Whether transaction of loan between a firm and its partner attractsSection.269SS of Income Tax Act?


Court :
Delhi High Court

Brief :
Assessee is a Partnership firm involved in the business of banking and registered under the Kerala Money Lending Act.Notice u/s 148 of the Act was issued to the respondent-assessees. The firm had accepted payments from the partners, during the relevant year corresponding to the Assessment Years, in cash.AO held that in the case of a partnership firm, there is no difference between the firm and the partners. As a partner of the firm, he is a part of the firm itself. Section 269-SS of the Act has no application in a transaction between the partner and the firm. The AO, in his order, was of the view that the partners and the firm being two distinct and separate entities/persons are also in the mischief of Section 269-SS of the Act. AO concluded that the transactions under reference were not part of the current account or the capital account and held that interest was given to the partners on the amount advanced, which conclusively proved that transactions are between different persons whereby the firm has accepted and repaid loans in cash, and accordingly, initiated the proceedings under Section 271-D and 271-E and thereby imposed penalty under Section 271-D of the Act.

Citation :
CIT – Appellant – Versus – M/S. Muthoot Financiers – Respondent

IN THE HIGH COURT OF DELHI AT NEW DELHI

 

Judgment reserved on November 13, 2014

Judgment delivered on February 03, 2015

 

ITA 336/2002

COMMISSIONER OF INCOME TAX,

DELHI-VIII, NEW DELHI

Appellant

Through: Mr.RohitMadan,Sr.Standing

Counsel with Mr.AkashVajpai, Advocate

 

Versus

 

M/S. MUTHOOT FINANCIERS, NEW DELHI

Respondent

Through: Mr.RajatNavei, Advocate

with Mr.KushagraPandit, Advocate

 

ITA 338/2002

COMMISSIONER OF INCOME TAX, DELHI VIII

Appellant

Through: Mr.RohitMadan,Sr.Standing Counsel

with Mr.AkashVajpai, Advocate

 

Versus

 

 M/S. MUTHOOT FINANCIERS, NEW DELHI

Respondent

Through: Mr.RajatNavei, Advocate with

Mr.KushagraPandit, Advocate

 

ITA 341/2002

COMMISSIONER OF INCOME TAX

Appellant

Through: Mr.RohitMadan,Sr.Standing

Counsel with Mr.AkashVajpai, Advocate

 

Versus

M/S. MUTHOOT M. GEORGE BANKERS

Respondent

Through: Mr.RajatNavei, Advocate

with Mr.KushagraPandit, Advocate

 

ITA 345/2002

COMMISSIONER OF INCOME TAX, DELHI VIII

Appellant

Through: Mr.RohitMadan,Sr.Standing

Counsel with Mr.AkashVajpai, Advocate

 

Versus

 

M/S. MUTHOOT BANKERS, NEW DELHI

Respondent

 

Through: Mr.RajatNavei, Advocate

with Mr.KushagraPandit, Advocate

CORAM:

HON’BLE MR. JUSTICE SANJIV KHANNA

HON'BLE MR. JUSTICE V.KAMESWAR RAO V.KAMESWAR RAO, J.

1. This batch of appeals under Section 260-A of the Income Tax Act, 1961 („Act‟, in short) even though pertains to the different assessees, involve a singular substantial question of law are being decided by this common order.

2. The substantial question of law as framed in these appeals is as under: “Whether the Income Tax Appellate Tribunal was correct in law and on fact in holding that penalty under Section 271-D of the Income Tax Act,1961 could be levied on the assessee?

3. The facts in all these appeals are not disputed. They are common in the sense that the respondent assessee in all these appeals are partnership firms involved in the business of banking and registered under the Kerala Money Lending Act. The assessees had filed return of income and it appears that the return of the income was processed accepting the returned income. Thereafter, notice under Section 148 of the Act was issued to the respondent-assessees. During the course of the assessment proceedings, it was found that the firm had accepted payments from the partners, during the relevant year corresponding to the Assessment Years, in cash. The details of the total amounts paid to the individual firm by the partners in all the aforesaid four appeals are as under:

Appeal No.

Amount of advance made by the partners

Assessment Year

Amount of Penalty

ITA No. 336/2002

Rs. 2,08,45,000/-

1996-97

Rs.2,08,45,000/-

ITA No. 338/2002

Rs.2,29,34,000/-

1998-99

Rs.2,29,34,000/-

ITA No. 341/2002

Rs.52,600,000/-

1998-99

Rs.5,90,00,000/-

ITA No. 345/2002

Rs.66,530,000/-

1998-99

Rs.66,530,000/-

4. It was the case of the assessees before the Assessing Officer (as noted from ITA No. 341/2002) that in the case of a partnership firm, there is no difference between the firm and the partners. As a partner of the firm, he is a part of the firm itself. Section 269-SS of the Act has no application in a transaction between the partner and the firm. The Assessing Officer, in his order, was of the view that the partners and the firm being two distinct and separate entities/persons are also in the mischief of Section 269-SS of the Act. According to him, the assessees had maintained three accounts; (1) capital account, (2) current account, (3) loan account. As per the partnership deed of the firm, Rs. 10,000/- was contributed equally by all the partners. It was his conclusion that the transactions under reference were not part of the current account or the capital account. He held that interest was given to the partners on the amount advanced, which conclusively proved that transactions are between different persons whereby the firm has accepted and repaid loans in cash, and accordingly, initiated the proceedings under Section 271-D and 271-E of the Act and thereby imposed penalty under Section 271-D of the Act.

5. In appeals, the Commissioner of Income Tax (Appeals) upheld the order of the Assessing Officer imposing penalty under Section 271-D of the Act. The relevant observation of Commissioner of Income Tax (Appeals) in ITA 336/2002 is as under:-

“40. The Bombay ITAT had held that both the Assessing Officer and the CIT(A) have held and correctly that there was absolutely no reason for making or receiving cash payments in the present case. In case the transactions were with partners or members of their family or the sister concerns, it was all the more necessary that such transactions ought to ITA No.336/2002 & connected matters Page 5 of 19 have been entered into in cash but by crossed account payee cheques or drafts. In this connection, counsel referred to s.273B and submitted that the explanation offered by the assessee shows a reasonable cause for the failure of the assessee to comply with the provisions of s.269-SS and 269-T. This argument is not acceptable. The circumstances clearly indicate that in transactions of this type between persons who are connected, it is all the more necessary that such transactions are to be made only in conformity with the provisions of s.269-SS/269-T. It would be difficult to accept the contention of the assessee that the nature of the assessee’s business was such where cash transactions are inevitable. The assessee is engaged in the business of building/road construction. The nature and type of the business, is not such, which may necessitate sudden or immediate or unforeseen requirement of cash. Moreover, it has not been substantiated with the aid of cash book and other books of account that on the dates on which the questioned transaction took place the assessee, in the case of cash receipts and also in the case of cash payments, was in dire need of money. Taking the totality of the relevant facts and circumstances there was no reasonable cause for the failure of the assessee to comply with the provisions of s.269-SS and 269-T.

To read the full judgment, please find the attached file :

Attached file:

http://lobis.nic.in/dhc/VKR/judgement/04-02-2015/VKR03022015ITA3362002.pdf

 

Hetvi Sheth
on 02 March 2015
Published in Income Tax
Views : 3870






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