Section 269SS Amalgamation Disputes: ITAT Eliminates Penalty u/s 271D
Fact and issue of the case
The captioned appeals have been filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals)-I, New Delhi (‘CIT(A)’ in short) both dated 07.04.2017 arising from the penalty order both dated 29.09.2016 passed by the Assessing Officer (AO) under Sections 271E and 271D of the Income Tax Act, 1961 (the Act) concerning Assessment Years (AYs) 1993-94.
The appeal have been filed by the Revenue against the reversal of penalty of Rs.87,67,562/- imposed under Section 271D of the Act by the Assessing Officer. The Assessing Officer in the course of assessment proceedings for Assessment Year 1993-94 in question observed that the assessee has received certain loans and deposits in contravention of the provision of Section 269SS of the Act aggregating to Rs.87,67,562/-. The assessee has challenged the action of the Assessing Officer before the CIT(A) and contended that there is no violation of Section 269SS of the Act as wrongly alleged in the penalty order. It was submitted before the CIT(A) that M/s. Trans Asia Packaging Ltd. (TAPL) was amalgamated with Asia Consolidated Industries Ltd. (ACIL) w.e.f. 01.04.1992 and had become unit of the assessee-company. Consequent to amalgamation TAPL lost its identity and ceased to exist by virtue of order of the Hon’ble Punjab & Haryana High Court. TAPL is thus cannot be considered as separate entity as contemplated under Section 269SS of the Act and consequently the transaction between TAPL and the amalgamated assessee company can at most be considered as transaction between two units of a single entity and not transaction with two distinct units.
Considering the peculiar factual matrix in the present case, the CIT(A) found merit in the plea of the assessee towards lack of infringement of Section 269SS and thus deleted the penalty imposed by the Assessing Officer. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder:
I have considered the submission of the appellant and observation of the Addl. CIT made in the penalty order. I have also gone through the copies of accounts submitted by the appellant before the AO as well as before me. It is seen that this is a running and current account with M/s. Asian Consolidated Industries Ltd. On going through the accounts, it is seen that there is a debit balance in the name of ACIL in the books of TAPL of Rs.2,31,59,409/- Against the said debit balance, an amount of Rs.1,00,000/- was received by the appellant in lieu of the debit balance on 07.04. 1992. Similarly, on 09.04.1992, the amount of Rs. 10,000/- was received in cash in lieu of the sales made and against the debit balance. The transaction recorded on 02.05.1992 of Rs.20,000/- and on 05.05.1992 of Rs.30,000/- with M/s Asian Consolidated Industries Ltd. are against the sales made and payment against the debit balance. The amount received on 07.05.1992 to the appellant is against the expenses of Rs. 1,00,000/-. Similarly, the amount received on 03.06.1992 of Rs.20,000!- and Rs.5,000!- and on 07.07.1992 of Rs. 1,50,000!- are against the debit balances. All the payments have been received against the debit balances and sales made to M!s Asian Consolidated Industries Ltd. Similarly, the amount transferred on 26.03.1993 of Rs. 1,75,000!- is against the earlier debit balance to the appellant on account of sales made. There is no receipt of loan or deposits. It is also seen that there is no transaction between the appellant company and M!s Asian Consolidated Industries Ltd. of Rs.52,49,920!- which AO has considered as loan received by the appellant from Asian Consolidated Industries Ltd. in violation of Section 269SS of the Act. The appellant has not done such transaction with M!s Asian Consolidated Industries Ltd. in fact it was a transaction between M!s Asian Consolidated Industries Ltd and M!s Asian Closures Ltd. by way of journal voucher entry. The Addl. CIT has wrongly treated this transaction between the appellant company and M!s Asian Consolidated Industries Ltd. Similarly, the loan of Rs.44,650!- and Rs.32,992!- alleged to have been received from M!s Babbar Industrial Trading Corporation were in fact entered into between the Asian Consolidated Industries Ltd. and Ms Asian Closures Ltd. and not with the appellant company. It is also seen that AO while passing the order has treated one transaction of Rs.1,75,000!- as Rs. 17,50,000!- which is a factual error.
In view of the above facts, it is held that transactions between M!s Trans Asia Packaging Ltd. and M!s Asian Consolidated Industries Ltd. were the transactions with two units of single entity as M!s Trans Asia Packaging Ltd. lost its identity and ceased to exist w.e.f. 01.04.1992 as the said entity has amalgamated with Ms Asian Consolidated Industries Ltd. in view of order of Hon’ble Punjab & Haryana High Court, therefore, the transactions cannot be considered as loan or deposit with two different entities. In this regard, the ratio of the Hon’ble Delhi High Court decision in the case of CIT Vs. Indu Surveyors and Loss Assessors Pvt. Ltd. is squarely applicable in the case of appellant.
Even otherwise, as discussed above, the transactions entered into between Trans Asia Packaging Ltd. with M!s Asian Consolidated Industries Ltd. are in the nature of receipt of payments against the sales and debit balances. These receipts of money are in the nature of current account and same cannot be held to be as loan or deposit as contemplated us 269SS and 269T of the Act.
The receipt of payments between M!s Trans Asia Packaging Ltd. and M!s Asian Consolidated Industries Ltd. were in the nature of current account transactions as there was no receipt of loan or deposit. Hence, such transactions cannot be treated as receipt of loan or deposits. Accordingly, the penalty levied by Addl. CIT u!s 271D of Rs. 87,67,562!- is deleted.
Ground Nos. 9 and 10 are general in nature, therefore, no specific, adjudication is required on these grounds.
In the result, appeal is allowed.
Aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before the Tribunal.
When the matter was called for hearing, none appeared for the assessee. The matter was accordingly proceeded ex-parte.
The ld. Sr.DR for the Revenue relied upon the penalty order.
Observation of the court
We have perused the penalty order passed under Section 271D and the first appellate order thereon and perused the case records with the assistance of the ld. Sr.DR for the Revenue. The infringement of provision of Section 269SS and ensuing penalty under Section 271D is in question. 8. On perusal of the case records, it appears that the assessee-company TAPL was a limited company engaged in manufacturing of tin containers and cans etc. By virtue of order of Hon’ble Punjab and Haryana High Court, the assessee company was merged / amalgamated with Asian Consolidated Company Ltd. w.e.f. 01.04.1992 and from that date, became unit of amalgamated company, i.e., Asian Consolidated Industries Ltd. A liquidation petition in the case of amalgamated company, i.e., ACIL was filed by certain creditors and an order was passed by the Hon’ble Punjab and Haryana High Court for winding of the company and a liquidator was appointed w.e.f. 07.01.1999. In this backdrop, the CIT(A) found that the transaction between the TAPL and ACIL has to be regarded as transaction between two units of the same company due to merger and thus transactions between the two companies are out of ambit of Section 269SS of the Act and hence no penalty can be imposed under Section 271D of the Act.
Without any further delineation, we find that the findings given by the CIT(A) while deleting the penalty withstand the test of reasons and does not call for any modification or interference. Thus, we see no merit in the case of the Revenue.
In the result, the appeal of the Revenue is dismissed ex-parte.
For the similar reasons, penalty imposed under Section 271E for default towards repayment in terms of Section 269T of the Act is also without merit in the light of the reasoning provided by the CIT(A). We thus see no merit in imposition of penalty under Section 271E of the Act for similar reasons as challenged in ITA 4552/Del/2017 Assessment Year 1993-94. We thus decline to interfere with the order of the CIT(A).
In the result, the appeal of the Revenue is dismissed ex-parte.
In the result, both the captioned appeals of the Revenue are dismissed ex-parte.
Order pronounced in the open Court on 23/05/2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee