Optitech Software (P) Ltd., Gurgaon vs Assessee

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No.1584 /Del/2013 Assessment year : 2006-07 M/s. Optitech Software (P) Ltd., Vs. ITO, Ward 13(4), T-23/22 DLF Phase III, New Delhi Gurgaon-122002 GIR / PAN:AAACO1762E (Appellant) (Respondent)

Appellant by : Shri P. C. Yadav, Adv. Respondent by : Shri P Dam Kanunjha, Sr. DR

Date of hearing : 11.03.2015 Date of pronouncement : 25.03.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal filed by assessee against the order of Ld. CIT(A) dated 30.08.2012. The assessee has raised following grounds of appeal:

"i) On the facts and in the case, the Ld. CIT(A) has erred in confirming the disallowance of Rs.4,28,675/- for salary paid.

ii) On the facts and in the case, the Ld. CIT(A) erred in sustaining an addition u/s 41(1) of the Act, a sum of Rs.1,60,000/- being salary payable.

iii) On the facts of the case, the Ld. CIT(A) erred in confirming an amount of Rs.1,19,928 received from the Director as a violation of Section 269SS of the Act."

2. The Brief facts of the case are that the case of the assessee was selected for scrutiny and during assessment proceedings, the A.O. observed 2 ITA No.1584/Del/2013

that he assessee had made certain payments to professionals without deduction of TDS in accordance with the provisions of Section 194J and, therefore, he disallowed the payment u/s 40(a)(ia) of the Act and he disallowed an amount of Rs.4,28,675/-. The A.O. further observed that the assessee in its balance sheet had reflected a provision of Rs.1.80 lacs on account of salary payable. He further observed that the assessee had paid only Rs.20,000/- out of the provisions made for Rs.1.80 lacs. The A.O. observed that it is unusual that an employee would keep salary with his employer and, therefore, he treated the salary payable as a ceased liability and therefore, made addition u/s 41(1) of the Act. The A.O. further observed that the assessee had made cash payment of Rs.1,19,928/- to M/s. Hans Hundai as part payment for purchase of a car. On query, the assessee submitted that the amount was paid to M/s. Hans Hundai after obtaining loan of Rs.1,19,928/- from the Director Mrs. Poonam Wadhwa and Dilip Wadhwa. The A.O. observed that since the assessee had taken the loan from Direct10ors in cash which was in violation of the provisions of Section 269SS, therefore, he held that penalty proceedings u/s 271D are being initiated separately. Aggrieved, the assessee filed appeal before Ld. CIT(A). Ld. CIT(A) did not agree with the contentions of the assessee and upheld the action of A.O. Aggrieved, the assessee is now in appeal before us.

3. As regards the 1st addition and disallowance u/s 40(a)(ia), Ld. A.R. submitted that the amount was paid during the year itself and there not outstanding as payables and, therefore, in view of the decisions of the Tribunal in the case of Shri Anoop Khandelwal in I.T.A.No. 18/Del/2013, dated 17th Oct. 2014 the addition was not warranted. It was submitted that the Tribunal has decided the similar issue relying on the case law of CIT Vs 3 ITA No.1584/Del/2013

Vector Shipping Services Pvt. Ltd. 355 ITR 642. Regarding the 2nd ground of appeal, Ld. A.R. submitted that the provisions were outstanding in the books of account and it was not written back by the assessee and, therefore, the provision of Section 41(1) were not applicable. As regards the 3rd addition for violation of the provision of Section 269SS, Ld. A.R. submitted that the assessee had not accepted the loan in cash and rather the director had directly paid to Hundai Motors and assessee had just passed a journal entry by crediting the amount to the account of Directors and therefore there was no violation of the provisions of Section 269SS. Reliance in this respect was placed on the case law of CIT Vs Worldwide Townships Projects Ltd. decided by Hon'ble Delhi High Court in I.T.A.No. 232/2014 for the proposition that provisions of section 269SS are not applicable in a case where loan was not accepted in cash.

4. Ld. A.R. on the other hand heavily relied upon the order of authorities below.

5. We have hard rival parties and have gone through the material placed on record. We find that the issue of addition u/s 40(a)(ia) is duly covered in favour of assessee because it is an undisputed fact that payments were made during the year itself and therefore, were not outstanding as payable. The Special Bench in the case of Merylin Shipping &Transport Co. in 136 ITD 23 has clearly held that disallowance u/s 40(a)(ia), can be made of the amounts which are payable and cannot be made of the amounts which have already been paid. Similar findings has also been made by Hon'ble Allahabad High Court in case of Vector Shipping Service Pvt. Ltd. reported at 357 ITSR 642 against which SLP filed by the department has also been dismissed. Though Hon'ble Calcutta High Court in the case of CITVs 4 ITA No.1584/Del/2013

Cresent Export Syndicate 216 Taxman 250 and Hon'ble Gujarat High Court in the case of CIT vs Sikander Khan 357 ITR 312 are not in favour of assessee but keeping in view of Hon'ble Supreme Court decision in the case of CIT VS Vegetable products 88 ITR 92, the assessee is entitled to application of judgement benefiting to it and, therefore, applying the Hon'ble Allahabad High Court judgement, the 1st ground of appeal is decided in favour of assessee and is therefore, allowed.

6. Regarding 2nd ground of appeal, with respect to addition u/s 41(1), we find that various courts have decided that addition u/s 41(1) can only be made if the provisions of liability are written back in the P & L account and in the absence of such write back, addition u/s 41(1) cannot be made. It is undisputed fact that provisions were not written back and were outstanding in the balance sheet and reflection of such liabilities in the balance sheet itself proves that liabilities had not ceased and therefore, provisions of Section 41(1) were not applicable. In view of above, ground No.2 of the appeal is also allowed.

7. As regards 3rd grievance for violation of the provisions of Section 269SS, we find that the provisions of section 269SS are applicable in the case of acceptance of loan or deposit in cash. However, these provisions are not applicable in a case where the assessee had received loans or deposits by way of passing of a journal entry. The auditors in the auditors' report u/s 44AB vide Annexure D placed at paper book page 22 has stated that no cash loan was accepted by assessee from Dilip Wadhwa and Poonam Wadhwa. Ld. A.R. had submitted that A.O. wrongly noted that amount was received in cash whereas, the fact remains that assessee had passed journal entry crediting the account of depositors and debiting the account of Hundai 5 ITA No.1584/Del/2013

Motors. We find that Hon'ble Delhi High Court in the case of Worldwide Township Projects Ltd. vide para 8 has held that provisions of Section 269SS are attracted only if the transaction is made in cash and the findings as contained in para 8 are reproduced below:

"A plain reading of the aforesaid section indicates that (the import of the above provision is limited) it applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. The ambit of the Section is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. The object of the Section is to prevents transactions in currency. This is also clearly explicit from clause (iii) of the explanation of Section 269SS of the Act which defines loan or deposit to mean "loan or deposit of money". The liability recorded in the books of accounts by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of accounts, is clearly outside the ambit of the provision of Section 269SS of the Act, because passing such entries does not involve acceptance of any loan or deposit of money. ' In the present case, admittedly no money was transacted other than' through 'banking channels. M/s P ACL India Ltd. made certain payments through banking channels to land owners. This payment made on behalf of the assessee was recorded by the assessee in its books by crediting the account of M/s PACL India Ltd. In view of this admitted position, no infringement of Section 269SS of the Act is made out. This Court, in the case of Noida Toll Bridge Co. Ltd. (supra), considered a similar case where a company had paid money to the Government of Delhi for acquisition of a land on behalf of the assessee therein. The Assessing Officer levied a penalty under Section 271D of the Act for alleged violation of the provision of Section 269SS of the Act since the books of the assessee reflected the liability on account of the lands acquired on its behalf. On appeal, the CIT(A) affirmed the penalty. The order of the CIT was successfully impugned by the assessee before the ITAT. On appeal, this court held as under:

While holding that ht provisions of Section 269SS of the Act were not attracted, the Tribunal has noticed that (i) in the instant case, the 6 ITA No.1584/Del/2013

transaction was by an account payee cheque, (ii) no payment on account was made in cash either by the assessee or on its behalf, (iii) no loan was accepted by the assessee in cash, and (iv) the payment of Rs.4.85 crores made by the assessee through IL & FS, which holds more than 30 per cent of the paid-up capital of the assessee by journal entry in the books of account of the assessed by crediting the account of IL & FS.

Having regard to the aforenoted findings, which are essentially findings of fact, we are in complete agreement with the Tribunal that the provisions of section 269SS were not attracted on the facts of the case. Admittedly, neither the assessee nor IL & FS had made any payment in cash. The order of the Tribunal does not give rise to any question of law, much less a substantial question of law.

We accordingly decline to entertain the appeal. Dismissed."

8. In view of the above, we hold that there was no violation of provisions of Section 269SS and therefore, Ld. CIT(A)'s action in confirming the action of A.O. in initiating penalty u/s 271D is not justified. In view of above, ground No.3 is also allowed.

9. In the result, appeal filed by assessee is allowed.

10. Order pronounced in the open court on 25th March, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER th Date: 25 March, 2015 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order (ITAT, New Delhi).

7 ITA No.1584/Del/2013 S.No. Details Date Initials Designation 1 Draft dictated on 13/3 Sr. PS/PS 2 Draft placed before author 17,18,19 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/3 Sr. PS/PS 6 Kept for pronouncement 25/3 Sr. PS/PS 7 File sent to Bench Clerk 25/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order