| SooperKanoon Citation | sooperkanoon.com/71024 |
| Court | Income Tax Appellate Tribunal ITAT Mumbai |
| Decided On | Apr-27-2000 |
| Judge | R Easwar, S Mehrotra, A Members |
| Reported in | (2001)77ITD478(Mum.) |
| Appellant | Karnataka Ginning and Pressing |
| Respondent | Joint Commissioner of Income-tax |
2. The assessee is a partnership firm consisting of three partners, engaged in the manufacture of cloth. The partners are Mrs. Poonamdevi Agarwal, Mr. Atulkumar Ganatra and a company by name Shree Navdurga Cotton & Yarn Co. Ltd. The company is the financing partner with 90% share in the profits and 100% share in the losses.
3. While completing the assessment, the Assessing Officer noticed that the assessee had received amounts in cash totalling to Rs. 38,10,000 from M/s. Vikas Exim ('VE' for short), a proprietary concern of Mrs.
Shashi Agarwal who is the wife of Rameshchandra Agarwal who is the director of the company, which is a partner in the assessee firm. These amounts were received in cash between 1-4-1994 and 31-3-1995. According to the Assessing Officer the amounts had been received in contravention of the provisions of section 269SS and therefore attracted penalty under section 271D. He therefore initiated penalty proceedings and called for the assessee's explanation.
4. The assessee explained that it had a running account and a business relationship with VE, that it was the usual practice for the assessee to receive temporary advances from VE, in cash as and when required by the business exigencies and repaid the same in the course of the business, that the amounts under consideration were received for the specific purpose of payment of advance excise duty, that they were repaid either out of the proceeds of the sale of goods or through adjustments, that during the period 1-4-1995 to 31-3-1996 the credit balance in the account of VE had been reduced from 67,06,937 as on 31-3-1995 to Rs. 39,12,790 as on 31-12-1996. The balances in the account of VE as on 31-3-1992, 31 -3-1993 and 31-3-1994 were also furnished. It was therefore pointed out that the amounts received were neither loans nor deposits within the meaning of section 269SS but only temporary advances received in the course of the business and for the purposes of the business and therefore no penalty was exigible.
5. The Assessing Officer took into account the assessee's explanation as above and the further explanations by letters dated 17-3-1998 and 21-7-1998 and also the object of introducing section 269SS by the Finance Act, 1984 as explained by the CBDT Circular No. 387 dated 6-7-1984 and observed that in the majority of the borrowings, the purpose appeared to be the payment of excise duty which was to be made in cash. He was of the view that even if a liberal view is taken in the matter, only such transactions as were entered into with the purpose of paying excise duty in cash in advance can be considered as falling outside the provisions of section 269SS. He scrutinised the account of VE and found that out of the total amount of Rs. 38.10 lakhs received in cash by the assessee, a sum of Rs. 9,85,000 had not been utilised by the assessee for making excise duty payments and to that extent there was a violation of section 269SS. Accordingly, he held the assessee liable to penalty to an equal amount of Rs. 9,85,000.
6. The assessee appealed to the CIT(Appeals) against the levy of penalty. The CIT(A) was of the view that the penalty should be enhanced since in his view, the entire amount of Rs. 38.10 lakhs must be considered as amounts received in cash in contravention of section 269SS. Accordingly, he issued an enhancement notice to the assessee to which the assessee objected on various grounds. After examining the various contentions taken by the assessee and the authorities cited on its behalf, the CIT(A) came to the conclusion that there was no merit in the contention that the assessee had to make payment of excise duty only in cash. He noted from the copies of the challans filed by the assessee that the excise duty payment could have been effected by the assessee by account payee cheque also and there was no compulsion to make such payments in cash. According to him, since there was no urgency in the sense that the payment had to be effected only in cash and not by cheque, the assessee could have taken the amounts from VE by pay order or demand draft or account payee cheque and issued cheques against those amounts to the excise department. In the absence of any justifiable reason to receive the amounts in cash, the CIT(A) was of the view that the assessee was liable to penalty under section 271D not only in respect of the amounts which were not utilised for payment of the excise duty but was liable to penalty in respect of the entire amount received from VE whether utilised for making advance excise duty payments or not. He accordingly held the assessee liable to penalty in the sum of Rs. 38,10,000 and thus enhanced the penalty.
7. The assessee is in further appeal before us. The ld. counsel for the assessee submitted firstly that the amount was received from VE which was a sister concern of the assessee in the sense that both of them were connected through common relationship and therefore was outside the purview of section 269SS. He submitted in this connection that the section is attracted only if a person takes or accepts "from any other person" any loan or deposit otherwise by than an account payee cheque or account payee draft. Since the proprietary concern of Mrs. Shashi Agarwal was a sister concern, the connection being that she is the wife of one of the directors of the company which is a partner in the assessee firm, it cannot be considered as "any other person" within the meaning of the section. He pointed out that the assessee firm, the company partner and VE were all managed and run by members of the same family and in fact VE was carrying on business from the same premises as those of the assessee. He next contended that the amounts received represented temporary advances received on account of business exigencies and were outside the purview of the section because such temporary advances cannot be called loan or deposit which alone were covered by the section. He further contended that the object of the provision being the unearthing of unaccounted money, any transaction which was done in an open manner in which no unaccounted monies were involved cannot be brought within purview of the section merely because there was a technical breach in the sense that the amounts were not received in the manner prescribed by the section. In this connection, he invited our attention to para 32 of the Circular of the Board 146 ITR (St.) page 162. He submitted that VE also disclosed the advances in its accounts and that it was also assessed to tax. In this connection, he invited our attention to pages 59 to 64 of the paperbook which contained the ledger account abstract of VE in the books of the assessee. He pointed out that it will be clear from the ledger account as well as Annexure 'A' to the penalty order that the amounts were received only to discharge statutory obligations of the assessee which were very much incidental to the assessee's business and since such amounts were received for the purpose of the assessee's business viz., payment of advance excise duty, there was reasonable cause within the meaning of section 273B for the assessee not receiving the monies by account payee cheque or account payee draft. He pointed out that the Assessing Officer had rightly accepted this part of the assessee's contention viz, that there was reasonable cause for the assessee taking the monies in cash and that the CIT(A) was not justified in enhancing the penalty on the ground that the Assessing Officer was not justified in doing so. The ld. counsel for the assessee therefore submitted that both on the legal issue viz., the applicability of section 269SS and on the merits viz., the existence of reasonable cause, the assessee must succeed.
8. On the other hand, the ld. Sr. DR pointed out that the constitutional validity of section 269SS has been upheld in the following cases : (i) K.R.M. V. Ponnuswamy Nadar Sons (Firm) v. Union of India [1992] 196 ITR 431, (Mad.) (iii) Chamundi Granites (P.) Ltd. v. Dy. CIT [1999] 239 ITR 694, (Kar.) His contention was that since the constitutional validity of the section has been upheld, if there is a contravention of the provisions of the section penalty is attracted, however harsh it may be. He next contended that there was no warrant for contending that a sister concern would not fall within the meaning of "any other person" appearing in section 269SS. According to the ld. Sr. DR, these words included each and every person other than the assessee. Since VE was another entity, it fell squarely under those words, hence the section was attracted. He also submitted relying on the following authorities that neither the fact that VE is a sister concern of the assessee nor the fact that the transactions of receipts and payments have been routed through a current account between the assessee and VE was relevant for the purpose of judging the applicability of the section: (ii) Prabhavshali Chit Fund Co. (P.) Ltd. v. CIT [1994] 49 ITD 566 (Delhi) As regards the contention of the assessee that the amounts represented temporary advances and hence cannot be considered as a loan or deposit of money within the meaning of Explanation (iii) below section 269SS, he drew our attention to the judgment of the Bombay High Court in the case of CIT v. Vockanardt (P.) Ltd. [1995] 215 ITR 793 rendered in the context of section 40A(8) and submitted that a deposit means a deposit of money with the assessee including any money borrowed and it was irrelevant whether the borrowing was temporary or for longer duration.
With reference to the reliance placed by the ld. counsel for the assessee on the Circular issued by the Board explaining the provisions of section 269SS, the ld. Sr. DR contended that the application of the section, even according to the Circular was not confined to cases of search under section 132 and what was given in the Circular was only by way of an example as to what prompted the Govt. to introduce the provision. The section was of wide application and there is nothing in the section to suggest that its application should be confined to cases of search.
9. As regards the existence of reasonable cause within the meaning of section 273B, the ld. Sr. DR submitted that the payments effected by the assessee were "advance" excise duty payments and therefore there was no urgency in the sense that there was a demand pending against the assessee which had to be liquidated. He pointed out two instances from the Annexure 'A' to the penalty order. Sl. Nos. 2 and 5 wherein the assessee had received the monies from VE on 11-4-1994 and 23-4-1994 respectively, but the excise duty payments were effected only on 13-4-1994 and 15-4-1994 with reference to Sl. No. 2 and on 26-4-1994, 27-4-1994 & 30-4-1994 with reference to Sl. No. 5. His submission was that the time gap between the date of receipt of amounts and date of advance payments of excise duty at least in these two instances would show that there was no urgency and the assessee could very well have complied with the prescription of the section and the fact that the assessee did not do so despite sufficient time available to it would indicate, in his view, that the assessee was not very keen to comply with the provisions of the section. On the basis of these contentions, the Id. Sr. DR submitted that the penalty as enhanced by the CIT(A) should be confirmed.
10. We have carefully considered the rival contentions. We have also perused the orders of the departmental authorities and the papers in the paperbook to which our attention had been drawn. In our view, there is no merit in the contention of the ld. counsel for the assessee that Vikas Exim being a sister concern, the provisions of section 269SS cannot apply to any amounts received by the assessee from it in contravention of the provisions of the section. Even assuming that VE was a sister concern of the assessee, we do not see how it is excluded from the purview of the words "any other person" appearing in the section. In our view, these words denote any person other than the assessee because, as rightly pointed out by the ld. Sr. DR, there was no question of the assessee receiving any monies from himself in contravention of the provisions of the section. We therefore reject this contention of the assessee. However, as regards the existence of reasonable cause, we are of the view that the assessee's contentions are well founded. It is not disputed that the monies received from VE were utilised for making advance payments of excise duty. No doubt, in a few cases there was some time gap between the date on which the money was received from VE and the date on which payments were made to the excise duty department. But this is attributable to the various exigencies and vicissitudes of business. It may not be possible for an assessee to predict with precision the exact requirements of money for discharging its obligations connected to the business, statutory or otherwise. It may not also be possible for it to anticipate the exact dates on which it may be required to discharge such obligations. There can be some difference between what was anticipated and what was actually required. Perhaps in the two instances (Sl. Nos. 2 & 5 in Annexure 'A' to the penalty order) to which our attention was drawn by the ld. Sr. DR, the assessee was a little extra cautious and took money from VE much ahead of the actual dates on which the amounts were required to be paid. These are all part of the business and one cannot really fault the assessee if he had exercised a little extra caution, especially in the matter of discharging the statutory payments. It has not been suggested on behalf of the department before us nor by the income-tax authorities that the assessee had sufficient monies of its own from which it would have easily made the excise duty payments and there was no need for taking monies from the sister concern. In other words, the fact that the monies were taken for the purpose of making the excise duty payments is not in dispute at all. It has not also been suggested nor can it possibly be, that the discharge of excise duty payments is not incidental to the assessee's business, but was something unconnected with the business or personal in nature. The provisions of section 269SS were introduced by the Finance Act, 1984.
Circular No. 387 dated 6-7-1984 (146 ITR St. Page 162) explains the rationale behind the introduction of the provision. The Board has referred to the practice of tax payers getting confirmatory letters from persons in support of the explanation that the cash found during the search belongs to certain other persons, from whom the assessee had borrowed the monies. This practice was creating difficulties for the income-tax authorities and to counter this, section 269SS was introduced which debarred 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 draft, provided the amount exceeded Rs. 10,000 (now increased to Rs. 20,000). While interpreting the provisions of section 269SS, we have to bear in mind the object for which it was introduced. If the assessee is able to lead evidence to show that not only was there reasonable cause for taking the money in cash, but the amounts did not also represent unaccounted monies either of the assessee or of the persons from whom they were taken, normally that should be sufficient to hold that the penalty is not justified. As regards the genuineness of the borrowing in the present case, there does not appear to be any doubt. The income-tax authorities have raised no doubt about the genuineness as is clear from the fact that no addition of the amounts received from VE has been made by invoking section 68 of the Act. Apparently the Assessing Officer was satisfied with the assessee's explanation regarding the nature and source of the amount. Thus, the transactions between the assessee and VE did not fall within the mischief sought to be remedied by the section. As already pointed out by us, the assessee was also prevented by reasonable cause from taking the monies through account payee cheque or draft. The CIT(A), who has enhanced the penalty has also not said a word against the genuineness of the transactions between the assessee and VE. He has harped upon the fact that the excise duty payments could have been effected by cheques after taking the monies from VE through cheques or drafts since there was no urgency about the matter. But we have already pointed out that it is not a condition for the existence of reasonable cause that there should be some sort of urgency about the matter. We have in this connection already referred to the fact that it is not always possible to predict the exact time in which the assessee may be called upon to meet the statutory payments. Therefore, we are unable to share the view of the CIT(A) that unless there is an urgency or emergent need to effect payments in cash, the assessee would not be justified in taking the monies in cash from VE. The expression 'reasonable cause' has to be considered pragmatically and keeping in view the vicissitudes and the exigencies of the business, where it is not always possible to get things done or to anticipate the course of events with infallible precision. We are therefore satisfied that there was reasonable cause for the assessee to act in contravention of the provisions of section 269SS by taking monies from VE in cash.
11. Quite apart from the question of existence of reasonable cause, we are not sure whether the amounts received by the assessee from VE can be termed as 'loans' or 'deposits'. The words are not defined in the Explanation (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 asscssee 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 amounts 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.12. The Assessing Officer had held that whatever amounts were not utilised by the assessee for payment of excise duty should be considered as falling under section 269SS and to that extent the assessee would be liable for penalty. We have already seen that it is not always possible for an assessee to predict accurately his requirements of monies for the purpose of effecting payments related to the business. A certain amount of unpredictability will always be there and it is quite possible that in its anxiety to cover the impending payments, the assessee was over-cautious and took more monies from VE than was actually required. This has resulted in an excess of Rs. 9,85,000. Merely because the assessee had not utilised these amounts for making the excise duty payments, it cannot be stated that the assessee is liable for penalty in respect of this amount. This amount had also been taken for the purpose of effecting advance excise duty payments. It is not the case of the income-tax authorities that these amounts were not taken for such purpose. The mere fact that in the ultimate analysis it transpired that the assessee had taken more monies than were actually required for making the excise duty payments does not, in our view, authorise a different treatment to be accorded to the excess amount than what has been accorded to the amounts which were actually utilised for making excise duty payments. For the aforesaid reasons, we cancel the penalty and allow the appeal. The penalty, if any, already collected is directed to be refunded.