The group squares off inter-company balances by journal entry. The Department says every entry is a s.269SS or s.269T violation. What survives?
The Tribunal dismissed the Revenue's appeals and confirmed the deletion of penalties under ss.271D and 271E. Its route was not that journal entries fall outside the sections — on the jurisdictional High Court's decision they are hit — but that the reasons for using them were commercial and therefore reasonable cause under s.273B. The reasons accepted were raising funds, assignment of receivables, squaring up transactions, operational efficiency and MIS, consolidation of family member debts, correction of errors, and loans taken in cash, and there was no finding that the transactions involved unaccounted money or were not genuine.
Decided by the ITAT (Amarjit Singh, Judicial Member and S. Rifaur Rahman, Accountant Member) on 2022-04-06, reported as ITA Nos. 3047 and 3113/MUM/2019; Assessment Years 2013-14 and 2014-15; Income Tax Appellate Tribunal, Mumbai 'A' Bench. It bears on section 269SS, section 269T, section 271D, section 271E, section 273B of the Income Tax Act 1961, in Cash Transaction Limits, Penalty and Evidence & Burden of Proof matters.
This is the applied, transaction-level version of a line the library already carries at High Court level, and it is what a practitioner actually needs when a group is facing a penalty on hundreds of entries. Get the sequence right in the reply: first, whether the entry records a loan or deposit at all — a reimbursement of tax or expenses paid by an associate on the company's behalf is not a loan, and the Tribunal recorded the assessee's submission that Triumph International itself excluded such cases because actual payment would be an empty formality; second, whether the entries extinguish mutual liabilities between the company and its sister concerns, which is the current-account character; and third, s.273B reasonable cause, entry by entry, with the commercial purpose named. The Revenue side of the point is equally important: the defence depends on the absence of any finding that the entries involved unaccounted money or were not genuine, so it collapses the moment the Assessing Officer records such a finding.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, a large real-estate group company, recorded a substantial number of inter-company transactions with associate and group companies by journal entry rather than by cheque or draft. The explanations put forward included that where the company lacked funds in its bank accounts it asked associate companies to pay tax on its behalf, because a cheque loan followed by a payment of tax would involve a gap of two or three days and the tax could not then be paid within the due date, so the associate paid directly and a journal entry was passed to give effect to the transaction, these reimbursements being accounted for by journal entries (the assessee's written explanation reproduced at para 4, category 5). The purposes of the entries generally were to raise funds from sister concerns, to assign receivables among sister concerns, to adjust or transfer balances, to consolidate debts and to correct clerical errors. Penalties under ss.271D and 271E were levied and deleted in first appeal, and the Revenue appealed. The penalty figure, Rs 1,03,85,936, is stated in the Revenue's ground 1 reproduced at para 6.
The Revenue's appeals were dismissed (para 14) and the deletion of the penalties under ss.271D and 271E was confirmed. Following the coordinate bench in the assessee's group company Lodha Builder Pvt. Ltd. and the Bombay High Court's order of 06.02.2018 in the group's own case, the Tribunal held the issue already settled in favour of the assessee and declined to interfere (para 12). The reasoning it adopted, taken from the coordinate-bench order quoted at para 10, was that the causes shown for receiving or repaying otherwise than by account-payee cheque or bank draft — alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies and MIS purposes, consolidation of family member debts, correction of errors, and loans taken in cash — were prima facie commercial in nature and could not be described as non-business by any means, and that in the absence of any finding by the Assessing Officer that the transactions were unaccounted or not genuine those causes constituted reasonable cause under s.273B.
The Tribunal disposed of the appeals by adopting a coordinate-bench order in the assessee's own group company, Lodha Builder Pvt. Ltd., which it quoted in full at para 10 (the quoted material carries the source order's own paragraph numbers 32 to 35, not this order's). The quoted reasoning was: that on the jurisdictional High Court's decision journal entries are hit by s.269SS, but that completing the 'empty formalities' of payments and repayments by issuing or receiving cheques to swap or square transactions is not the intention of the provision where the transactions are otherwise bona fide or genuine, and such reasons constitute reasonable cause within s.273B; that there was no finding by the Assessing Officer during the assessment proceedings that the impugned transactions constituted unaccounted money or were not bona fide or genuine, and the entries were aimed at the extinguishment of mutual liabilities between the assessee and the sister concerns; that the causes shown were prima facie commercial in nature; and that the entries were made to raise funds from sister concerns, assign receivables among them, adjust or transfer balances, consolidate debts and correct clerical errors. At para 11 the Tribunal then set out the Bombay High Court's order dated 06.02.2018 in the group's own case (ITA Nos. 171/172/20/2013/218/219 of 2015), in which the High Court held that the test for reasonable cause laid down in Triumph International Finance was satisfied on these facts and that the test cannot be determined by the number of entries. At para 12 it respectfully followed those decisions and dismissed the Revenue's grounds; at para 14 the appeals were dismissed.
Respectfully following the above decisions and issue under consideration is already settled in favour of the assessee. Accordingly, we are inclined to dismiss the grounds of appeal raised by the revenue.
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Handle my notice → Ask a CA on WhatsAppThe Tribunal dismissed the Revenue's appeals and confirmed the deletion of penalties under ss.271D and 271E. Its route was not that journal entries fall outside the sections — on the jurisdictional High Court's decision they are hit — but that the reasons for using them were commercial and therefore reasonable cause under s.273B. The reasons accepted were raising funds, assignment of receivables, squaring up transactions, operational efficiency and MIS, consolidation of family member debts, correction of errors, and loans taken in cash, and there was no finding that the transactions involved unaccounted money or were not genuine. This was decided by the ITAT (Amarjit Singh, Judicial Member and S. Rifaur Rahman, Accountant Member) and bears on section 269SS, section 269T, section 271D, section 271E, section 273B of the Income Tax Act 1961. It is reported as ITA Nos. 3047 and 3113/MUM/2019; Assessment Years 2013-14 and 2014-15; Income Tax Appellate Tribunal, Mumbai 'A' Bench. This is the applied, transaction-level version of a line the library already carries at High Court level, and it is what a practitioner actually needs when a group is facing a penalty on hundreds of entries. Get the sequence right in the reply: first, whether the entry records a loan or deposit at all — a reimbursement of tax or expenses paid by an associate on the company's behalf is not a loan, and the Tribunal recorded the assessee's submission that Triumph International itself excluded such cases because actual payment would be an empty formality; second, whether the entries extinguish mutual liabilities between the company and its sister concerns, which is the current-account character; and third, s.273B reasonable cause, entry by entry, with the commercial purpose named. The Revenue side of the point is equally important: the defence depends on the absence of any finding that the entries involved unaccounted money or were not genuine, so it collapses the moment the Assessing Officer records such a finding. If it applies to you, the first step is this: Classify every impugned journal entry by purpose before replying — reimbursement, assignment of receivables, squaring up, consolidation, error correction — and give the commercial reason for each class.
The assessee, a large real-estate group company, recorded a substantial number of inter-company transactions with associate and group companies by journal entry rather than by cheque or draft. The explanations put forward included that where the company lacked funds in its bank accounts it asked associate companies to pay tax on its behalf, because a cheque loan followed by a payment of tax would involve a gap of two or three days and the tax could not then be paid within the due date, so the associate paid directly and a journal entry was passed to give effect to the transaction, these reimbursements being accounted for by journal entries (the assessee's written explanation reproduced at para 4, category 5). The purposes of the entries generally were to raise funds from sister concerns, to assign receivables among sister concerns, to adjust or transfer balances, to consolidate debts and to correct clerical errors. Penalties under ss.271D and 271E were levied and deleted in first appeal, and the Revenue appealed. The penalty figure, Rs 1,03,85,936, is stated in the Revenue's ground 1 reproduced at para 6. The matter was decided on 2022-04-06 by the ITAT (Amarjit Singh, Judicial Member and S. Rifaur Rahman, Accountant Member). On those facts the ITAT held as follows. The Revenue's appeals were dismissed (para 14) and the deletion of the penalties under ss.271D and 271E was confirmed. Following the coordinate bench in the assessee's group company Lodha Builder Pvt. Ltd. and the Bombay High Court's order of 06.02.2018 in the group's own case, the Tribunal held the issue already settled in favour of the assessee and declined to interfere (para 12). The reasoning it adopted, taken from the coordinate-bench order quoted at para 10, was that the causes shown for receiving or repaying otherwise than by account-payee cheque or bank draft — alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies and MIS purposes, consolidation of family member debts, correction of errors, and loans taken in cash — were prima facie commercial in nature and could not be described as non-business by any means, and that in the absence of any finding by the Assessing Officer that the transactions were unaccounted or not genuine those causes constituted reasonable cause under s.273B.
The Tribunal disposed of the appeals by adopting a coordinate-bench order in the assessee's own group company, Lodha Builder Pvt. Ltd., which it quoted in full at para 10 (the quoted material carries the source order's own paragraph numbers 32 to 35, not this order's). The quoted reasoning was: that on the jurisdictional High Court's decision journal entries are hit by s.269SS, but that completing the 'empty formalities' of payments and repayments by issuing or receiving cheques to swap or square transactions is not the intention of the provision where the transactions are otherwise bona fide or genuine, and such reasons constitute reasonable cause within s.273B; that there was no finding by the Assessing Officer during the assessment proceedings that the impugned transactions constituted unaccounted money or were not bona fide or genuine, and the entries were aimed at the extinguishment of mutual liabilities between the assessee and the sister concerns; that the causes shown were prima facie commercial in nature; and that the entries were made to raise funds from sister concerns, assign receivables among them, adjust or transfer balances, consolidate debts and correct clerical errors. At para 11 the Tribunal then set out the Bombay High Court's order dated 06.02.2018 in the group's own case (ITA Nos. 171/172/20/2013/218/219 of 2015), in which the High Court held that the test for reasonable cause laid down in Triumph International Finance was satisfied on these facts and that the test cannot be determined by the number of entries. At para 12 it respectfully followed those decisions and dismissed the Revenue's grounds; at para 14 the appeals were dismissed. In the words reproduced by the source cited on this page: "Respectfully following the above decisions and issue under consideration is already settled in favour of the assessee. Accordingly, we are inclined to dismiss the grounds of appeal raised by the revenue." The decision followed or applied Lodha Builders Pvt. Ltd. (ITAT Mumbai coordinate bench, assessee's group company) — quoted in full at para 10 and followed; Bombay High Court order dated 06.02.2018 in the assessee's group case, ITA Nos. 171/172/20/2013/218/219 of 2015 — extracted at para 11 and followed; CIT v. Triumph International Finance (I) Ltd. (Bombay High Court) — reached through both of the above.
It was decided by the ITAT on 2022-04-06 and is reported as ITA Nos. 3047 and 3113/MUM/2019; Assessment Years 2013-14 and 2014-15; Income Tax Appellate Tribunal, Mumbai 'A' Bench. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 269SS, section 269T, section 271D, section 271E, section 273B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeals were dismissed (para 14) and the deletion of the penalties under ss.271D and 271E was confirmed. Following the coordinate bench in the assessee's group company Lodha Builder Pvt. Ltd. and the Bombay High Court's order of 06.02.2018 in the group's own case, the Tribunal held the issue already settled in favour of the assessee and declined to interfere (para 12). The reasoning it adopted, taken from the coordinate-bench order quoted at para 10, was that the causes shown for receiving or repaying otherwise than by account-payee cheque or bank draft — alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies and MIS purposes, consolidation of family member debts, correction of errors, and loans taken in cash — were prima facie commercial in nature and could not be described as non-business by any means, and that in the absence of any finding by the Assessing Officer that the transactions were unaccounted or not genuine those causes constituted reasonable cause under s.273B. It arises in Cash Transaction Limits, Penalty and Evidence & Burden of Proof matters, on section 269SS, section 269T, section 271D, section 271E, section 273B of the Income Tax Act 1961, and was decided by Amarjit Singh, Judicial Member and S. Rifaur Rahman, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Separate out entries that are not loans or deposits at all (payments made by an associate on the company's behalf, reimbursements) and take them outside the sections rather than into s.273B. Show that the entries extinguish mutual liabilities between the company and its sister concerns and that the account is a running current account. Put on record that the Assessing Officer made no finding in the assessment order that the transactions were unaccounted or not genuine, and hold him to that. Do not treat the journal-entry defence as automatic: it is a reasonable-cause defence under s.273B, so it must be proved on the facts of each entry, and it is unavailable where the entries route unaccounted money.
Validity check could not be completed. Validity check could not be completed. I did not locate any later decision considering this order and did not check whether the Revenue appealed under s.260A. The related question — whether the reasonable-cause defence remains available for journal entries passed after the Bombay High Court decided Triumph International Finance on 12 June 2012, the assessment years here being 2013-14 and 2014-15 — was expressly put to this Bench by the Department's Senior Standing Counsel, whose written submissions are reproduced at para 7. The Tribunal did not decide it as a proposition: it held at para 7 that those submissions contained no specific facts relating to the appeal and were irrelevant to its disposal, and at paras 11 and 12 it followed the Bombay High Court's order of 06.02.2018 in the group's own case, which had applied the Triumph test and found reasonable cause established on materially similar facts. So the point is answered on authority for this group but has not been decided as a general proposition, and I could not retrieve the Bombay High Court's decision in Ajinath Hi-Tech Builders to test it further. Treat that as an open point. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This order runs from paragraph 1 to paragraph 14 only. Everything numbered 32 to 35 in the document is inside the block quotation, beginning at para 10, of the coordinate-bench order in the assessee's group company Lodha Builder Pvt. Ltd.; those are the source order's paragraph numbers, not this Bench's, and the language in them is not this Bench's own. The Tribunal's own operative paragraphs are 10 to 14. Separately, the numbers 5, 6 and 7 also appear twice in the document: once as items in the assessee's written explanation reproduced inside para 4, and once as this order's own paragraphs. Para 13 says 'the decision taken in A.Y. 2012-13 is applicable to this assessment year also' while introducing 'the appeal relating to A.Y. 2013-14', although para 2 records ITA No. 3047/MUM/2019 for A.Y. 2013-14 as the lead case; the assessment years in the caption are 2013-14 and 2014-15 and the reference to 2012-13 is a slip in the order. The printed caption names the appellant as 'ACIT - Central Circle - 7(3)', while para 3 describes the DCIT, Central Circle-7(3) as the Assessing Officer who made the reference and the penalty order as passed by the ACIT, Central Range-7; indiankanoon's own title uses DCIT. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals were dismissed (para 14) and the deletion of the penalties under ss.271D and 271E was confirmed. Following the coordinate bench in the assessee's group company Lodha Builder Pvt. Ltd. and the Bombay High Court's order of 06.02.2018 in the group's own case, the Tribunal held the issue already settled in favour of the assessee and declined to interfere (para 12). The reasoning it adopted, taken from the coordinate-bench order quoted at para 10, was that the causes shown for receiving or repaying otherwise than by account-payee cheque or bank draft — alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies and MIS purposes, consolidation of family member debts, correction of errors, and loans taken in cash — were prima facie commercial in nature and could not be described as non-business by any means, and that in the absence of any finding by the Assessing Officer that the transactions were unaccounted or not genuine those causes constituted reasonable cause under s.273B.
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You took a cash loan and now face penalty equal to the whole amount. Is there any relief?
Must penalty be imposed just because the law permits it?
Money moves both ways between me and my company on a current account. Is that a loan under 269SS?
The liability was created by a journal entry and no money moved. Does 269SS still apply?