as per Sec. 271D of the Act, the Joint Commissioner of Income Tax, Range-4(1), Bangalore initiated penalty proceedings u/s 271D of the Act for contravention of Sec. 269SS of the Act vide his notice dated 27/12/2019. The penalty proceeding u/s 271D of the Act was subsequently transferred to National Faceless Assessment Centre, Delhi.
The Assessing Officer of National Faceless Assessment Centre, Delhi passed the order u/s 271D of the Act on 27/01/2022 by levying the penalty of Rs. 4 1,62,470/- which is equivalent to the amount received from the Directors of the Company.
Aggrieved by the order passed by the Assessing Officer of National Faceless Assessment Centre, Delhi, the Assessee Company preferred an unsuccessful appeal before Commissioner of Income Tax (Appeals), National faceless Appeal Centre, Delhi. Being aggrieved, assessee preferred the present appeal.
Conclusion-
In this present case, the transaction between assessee company and its Executive Directors is on account to meet the urgent financial requirements of the company. Accordingly, it cannot be considered and there exist reasonable causes for accepting the money in cash from the Executive Directors of the company who are responsible for day-to-day affairs of the company. In our opinion, in this case, levy of penalty u/s 271D of the is unwarranted. Accordingly, we inclined to delete the penalty levied by the AO confirmed by Ld. CIT(A).
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the assessee is directed against order of the NFAC/CIT(A), Delhi dated 24.6.2022 for the assessment year 201718. The assessee has raised following grounds of appeal:-
1. “The order of the Assessing Officer of National Faceless Assessment Centre, Delhi is against the fact and circumstances of the case and equity.
2. On the fact and circumstances of the case, under the provision of the law, and under the judicial precedence, the Assessing Officer of National Faceless Assessment Centre, Delhi erred in levying the penalty u/s 271D of the Income Tax Act, 1961 as the loan is received from the Executive Directors to the Company, who are controlling the financial affairs of the Company, as such the Executive Directors are not any other person for the applicability of Sec. 269SS of the Income Tax Act, 1961.
3. On the fact and circumstances of the case, the Assessing Officer of National Faceless Assessment Centre, Delhi erred in levying the penalty u/s 271D of the Income Tax Act, 1961 wherein the transaction between the Executive Directors and the Company has not been doubted during the course of scrutiny assessment and found to be genuine.
4. On the fact and circumstances of the case, the Assessing Officer of National Faceless Assessment Centre, Delhi erred in levying the penalty u/s 271D of the Income Tax Act, 1961 as the Appellant Company was under the genuine belief that Sec. 269SS of the Income Tax Act, 1961 is not applicable between the Executive Directors and the Company wherein the Executive Directors are maintaining a running account with the Company which is the reasonable cause u/s 273B of the Income Tax Act, 1961.
5. On the fact and circumstances of the case, and under the provisions of law, the Commissioner of Income Tax (Appeals) erred in dismissing the appeal without following the jurisprudence wherein the Jurisdictional I.T.A.T had deleted the penalty u/s 271D of the Income Tax Act, 1961 on similar facts in another case.
6. On the fact and circumstances of the case, and under the provisions of law, the Commissioner of Income Tax (Appeals) erred in dismissing the appeal relying on the judgements where in the facts of the judgements relied on by the Commissioner of Income Tax (Appeals) is not similar to the facts of the Appellant company’s case.
7. For these and other reasons which may be adduced at the time of the hearing, the Appellant prays before the Honourable Bench to delete the penalty levied by the Assessing Officer of National Faceless Assessment Centre, Delhi u/s 271D of the Income Tax Act, 1961 for substantial cause of justice and equity.
8. The Appellant Trust craves leaves to add, to alter, to amend or to delete any other grounds at the time of the hearing.”
2. Facts of the case are the Assessee Company is JICE Academy for Excellence Pvt. Ltd. is incorporated. under the Indian Companies Act, 2013. The objective of the company is to provide training and couching facilities to the aspirants such as IAS, IPS, IFS, IRS, KAS, Banking and other competitive examinations. The company is having 2 Directors namely
a. Akhil Anand Biraj
b. K V Kanaghavi
2.1 In case of the Assessee Company, there was a scrutiny assessment u/s 143(3) of the Act for the A.Y 2017-18. In the said scrutiny assessment, Return Income declared by the Assessee Company was accepted by the department as assessed income.
2.2 During the scrutiny proceedings, the Assessing Officer noted the cash loan received from the 2 Directors viz. Akhil Anand Biraj of Rs. 14,62,470/-and K V Kanaghavi of Rs. 27,00,000/-. Hence, as per Sec. 271D of the Act, the Joint Commissioner of Income Tax, Range-4(1), Bangalore initiated penalty proceedings u/s 271D of the Act for contravention of Sec. 269SS of the Act vide his notice dated 27/12/2019. The penalty proceeding u/s 271D of the Act was subsequently transferred to National Faceless Assessment Centre, Delhi.
2.3 In response to the said notice, the Assessee Company filed his reply vide his submission dated 21/01/2020, explaining that the Director Mr. K V Kanaghavi has advanced loan to the company amounting to Rs. 25,37,770/- cash and Director Mr. Akhil Biraj advanced loan of Rs. 14,43,970/- to the company in cash for urgent exigency of the company wherein the above said Directors were holding management affairs of the company. The said directors are responsible for the day-to-day affairs of the company.
2.4 The Ld. A.R. in support of their submission relied on the Madras High Court in case of CIT Vs Idhayam Publications 285 ITR 281, Madhya Pradesh High Court in case of CIT Vs Indore Plastic Pvt. Ltd. 262 ITR 163, Dillu Cine Enterprises (P) Ltd. Vs Addl.CIT (2002) 80 ITD 484 (Hyd-Trib) and Guwahati High Court in case of CIT Vs Bhagwati Prasad Bajoria (HUF) 263 ITR 487 and also made a submission that Sec. 269SS of the Act is not applicable for a cash transaction between the Directors and Company, as the Directors are not any other person but they are the persons managing the whole affairs of the Company and also the Assessee Company is under the genuine belief that Sec. 269SS of the Act is not applicable for running transaction between the Director and Company.
2.5 In the Assessee Company’s case, the Director Mr. K V Kanaghavi and Director Mr. Akhil Biraj are Executive Directors of the company and are responsible for the management of the company, they have advanced loan to the company in cash for urgent exigency of the company which does attract the provision of section 269SS of the Act. Hence, Ld. A.R. submitted that the penalty u/s 271D of the Act is not exigible in the Assessee Company’s case.
2.6 In spite of the above submission, the Assessing Officer of National Faceless Assessment Centre, Delhi passed the order u/s 271D of the Act on 27/01/2022 by levying the penalty of Rs. 4 1,62,470/- which is equivalent to the amount received from the Directors of the Company.
2.7 Aggrieved by the order passed by the Assessing Officer of National Faceless Assessment Centre, Delhi, the Assessee Company preferred an unsuccessful appeal before Commissioner of Income Tax (Appeals), National faceless Appeal Centre, Delhi.
2.8 The Commissioner of Income Tax (Appeals), National faceless Appeal Centre, Delhi passed an order u/s 250 of the Income Tax Act, 1961 on 24/06/2022 by dismissing the appeal of the Assessee Company.
2.9 Now, the Ld. A.R. prefers this appeal before this Tribunal being aggrieved by the order passed by the Commissioner of Income Tax (Appeals) to address its grievances.
2.10 The Assessing Officer during the course of the assessment has not doubted the transaction between the Directors and the Company and accepted such transaction as genuine.
2.11 During the Sec. 271D of the Act penalty proceedings, the Assessee Company explained during the F.Y 2016-17, the Director Mr. K V Kanaghavi has advanced loan to the company amounting to Rs. 25,37,770/- cash and Director Mr. Akhil Biraj advanced loan of Rs. 14,43,970/- to the company in cash for urgent exigency of the company, wherein the above said Directors were holding management affairs of the company. The said directors are responsible for the day-to-day affairs of the company.
2.12 The Director Mr. K V Kanaghavi advanced loan up to 31/03/2016 amounting to Rs. 10,42,869/- which is opening balance and advanced Rs. 25,37,770/- during the F.Y 2016-17. Hence, resultant credit balance in the books of the company in favour of Directors K V Kanaghavi is Rs. 35,80,639/-. The Director Mr. Akhil Biraj advanced loan up to 31/03/2016 amounting to Rs. 9,71,359/- which is opening balance and advanced Rs. 14,43,970/- during the F.Y 2016-17. Hence, resultant credit balance in the books of the company in favour of Director Akhil Biraj is Rs. 24,15,329/-.
2.13 The Assessee Company was under the belief that the transaction between the trustee and the trust, director and the company, partner and the firm, the provision of Sec. 269SS of the Act are not applicable as they are not such other persons.
2.14 The Ld. A.R. relied on the following case laws in support of his contention that running account between trustee and trust, partner and partnership firm, director and Company and person with their relatives, section 269SS of the Act is not applicable.
2.15 The jurisdictional I.T.A.T, Bangalore ‘A’ Bench in the case of Sri Sanmathi Ambanna Vs JCIT in ITA No.782/Bang/2017 for the Asst Year 2009-10 dated 02-012019 at para 7,8,9,10,11,12,13 and 14 held that “the transaction between the close relatives cannot be considered as other persons, section 269SS is not applicable. Therefore, imposition of penalty u/s 271D unsustainable.”
2.16 Like that the transaction between the director and the company in the form of cash loans cannot be set to fall within the mischief of section 269SS of the Act as the relationship between directors and the company cannot be said to be other persons. Within the meaning of section 269SS of the Act. Hence, the imposition of penalty u/s 271D(2) is unsustainable.
2.17 Further, the Ld. A.R. relied on the Jurisdictional I.T.A.T `B’ Bench judgment in the case of Smt Deepika Vs Addl. Commissioner of Income Tax, Range 5, Bangalore in ITA No.561/Bang/2017 the assessment year 2010-11, wherein, at para 8, 9, 10, 11, 12 and 13 of the said judgment held that “the transaction of loan between the close proximity of the relation cannot be-ci subject matter of levy penalty u/s 271D”. The crux of the above judgments which were relied on Hon’ble I.T.A.T ‘B’ Bench in delivering the judgment of Smt. Deepika in ITA No.561/Bang/20174 is squarely applicable to the Assessee Company’s case. Hence, the penalty levied u/s 271D is liable to be deleted.
2.18 In view of contents of departmental Circular No.387, 152 ITR statute 1 it was never an intention of the legislator to punish the party involved in genuine transactions, if there was reasonable cause u/s 73B the penalty u/s 271D of the Act cannot be levied.
2.19 In the Assessee Company case also, the Directors of the company have advanced loan to the company on various dates and have maintained a running account with the company.
2.20 The Ld. A.R. further relied on the Hon’ble I.T.A.T, Hyderabad Bench in the case of Dillu Cine Enterprises Pvt Ltd Vs Additional Commissioner of Income Tax 80 ITD 484, Hyderabad wherein, the word other person in section 269SS has been elaborately discussed. The word any other person does not denote director of the Company, partner of the firm, trustee of the trust and relatives of the persons. “The said meaning of any other person which does not include the above-designated person is correct when read with the legislative intent, in view of the board Circular No. 387, dt. 6th July, 1984. The Finance Act, 1984 states the legislative intent and describes a situation where the explanation of taxpayer of loans obtained is from “various persons”. It also speaks of confirmatory letters from “such other persons” during the course of the search. This scheme of the section, the context in which the section is introduced and the legislative intent definitely does not mean “husband and wife”, “director” and “company” or `Partner and firm”. The legislature was not referring to confirmatory letters produced to explain unaccounted money found during search operations from “spouse” in case of “individual “or “director” in case of “company” or partner” in case of “firm”. The term “any other person” in the context of the introduction of this section as appears means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operations under section 132, all these persons are invariably searched together. The legislature_ was intended to curb tax evasion in “search situations” and referred to confirmatory letters produced in such situations to counter “cash found’. The term “various persons” and such persons’ is to be understood only in relation to “search Situation” as the section itself was introduced to meet such situations only. The assessee argued that it is unthinkable that the department would- search a husband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are not substantially interested or partner and firm. ‘These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought off as sought to be explained off by the persons who are in the dragnet of search operations. So, the term “other persons” as appearing in this section means, other than those intimately connected as in the present case. Thus, the active director of the assessee-company is clearly not covered by the expression “any other person” occurring in section 269SS of the Act.” – Wide Dillu Cine Enterprises (I)) Ltd ‘Vs Addi CIT 2oo2) 8o IT’D 484 (Hyd-Trib).
2.21 The Madras High Court in case of CIT Vs Idhayam Publications 285 ITR 281 held that the amount in cash brought into the assessee company by its promoter-director for a construction work was neither a loan nor deposit. Therefore, there was no violation of Sec. 269SS of the Act and as such penalty u/s 271D of the Act levied by the Assessing Officer is not justified.
2.22 The Madhya Pradesh High Court in case of CIT Vs Indore Plastic Pvt. Ltd. 262 ITR 163 held that where payment made by the promoter of the assessee company to assessee by way of deposit or loan. Hence, penalty-imposed u/s 271D by the Assessing Officer was not valid in law because there was no contravention of Sec. 269SS of the Income Tax Act, 1961.
Recently, The Jurisdictional I.T.A.T ‘B’ Bench, Bangalore in the case of Akash Education & Development Trust Vs Addl. Commissioner of Income Tax, Central Range 2, Bangalore in ITA No. 737/Bang/2021 the assessment year 2016-17, wherein, at Para No. 36 of the said judgement held that “the term “any other person” in the context of section 269SS appears to mean persons who are not very closely and independently connected with the assessee. In the present case, the assessee accepted loan from its managing trustee, who is looking after the day to day affairs of the present assessee. This being so, the transaction between the assessee and managing trustee cannot be termed as loan so as to apply the provisions of section 269SS of the Act. The transaction between the assessee and managing trustee is in the course of discharge of duty of the managing trustee in the day to day affairs of the assessee trust and when the assessee needed some funds to meet the day to day operation of the construction of the college building, it was facilitated by the managing trustee and assessee is having running account with the managing trustee and the transaction between these two parties cannot be termed as loan transaction so as to levy penalty u/s. 269SS of the Act. More so, the transaction undertaken by the assessee with managing trustee is incidental to attainment of main object of assessee society and in this context, if the assessee has not paid money to the contractors who have undertaken construction of the building, the managing trustee himself is liable for all the consequences of non-payment even bouncing of cheques for insufficient funds and in that view the money advanced by the managing trustee to the assessee to meet the urgent business exigency amounts to reasonable cause within the purview of section 2738 of the Act and on this count also, the penalty cannot be levied.
Further, the concept of mutuality is primarily based on the principle that one cannot profit from himself. Thus, when the managing trustee provided funds to the society to meet urgent business exigency, it cannot be said that it was a loan transaction so as to attract penalty u/s. 269SS of the Act. Further, as held by the Hyderabad ITAT in the case of Citizen Co-operative Society Ltd. (supra), the term “various persons” and “such other persons” which relates to “such situation” as the section itself was introduced to meet such situation only. Thus, the managing trustee of the society is not covered by the expression “any other persons” occurring in section 269S5 or 269T of the Act. The transaction also is attributed to various exigencies relied by the assessee which constitute reasonable cause contemplated by section 273B of the Act”.
2.23 Ld. A.R. submitted that in view of the above submission, the transaction between the Directors and the Company in a running account does not attract Sec. 269SS of the Act and alternatively, the Directors are not any other persons to the Company and as Executive Directors, are running the affairs of the Company, as such the transactions are not be considered as transactions between two independent persons.
2.24 Hence, Ld. A.R. stated that the-penalty levied by the Assessing Officer of National Faceless Assessment Centre, Delhi is against the law i.e., provisions of section 269SS of the Act as there was a reasonable cause, that the Directors have maintained current account with the Company, which cannot be termed as loan or deposit.
2.25 The Commissioner of Income Tax (Appeals), National faceless Appeal Centre, Delhi passed the order dismissing the appeal relying on the judgements where in the facts of the judgements relied on by the Commissioner of Income Tax (Appeals) is not similar to the facts of the Assessee company’s case.
2.26 Ld. A.R. submitted that in view of the above submission, the Tribunal is requested to delete the penalty levied by the A.O. of NFAC, Delhi for substantial cause of the justice.
3. Further, the Ld. A.R. relied on the order of the Tribunal in the case of Aakash Education & Development Trust in ITA No.737/Bang/2021 dated 18.4.2022, wherein, in the similar circumstances, the penalty levied u/s 271D of the Income-tax Act,1961 [‘the Act’ for short] was deleted as the transaction was between Trustee and the Trust.
4. The Ld. D.R. relied on the order of the Ld. CIT(A) and submitted that there is no bar in the provisions of section 271D of the Act to levy penalty u/s 271D of the Act in the case of loan taken by assessee company from its Directors namely Akhil Anand Biarj & Kallappa V. Khanagavi.
5. We have heard the rival submissions and perused the materials available on record. In this case, assessee company has taken loan from Akhil Anand Biraj at Rs.14,62,478/- and Kallappa V. Khnaghavi at Rs.27 lakhs. The A.O. levied penalty u/s 271D of the Act for receiving the said amount in violation of section 269SS of the Act. The assessee pleaded before the lower authorities that the Directors Kallappa V. Kanaghavi and the Director Mr. Akhil Anand Biraj are Executive Directors of the company and are responsible for the day to day management of the company, they have advanced loan to the company in cash to meet the urgent requirements of the company, which, as such, it does not attract section 269SS of the Act, so as to levy of penalty u/s 271D of the Act. Further, he has submitted that in similar circumstances in the case of Idhayam Publications cited (supra) of Hon’ble Madras High Court, wherein held that the transaction between assessee company and Directors cannot be considered as loan in terms of section 269SS of the Act and consequently, the levy of penalty u/s 271D of the Act is not possible.
5.1 Further, coordinate bench of the Tribunal, Bangalore in the case of Aakash Education Development Trust (supra) held as under:-
17. We have heard both the parties and perused the material on record. In the present case, the assessee is engaged in the activity of providing education and registered u/s. 12A of the Act. It manages medical college and hostel in addition to school and college. The assessment was completed u/s. 143(3) of the Act dated 7.12.2018 for AY 2016-17. During the course of assessment proceedings, it was noticed that the Chartered Accountant in sI.(h) of Form l0B has reported as under:-
“An amount of Rs. 74, 48, 75,096/- shown under current liabilities is the amount invested by trustees and their entity for construction & establishment of Hospital, Medical college etc., including a sum of Rs. 15,64,50,000/- deposited by cash during the year. We are unable to examine the personal accounts of the trustees, whether the amount invested by them to the trust or their own funds or borrowed funds.”
18. According to the Addl. CIT, the above qualification in Form 3CD makes it clear that Rs. 15,64,50,000/- deposited by the trustees in the books of the assessee herein as cash deposits exceeding Rs.20,000/-invoke provisions of Sec.269SS and penalty provisions u/s 271 D of the I.T. Act 1961. Accordingly, the Addl.CIT invoked the provisions of section 271D and levied penalty at Rs.15,64,50,000 for accepting loan in cash in violation of provisions of section 269SS as per section 271D of the Act.
19. The main contention of the ld. AR is that the transaction is genuine and it is not found that the loan has been taken out of unaccounted cash from the managing trustee, Sh. K Muniraju. Further, it was submitted that the transaction is neither loan nor deposit and the various amounts received from the trustee was laid out for construction work of medical college and hospital building in a running account maintained with the trust and there is no reason to levy penalty u/s. 271D. If there is a default, if any, it was only of technical or venial nature.
20. Further it was submitted that Sh. K Muniraju being the managing trustee of the trust is looking after the trust and day to day affairs of assessee. When there was shortage of cash in the assessee’s account, the assessee was forced to take cash loan from Sh. K Muniraju due to the situation beyond the control of the assessee.
21. At this point, it is appropriate to refer to few judgments on the subject.
22. In the case of Chandra Cement Ltd. vs. Dy. CIT , 99 TTJ 212 (Agra) the brief facts were that the appellant-company was setting up mini cement plant at village Paniyala, Tehsil Kotputli, Distt. Jaipur. Shri R.P. Goyal was and has been its promoter-director as well as C.M.D. For establishment of the plant, the appellant approached financial institutions who sanctioned the loan in January, 1992. Pending the disbursement of loan, Mr. Goyal brought his own money from time-to-time for the project work during the two years under consideration. During the course of assessment proceedings, it was noticed by the AO that the balance sheet of the company indicated unsecured loan from Mr. Goyal at Rs. 1,60,70,138 out of which Rs. 79,78,368 was brought by Mr. Goyal in cash during asst. yr. 1992-93 violating the provisions of s. 269SS, thus the proceedings under s. 271D were initiated and ultimately penalty of Rs. 79,78,368 was levied. Similarly, in asst. yr. 1993-94, it was observed by the AO that Shri Goyal brought the amount of Rs. 1,98,55,171 in cash which was credited in the books of the appellant-company. For this year also penalty under s. 271D was levied equivalent to the amount alleged to be in default of s. 269SS of the Act. The appellant preferred appeals in both the years before the first appellate authority who confirmed penalty in both the years rejecting the plea of the appellant. The Tribunal cancelled the penalty after observing as under:-
23. “We have carefully gone through the facts of the case, arguments advanced and written submissions and case laws relied upon. At the outset, we may mention that it has been argued by both the parties that true character/nature of transactions should be determined without being influenced by manner of entries passed in the books of account or, the method of accounting or disclosure made in balance sheet. We agree with this contention put forth by both the parties, and, therefore, we would like to first determine the nature of transactions in the present case in respect of which the penalties under s. 27ID have been levied.
24. Admittedly, Mr. R.P. Goyal, the chairman-cum-managing director, was the promoter-director of the appellant-company, who supervised entire project of the company and who remained actively engaged in looking after the construction and other activities of the company. It is equally undisputed that it was he who managed and arranged resources for the construction activity during the period when company was awaiting disbursement from financial institutions. Mr. R.P. Goyal provided financial assistance to the company by bringing in requisite money from time-to-time in piecemeal during the construction period. The money was not brought in one, two or three instalments but was brought in a number of instalments. It appears that the bringing of money every time was in response to the immediate requirement in the project activity. On going through the details of amounts brought in and spent, it is evident that the {sic)period. For this purpose, we perused the utilization of the money brought on pp. 13 to 30 of the paper book for financial year 1991-92. First two receipts of Rs. 10,000 and Rs. 1,270 are for expenditure for the incorporation of the company. The next one on 31st July, 1991, is for the purchase of land where Rs. 4,05,960 is paid and credited to Shri Rajendra Goyal. A number of expenditure are for purchase of machinery, automobile, construction material and so on.
These payments cannot be made from office because till then there was no office or the factory. It is obvious that the payments are made by Shri Rajendra Goyal and he rendered the account.
Likewise in the next year 1992-93 where the amounts are credited through journal entry to the amount of Shri Rajendra Goyal and debited to various heads. The details are summarized at pp. 31 and 32 of the paper book. These are for building, plant and machinery, other assets as also revenue expenditure during construction period. Thus, the fact remains that money was brought for its immediate disposal.
It is true that the company has a separate status and entity than its shareholders and directors. It is also true that director’s act as agents of the company and are answerable to their principal, i.e., the company. This is the reason why Mr. Goyal undertook all the construction activities of the appellant-company at his instance, as he was responsible and answerable to the company. It was in this background that when he found company being unable to make the resources available for the project work, he decided to involve and utilize his own money for construction work. There were neither compelling reasons nor a compelling force by the so-called artificial person-company to bring in the money, it appears that it was merely a suo motu decision of Mr. Goyal to expose himself to such a huge risk of utilizing his personal money for company’s purposes, with the hope that he would take it back when the loans are disbursed to the company.
In other words, it is a case where agent utilized his own money in order to fulfil his obligations towards the principal upon which he became entitled to get back the money. This is thus a unilateral transaction on the part of Mr. Goyal to involve and utilize his own money by withdrawing it from his own sources. An unilateral act cannot result in a contract for which existence of two parties is a sine qua non. Whether loan or deposit they both are contracts only, originated from bilateral act. We are impressed by the reference of s. 69 of the Indian Contract Act, 1872, which helps on understanding the true character of these transactions. Sec. 69 of said Act falling within Chapter V thereof reads as follows :
‘Chapter V of certain relations resembling those created by contract
Sec. 69 : A person who is interested in the payment of money which he is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other.’
The transactions under consideration are evidently of the nature referred to in s. 69 of the Indian Contract Act, 1872. The company was bound to pay for the construction expenditure. The director Shri R.P. Goyal paid it because he was interested in the capacity as promoter and also because his personal guarantees are involved in the finances to the company. Thus, he paid the amount and became entitled for the reimbursement by the company.
It is true, neither a loan which is a bilateral transaction at the instance of borrower having predetermined repayment period, nor a deposit which is at the instance of depositor and is repayable on fulfilment of certain conditions. Mr. R.P. Goyal, the director and the agent of the company suo motu spent his own money for his principal, i.e., the company, who by way of incorporation of the transaction in its books, undertook the obligation to repay.
Let us also consider as to what would constitute primary evidence of the amount advanced by Mr. Goyal in cash in the present facts. There is no loan agreement and no deposit receipts are issued. In our opinion, if any dispute ever arises about the amount spent by Mr. Goyal on company’s construction, the appropriate method for measurement of amounts advanced by Mr. Goyal would be the valuation of construction work, because, firstly, there is a direct nexus between the advance and expenditure, and secondly, hardly any activity other than construction was there during this period. This is for this reason that advances made by Mr. R.P. Goyal in the present case are inseparable from construction activity. Making of advance and spending for construction work cannot be considered to be independent from each other. The person at whose instance amounts were advanced or the construction was carried out was the same individual. Therefore, in the present case, the primary evidence of amount advanced by Mr. Goyal would be the amount spent on construction, whatever be the manner of incorporating them in the books of account.
Thus, going by the nature of transactions, we are satisfied that the impugned transactions were neither loan nor deposits and there is enough material on record to suggest that the amounts were brought by Mr. Goyal for directly incurring on the construction expenditure which was not in terms of any agreement with the company, but was suo motu. The nomenclature used by the parties is immaterial and would not alter the nature of captione monies. Having decided that impugned amounts were neither loans nor deposits, all other allegations and arguments become irrelevant to the context since the provisions of s. 269SS are not attracted in the facts of the present case.”
23. In the case of Mohan Kaikare vs. Dy. CIT (52 ITD 236) the facts were that on 10th Jan., 1989, the assessee had obtained a sum of Rs. 40,000 and on 11th Jan., 1989, another sum of Rs. 30,000 both amounts in cash; from his father to purchase a matador from Bajaj Auto Ltd. Poona. In the assessment proceedings, the transaction was accepted as genuine, but penalty proceedings under s. 271D of the Act were initiated.
24. In the penalty proceedings, the assessee had pleaded another line that the amount was received in cash on account of exigencies because the last date for concessional purchase of matador in Gwalior fair was 14th Jan., 1989 and the assessee was availing that benefit. The assessee had filed an affidavit of his father stating that the amount was given by him to his son for purchase of matador and was directly deposited in the bank account instead of handing over it to the son. The AO did not accept assessee’s explanation and imposed penalty under s. 27ID of the Act.
25. Based on above facts and circumstances, the Tribunal deleted the penalty.
26. In the case of Shrepak Enterprises vs. Dy. CIT (60 TTJ 199) the brief facts were that during the assessment proceedings, the AO noted that the assessee had received cash deposits of Rs. 2,17,000 as below :
