Issue - The
assessee had taken the amounts from four firms which were found to be in
cash and the Assessing Officer has considered these payments were in
violation of Section 269SS of the Act. Stand of assessee is that the
amounts were taken in his capacity as partner and it cannot be taken as
an independent transaction and there is no violation of Section 269SS of
the Act.
Held - Referring to R.M. Chidambaram Pillai (supra); Kum. A.B. Shanti (supra); Lokhpat Film Exchange (Cinema) (supra),
Tribunal held that there is no separate identity for the partnership
firm and that the partner is entitled to use the funds of the firm and
that the assessee acted bonafide and that there was a reasonable cause
within the meaning of Section 273B of the Act. We do not find any error
or legal infirmity in the order of the Tribunal warranting interference.
The substantial question of law raised in this appeal is answered in
favour of the assessee and the Tax Case (Appeal) stands dismissed. No
costs.
HIGH COURT OF MADRAS
Commissioner of Income-tax
v.
V. Sivakumar
Tax Case (Appeal) No. 279 of 2010
Date of Pronouncement – 11.02.2013
JUDGMENT
Mrs. R. Banumathi, J. – The Revenue has preferred this appeal on the following substantial question of law:-
“Whether on the facts and in the
circumstances of the case, the Income Tax Appellate Tribunal was right
in law in deleting the levy of penalty by the Assessing Officer under
Section 271D of the Income Tax Act, 1961, even though the advance has
been accounted as loan and interest debited?”
2. The assessee was a partner in
four firms and Proprietor in Reliance Realtors. In the assessment year
2005-2006, assessee had taken loan from the four firms which were found
to be in cash. The Assessing Officer initiated penalty proceedings under
Section 271D of Income Tax Act and imposed penalty of Rs. 18 lakhs. The
Commissioner of Income Tax (Appeals) dismissed the appeal
(ITA.No.68/07-08) and assessee preferred further appeal
(ITA.No.142/Mds/08) before the Income Tax Appellate Tribunal. Tribunal
remitted the matter to the Assessing Officer to give a definite finding
whether the transaction was between the firm and partner. The Assessing
Officer passed a fresh order (17.07.2008) that the assessee individual
was a partner in four firms from where funds had been advanced to the
assessee and imposed a penalty of Rs. 18 lakhs. In the appeal
(ITA.No.89/08-09) preferred by the assessee, Commissioner of Income Tax
(Appeals) allowed the appeal holding that the transactions between the
partner and the firm do not partake the character of a Loan or Deposit
and therefore, there is no applicability of the provisions of Section
269SS of the Act. The further appeal (ITA.No.408/Mds/2009) preferred by
the Revenue was dismissed by the Tribunal on the finding that the
assessee acted bonafide and that there was a reasonable cause within the
meaning of Section 273B of the Act.
3. Mr. N.V. Balaji, learned
counsel for Revenue submitted that though the assessee is partner of the
firms, he has taken loan from the firms by cash in his capacity as
Proprietor of Reliance Realtors and the Assessing Officer had recorded
factual finding and in view of the consequences of violation of Section
269SS, justified in imposing penalty under Section 271D of the Act.
Learned counsel for Revenue endeavoured to distinguish the cases relied
upon by the Tribunal and submitted that the Assessing Officer has
recorded factual finding that money has been advanced from the firms as
loan and the same was debited from the accounts of the proprietary
concern which would show that the transactions between the firms and the
assessee were not in his capacity as a partner and while so,
Commissioner of Income Tax (Appeals) and the Tribunal were not correct
in saying that the transactions were between firms and partner and
prayed that the substantial question of law be answered in favour of the
Revenue.
4. We have heard Mr .M.P. Senthil Kumar, learned counsel appearing for the assessee.
5. The assessee had taken the
amounts from four firms which were found to be in cash and the Assessing
Officer has considered these payments were in violation of Section
269SS of the Act. Stand of assessee is that the amounts were taken in
his capacity as partner and it cannot be taken as an independent
transaction and there is no violation of Section 269SS of the Act. The
partnership firm has no separate legal entity. There is no separate
identification between the firm and the partner. Tribunal relied upon
the decision in CIT v. R.M. Chidambaram Pillai [1977] 106
ITR 292 wherein the Hon’ble Supreme Court held that “there cannot be a
contract of service in strict law between a firm and one of its
partners, so as to consider the salary paid to the partner as income
from the salary and held that for the purpose of Sections 269SS and
269T, the firm and partners cannot be considered to be separate entity”.
The Hon’ble Supreme Court further held that “payment of salary to a
partner represents a special share of the profits and salary paid to a
partner retains the same character of the income of the firm” and
deleted the penalty.
6. In CIT v. Lokhpat Film Exchange (Cinema) [2008]
304 ITR 172 (Raj), it was held that partnership firm is not a juristic
person and for inter relationship different remedies are provided to
enforce the rights arising out of their inter se transactions and that
the inter se transactions between the partner and firm are not governed
by the provisions of Sections 269SS and 269T of the Act.
7. Relying upon the decisions in R.M. Chidambaram Pillai’s case (supra); Asstt. DIT (Investigation) v. Kum. A.B. Shanthi [2002] 255 ITR 258; Lokhpat Film Exchange (Cinema)’s case (supra),
Tribunal confirmed the finding of Commissioner of Income Tax (Appeals)
that partnership firm is not a juristic person and there is no separate
identity for the firm and partners and that the transactions between the
firm and the partner cannot be brought within the meaning of Section
269SS of the Act.
8. Apart from the issue about the
separate entity, being a partner the assessee had drawn amounts from
the firms and there are no reasons to doubt the genuineness of the
transactions. This Court in CIT v. Kundrathur Finance & Chit Co. [2006] 283 ITR 329 following the decision of the Hon’ble Supreme Court in. Kum. A.B. Shanthi’s case (supra)
held that “if there was genuine and bonafide transaction and the tax
payer could not get a loan or deposit by account payee cheque or demand
draft for some bonafide reason, the authority vested with the power to
impose penalty has a discretion not to levy penalty”.
9. In CIT v. Deccan Designs (India) (P.) Ltd. [2012] 347 ITR 580, loans were taken from sister concern under condition business exigency. Referring to Kundrathur Finance & Chit Co.’s case (supra); CIT v. Balaji Traders [2008] 303 ITR 312 (Mad) and CIT v. Ratna Agencies [2006]
284 ITR 609 (Mad.), the Division Bench of this Court dismissed the
appeal holding that “there were enough reasons offered by the assessee
to justify the cash transactions which it made with its sister concern”
and that consequences of violation of Section 269SS is not attracted.
10. In CIT v.. Lakshmi Trust Co. [2008]
303 ITR 99, the Division Bench of this Court held that “if there were
genuine and bonafide transactions and the tax payer could not get a Loan
or Deposit by account payee cheque or demand draft for some bonafide
reason, the authority vested with the power to impose penalty has a
discretion not to levy penalty”.
11. Referring to R.M. Chidambaram Pillai (supra); Kum. A.B. Shanti (supra); Lokhpat Film Exchange (Cinema) (supra),
Tribunal held that there is no separate identity for the partnership
firm and that the partner is entitled to use the funds of the firm and
that the assessee acted bonafide and that there was a reasonable cause
within the meaning of Section 273B of the Act. We do not find any error
or legal infirmity in the order of the Tribunal warranting interference.
The substantial question of law raised in this appeal is answered in
favour of the assessee and the Tax Case (Appeal) stands dismissed. No
costs.