M/S Minopharm Laboratories Limited,, ... vs Department Of Income Tax

This appeal is filed by the Revenue against the order of the Commissioner of Income Tax(Appeals)-V, Hyderabad, dated 13-12-2013 on the following grounds:

"i. The order of the CIT(A) is erroneous both in law and in facts of the case.

ii. The CIT(A) ought to have appreciated the fact that the provisions of section 269SS doesn't discuss anything regarding business exigency and talks only about the mode of receipt of loans and deposits ie. Either by way of account payee cheque or account payee bank draft.

:- 2 -: I.T.A. No. 767/Hyd/2014 M/s. Minopharm Laboratories Ltd.,

iii. The CIT(A) ought to have appreciated the fact that the Addl. CIT has clearly verified the explanation submitted by assessee along with supporting evidences submitted and confirmed the penalty levied earlier.

iv. The CIT(A) to have allowed the assessing officer a reasonable opportunity to examine the evidences or documents in accordance with Rule 46A(3) of IT Rules, on the issue of additional evidence submitted in connection with the levy of penalty u/s. 271D.

v. Any other ground that may be urged at the time of hearing".

2. The brief facts of the case are as under:

The respondent is a company incorporated under the provisions of the Companies Act, 1956. The assessee-company is engaged in the business of pharmaceutical formulations, filed the return of income for the Assessment Year (AY) 2005-06 on 01-11-2005 admitting income of Rs. 6,57,378/- before set-off of the brought forward losses. Against the said return of income, the assessment was completed u/s. 143(3) of the Income Tax Act, 1961 [Act] vide order dt. 28-12-2000 at 'NIL' income after setting-off of the brought forwards losses of Rs. 6,95,998/-. The assessee has not agitated the assessment order further. Therefore, the assessment order attained finality.

3. However, during the course of the assessment proceedings, the Assessing Officer (AO) found that the assessee-company accepted deposits in cash and repaid the same in cash thereby violating the provisions of Section 269S and 269T of the Act and therefore, the AO initiated penalty proceedings u/s. 271D and 271E of the Act and finally, a penalty of Rs. 16,69,117/- u/s. 271D of the Act was levied by the Addl. Commissioner of Income Tax, Range-16, Hyderabad vide order dt. 22-08- 2008. Being aggrieved, an appeal was filed before CIT(A)-V, Hyderabad vide ITA No. 0327/DC-16(2)/CIT(A)-V/2008-09 dt. 17-09-2010, who :- 3 -: I.T.A. No. 767/Hyd/2014 M/s. Minopharm Laboratories Ltd.,

after admitting the additional evidence remanded the matter to the file of AO. The AO consequent to the said order, passed the impugned order dt. 07-12-2010. During the course of remand proceedings, the AO found that the assessee-company received the cash from one Shri K. Anil Kumar, who is the Managing Director of the assessee-company to the extent of Rs. 16,69,117/-. Therefore, levied penalty u/s. 271D of the Act. On appeal before the CIT(A), the same was allowed vide order dt. 13-12-2013 by holding as follows:

"5.1 On examining the facts and figures produced for my verification, I find that the payments of Rs. 16,69,117/- were made in order to save the company from Securitisation Act and calling of advances by the financial institutions and to meet the legal cases filed by the creditors and other outside agencies against the company. It is further observed that such funds are arranged by the directors of the company to save the company against the above situation. I find force in the contentions of the appellant that since the payments were made for the business exigencies, the provisions of Section 269SS are not applicable to these payments amounting to Rs. 16,69,117/- and accept the same. Further, I observe that the entries made in the books of account are mere book adjustments and the provisions of Section 269SS are clearly not applicable to the facts of the case. Hence, I hold that these payments were made only due to urgent business exigencies as stated by the appellant and on the basis of the evidences produced for my verification, they are arranged for smooth running of the business and, therefore, the levy of penalty is not justified on the facts and circumstances of the case. Therefore, I delete the penalty of Rs. 16,69,117/- levied u/s. 271D".

Aggrieved, the Revenue had come up with the present appeal.

4. The Ld. DR argued that the respondent assessee-company had clearly violated the provisions of Section 269SS and therefore, penalty clearly exigible. It was further argued that the CIT(A) without complying with the provisions of Rule 46A(3) of Income Tax Rules, admitted the additional evidence and therefore, the order of CIT(A) should not be sustained.

5. On the other hand, the Ld. AR for the assessee argued that the assessee had not violated the provisions of Section 269SS in as much as :- 4 -: I.T.A. No. 767/Hyd/2014 M/s. Minopharm Laboratories Ltd.,

the transactions in question are not in the nature of a loan or deposit. The amounts were directly paid by the Managing Director, Shri K. Anil Kumar, to meet the urgent business needs of the respondent, assessee- company. The respondent company only recorded the transaction through journal entries. The respondent-company had not received any cash deposits directly from the Managing Director. In any event, it was submitted that the transactions in question were undertaken only to meet the urgent business needs of the respondent, assessee-company. Where there is a reasonable cause for accepting the cash, penalty cannot be levied and in support of this proposition, he relied upon the following decisions:

i. CIT Vs. Manoj Lalwani (2003) 260 ITR 590 (Raj);

ii. CIT Vs. Parma nand (2004) 266 ITR 255 (Del); iii. CIT Vs. Sunil Kumar Goel (2009) 315 ITR 255 (Bom); and iv. Srishti Life Needs (P) Ltd., Hyderabad Vs. Addl. CIT, Range-

3, Hyderabad (2015) 2 TMI 245, ITAT, Hyderabad.

6. We heard the rival parties and perused the orders of lower authorities. We find from the perusal of ledger copy furnished by the Ld. AR, no cash entries in the ledger account of Shri K. Anil Kumar were passed. It is only through journal entries the transactions between the respondent assessee-company and the Managing Director Shri K. Anil Kumar were reflected. Further, we notice that Shri K. Anil Kumar had issued his personal cheques to meet the urgent business needs of the respondent assessee-company directly in favour of the persons to whom the respondent assessee-company owes money and no cash in any form either loan or deposit was directly given by him to the respondent, assessee-company. The Hon'ble High Court of Chattisgarh in the case of CIT Vs. Preeti Fuels and Flames P. Ltd., [330 ITR 129] had held that :- 5 -: I.T.A. No. 767/Hyd/2014 M/s. Minopharm Laboratories Ltd.,

when the transactions in question went through bank and were deposited by some other Directors, the provisions of Section 269SS are not applicable. The Hon'ble High Court of Andhra Pradesh and Telangana in the case of Gururaj Mini Roller Flour Mills Vs. Additional Commissioner of Income Tax [118 DTR (AP) 218] held that, "Mere book adjustment of funds by the assessee vis-à-vis its sister concern can by no means be said to be violation of Section 269SS/269T so as to attract penalty u/s. 271D/271D". Following the same ratio, we hold that the transaction does not come within the purview and ambit of provisions of Section 269SS of the Act. Hence, this ground of appeal raised by the Revenue is dismissed.

7. The Revenue had also raised the ground contending that the CIT(A) without giving an opportunity of hearing to the AO, had allowed the additional evidence. On perusal of the record, we find that no additional evidence was filed before the CIT(A) and the order of CIT(A) is not based on the additional evidence. Therefore, this ground of appeal is also dismissed.

8. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on 22nd May, 2015

Sd/- Sd/-

(ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 22nd May, 2015

TNMM :- 6 -: I.T.A. No. 767/Hyd/2014 M/s. Minopharm Laboratories Ltd.,

Copy to :

1. The Income Tax Officer, Ward-16(1), Room No. 613, 6th Floor, Aayakar Bhavan, Basheer Bagh, Hyderabad.

2. M/s. Minopharm Laboratories Limited, C-20, Madhura Nagar, Hyderabad.

3. CIT(Appeals)-V, Hyderabad.

4. CIT-IV, Hyderabad.

5. D.R. ITAT, Hyderabad