This appeal by the assessee is directed against the order of the Commissioner (Appeals), Hyderabad, dated 13-1-1999, for the assessment year 1994-95, confirming the penalty of Rs. 12,63,500 imposed under section 271D of the Income Tax Act, 1961, for contravention of the provisions of section 269SS of the Act.
The facts as gathered from the record are as follows. The assessee is a domestic 'company in which public are not substantially interested. The assessee derives income from two cinema theatres and a shopping complex. The assessee- company has been managed by three directors, one of whom has since expired. All the three directors had personal accounts in the form of current account in the books of the assessee- company. Mr. PX Swamy, one of the directors was actively looking after the affairs of the assessee-company. Whenever the assessee-company was in requirement of funds, Mr. PX Swamy, brought in the funds from his personal account and was also withdrawing this money as and when he required the same. So, money was both taken by him and given back to him. During the previous year relevant to the assessment year in question, the director Mr. P.K. Swamy had given a total amount of Rs. 12,63,500 to the company, other than by way of account payee cheque or Bank draft. The assessee- company claimed that Mr. RK, Swamy, directly deposited these amounts in the Bank account of the assessee- company.
The Addl. CIT rejected the versions and contention and explanation given by the assessee and levied a penalty of Rs. 12,63,500 under section 271D of the Income Tax Act, 1961, holding that the assessee had contravened the provisions of section 269SS. On appeal, the learned Commissioner (Appeals) confirmed the penalty. Aggrieved' of this, the assessee is before us in appeal.
(a) Sec. 269SS was violative of Art. 14 of the Constitution of India, as held by the Hon'ble Madras High Court, in the case of Kum. A.B.Shanthi ahas Vennira Adai Nirmala v. Asstt. Director of Inspection (Investigation) (1992) 197 ITR 330 (Mad). He argued that the provision is unconstitutional and hence the levy cannot be sustained.
(b) That section 271D, sub-cl. (2) requires that a "Dy. CIT" or a "Jt.
CIT" could only impose the penalty and as an "Addl. CIT" had imposed this penalty, the same is without jurisdiction and not tenable in law.
He argued that the Addl. CIT was created by Finance Act, 1994 with effect from 1-6-1994, and ranks higher to the Dy. CIT under section 116 of the Act and as such the officer of this rank is not entitled to impose this penalty.
(c) That the imposition of penalty is barred by limitation, as penalty should have been imposed in accordance with the time-limit prescribed under section 275(1) (c). He argued that as penalty under section 271D is independent of the assessment proceedings and the violation, if any, can be said to have occurred on the date of acceptance of the loan.
That the levy of penalty has no connection whatsoever with the quantum assessment, the limitation has to be considered only in accordance with section 275(1) (c) of the Act. As the penalty proceedings were initiated by the assessing officer on 21-3-1997 and as a penalty was levied by the Addl. CIT on 23-4-1998, i.e. after the expiry of the financial year, in which the penalty proceedings have been initiated and also after six months from the end of the month in which action for imposition of penalty is initiated i.e. after 30-9-1997, the same is barred by limitation. He contended that the fresh opportunity given by the Addl. CIT vide his letter, dated 1-12-1997, cannot be construed as initiation of penalty proceedings. He vehemently argued that the period for the purpose of limitation should be considered from 21-3-1997, only. He contended that the penalty should have been imposed on or before 30-9-1997, whereas it was imposed on 24-3-1998. He argued that there is no rational nexus between the completion of assessment under section 143(3) and the levy of penalty under section 271D. He argued that section 275(1) (c) is applicable and not section 275(1) (?L).
He contended that the provisions of section 269SS do not relate to any particular assessment year but relate only to dates after 30-6-1984.
Therefore, his contention is that the alleged offence should not be correlated to any particular assessment year, which would result in extending the time-limit of levy by six months from the date of the appellate order. Penalty under section 271D is neither related to the income returned or tax paid. go, there is no rationale in waiting till the assessment reaches finality.
(d) learned counsel further argued that the intention of the legislature in introducing section 269SS is only to curb tax evasion and circulation of black money.
He argued that this section has no application in cases of genuine transactions for the simple reason that there is no tax evasion. The alleged loans given by Mr. PX Swamy to the assessee- company, recorded in the assessee's books as well as in that of the director's own accounts, in which these amounts appeared are both disclosed to the department. No interest has been paid by the appellant nor received by him. He contended that had the loans been bogus, the assessing officer would have certainly brought them to tax in the hands of the company under section 68 of the Income Tax Act.
(e) He further argued that the alleged loan being a bilateral transaction, it cannot be said that lending is genuine but only borrowal is bogus. He drew the attention of the Bench to Para-E of Patiram Jain & Ors. v. Union of India & Ors. (1997) 141 CTR (MP) 312: (1997) 225 ITR 409 (MP), wherein the Hon'ble Madhya Pradesh High Court had held "it has also been accepted by the respondents that the transactions made between two sister concerns were under exceptional circumstances to accommodate emergency needs of the sister concern for a very short and temporary period. As such it did not amount to a loan or deposit as defined under section 269SS of the Act." (f) He vehemently argued that the imposition of fine need not necessarily be equal to the amount of the loan or deposit. For this proposition, he relied on the jurisdictional High Court's decision in Income Tax Officer v. Lakshmi Enteipdses (1990) 185 ITR 595 (AP), wherein, it was held at p. 559, at last paragraph of the said judgment as follows : "the word 'liable' used in section gives discretion to the court with regard to the imposition of fine. The court may either choose to impose fine or may dispense with imposition of fine. When such discretion is there with regard to the imposition of fine itself, it cannot be said that the court has no discretion with regard to the quantum of fine to be imposed." (g) Arguing on the facts of the case, he contended that the learned Commissioner (Appeals) erred in not holding that there is a "reasonable cause" within the meaning of section 273B of the Act, as the assessee in its running account with the director, had received temporary advances, which was required by business exigencies, as it had issued certain cheques which were to be presented by the parties for encashment requiring immediate funds. Moreover, the payments on 21-8-1993 and 11-9-1993 were after Bank ing hours on a Saturday. This is due to various exigencies and vicissitudes of business that temporary advances were taken.
(h) He further contended that the expression "any other person" in section 269SS does not refer to the director of a company.
(i) He further argued that Mr. PX Swamy, director of the company deposited amounts into the company's Bank account as the exigencies demanded. So, since the company issued some cheques, which were likely to be presented, on which dates the amounts have been deposited, he claimed that the transactions are in-house transactions and they are not aITRacted by the provisions of section 269SS or section 269D. He argued that no cash had been received by the company but the cash was deposited directly by the director in the Bank account of the company.
(j) He submitted that the transactions were in the nature of current account and they do not bear any interest or compensation and as it is a running account, it cannot be termed as a loan. He reiterated the arguments that were raised by him before the Addl. CIT and also before the learned Commissioner (Appeals).
He concluded his arguments stating that the levy of penalty was ab initio void as it is levied by an Addl. CIT, who is not authorised to do so. On law, he summed up that section 269SS wa's ultra vires of the Constitution, penalty is barred by limitation, the facts of the case do not aITRact levy of penalty under section 271D as the transactions involved are not connected to tax evasion or black money. Un facts, he summed up, stating that the nature of transactions were neither loans' nor deposits, the transactions were between the director and the ~ompany and bilateral in nature and there is "reasonable cause" for non-levy of penalty, due to exigencies of business.
(a) Constitutional validity of section 269SS was upheld by the Hon'ble Gujarat High Court in Sukhdev Rathi v. Union of India (1994) 116 CTR (Guj) 620 : (1995) 211 ITR 157 (Gui) as well as by the Madras High Court in K.R.MV Ponnuswamy Nadar Sons (Firm) v. Union of India (1992) 196 ITR 431 (Mad) and in another case Chamundi Granites (P) Ltd. v. Dy.
CIT (1999) 157 CTR (Ker) 128 : (1999) 239 ITR 694 (Ker) and that the Hon'ble Madras High Court's decision Kum. A.B. Shanthi ahas Vennira Adai Nirmala's case (supra) has been stayed by the apex Court.
(b) On the point of jurisdiction of imposition of penalty by the Dy.
CIT, he drew the attention of the Bench to section 2(19B) where Dy. CIT was equated with an Addl. CIT. He argued that the Addl. CIT could levy the penalty in view of this sectiory.
(c) On the question of limitation, he vehemently contended that sub-cl.
(1)(a) of section 275 is applicable to this case and that the levy is not barred by limitation.
(d) He refuted the arguments of the learned counsel for the assessee that levy of penalty in a criminal proceedings and distinguished the case law cited i.e. Lakshmi Enterprises' case (supra) and Patiram Jain's case (supra), submitting that the case laws were in connection with offences enumerated under section 276DD and section 276E, which sections have been deleted from the statute.
(e) He contended that the term "any other person" occurring in section 269SS definitely includes the director of the company.
(f) He contended that transaction in question were loans and the provisions of S. 269SS and section 271D are clearly aITRacted. The learned departmental Representative stated that the genuineness of loans was not doubted by the department; but as there was contravention of the section, levy of penalty has to be upheld and the genuineness of a transaction need not necessarily come to the rescue of the assessee.
He relied heavily on the orders of the Addl. CIT and also that of the learned Commissioner (Appeals) and submitted that the penalty levied should be sustained.
Heard both sides. Read all the papers on record and the orders of the authorities below as well as the case law cited before us. On a careful consideration of all the issues arising out of this appeal, we hold as follows: (a) On the issue of constitutional validity, there is no merit in the contention of the learned counsel for the assessee that section 269SS is ultra vires of the Constitution. The Tribunal as a creature of the statute cannot entertain the question of ultra Ores of the Constitution of India. The constitutional validity or otherwise of the section can, only be decided by the High Court or the apex court only. Moreover, the Madras High Court itself has given different judgments in this matter.
The Gujarat and Kerala High Courts have upheld the constitutional validity of this provision. Hence, we have no other alternative but to dismiss this ground of the assessee.
(b) On the issue of levy of penalty by a Dy. CIT, though section 271D is very specific on the point, sub-section (19B) of section 2 equates the Dy. Commissioner (Appeals) with that of an Addl.' Commissioner (Appeals). Though there is no such equation in sub-cl. (19A) of section 2, it is not in dispute that the Addl. CIT was discharging the functions and exercising all the powers of the erstwhile Dy. CIT. Sec.
120 of the Income Tax Act confers wide powers to the Board and such situations are well taken care of in the Act. We are of the considered opinion that the Addl. CIT, being a superior authority discharging the functions of the hitheITO Dy. CIT and in view of section 120, it cannot be said that he has acted without jurisdiction and we hold that he is fully within his rights to levy penalty under s, 271D.(c) On the issue of limitation, we are of the considered view that the penalty levied under section 271D has no rational nexus with the completion of the assessment under section 143(3) and the attainment of finality of such assessment. The levy of penalty under section 271D has nothing to do with the quantum of addition or disallowance under section 143(3). Sec. 275(1) (a) obviously refers to cases where the quantum assessment has a bearing on the penalty and the violation. The legislature amended section 275 through s, 50 of Taxation Laws (Amendment) Act, 1970 (42 of 1970) newly prescribing a limitation period for imposition of penalty. The change in law has been elaborately explained in the fcllowing portion of the departmental Circular No. 56, dated 9-3-1971 : "Time-limit for completion of penalty proceedings-Sec. 275 of the Income Tax Act which specified the time-limit for completion of penalty proceedings has been substituted by a new section. Under the existing section, penalty proceedings for concealment of income or defaults in furnishing the return or accounts called for by notice or failure to pay advance tax on the taxpayer's own estimate, etc., are required to be completed within two years from the date of completion of the proceedings in the course of which the penalty proceedings were commenced. The operation of this time-limit has resulted in practical difficulties in cases where the Appellate Assistant Commissioner remands the appeal against the assessment for further enquiry by the Income Tax Officer or deletes or reduces the additional made on account of concealed income and the department takes up the matter in further appeal before the Tribunal. Sometimes, a final decision on the quantum of the concealed income becomes available only after the expiry of the two year time-limit.
Sec. 275, as substituted, aims at obviating difficulties in such cases, reducing infructuous work and avoiding hardship to assessees. Under the section as substituted, the time-limit, for making an order imposing a penalty under the provisions of Chapter XXI of the Income Tax Act will, ordinarily, be two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. However, in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner or an appeal by the Income Tax Officer to the Tribunal, the time-limit for completing the penalty proceeding will be either the two-year period as stated above or a period of six months from the end of the month in which the order of the Appellate Assistant Commissioner or, as the case may be, of the Tribunal is received by the CIT, whichever period expires later. It may be noted that the two year period will henceforth expire at the end of a financial year, instead of on different dts. during the financial year at present, and the six month will facilitate the exercise of vigilance by Tax Administration on the expiry of the limitation period and ensure that penalty proceedings are completed in all cases in good time. The Explanation to section 275 which provides that the time taken on rehearing the assessee (due to change in the incumbent of the office of Income Tax Officer, Inspecting Assistant Commissioner, or Commissioner (Appeals) having jurisdiction) and any period during which the penalty proceedings have been stayed by an order of the court will be excluded in computing the period of limitation has been retained." The legislative intent from the above circular has been summarised as follows in Chaturvedi and Fithisaria's Income-tax Law: "(C) Sec. 275(1) operative from 1-4-1989, divides cases into three categories; Category I covers the cases where the assessment to which the proceedings for imposition of penalty relate is the subject-matter of an appeal to the Dy. Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Tribunal under section 253, Category 11 covers the cases where the relevant assessment is the subject-matter of revision under section 263. Category III covers all other cases not falling within Category I and Category 11. (Chaturvedi & Pithisaria's Income-tax Law, Fourth Edition, Vol. 5, 1992).
Obviously those cases falling under Category I should when read with the circular cited supra, would be those where levy of penalty is directly linked with the "quantum of income" is an issue. It is stated in the circular that practical difficulties on account of deletions or reduction of additions are the reasons for the extension of time-limit under section 275. The Cochin Bench of the Tribunal in the case of Muthoot M. George Bank ers v. Assa. CIT (1993) 47 YTJ (Coch) 434 : (1993) 46 ITD 10 (Coch) at p. 16 held as follows : "We have considered rival submissions carefully. There is no indication in s. 269SS or section 269T or any other provisions of the Income Tax Act, 1961, that the amount of deposits or loans accepted or the amount of deposits repaid otherwise than by an account payee cheque or account payee Bank draft are to be treated as the income of the assessee unlike section 269D which deals with the amount of hundi loans accepted or repaid otherwise than through account payee cheque as the income of the appellant. Further, section 269SS and section 269T are prohibitive in nature. The prohibition is in irespect of the manner or the mode by which certain transactions are not to be done by persons mentioned therein whether such person is an assessee or not; whether such person is assessable or not; whether such person is having income or not. Thus the scope and ambit of section 269SS and section 269T are very wide and the infringement of the impugned provisions need not necessarily be confined to the case of an assessee or to the assessment of his income.
Therefore, the usual concepts like the assessee, the previous year, the assessment year or the law applicable to the assessment year cannot be imported into the provisions of section 269SS or section 269T. As a result, we are unable to accept the contention of the revenue that as the transactions have taken place in the previous year relevant to the assessment year 1989-90, the penal provisions of sections 271D and 271E which came into force with effect from 1-4-1989 would stand aITRacted to the cast of the assessee. " To our mind, the intent of the legislature is to give more time to such cases falling in Category I only, i.e. where penalty is related to quantum of additions to income. Otherwise, we see no reason why sub-cl.
(c) of section 275(1) is required to be part of the statute. Category III covers all cases not covered by Category I and Category U. This penalty under section 271D has nothing to do whatsoever with the quantum appeal, assessment year, previous year, etc. We are supported by the decision of the Cochin Bench of the Tribunal supra, in this regard. Hence, we hold that penalty under section 271D for violation of section 269SS are governed by section 275(1) (c) of the Act for the purposes of limitation.
Moreover, initiation of penalty can be done only once and that too during the course of assessment proceedings. We hold that the penalty has been initiated by the assessing officer on 21-3-1997, when he had issued a notice for levy of penalty. The argument of the learned departmental Representative that the Addl. CIT had initiated the penalty proceedings on I-12-1997 is not correct, as the term "initiation" means, "begin" or "set going" and can be done only once.
You cannot initiate proceedings again and again and such act can only be termed as reinitiation. We hold that the "initiation" can be done only once and reinitiation is not contemplated anywhere in the Act. The timelimitation should be considered only from the date of initiation of penalty proceedings by the assessing officer, i.e., 21-3-1997. Hence, in our considered view, the penalty should have been levied on or before 30-9-1997, and as the penalty is levied on 24-3-1998, we hold that the levy of penalty is barred by limitation.
(d) On the issue of quantum of penalty, the Hon'ble Andhra Pradesh High Court in Lakshmi Enterprises' case (supra) has held thus "In view of the above discussion, I find that the contention of learned counsel for the appellant that the provisions of section 276DD of the Income Tax Act, 1961 prescribe that imposition of fine should always be equal to the amount of deposits is untenable. The word 'liable' used in the section gives discretion to the court with regard to the imposition of fine. The court may either choose to impose fine or may dispense with 111 position of fine. When such discretion is there Mth regard to the imposition of fine itself, it cannot be said that the court has no discretion mth regard to the quantum of fine to be imposed. As the appeal is on ground that the learned Special Judge has failed to award the sentence in accordance with the provisions of section 276DD of the Income Tax Act on the presumption the fine amount should be equal to the amount of deposit and as I am not prepared to agree with that contention of learned counsel for the appellant, I hold that the appeals are liable to be dismissed." In Shreenath Builders v. Dy CIT (2000) 66 TTJ (Ahd) 113, the Tribunal, Ahmedabad 'C' Bench held as under: "A harmonious construction of the relevant provisions of sections 271D, 271E and 273B clearly reveals that the use of the expression 'shall be liable to pay' in sections 271D and 271E and the provisions of section 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire relevant facts and materials existing on records-Income Tax Officer v. Lakshmi Enterprises Though the judgment of Andhra Pradesh High Court is delivered in the context of section 276DD, the "proposition of law" therein of the jurisdictional High Court is binding on us. The word "liable" has been interpreted in this judgment and the Hon'ble Andhra Pradesh High Court held that when a court has the discretion to impose a fine or dispense with a fine, the court has discretion as to the quantum of fine and it need not necessarily be equal to the amount of deposit. No contradictory judgment is brought to our notice. As this is a jurisdictional High Court's judgment, we are bound by the same. We have no other alternative than to uphold this contention of the assessee.
(e) On the question of legislative intent, the CBDT has explained the object of introduction of section 269SS by the Finance Act, 1984, in its Circular No. 387, dt. 6-7- 1984 ((1984) 43 CTR (St) 3: (1984) 146 ITR 162 (StA thus "Unaccounted cash found in the course of searches carried out by the IT department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the Income Tax Act debarring persons from taking or accepting, after 30-6-1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee Bank draft if the amount of such loan or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, hny loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The proposed prohibition would also apply to cases where the amount of such loan or deposit together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10, 000 or more."Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373: (2000) 73 ITD 252 (Hyd), held in para 17 of its order, as follows : "Provisions of section 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B of the Income Tax Act, 1961 which reads 'requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax.' Legislative intention in bringing section 269SS in the Income Tax Act was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the Commissioner (Appeals) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law so as to be visited with stringent punishment of heavy penalty." We find force in the argument of the learned counsel for the assessee that the object of the provisions being unearthing of tinaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved.
Mere technical breach of the provisions, while the transactions are held to be genuine, do not aITRact the provisions of section 269SS. It is not the case of the revenue that the amount involved were unaccounted transactions. It is an undisputed fact that the transactions are genuine. Both the assessee and the director were on the records of the IT department and both declared these transactions to the department. The Chapter XX-B and section 269SS begins with the heading-Requirement as to mode of Dift Une Enterprises (P) Ltd. v.Addl. CIT (Hyd) acceptance, payment or repayment in certain cases to counteract evasion of tax. The term "certain' used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not aITRacted. This section aITRacts only "certain" loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalise genuine transactions, where no tax evasion is'involved. It is well settled that the headings prefixed to sections or set of sections in some modem statutes are- regarded as "preambles" to those sections, This view was approved by Farewell L.J. in Eetcher v. Birkenhead Corporation (1907) 1 KB.205. Thus, respectfully following the judgment of ' this Tribunal in IndusUial Enterprises' case (supra), we hold that the transactions between the assessee and Mr. PX Swamy do not fall within the mischief sought to be remedied by the section as there is no case against the assessee that these transactions had anything to do with evasion of tax or concealment of income.
(f) On the contention of the assessee that the words "any other person" does not denote the director of the company, we are of the considered view that the same is correct when read with legislative intent as reproduced in the previous paragraphs, i.e., Board Circular No. 387, dated 6-9-1984 (supra). We are convinced with the learned assessee's counsel's argument that the Finance Act, 1984, states the legislative intent and describes a situation where explanation of taxpayer of loans obtained from "various persons". It also speaks of confirmatory letters from "such other persons" during the course of search. This scheme of the section, the context in which the section is introduced and the legislative intent definitely do not mean "husband and wife", "director" and "company" or "partner and firm". The legislature was not referring to confirmatory letters produced to explain unaccounted money found during search operations from "spouse" in case of "individual" or "director" in case of "company" or "partner" in case of "firm". The term "any other person" in the context of introduction of this section as appears to us means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operation under section 132, all these persons are invariably searched together. The legislature was intending to curb tax evasion in a "search situation" and P referred to confirmatory letters produced in such situations to counter "cash found". The term "various persons" and "such persons" is to be understood only in relation to "search situation" as the section itself was introduced to meet such situations only. The learned counsel argued that it is unthinkable that the department would search a husband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are not substantially interested or partner and firm. These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought off as sought to be, explained off by the persons who are in the dragnet of search operations. So, we are convinced that the term "other person" as appearing in this section means, other than those intimately connected as in the present case.
We do not agree to the finding of the learned Commissioner (Appeals) on p. 4, para 3 of her order that provisions of section 2(31) are applicable when considering this term "any other person". The "context" in which the Chapter and section was introduced by the legislature and the legislative intent are very clear in this regard and we agree with the argument of the learned counsel for the assessee.
Thus, we hold that the active director of the assessee- company is clearly not covered by the expression "any other person" occurring in section 269SS of the Act.
(g) On the issue that these are bilateral transactions, we follow the judgment of the Tribunal, Jaipur Bench in the case of Chandra Cement Ltd. v. Dy. CIT (2000) 68 TTJ (Jp) 35, the relevant portion of which is as follows "When one single individual is managing the affairs of two concerns and the decision to transfer the funds from one concern to another or to repay the funds could have been said to have been largely influenced by the same individual, it cannot be said that transaction partake the nature of either deposit or loan. Further, the transactions have not been impeached as non-genuine or bogus in the respective assessments.
The arguments at this stage that department wants to verify the genuineness is only for the sake of arguments. It was the assessment order which should have spoken about the ingenuity of the transactions.
Thus, for all these reasons, the provisions of section 269SS are not a ITR acted to the facts of the case. The penalties levied are, therefore, cancelled. Even if they were to apply, in the facts and circumstances explained above the action of the appellant in accepting the funds in cash can be ascribed to its bona flde belief that provisions of section 269SS would not be aITRacted in the nature of transactions. Bona fide belief coupled with the genuineness of the transactions will constitute reasonable cause in this case Muthoot M George Bankers v. Assistant Commissioner (1994) 47 TTJ (Coch) 434 : (1993) 46 ITD 10 (Coch) and Income Tax Officer v. Rajen dra Trading Co.
(1994) 48 TTD 210 (Chd) relied on." The Hon'ble Madhya Pradesh High Court has in the case of Patiram Jain (supra) held that "It has also been accepted by the respondents that the transactions made between the two sister concerns were under exceptional circumstances to accommodate the emergency needs of the sister concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under section 269SS of the Income Tax Act.
Therefore, the proceedings initiated under sections 276DD and 276E of the Income Tax Act were against the provisions of law." The Cochin Bench of the Tribunal in Muthoot M George Bank ers' case (supra) held as under : "Against this background, we examine the transactions between the sister concerns and the assessee. There are transfer of funds from and to the sister concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand.
Further, the sister concerns and the assessee are owned by the same family group of people with a common managing partner with centralised accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished before us all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same indiviaual. In such circumstances of the case, we hold that the transaction inter se between the sister concerns and the assessee cannot partake or the nature of either "deposit" or "loan" though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business." The Mumbai 'B' Bench of the Tribunal in the case of Karnatcka Ginning & Pressing Factory v. Jt. CIT (2001) 72 TTJ (Mumbai) 307 : (2001) 77 ITD 478 (Mumbai), at p. 487, held as follows : "Quite apart from the question of existence of reasonable cause, we are not sure whetherthe amounts received by the assessee from VE can be termed as 'loans' or 'deposits'. The words are not defined in the Expln. (iii) below section 269SS except saying that 'loan' or 'deposit' means loan or deposit of money. The terms 'loan' and 'deposit' are not mutually exclusive; there are a number of common features between the two. It was held by the Madras High Court in Abdul Hamid Sahib v.Rahmat Bi AIR 1965 Mad. 427, that a loan is repayable the moment it is incurred while it is not so with the deposit. In a deposit, unlike a loan, there is no immediate obligation to repay. Normally a deposit is for a fixed tenure. The amounts taken by the assessee in the present case from VE are temporary advances and there is no evidence that there was any stipulation as to the period or any stipulation for interest.
It is therefore matter of grave doubt as to whether the amount received from VE can be characterised as loans or deposits. In our view, they can be more appropriately referred to as temporary advances. Such temporary advances are outside the purview of section 269SS.Thus, in our considered opinion, and in view of the various judicial pronouncements on this matter, we hold that the transaction of this case on hand cannot be considered as "loan" so as to aITRact section 269SS and section 271D of the Act, (h) We are also of the considered opinion that the transaction can be aITRibutable to various exigencies and vicissitudes of business and thus constitutes a "reasonable cause" as contemplated by section 273B of the Act, as the company had issued certain cheques and as they were coming up for encashment. The active director of the company considered it expedient to dep~3%tt cashta the lzanX azzuant vi the zompancy 'Lo save 'the snuation. The expression "reasonable cause" has to be considered pragmatically and as it is an open transaction done, to meet exigencies of business, it can be said to constitute "reasonable cause". Penalty provisions have been held by the Hon'ble Supreme Court of India as penal in character and quasi-judicial in nature. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will not be ordinarily imposed unless the par~y has either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregards of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on considerations of all relevant circumstances Hindustan Steel Ltd. v.State of Ozissa (1972) 83 ITR 26 (SC).
We can safely infer that the default, if any, can be said to be "technical" and venial" one. The "bona fldes" of the assessee can also be said to be there when we examine the facts of the case. The assessee had a 'bona flde' belief that no offence was committed. The levy of penalty is not automatic since the Hon'ble Supreme Court of India in the case of Motilal Padampal Sugar Mills Co. Ltd. v. State of UP.(1979) 118 ITR 326 (SC) has observed that there is no presumption that every person knows the law.
In the light of the above, we hold that both on law and on facts, the penalty levied by the Addl. CIT under section 271D and confirmed by the learned Commissioner (Appeals) is not maintainable. Accordingly, we delete the penalty levied.