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No Penalty U/s. 271E on cash refund of advance from customers under Bonafide Belief

 M/s. Orison Transport Vs DCIT (ITAT Cuttack)

Belief of the assessee that return of advance from customers is not prohibited by section 269T was a bonafide belief. Therefore, the levy of penalty u/s.271E of the Act of Rs.21,49,943/- cannot be sustained.

FULL TEXT OF THE ITAT JUDGMENT

This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 29.3.2017 for the assessment year 2008-2009.

2. The sole issue involved in this appeal is that the CIT(A) erred in confirming the levy of penalty of Rs.21,49,943/- u/s.271E of the Act.

3. According to the Assessing Officer, the assessee has violated the provisions of section 269T by refunding the advance received from the customers in cash of Rs.21,49,943/-. Therefore, he levied penalty u/s.271E of the Act 100% of the amount paid in cash of Rs.21,49,943/-.

4. On appeal, the CIT(A) confirmed the action of the Assessing Officer.

5. Ld A.R. argued that Section 269T of the Act talks of repayment of loan or deposit in cash and not of advance received from customers. Therefore, the case of the assessee is not covered u/s.269T of the Act and hence, the assessee is liable for penalty u/s.271E of the Act.

6. On the other hand, ld D.R. relied on the orders of lower

7. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. The Assessing Officer levied penalty u/s.271E of the Act for repayment of advance by the assessee in cash of Rs.21,49,943/-.

8. On appeal, the CIT(A) confirmed the same.

9. Ld A.R. contended that provisions of section 269T is applicable in a case where the assessee repaid the advance received from the customers.

10. Ld D.R. supported the orders of lower authorities.

11. We find that the Assessing Officer has observed as under:

“The assessment u/s. 143(3) was made in the case of the assessee on 15.04.2010. The assessee is carrying on the business of transportation fit logistic services. The Assessing Officer has assessed the total income of Rs.88,000/- as against the returned income of Rs.57,7.62/-. The Assessing Officer has called for various details from the assessee in respect of gross receipt of the assessee. During the course of assessment proceeding it was noticed that assessee had shown gross receipt of Rs.71,61,363/- whereas the total receipt in its bank account was at Rs.89,06,387/-. To reconcile the difference in respect of above discrepancy, the assessee has submitted during the course of assessment proceedings that 3 parties had advanced money for transportation of their goods, but later on they had taken back their advances since the work could not be undertaken.

2. After completion of the assessment proceedings the Assessing Officer has proposed the penalty u/s.271E for the payment made in contravention to the provisions of Section 269T of the l.T. Act. It is observed that the assessee had re-paid the advances to the following parties in cash in contravention to the provisions of section 269T of the Act.

SL. No. Name of the parties from whom advances were received Amount (in Rs.) received Date(s) on which repaid as per the confirmation letters of the parties
1 M/s. A.B. Minerals 11,00,000 12.12.07- Rs. 1,90,000 by cash

17.12.07- Rs. 1,10,000 by cash

20. 12.08- Rs. 3,00,000 by cash

16.01 .08- Rs. 3,00,000 by cash

18.01 .08- Rs. 2,00,000 by cash

2 M/s. Orisons Minerals & Properties 5,49,943 31.03.08- Rs. 5,49,943 by cash
3 M,/s. Global Traders 5,00,000 25.03.08-Rs. 5,00,000 by cash
Rs.21,49,943

12. Thus, it is observed that it is not in dispute that what the assessee has repaid in cash in advance received by it from its customers. We find that the Hon’ble CBDT in Circular No.387 of 6.7.1984 held “receiving advance and repayment of advance is a business transaction. The prohibition contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transactions.”

13. The Hon’ble Gujarat High Court in the case of CIT vs. Madhav Enterprise Pd Ltd., TAX APPEAL NO. 561 of 2013 order at 22.1.2014 has held as under:

1. This appeal is presented by the Revenue challenging the judgement of the Income Tax Appellate Tribunal dated 12.2012 raising the following question for our consideration :

“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 Income Tax 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 Income Tax Act?

2. Having heard the learned counsel for the parties and having perused the decisions on record and in particular that of the tribunal, we notice that the respondent assessee is engaged in the business of construction activity. During the previous year relevant to assessment year 2006­2007, the assessee had paid a sum of Rs.13,91,330/­to 25 different parties. Such amounts were in excess of 20,000/­ at a time and were not made through cheques. Assessing Officer therefore, believed that the payments were hit by section 269T of the Income Tax Act, 1961 and resultantly, the assessee was liable to penalty under section 271E of the Act.

3. The case of the assessee was that such amounts were received from the said 25 parties for booking of the shop/office/flat which they later on cancelled. Such amounts therefore, had to be returned. In short, the assessee’s case was that such amounts were neither loans nor deposits and therefore, section 269T of the Act would not be applicable.

4. The Assessing Officer did not accept the contention and imposed penalty which was challenged before the CIT(Appeals) by the assessee. CIT(Appeals) deleted the penalty observing inter­alia that the parties in question were refunded the advance money without interest because of various reasons. Section 269SS would be applicable where loan or deposit has been accepted or repaid otherwise than by Account payee cheques. The customers in the present case had given earnest money (booking advance) for the purchase of shop/office/flat. Many of these advances were received by cheques, some where The repayment do not fall under the category of loan or deposit and the provisions of section 269T were therefore, not applicable.

5. Revenue carried the matter in appeal. The tribunal rejected the Revenue’s appeal in the following manner :

“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 at 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 inlcude any interest.

10. In the case of the CIT vs. Rugmini Ram Ragav Spinners P.Ltd (2008) 304 ITR 417 Hon’ble Madras High Court held that the penalty u/s. 271E is not automatic and is to be levied only in the absence of reasonable cause. The rationale behind the provisions of sections 269SS and 269T is to prevent tax evasion, i.e., the laundering of concealed income by parties in the guise of cash loans or deposits in or outside the accounts. The provisions of sections 269SS and 269T therefore have application only in a limited way in respect of deposits or loans. When it is 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 AO had 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 AO had not commented on the detailed submissions filed before him during the course of penalty proceedings and without appreciating the full facts AO 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 cases law 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 repayment of advances is a business transaction. Provisions of sec. 26955 is confined to loans and deposits only and does not extend to purchase/sale transaction.”

6. Learned counsel for the Revenue would place heavy reliance on the decision of Allahabad High Court in case of Chaubey Overseas Corporation v. Commissioner of Income­tax reported in (2008) 303 ITR 9 (All). It was of-­course a case where the assessee had received sum of Rs.25,000/­ from various persons totalling to Rs. 1 lakh. They were advances for procuring silk fabrics. The assessee failed to deliver the goods and therefore, returned the amount in cash. In the context of provision contained in section 269T and 271E, the assessee contended that the amounts being in the nature of advances, would not cover under the expression “loans or deposits”. Repayments thereof in cash therefore, would not entail penalty under section 271E of the Act. The High Court did not accept the contention and made the following observations :

37. Viewed as above, the use of word ‘any deposit’, in our opinion, has been used to cover all sorts of deposits and ‘trade deposit’ also. A restricted meaning, as suggested by the learned Senior Counsel for the assessee, if given to exclude the trade deposit, if any within the purview of the words ‘any deposit’ the very object of the enactment of Section 269T would be frustrated. Not only this, every time a vexed question as to whether the deposit in question is a ‘trade deposit’ or is a ‘deposit’ simpliciter would arise and will have to be adjudicated upon by the authorities concerned which will lead to uncertainty as well as it will amount colossal wastage of time and energy both of the assessee as well as of the taxing authorities. Section 269T provides a definite mode of repayment which is also otherwise very convenient in day to day transaction as the payment/repayment by a crossed cheque or Bank Draft evidences the payment itself. It is easy to establish if payment/repayment is made through a Bank Draft or by crossed account payee cheque.

40. We do not find so. We have carefully perused the order of the CIT (A) which was in favour of the assessee. The said order of CIT (A) does not discuss ingredients of Section 269 T and it proceeds on the assumption that the additions made under Section 68 of the Income Tax Act having been set aside, no case of penalty has been made out as it was a trade advance.

41. The applicability of Section 269T is not dependent on facts as to whether the transaction is genuine or of doubtful character. Even the genuine deposits are also covered under Section 269T. The source of deposit, capacity of the depositors etc. are wholly irrelevant so far as the applicability of Section 269T is concerned. No evidence could be referred or pointed out which has been omitted to be considered by the Tribunal in holding that the said deposit is not a trade advance. The finding of the Tribunal holding that the deposit in question is not a trade deposit is basically a finding of fact and was rightly arrived at by it. We therefore decides the said question against the assessee and in favour of the Department.”

7. On the other hand learned counsel Ms. Vaibhavi Parikh drew our attention to an order dated 4.4.2011 passed in Tax Appeal No.2074/2009 in case of Commissioner of Income tax v. Top Media Entertainment ltd. in which the Court had confirmed the decision of the tribunal deleting the penalty under section 271E in somewhat similar circumstances.

8. From the record it emerges that it is undisputed that the respondent had in the course of business of construction, accepted from various parties earnest money for booking shop/office/flat. Some of these advances were also through Some of the parties cancelled the advance booking due to various reasons. On account of this, the assessee returned the advance without interest. If these factual aspects are not in dispute as concluded by CIT(Appeals) and the tribunal, and with which the department has not raised any substantial dispute, what emerges is that the respondent had received advance from the prospective purchasers. Such advances were for booking shop/office/flat that would be constructed by the respondent. For variety of reasons, such a deal may not work out. Either the prospective buyers may later on back out or the assessee himself may not be able to deliver the constructed property. Depending on the reason and on the terms of agreement between the parties, question of refunding the advance may arise. In the present case, the entire advances were returned without interest.

9. We cannot see how at the time when such payments were made, same could be described as either loans or deposits. Section 269T contains an explanation which defines the term “loan or deposit” in the following manner :

“loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature.”

10. What the respondent received from the prospective buyers was advance money simplicitor which was neither a loan nor a deposit even within the meaning of the said term assigned to under section 269T of the Act. When such amount is returned that too without interest, we do not find any applicability of section 269T of the Act.

In case of Top Media Entertainment ltd.(supra), this Court had taken such a view also.

11. Even independently section 273B of the Act provides that notwithstanding anything contained in section 271E, no penalty shall be imposable on the person or the assessee as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. It was in this background that in somewhat similar circumstances, Madras High Court in case of Commissioner of Income­tax v. Rugmini Ram Ragav Spinners P. Ltd. reported in (2008) 304 ITR 417(Mad) upheld the tribunal’s decision of deleting the penalty making the following observations :

“7. Hence, the factual finding by the authorities below is that the amount received is not a deposit or loan, but it is only share application money, and the same is based on valid materials and evidence. The relevant provisions of law are sections 269T, 271D, 271E and 273B of the Act. In the present case, the Assessing Officer levied penalty under section 271E deals with “penalty for failure to comply with the provisions of section 269T”. Section 271E, as on the relevant period, reads as follows:

“271E. (1) If a person repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the deposit so repaid.

(2) Any penalty imposable under sub­section (1) shall be imposed by the Deputy Commissioner.”

9. The above section provides that no branch of a banking company, cooperative bank and no other company or co­operative society or partnership firm or other person, can repay any deposit made with such entity otherwise than by an account payee cheque or an account payee draft drawn in the name of the person who has made the deposit. The specific word used in the provision is “deposit”. In this case, the finding is that there is no deposit. Section 273B of the Act deals with “penalty not to be imposed in certain cases”. Section 273B, as on the relevant period, reads as under:

“273B. Notwithstanding anything contained in the provisions of clause (b) of sub­section (1) of section 271, section 271A, section 271B, section 271BB, section 271C, section 271D, section 271E, clause (c) or clause (d) of sub­ section (1) or sub-­section (2) of section 272A, sub­-section (1) of section 272AA or sub-­section (1) of section 272BB or clause (b) of sub-­section (1) or clause (b) or clause (c) of sub­section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

10. The above section provides that if the assessee proves that there is a reasonable cause, he is not subject to levy of penalty. The case of the assessee is that, the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan. In this case, the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares. Also, there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan. The first appellate authority as well as the Tribunal have come to a correct conclusion after accepting the explanation offered by the assessee. It is a question of fact and the order of the Tribunal is not a perverse one. The concurrent finding given by both the authorities below is based on valid materials and evidence. In the case of CIT Vs. P. Mohanakala [2007] 291 ITR 278, the Supreme Court held that whenever there is a concurrent finding by the authorities below, no interference should be called for by the High Court. Under these circumstances, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference.”

12. In the result, we find no substance in the appeal, same is therefore, dismissed.”

14. In view of above and keeping in view the provisions of section 273B of the Act, we find that the belief of the assessee that return of advance from customers is not prohibited by section 269T was a bonafide belief. Therefore, the levy of penalty u/s.271E of the Act of Rs.21,49,943/- cannot be sustained. Hence, we delete the same an allow the appeal of the assessee.

15. In the result, appeal of the assessee is allowed.

Order pronounced on 23/08/2018.

Categories: Income Tax
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