O/TAXAP/561/2013 ORDER

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL NO. 561 of 2013

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COMMISSIONER OF INCOME TAX VI....Appellant(s)
Versus
MADHAV ENTERPRISE PVT LTD....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1
MS VAIBHAVI K PARIKH, ADVOCATE for the Opponent(s) No. 1
NOTICE SERVED for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI

and
HONOURABLE MS JUSTICE SONIA GOKANI

Date : 22/01/2014

ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1. This appeal is presented by the Revenue challenging the

judgement of the Income Tax Appellate Tribunal dated
14.12.2012 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?”

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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
Rs.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

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advance) for the purchase of shop/office/flat. Many of

these advances were received by cheques, some where
cash. 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.”

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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 pre­conditions 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
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 Reevenue are also distinguishable
on facts.

12. In the case of Shiv Enterprises (ITA

No.291/Ahd/2009 order dated 14­10­2011) the coordinate
Bench relying on the CBDT circular no.387 dated 06­07­
1984 held receiving advance and repayment of advances is
a business transaction. Provisions of Sec.269SS 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

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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

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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
cheques. Some of the parties cancelled the advance
booking due to various reasons. On account of this, the

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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.

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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

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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 sub­section (2) of section 272A, sub­section
(1) of section 272AA or sub­section (1) of section 272BB or
clause (b) of sub­section (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

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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.

(AKIL KURESHI, J.)

(MS SONIA GOKANI, J.)

raghu

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