1. This appeal by the assessee is directed against the order of the C.I.T.(Appeals)-X, Chennai dated 15.12.2003, upholding the order of penalty under Section 271-D of the Income-tax Act, 1961 (herein after referred to as the Act) for contravention of provisions of Section 269(SS) of the Act levied by the Joint Commissioner of Income-tax, Range-XII, Chennai.
2. The appellant-assessee (herein after called as assessee), has raised four grounds in this appeal and the only issue arising, out of these grounds, is against confirmation of penalty levied under Section 271D of the Act for the assessment year 1994-95 amounting to Rs. 13,35,000/-.
3. The brief facts of the case are that the assessee is an individual and doing financing business. For the relevant assessment year 1994-95, he declared a total income at Rs. 43,040/- vide retain filed on 26.10.1994. A survey under Section 133A of the Act was conducted by the Assistant Director of Income-tax (Investigation)(hereinafter referred to as ADIT(Inv.), Unit I, Coimbatore in a hotel room, where the assessee was staying at that time. During the course of survey, the A.D.I.T.(Inv.) found and impounded personal diaries and loose sheets maintained by the assessee. During the course of assessment proceedings these loose sheets and personal diaries were tabulated and confronted to the assessee and the assessee vide his letter dated 25.3.1999 admitted that the entire unexplained income from seized records to be taxed in his individual hands. During the course of assessment proceedings, the assessee vide letter dated 23.1.1998 submitted a list of 30 persons from whom he has borrowed money on loan amounting to Rs. 13,35,000/-. The Assessing Officer on 26.11.1998 recorded the statement of the assessee who stated that the entire amount of Rs. 13,35,000/- was taken as loan during the financial year 1993-94 relevant to the assessment year 1994-95 in cash. The Assessing Officer required the details viz., amount lent, mode of lending, repayment of amount etc.
and accordingly sent notices tinder Section 133(6) of the Act to 30 cash creditors (unsecured loans). The assessee submitted that all the cash creditors were agriculturists residing in Rajasthan and Tirunelveli. As regards the cash creditors of Tirunelveli, the loans were arranged through assessee's friend, Shri Dhanraj who was a broker.
However, it is pertinent to mention that during the course of survey, the assessee denied the fact that the loan has been taken by him or by his family members. In response to notice under Section 133(6) sent by the Assessing Officer, the four creditors denied having lent any money to the assessee and eight creditors from Rajasthan admitted but they were not assessed to tax. As per the communication sent by the Assessing Officer to the Income-tax Officer, Ward-I, Nagaur (Rajasthan), it was informed that none of the cash creditors appeared before him despite his having issued notices under Section 131. Shri Dhanraj who arranged the loans from Tirunelveli, was examined by the Assessing Officer who stated that the assessee had asked him for money and he had arranged a sum of Rs. 6.35 lakhs from various agriculturists who were his relatives. The Assessing Officer made the additions of cash credits amounting to Rs. 13,35,000/-received from 30 persons. The assesses, therefore, preferred the appeal before the C.I.T.(Appeals) against the action of the Assessing Officer.
4. The C.I.T.(Appeals) directed the Assessing Officer to adjust the amount of Rs, 13,35,000/- taken as loan from cash credits against peak credit quantified at Rs. 25,59,000/-. In view of the C.I.T.(Appeals) direction, the Assessing Officer accepted the claim of the assessee as regards the cash credits from agriculturists which was based on the proofs filed in the form of confirmation letters from Rajasthan duly attested by the Sarpanch and the confirmation filed by Mr. Dhanraj who has arranged the loans from his relatives who are agriculturists in and around Tirunelveli District While framing assessment, the Assessing Officer informed the Joint Commissioner of Income-tax (hereafter referred to as JCIT) vide letter dated 24.2.2003, the fact of acceptance of loans by the assessee otherwise than by account payee cheque or bank draft where such loans is Rs. 20,000/- or more and he pointed out the contraventions of the provisions of Section 269SS of the Act, committed by the assessee. In view of the Assessing Officer's information, JCIT issued show cause notices dated 18.3.2002 for levy of penalty under Section 271-D of the Act, for violation of the provisions of Section 269SS of the Act in respect of loans otherwise than by account payee cheque or bank draft which worked out to Rs. 13,35,000/-.
Before the JCIT, the assessee submitted that the penalty should be dropped as the transactions involved in this case is nothing to do with evasion of tax or concealment of income. For this, he has given the reason that thane is a mere technical breach of the provisions of Section 269SS of the Act which does not warrant the levy of penalty automatically. Before the JCIT, it was pleaded that the loans are genuine and the additions made on the basis of these loans/cash credits have been deleted by the Assessing Officer in consequent to the order passed by the C.I.T.(Appeals). The JCIT, after giving various reasons and deliberating the case laws cited by the assessee held that there was no reasonable cause on the part of the assessee with regard to cash borrowals/cash credits. Further he held that the assessee has not properly explained the circumstances under which and also the need for which he resorted to such practise. As there was no reasonable cause in existence, the JCIT not satisfied with the explanation of the assessee, concluded that the assessee has contravened the provisions of Section 269SS of the Act and he levied the penalty of Rs. 13,35,000/- under Section 271-D for accepting the cash exceeding Rs. 20,000/-. Aggrieved by the action of the JCIT, the assessee preferred an appeal before the C.I.T.(Appeals). The C.I.T.(Appeals) after hearing the assessee confirmed the penalty levied by the JCIT for contravention of the provisions of Section 269SS of the Act and held that the JCIT was right in levying the penalty amounting to Rs. 13,35,000/-. Aggrieved by this, the assessee is in appeal before the Tribunal.
1. The Commissioner of Income-tax (Appeals) erred in confirming the penalty levied tinder Section 271D for assessment year 1994-95 in the sum of Rs. 13,35,000.
2. The Commissioner of Income-tax (Appeals) ought to have accepted the factual position that no offence is committed under Section 269SS as borrowing is from persons having agricultural income and having no income liable to tax under the Income-tax Act 1961 3. The Assessing Officer having accepted that all loans in question are Genuine, the Commissioner of Income Tax (Appeals) is not legally justified in confirming the penalty under Section 271D. 4. In my event, the order of Commissioner of Income Tax (Appeals) confirming the levy of penalty under Section 271 D is against law and the facts and circumstances of the case.
6. Before us, the learned counsel for the assessee, Shri V. Jagadisan argued that, the Assessing Officer had accepted all the unsecured loans/cash credits raised, by the assessee by way of cash, as genuine.
He stated that the provisions of Section 269SS of the Act cannot be invoked in the case of genuine loans. Further he relied on the grounds of appeal and argued that the persons from whom loans taken are agriculturists and are not assessed to tax. Therefore, in view of second proviso to Section 269SS of the Act, there is no violation. He further argued that Section 269SS of the Act would not be applicable to any loan or deposit taken from the persons who is having agricultural income and not assessed to tax. He further argued that while introducing the proviso to Section 269SS of the Act, the Parliament in its wisdom described that for invoking of this provision there should be an introduction of unaccounted funds in the form of loans and there should be adequate proof before the Assessing Officer to make such loans as the subject matter of the assessment. He relied on the following case laws to support his contentions: 3. Patiram Jain and Ors. v. Union of India and Ors., 225 ITR 409-M.P. 8. CIT v. Ajanta Dyeing & Printing Mills, (2003) 130 Taxman 442 (Raj.) In view of the above arguments he pleaded that the order of the C.I.T.(Appeals) upholding levy of penalty under Section 271-D may be set aside and the appeal may be allowed 7. On the other hand, the learned Departmental Representative, Sri K.Anangapal relied on the order of the C.I.T. (Appeals) as well as that of the JCIT. He argued that genuineness of the loan is not a reasonable cause. He further argued that these transactions were not accounted for in the books of account as it is evident from the statement of the assessee recorded during the survey. During the course of bearing, he has drawn attention of the Bench to page 5 of the penalty order of the JCIT. He specifically invited our attention to question Nos. 13 & 12, from the order of the JCIT as well as seized material APM/3 to 10 and question No. 4, He also relied on the following case laws: 8. We have heard the rival submissions and gone through the materials placed before us. The assessee's counsel also filed paper book containing pages 1 to 18. We have also gone through the case laws cited by both the sides. The facts of the case were not disputed either by the assessee or by the Department. Now we have to discuss whether the C.I.T. (Appeals) has erred in confirming the penalty levied by the JCIT under Section 271-D of the Act for the assessment year 1994-95 amounting to Rs. 13,35,000/-. The Assessing Officer has accepted all the loans in question as genuine and moreover, the borrowings are from the persons having agricultural income and they have no taxable income under the Act, in view of the facts and circumstances of the case, as argued by both the sides.
9. First of all, we have gone through the penalty order passed by the JCIT. It is seen that all the unsecured loans/cash credits received from 30 persons amounting to Rs. 13,35,000/- which have been kept outside the books of account and it is very much evident from the statement given by the assessee before the Asst. Director of Income-tax (Investigation). During the course of survey under Section 131A of the Act on 26.10.1994 the assessee admitted before the ADIT by question No.11 that he is operating funds which were not accounted for in the regular books of account and not declared before the Department. The relevant questions and answers from the penalty order are being reproduced, which are as follows: "Question No. 10: You have books marked APM/5, 6, 7, 8, 9, 10.
Explain these? These are collection books maintained for the hire purchase financing business done by me in the above firm names. In this the details regarding the names of persons to whom hire purchase was given, how much amount in how many instalments to be collected and the amount collected are available. The amount mentioned at the back of the sheet of this book is the principal amount.
For example, in the book marked APM/9, the amount mentioned at the back of page 1 is Rs. 60,000/-. The principal given for Hire Purchase Finance along with interest comes to Rs. 94,000/- which is collected in instalments. For belated payment of instalments, interest at the rate of 24% will be charged and collected.
Question No. 11: In APM/5 -10, though continuous page numbers have been given, many pages have been missing. Explain this? Question No. 12: Does the income and expenditure mentioned in these books have been reflected in the cash book and ledger maintained in Chennai Officer? The business run in different addresses are recorded in cash book and ledger. But the entries in books APM 5 to 10 are not recorded.
Question No. 13: How much have you invested in your hire purchase finance business. Out of which, how much have you written in your accounts for which Income-tax have been paid? Ans: At No. 47, Kalathi Pillai Street, Chennai, I run business at the following names: I have invested Rs. 90 lakhs to Rs. 1 crore in my business. Out of this, only Rs. 25 lakhs have been shown to Income-tax Department.
The rest of the amounts represent amount not disclosed in my regular books of accounts." Further, before the Assessing Officer, the statement of the assessee was recorded on 26.1.1998. The relevant questions and answers are again reproduced below: "Q.No. 3: You have claimed that you have borrowed Rs. 13,35,000/- from outside. How was this money borrowed? This has been borrowed from persons as shows to the list submitted to you. The entire amount was borrowed in cash and has been repaid after the date of survey. The money was borrowed before the date of survey.
Q No.4: Since the money was borrowed before the date of survey, what records have you maintained for the same? No records have been maintained for the same. All the loans were taken during the financial year 1993-94.
9.1 It is further noticed from the penalty order that the amounts were borrowed as cash credits/unsecured loans and the details of the same are very much relevant. Hence, these are reproduced from the penalty order as it is:30. J J Dhanraj, Tirunelveli 50,000 ------------ From the above it is clear that the assessee has not recorded the above transactions in the books of account and these transactions surfaced only after the survey conducted by the Investigation Wing of the I.T.Department on 26.10.1994.
9.2 It is further seen from question No. 12 the these transactions in Books APM 5 to 10 are not recorded and these are in the shape of loose papers/personal diaries. Even after four years, the assessee, before the Assessing Officer on 26.11.98 daring the course of assessment proceedings vide question No. 5 admitted that since these were out of books, he has cot maintained any records. This clearly shows that the intention of the assessee to generate unaccounted money outside the books and also kept it away from the knowledge of I.T. Department to evade tax accrued thereon from the facts mentioned in paragraphs 3 & 4 above and the statement recorded by the ADI(Inv.) during survey conducted on 26.10.94 and before the Assessing Officer on 26.11.98 the following conclusions/issues are emerging which have not been denied by the assesses at any stage: 1. The assessee had borrowed cash credits/unsecured loans by way of cash.
2. Most of the creditors are agriculturists who have confirmed the loans advanced in cash.
3. The cash credits/unsecured loans had not been recorded by the assessee in the regular books of account for business of finance till the date of survey conducted by the Investigation Wing of the IT, Department on 26.10.1994. Even lapse of four to five years until the assessment is framed these transactions were not recorded in the books of accounts.
4. In reply to show cause notice for penalty under Section 271-D of the Act, vide letter dated 26.3.2003 it was pleaded by the assessee that the transactions are genuine as accepted by the Assessing Officer and hence the penalty should not be imposed. However, the assessee has not shown or proved that there exists business expediency or business prudent.
5. In further reply to penalty notice, dated 8.9.2003 it was pleaded that the loans are genuine and the penalty is not called for under Section 271-D of the Act.
Even before the C.I.T. (Appeals) or before the Tribunal, it was pleaded that the Assessing Officer has accepted all the loans as genuine and more particularly, the borrowings are from the persons who are having agricultural income and having no taxable income under the Act.
10. Now, we will go through the provisions of Section 269SS of the Act.
The relevant provision of Section 269SS is reproduced as under: "269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereinafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if, - (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in Clause (b), is (twenty) thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (b) Any banking company, post office savings bank or co-operative bank; (c) Any corporation established by a Central, State or Provincial Act; (d) Any Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); (e) Such other institution, association or body or class of institutions, Associations or bodies which the Central Government may, for Reasons to be recorded in writing, notify in this behalf in the Official Gazette; [Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] [(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any Bank or banking institution referred to in Section 51 of that Act] (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); 11. Further, we will go through the memorandum explaining the provisions in Finance Bill, 1984 while introducing this section by the Finance Act, 1984 with effect from 1.4.1984. The relevant memorandum explaining the provisions in the Finance Bill, 1984 is being reproduced as it is which is reported in 146 ITR (ST) 162: "22. Unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons.
Unaccounted income is also (SIC) (line missing) taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
23. 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 30th June, 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 deposit of 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, any 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 in 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." 12. It is seen from the provisions of Section 269SS of the Act that there is no such word occurring in this section that this will not apply to genuine transactions. Here, the provision is very strict and the provision will apply strictly where the loans or deposits taken or accepted from any other person otherwise by an account payee cheque or account payee draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 20,000 or more. The only saving clause is provided in Section 273B wherein it was mentioned that the penalty not to be imposed on the person or the assesses for any failure referred to in that provisions (that section covers the provisions of Section 271-D) if he proves that there was reasonable cause for the said failure. Even the memorandum explaining provisions in Finance Bill 1984 during the introduction of this particular provision, it was explained that unaccounted cash found during the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. It was further explained that unaccounted income is brought into the books of account in the form of such loans and deposits and it was particularly mentioned that the tax payers are also able to get confirmatory letters from such cash creditors/persons in support of their explanation. The only saving clause for reasonable cause is provided in Section 273B for violation of Section 269SS of the Act and in view of that section, no penalty under Section 271-D of the Act will be imposed if there is any reasonable cause.
13. In the present case in hand, the assessee has not shown any reasonable cause whereas from the very beginning before the JCIT as well as before the C.I.T.(Appeals) the contention of the assessee was that the transactions are genuine and hence question of generation of black money in his business does not arise and the provisions of Section 269SS of the Act for levy of penalty under Section 271-D of the Act is not applicable in this case. Even before the JCIT, the assessee has pleaded that: "It would imply that there must be at least an element of doubt regarding the genuineness of the loan introduced in the Book of account of the assessee and stated that when such a situation does not exist, invocation of the provisions of Section 269SS ispo facto would not arise. In the circumstances, the assessee pleaded that in view of the opportunity of reasonable cause as provided under Section 273B, the levy of penalty under Section 271D is not obligatory and there is no legal fixtion in the scheme for such automatic levy." Before the JCIT, C.I.T.(Appeals) or even during the course of hearing before the Tribunal the assessee has not raised any plea regarding the reasonable cause that his case comes within the purview of Section 273B of the Act. The genuineness of the transactions cannot be held as a reasonable cause which is clear from the memorandum explaining the provisions in Finance Bill, 1984. The words 'reasonable cause' have not been defined under the Act but the same could receive the interpretation which is given to the expression 'sufficient cause'.
While dealing with the penalty provisions the words 'reasonable cause' would mean a cause which is beyond the control of the assessee. The "reasonable cause' means a cause which prevents a reasonable man or man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide explanation.
14. It is pertinent to note that as to whether there exists a reasonable cause or not. In the present case in hand, the assessee has never explained any reasonable cause for violation of the provisions of Section 269SS of the Act which invokes the provisions of Section 271-D of the Act for levy of penalty. In the present case, there is absence of reasonable cause and this fact as being objectively found by the authorities below in the light of explanation offered by the assessee before the JCIT as well as before the C.I.T.(Appeals), The only plea raised by way of four grounds in this appeal is that the transactions are genuine.
15. Now, we deal with the decisions relied on by the learned counsel for the assessee. Is the case of CIT v. Bhagwati Prasad Bajoria (HUF) (2003) reported in 263 ITR 487(Gauhati), the Hon'ble High Court has held that "Keeping in view the object of introducing Section 269SS, the Legislature has given discretion to the assessing authority under Section 273B of the Income-tax Act to levy the penalty as provided under Section 271D of the Act or not. Under Section 273B if the court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied" The Hon'ble High Court has given a finding that to satisfy the immediate requirement of money, the person normally approaches the money-lender or his friend or relative who could lend money to satisfy his immediate requirement. In those circumstances it was held as under: "In those circumstances ft cannot be said that the assessee has entered into a transaction to avoid the payment of tax or to defraud the Revenue. The element of mens rea is not brone out from the nature and the manner in which the transaction was carried out. In these circumstances we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the Commissioner of Income-tax for consideration of reasonableness with-in the meaning of Section 273B of the Act. In the facts and circumstances of the case, we hold that the Tribunal was justified and correct in law in upholding the judgment of the Commissioner of Income-tax in deleting the penalty of Rs. 45,000 imposed on the assessee under Section 271D of the Income-tax Act, though for different reasons." 15.1 In the case of Patiram Jain v. Union of India which was relied on by the assessee's counsel, ft was held by the Hon'ble High Court as under "Once the proceedings were dropped and the explanations offered by the petitioners were accepted, the same could not be reopened for prosecution of the petitioners after a lapse of two years that the show-(sic) Sections 276DD and 276E of the Income-tax Act. Detailed explanations were tendered by the two films and an opportunity of personal hearing was sought, but fee respondents did not hear, the petitioners at all.
In view of the fact that Sections 276DD and 276E of the Income-Tax Act were deleted from the Act without any saving clause, prosecution of the petitioners thereafter when already explanations were accepted, was unwarranted and unauthorized by law. The facts of this case are fully covered by the law laid down in the case of Rayala Corporation, AIR 1970 SC 494, referred above." 15.2 In another case law relied on by the assessee's counsel in the case of CIT v. Parma Nand , it was held by "Where the Appellate Tribunal held that the assessee was benefited by receiving money in cash in excess of the limit specified in Section 269SS of the Income-tax Act, 1961, since there was a discount of 2 per cent., for payment in time, and the loans were taken only to clear the cheques issued by the assessee and the amounts were prepaid through account payee cheques and the bona fide intention of the assessee had been proved and deleted the penalty levied under Section 271D:" 15.3 In the case of Industrial Enterprises v. DCIT reported in 73 ITD 252 which was relied on by the assessee's counsel, it was held by the Tribunal, Hyderabad Bench 'A' that: 'The assessee in this case is a small scale industrial unit, which has set up its factory in a backward region of Andhra Pradesh.
Almost all the loans were taken by the assesses firm during the construction period. Though the assessee firm had succeeded in securing certain loans sanctioned by banks and financial institutions, those finances had not come in time to meet the financial needs of the assessee during the construction stage of the factory, and as such the assessee was put under much pressure for money. In such circumstances the assessee firm had to approach its friends and well wishers to extract as much cash as possible from them to meet the day to day exigencies of the business for money, so that it could complete the project within time. Therefore, there is no doubt that the assessee was very much constrained to accept the hand as and when emergencies arose. In such exigencies and emergencies for money which compelled the assessee to borrow monies from friends and well wishers from time to time to meet the day to day business demands in the construction of factory, receipt of such loans by way of cheques or drafts would not be conducive to meet the exigent demands on hand, as clearance of such instruments equally takes some time, more particularly when the lenders are from a different station. As a matter of fact, the Assessing Officer who completed the assessment as well as the Deputy Commissioner of Income Tax who imposed the penalty have no whatsoever about the genuineness of the loans and the identity of those lenders and their creditworthiness. Therefore, it is clear that the assessee firm had no intention to conceal any particulars of those transactions".
15.4 We have also considered the case laws relied on by the assessee's counsel in the cases of Karnataka Ginning & Pressing Factory (2001) (77 ITD 478), Dillu Cine Enterprises (P) Ltd. (2002) (80 ITD 484), Ravi Iron & Scrap Co., 118 Taxman 219 and Ajanta Dyeing & Printing Mills, (2003) 130 Taxman 442.
16. We have also gone through the case laws relied on by the learned Departmental Representative. In the case of Dhanji R. Zalte v. Asst.
CIT , the Hon'ble Bombay High Court has held as under: "A plea has been taken before us, like it was taken before the Appellate forums below, that most of the parties to whom the Assessee had advanced money or taken loans from, were agriculturists. And they did not have the benefit of banking operations. In addition, These incriminating documents attached in the inventory on August 22, 1995, could not be termed as "books of account" and, therefore, there was no case for initiating proceedings for the violation of Section 269SS and consequently levying penalty under Section 271D of the Income-tax Act. The assessee contended that all the registers maintained show only outgoings and there was no transaction of receipts. At one point of time it was the case of the assessee that he was handling a specialized area of land acquisition cases and he used to appear before me Land Acquisition Officer for receiving the award amounts pursuant to the award under Section 11 of the Acquisition Act, before the reference court for enhancement of compensation and also in the appeals before this court and during ail these proceedings the claimants were required to be supported by financial assistance.
He was, therefore., advancing them finance and adjusting the said amounts from the final payments and, therefore, he contended that it cannot be termed as an operation of granting loan in the strict sense. While, interpreting the terns "books of account" referred to in Sub-clause (1) of Explanation 5 to Section 271(1)(c) of the Income-tax Act, A Division Bench of this court in the case of Sheraton Apparels v. Asst. CIT held that the said term means those books of account whose main object was to provide credible data of accounts and information to file a tax return and it must answer all the qualifications for calculating profit or loss, to depict the financial position of the business; to portray liquidity position; to provide up to date information of assets and liabilities so as to provide a profit and loss account and to have a balance-sheet to determine income and the source thereof." "Section 269SS was inserted in the Income-tax Act by the Finance Act of 1984 with effect from April 1, 1984, and was made operative From July 1, 1984. The Income-tax Department, in the coarse of Searches carried out from time to time, recovered large amounts of Unaccounted cash from the taxpayers who often give explanation To the effect that they had borrowed loans or received deposits from or by other persona. Sometimes it was noticed that unaccounted Income was brought into the books of account in the forms of loans and deposits. The Department was not able to unearth such Unaccounted cash. In order to plug the loopholes and to put an end To the practice of giving false and spurious explanations by the tax-Payers, Parliament sought to introduce a new provision debarring Parties from taking or accepting from any other person any loan or Deposit. Originally the ceiling amount of cash transaction was at Rs. 10,000 and the same was subsequently increased to Rs. 20,000.
With effect from April 1, 1989. Section 276DD stated that if a Party-person takes or accepts any loan or deposit in contravention of The provisions of Section 269SS, be shall be punishable with imprisonment For a term which may extend to two years sad shall also be liable to fine to The extent of equal amount of such loan or deposit Subsequently Section 271D, which is a penal clause in the Act, which provides for imposition of penalty for failure to comply with the provisions of Section 269SS was introduced with effect from April 1, 1989, omitting Section 276DD from the said date. Thus, the original Section 276DD was replaced by Section 271D and the punishment of imprisonment was taken away. The failure to comply with the provisions of Section 269SS could only be visited with a penalty of fine equal to the amount of loan or deposit to be taken or accepted.
The objections raised by the assessee against the penalty imposed Under Section 271D have been considered by the authorities below in keeping with the provisions of Section 269SS and it has been rightly held that the said objections raised by the assessee against invoking the provisions of Section 269SS and thus levying penalty under Section 271D of the Income-tax Act were without any material force and it was only a defence for name sake." which was relied on by the learned Departmental Representative, the Hon'ble Supreme Court has held that "The contention of the appellant's counsel has no force. The object of introducing Section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or it he has given some false entries in his accounts, he shall not escape by giving false explanation for the same.
During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that be had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of Section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity." Finally, the Hon'ble Apex Court upheld the constitutional validity of the provisions of Section 269SS of the I.T.Act.
16.2 Another case law relied on by the Departmental Representative in the case of Balaji Traders v. Dy. CIT (2001) (78 ITD 368)(Pune), the Tribunal Pune Bench has held that: "Regarding penalty under Section 271D, the first contention on behalf of the assessee was that the provisions of Section 269SS were brought on statute to counter the tax evasion and, therefore, the genuine transaction do not fall within the ambit of Section 269SS. One can not accept such preposition of law. It is the cardinal rule of interpretation that where the language of a statute is plain and unambiguous, the intention of Legislature is to be gathered from the language of the statute itself and aids to the interpretation cannot be resorted to.
The language of Section 269ss is unambiguous and, therefore, the genuine transaction can not be taken out of the ambit of this Section. Accordingly, this contention of the assessee was to be rejected." 17. It is seen from the above case laws relied on by the assessee's counsel that in each and every case there is some reasonable cause or business expediency for taking loans in cash but in the present case in hand, the assessee is unable to provide any material or evidence to show the urgency on the part of the assessee to procure the loans in cash otherwise than the mode provided under Section 269SS of the Act.
It is seen that the assessee is doing finance business for a long time.
Even, the assessee has admitted that since these transactions were out of books of account and they have not been recorded in the books of account maintained by him as it is evident from the questions and answers recorded by the authorities below which are reproduced at pages 7 & 8 of this order. It is a fact that in all the cases cited by the learned Counsel for the assessee, the borrowals in cash appears to be due to reasonable cause and they are accounted for in the books of account maintained by the assessee or due to business expediency but that is not the case present before us. It was also argued that all the persons from whom loans taken are agriculturists and not assessed to tax. Therefore, it was stated that as per second proviso to Section 269SS of the Act, there is no violation of Section 269SS of the Act. It is seen from the said section itself which is reproduced at page 10 that these provisions shall not apply to any loan or deposit if, the loan or deposit is taken or accepted, both the persons are having agricultural income and neither of them has any income chargeable to tax under this Act. It is seen that the persons who are provided loans are agriculturists and in the present case, the assessee is a business man having taxable income and is being assessed to tax. Therefore, this proviso will not help the assessee.
18. The plea of the assesses was that Section 269SS of the Act would not apply to the genuine credits. There can be no dispute whatsoever as regards the object of Section 269SS of the Act. The object of this section was to curb lax evasion. Taking or accepting of loans or deposits exceeding certain amount in cash is prohibited as a measure in this direction. The memorandum explaining the provisions state that unaccounted income is also brought into the books of account in the form of loans or deposits and the taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
If this section would not apply to genuine credits, whether this section will apply to the credits which are not properly explained. If this being the situation, then what will happen to Section 68 of the Act. If a credit is proved to be bogus, the same is to be disallowed and is to be added back under Section 68 of the Act. In these circumstances, the provisions of Section 269SS of the Act will become redundant and the very purpose of introduction of this provisions will be lost. This plea of the assessee that genuine transact ions do not fall within the ambit of Section 269SS of the Act, cannot be accepted.
Section 269SS of the Act was inserted to discourage the transactions made in cash in case of loans over and above certain amounts. In our opinion, even if genuine loans or deposits, the assessee has to explain why it has obtained in cash and if he is able to explain with a reasonable cause then there will be no penalty leviable under Section 271-D of the Act. Where there is no reasonable cause then the penalty is clearly leviable as intended by the Parliament while introducing the Section 269SS of the Act. Whether the transactions are genuine, short term accommodations, loans or deposits with or without interest, then only the requirement of reasonable cause arises and if there is reasonable cause the penalty under Section 271-D of the Act for violation of Section 269SS of the Act cannot be levied But where there is no reasonable cause even for genuine transactions will attract penalty under Section 271-D of the Act for violation of the provisions of Section 269SS of the Act.
19. In this case, the assessee himself has admitted these as loans and he was unable to bring on record any reasonable cause with regard to these loans. The assessee has not established the nexus between the business expediency and the borrowals in cash which is necessitated for the purpose of business. Even be has admitted that these transactions are not recorded in the books of account. For all these reasons, we are of the considered opinion that the assesses has contravened the provisions of Section 269SS of the Act and therefore, penalty levied under Section 271D of the Act by the JCIT and confirmed by the C.I.T.(Appeals) is justified. We uphold the orders of the authorities below.
We take this opportunity to place on record our appreciation of the order of the JCIT which is well reasoned and well-written.