| SooperKanoon Citation | sooperkanoon.com/72761 |
| Court | Income Tax Appellate Tribunal ITAT Mumbai |
| Decided On | Sep-09-2003 |
| Judge | M Chaturvedi, Vice, I Bansal, Jaidev |
| Reported in | (2004)88ITD76(Mum.) |
| Appellant | Mrs. Rupali R. Desai |
| Respondent | Additional Commissioner of |
2. At the outset, we may point out that only ground No. 1 is the relevant ground of appeal and ground Nos. 2, 3, 4 and 5 contain the arguments in support of the ground No. 1. Ground No. 6 is general in nature and is not required to be dealt with. The arguments contained in ground Nos. 2 to 5 are reproduced as under: "Ground No. 2: On the facts and in the circumstances of the case the lower authorities erred in not appreciating the fact that the provisions of Section 269SS of the IT Act, were enacted to prevent circulation of unaccounted money. In the present case the payer and the payee are both identifiable and known. Further, the deposits made by the appellant had to be so made to comply with the directions of AAIFR authorities. The appellant submits that the provisions of BIFR override the provisions of other enactment. In the circumstances, there was no justification for levy of any penalty and it is again prayed that the penalty levied be cancelled.
Ground No. 3: On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the issue is not debatable. .
The appellant respectfully submits that the issue is debatable and as such no penalty ought to have been levied on debatable issue. It is prayed that the penalty upheld by the learned CIT(A) be cancelled.
Ground No. 4: On the facts and in the circumstances of the case, without prejudice to the earlier grounds, the appellant has reasonable cause for alleged violation of provision of Section 269SS of the IT Act. It is, therefore, prayed that the levy of penalty being unjustified be cancelled.
Ground No. 5: On the facts and in the circumstances of the case the lower authorities failed to appreciate that in any event the loans have been taken from sister concern and as such as held by various judicial decisions there is no contravention of the provision of Section 269SS of the IT Act, 1961, and it is prayed that the penalty levied be cancelled." 3. The facts in brief are that the assessment was completed in the case of the assessee on 31st March, 1998 under Section 143(3) accepting the 'nil' income returned by the assessee. During the course of assessment proceedings, it was found by the AO that the assessee had taken the following cash loans from Tensile Steels Ltd.: Since the assessee had received the loan of Rs. 41,50,000 in cash, the provisions of Section 269SS were attracted and hence the AO initiated penalty proceedings under Section 271D. After obtaining the above amounts in cash, the assessee had deposited the same in her bank a/c with Canara Bank, Khetwari branch. After withdrawing these amounts from the bank, the assessee purchased fixed deposit receipts. After encashing the FDRs, the amount of Rs. 41,50,000 was ultimately returned to Tensile Steels Ltd. by cheque. During the course of penalty proceedings, it was explained by the assessee before the AO that the payer is a company and the amounts had been given, in cash in order to make deposits for obtaining further funds for the business of the said company, as it had been directed, to make such, deposits to revive the company from the sickness in which it had fallen, as per order of the AAIFR authorities. It was further stated that there was no violation of provisions of Section 269SS, It was stated that the purpose of introducing Section 269SS was to dampen the transaction in cash to introduce unaccounted deposits. It was submitted that in this case the transactions are genuine and both the payer and receiver are identifiable. It was further submitted that Tensile Steel Ltd. was under compelling circumstances to make deposits. The amounts had necessarily to be made available immediately, hence the assessee had taken cash on account of extreme exigencies and compulsions of the business and to comply with the directions of the AAIFR authorities.
The assessee also placed reliance on the various decisions of the Courts. However, the arguments of the assessee did not find favour with the AO. The AO observed that the assessee had merely relied on the purpose of the loan, genuineness of transaction and the circumstances in which the loan was accepted in cash and the discretionary power of the Court. The AO reproduced Section 269SS in his order and expressed the view that the section does not exempt any loan in the nature of accommodation loan and it does not even exempt the genuine transactions. The AO pointed out that except for the exceptions provided under the section, Section 269SS does not exempt cash loans in any circumstances. As regards the assessee's arguments that there existed compelling circumstances, the AO observed that the compelling circumstances were in the case of Tensile Steel Ltd, (the payer) and not the assessee. In view of these arguments and relying on certain judgments of the Courts, the AO held that the assessee had contravened the provisions of Section 269SS by accepting the loan of Rs. 41,50,000 otherwise than by account payee cheque or account payee bank draft. He, therefore, imposed the impugned penalty.
3.1 The assessee carried the matter in first appeal before the CIT(A).
The CIT(A) upheld the order of the AO by observing that there was no reasonable cause within the meaning of Section 273B due to the provisions of AAIFR/BIFR or any other reasons. Being aggrieved, the assessee has come up in appeal before us.
4. The learned counsel of the assessee contended that the assessee is a shareholder of a private limited company in the name and style of Tensile Steel Ltd. It was stated that the said company is a sick unit covered by BIFR. It was further stated that AAIFR directed the chairman and managing director Shri Ramesh R. Desai, father of the assessee, to deposit Rs. 41.50 lakhs as security. It was stated that cash was withdrawn from the company and given to the assessee to enable her to get FDRs. It was stated that money was withdrawn at a short notice and deposited in Canara Bank and subsequently FDRs were taken and were offered as security. It was contended that ultimately the revival proposal failed and the money was returned to the company Tensile Steel Ltd. by the assessee through cheque. The learned counsel contended that the transaction was genuine and the payer and the payee are identifiable, no addition was made in the assessment of the assessee and the nil income return filed by her was accepted by the AO, The learned counsel further contended that in this case Section 269SS does not apply as the transaction was in the nature of stop-gap-arrangement and was not exactly a loan. The learned counsel further contended that in the course of penalty proceedings the assessee had relied on the decision of Hon'ble Madhya Pradesh High Court in the case of Pati Ram Jain and Ors. v. Union of India and Ors. (1997) 225 ITR 409 (MP), but the AO had wrongly held that the said decision was not applicable. It was stated that the said decision was not distinguishable as the return filed by the assessee was accepted. The learned counsel further contended that there was a reasonable cause in accepting the cash loan and it is only a technical default committed under emergency or compelling circumstances as the money was required from the promoter as a security. The learned counsel relied on the following decisions: (i) Karnataka Ginning & Pressing Factory v. Jt. CIT (2001) 72 TTJ (Mum) 307 : (2001) 77 ITD 478 (Mum).
(ii) Dr. Deepak Muchala v. ITO (1997) 58 TTJ (Bom) 524 (ITAT Mumbai). (iii) Pati Ram Jain and Ors. v. Union of India (supra).
(iv) Motilal J. Doshi v. Dy. CIT in ITA No. 1030/Pn/l995, dt. 16th Dec., 1999, Tribunal Pune Bench.
(v) Navinchandra Ugttamram v. ITO, in ITA Nos. 679 & 680/Ahd/1997, dt. 6th Aug., 1997, Tribunal Ahmedabad 'A' Bench.
(vi) Shrepak Enterprises v. Dy. CIT (1998) 60 TTJ (AM) 199 : (1998) 64 ITD 300 (Ahd), Tribunal, Ahmedabad 'A' Bench.
(vii) Kumari A.B. Shanti v. Asst. Director of Inspection (1992) 197 ITR 330 (Mad).
(viii) Harpal Singh Jaswant Singh v. ITO, reported at Taxman Magazine at p. 81 under the head 'Case Digest/Tribunal'.
(x) ITO v. Paramount Builders, decided by Tribunal, Mumbai 'F' Bench in ITA No. 1812/Mum/1998, dt. 17th Jan., 2001.
4.1 On the other hand, the learned Departmental Representative contended that facts of the case show that there was no urgency and it was not shown why the money could not be deposited to the BIFR directly rather than routing through the assessee. The learned Departmental Representative contended that all the decisions relied on by the learned counsel are distinguishable in facts. It was stated that in the case of Dr. Deepak Muchala (supra), the facts are distinguishable as in the present case the payer was a company. Similarly, it was contended that in (2001) 72 TTJ (Mum) 307 : (2001) 77 ITD 478 (Mum) (supra), the facts are distinguishable as in that case transactions in cash were for business exigencies and were entered into with the sister concerns. In that case, it had been claimed that the amounts received were neither loans nor deposits within the meaning of Section 269SS. It was further stated that in the case of Harpal Singh Jaswant Singh v. ITO (supra), the assessee was a Kacha Arhatia and was dealing with agriculturists and hence the provisions of Section 269SS were held to be not applicable as sale proceeds remaining with the assessee could not be regarded as the deposits made by the agriculturists as the assessee being Kacha Arhatia, the said goods belonged to the, agriculturists.
Thus, it was shown that primarily the facts are distinguishable. The learned Departmental Representative further contended that the decision of Supreme Court in the case of CIT v. Prithipal Singh (supra) is in respect of penalty under Section 271C wherein it was held that in the case of loss returned by the assessee and the quantum of loss having been reduced by the IT authorities, penalty under s, 271(1)(c) cannot be imposed. The learned Departmental Representative contended that the judgment of the Supreme Court cannot be stretched to apply to the penalty under Section 271D. The learned Departmental Representative further contended that the case of ITO v. Paramount Builders (supra), decided by Tribunal, Mumbai Bench, is also distinguishable on facts as in that case two sister concerns were carrying on the business from the same premises and due to a clerical error of the staff of the sister concerns, the cash belonging to the sister concern amounting to Rs. 1,50,000 was deposited in assessee's account in Abhyuday Co-operative Bank where both the assessee and the sister concern had the bank accounts. The learned Departmental Representative further adverted our attention to p. 13 of the CIT(A)'s order wherein it was pointed out that the cash loans were received by the assessee from Tensile Steel Ltd. on 3rd May, 1993 whereas the assessee had been relying on the correspondence from AAIFR which are dt. 14th May, 1993, 10th Aug., 1993 and 14th Sept., 1993. It was stated that this shows that all these dates were subsequent to the date of accepting the cash loans on 3rd May, 1993." The learned Departmental Representative strongly relied on the CIT(A)'s order.
4.2 In the rejoinder, the learned counsel of the assessee contended that in the order dt. 10th Aug., 1993, the AAIFR referred to the order dt. 15th April, 1993 which falls before the date of cash loans.
5. We have given a careful consideration to the rival submissions and the facts and circumstances of the case. It is evident that the assessee had received cash amounts, from the company Tensile Steel Ltd. in violation of the provisions contained in Section 269SS. But like any other penalty, the operation of Section 271D with reference to the violation of the provisions contained in Section 269SS also is not automatic. Section 273B has provided a statutory fetter to the automatic application of Section 271D. It provides that no penalty shall be imposable on a person under these provisions for any violation, if the person could establish the existence of any reasonable cause. It is only where a person could not explain any reasonable cause for the failure in complying with the provisions of Section 269SS, that the penalty under Section 271D would follow. The assessee has explained the circumstances under which the cash loan, which was in the nature of accommodation, was received by the assessee from Tensile Steel Ltd. It has been stated that the said company gave the assessee amount in cash to the extent of Rs. 41.50 lakhs in order to enable the assessee to make certain deposits for obtaining further funds for the business of the company. It was submitted that this was done in pursuance of certain directions stated to have been issued by AAIFR. It is further explained that AAIFR did not accept the proposal and the advances received from Tensile Steel Ltd. had to be returned by the assessee. Though the loans were received by cash, yet they were returned by cheque. The assessee had explained before the AO that the order dt. 16th April, 1993 of AAIFR required Tensile Steel Ltd. to make deposits. The copy of the letter of Tensile Steel Ltd. dt. 30th April, 1993 with regard to the loan was also furnished before the AO. Thus, the discrepancy highlighted by the CIT(A) and pointed out by the learned Departmental Representative is not correct as cash loans were received by the assessee on 3rd May, 1993 in view of the AAIFR's order dt. 15th April, 1993. The loans were returned by cheque and the transactions are accepted by the AO as genuine which is clear from the fact that the assessee's nil income return has been accepted by him.
The AO has also given a categorical finding in the assessment order that the assessee's contention was found correct with reference to the details filed in respect of the loan transactions. As a matter of fact, the AO who completed the assessment as well as the Dy. CIT who imposed the penalty had no doubt whatsoever about the genuineness of the loans and the identity of the lender and its creditworthiness. Therefore, it was clear that the assessee-firm had no intention to conceal any particulars of loan transactions.
5.1 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 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 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 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.
5.2 In the memorandum explaining the provisions of the Finance Bill, 1984, it was explained as follows: "22. 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.
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 IT 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 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, 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.
24. The proposed prohibition will, however, not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by the following, namely : (b) any banking company, post office savings bank or any 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; (e) such other institution, association or body 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." 5.3 A careful perusal of the above explanations shows that the section was introduced to prevent abuse of laws and to discourage tax avoidance and tax evasion. In particular, it was meant to circumvent the device by which the taxpayers often explain away unaccounted cash or unaccounted deposits found in the course of searches carried out by the Department.
In the instant case, the assessee took bona fide loans in view of the requirement of AAIFR with regard to the sick company Tensile Steel Ltd. and such loans were bona fide loans though in the nature of accommodation loans. As pointed out earlier, there is no doubt about the genuineness of the loan and the AO has fully accepted these loans in the assessment made for the year under consideration. The compelling circumstances in which the assessee was constrained to violate the provisions of Section 269SS, which could not be termed as intentional, had not in any way defeated or tended to defeat the objective of incorporation of Section 269SS in the statute book, i.e., prevention of tax evasion, as there was no element of tax evasion in the instant case. Thus, in this case, it was only a technical violation of the provisions of Section 269SS. The assessee had sufficiently explained the circumstances under which it was constrained to go in for cash loans. Those explanations constituted reasonable cause as construed in Section 273B.5.4 Even if it is taken that the assessee has violated the provisions of Section 269SS by accepting the loans of an amount of more than Rs. 20,000 by way of other than crossed cheque or draft, that violation was only a technical violation. We are of the opinion that there is no reason to impose penalty under Section 271D for the technical default of the assessee. This view is duly fortified by the decision of the Hon'ble Supreme Court in the case of Hindusthan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC).
5.5 The decision of Hon'ble Supreme Court in the case of CIT v.Prithipal Singh & Co. (supra) is distinguishable in facts as that refers to penalty under Section 271(1)(c). The other decisions, which pertain to the transactions between sister concerns, are also distinguishable in facts as the assessee was only a shareholder in Tensile Steel Ltd. and the said company cannot be said to be a sister concern of the assessee. However, the decision of the Bombay Bench of the Tribunal in the case of Dr. Deepak Muchala v. ITO (supra), which is relied on by the assessee, is squarely applicable to the facts of the present case. We further find that the decision of the Tribunal, Hyderabad 'A' Bench in the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd), is also clearly applicable to the facts of the case.
5.6 We further find that following decisions favour the case of the assessee: (ii) Muthoot M. George Brothers v. Asstt. CIT (1993) 47 TTJ (Coch) 434 : (1993) 46 ITD 10 (Coch); 5.7 The relevant extracts from the decision of Tribunal Ahmedabad Bench, in the case of Srinath Builders (supra) are reproduced as under: "Admittedly, there had been violation of the provisions of Sections 269SS and 269T for which penalties are provided under Sections 271D and 271B (sic-271E) unless the assessee proved that he/it was prevented by a reasonable cause and its case was covered by the provisions of Section 273B. It is clear from Circulars No. 387, dt. 6th July, 1984 and No. 345, dt. 28th June, 1982 issued by the Board that these provisions were introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering the major economic evil of proliferation of black money, etc.
It will also be worthwhile to mention that 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 27IE 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 indicate 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 with wisdom and in a just and fair manner having regard to the entire relevant facts and materials existing on records. Even if the relevant provisions of law prescribe levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within Sections 269SS and 269T. Even if the minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breach flows from a bona fide belief like in the present case. Such a view finds ample support from the judgment of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa In the instant case, it was undisputed that the genuineness of the transactions in relation to which penalties had been imposed had not been doubted by the departmental authorities. It was also true that the loans/deposits as well as repayment of loans was a result of discounting of cheques/dishonouring of cheques issued by the assessee. Both the Shroffs from, whom the cheques were discounted by the assessee or to whom the payments in cash were made on account of dishonouring of cheques issued by the assessee, were regular income-tax assessee. The discounting of cheques was made by the assessee to meet urgent business needs of making the payments to the labourers for enabling the assessee to carry on its business of working as a building contractor as the payments from the State Government which were due to the assessee were not forthcoming. In this background the contention of the assessee that violation of the provisions of Sections 269SS and 269T was an innocent mistake on its part on account of ignorance of the relevant provisions of law and it constituted a reasonable cause within the meaning of Section 273B, could not be just brushed aside. Originally a plea as to the ignorance of law can not support the breach of a statutory provision. But the fact of such an innocent mistake due to ignorance of the relevant provisions of law, coupled with the fact that the transactions in question were genuine and bona fide transactions and were undertaken during the regular Course of its business, will constitute a reasonable cause. The Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of UP (1979) 118 ITR 326 (SC) at 339 has observed that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law but that is not a correct statement. There is-no such maxim known to the law.
Therefore, since it had been held above that transactions in question were bona fide and were genuine transactions and were made during the course of the business of the assessee and there was no guilty intention or guilty mind on the part of the assessee at the time when these transactions were made, the penalties levied deserved to be cancelled." 5.8 From the above extracts, it is, inter alia, noted that CBDT's Circular No's. 387 and 345 also clarified that Section 269SS was introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering major economic evil of proliferation of black money, etc. In the instant case, such facts do not appear as it is nobody's case that the assessee was a tax, evader or it gave cooked up explanation for cash found during the course of search.
5.9 We further find that almost on identical grounds CIT(A)'s order cancelling penalty under Section 271D has been recently upheld by Bombay 'C' Bench of Tribunal vide their order dt. 16th Oct., 2001 in the case of ITO v. Bellona Infotech Ltd. in ITA No. 245 (Mum) of 2001 for asst. yr. 1998-99. The AM was a party to this order.
6. We further point out that after the case was heard on 19th July, 2001, it was noted by us that vide order-sheet entry dt. 9th April, 2001, the assessee was required to file a copy of her account in the books of account of Tensile Steel Ltd. and explain the nature of entries therein. As the learned counsel of the assessee did not file such copy of account on 19th July, 2001, the case was refixed for hearing as a part-heard case. The desired copy of account was then filed by Sh. G.S. Pikale, the learned counsel of the assessee. It is seen from the said copy of ledger account that the assessee had received two cash amounts of Rs. 35 lakhs and Rs. 6.50 lakhs on 3rd May, 1993, though two other amounts of Rs. 2.50 lakhs and Rs. 1.00 lakh were received by cheques by the assessee from Tensile Steel Ltd. on 26th April, 1993, and 11th May, 1993, respectively. When we asked the assessee as to what was the urgency to receive the impugned cash amounts on 3rd May, 1993, particularly when smaller amounts were received by cheque - one prior to 3rd May, 1993, and the other after 3rd May, 1993. It was explained by the assessee that as per order of the Appellate Authority for Industrial and Financial Reconstruction, New Delhi, Tensile Steel Ltd. was required to deposit the amount of Rs. 1 crore with the Bank of India by 15th May, 1993 and hence the time being short, the assessee (who is the daughter of promoter of Tensile Steel Ltd.) accepted the impugned amounts by cash to enable her to put the amounts quickly in her bank a/c to obtain FDRs on the security of which further loans were to be raised to advance the same to Tensile Steel Ltd. It was stated that bank a/c of Tensile Steel Ltd. was in Baroda and the assessee was located in Bombay and hence it would have taken much longer time in clearing of cheques if the impugned amounts had been obtained by cheques and hence purpose would not have been served as Tensile Steel Ltd. needed the money for making deposit as per order of AAIFR before 15th May, 1993. In this regard, the learned counsel adverted our attention to the order of AAIFR dt. 14th May, 1993 particularly to the following words: "On 16th April, 1993, the appellant was directed to put in an amount of Rs. 1 crore in a no-lien account with Bank of India subject to the final order passed by this Authority, within a period of one month." 6.1 We have considered the arguments of the learned counsel of the assessee and have also heard the learned Departmental Representative.
In view of the facts of the case as discussed above, we are satisfied that there was reasonable cause for the assessee to accept the impugned amounts by cash.
7. In the circumstances, we hold that it was not a fit case for imposition of penalty under Section 271D for violation of the provisions of Section 269SS. Accordingly, we set aside the order of the CIT(A) in relation to penalty under Section 271D and cancel the impugned penalty levied by the ACIT.I have the benefit of going through the order proposed by learned brother. After careful consideration I could not persuade myself to agree with the conclusion reached by him for the reasons mentioned below.
2. The issue in short is whether the assessee has a reasonable cause in accepting the cash loan/deposit in excess of the limit prescribed under Section 269SS of the IT Act, 1961 (in short Act). In order to appreciate the issue, it is necessary to bear in mind the following facts. The copy of ledger account of the assessee as appearing in the books of Tensile Steel Ltd. (in short company) is as under: Copy of ledger account of Miss Rupali R. Desai in the books of Tensile Steel Ltd. for the period of 1st April, 1993 to 31st Oct., 1993 It is also necessary to reproduce the relevant provisions of Section 269SS; 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 (a) together with 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); 3. It is the case of the assessee that there was an exigency to accept the two loans/deposits on 3rd May, 1993 in contravention of Section 269SS of the Act, The exigency according to the assessee is supported by the order of Appellate Authority for Industrial and Financial Reconstruction (for short AAIFR). According to the orders of AAIFR, the company was directed to submit fixed deposit in Bank of India in a no-lien account vide its order dt. 16th April, 1993. The said amount was required to be deposited within a period of one month from the date of order, i.e., on or before 16th May, 1993. Thus, the company was under an obligation to deposit an amount of Rs. 1 crore in no-lien account with Bank of India within one month from 16th April, 1993.
Though the copy of order has not been furnished before us but the facts mentioned here are gathered from the order of AAIFR, dt. 14th May, 1993, passed in the case of company in Appeal No. 29/1993. The said order Was made in pursuance of an application filed by the company before AAIFR to permit them to deposit the sum in Bank of Baroda instead of Bank of India and also sought the extension of further time of two months.
4. Plain language of Section 269SS will suggest that genuineness of transaction coupled with the fact that parties are identifiable has nothing to do with the contravention for which the penalty is leviable.
The ambit of Section 269SS is wide enough to cover genuine transactions where parties are identifiable, so long as there is no reasonable cause for accepting the cash loan/deposit.
5. There is a specific prohibition for all persons not to take or accept 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 or the aggregate amount of such loan and deposit exceeds Rs. 20,000. There are certain exceptions when these payments are made to certain persons as classified in first and second proviso to Section 269SS as reproduced above. Thus, genuine and bona fide transactions are not taken out of sweep of the section. This view is supported by following observations of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC).
"....The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of Section 40A(3) are not absolute.
Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule." 6. The learned counsel of the assessee relied on the decision of Hon'ble Supreme Court in the case of Hindusthan Steel Ltd. v. State of Orissa (supra) in support of his contention that penalty should not be levied for technical offence. The decision of Hon'ble Supreme Court is rendered under the ST Act and has no relevance to Section 269SS of the Act which is introduced in the statute with a view to check the tax evasion and proliferation of black money by accepting the loan/deposit otherwise than by account payee cheque/draft.
7. Thus, it could be seen that Section 269SS is a provision introduced in the Act to penalise an assessee for a technical offence, i.e., even in a case where parties are identifiable so long as the cash loan/deposit does not satisfy the exception provided in the section, penalty is imposable for technical offence of accepting the deposit in cash. If the decision of Hon'ble Supreme Court in the case of Hindusthan Steel Ltd. (supra) is extended to the cases pertaining to Section 269SS, I am afraid that the section itself would be rendered nugatory or otiose because Section 269SS/271D seeks to levy penalty mainly on technical offences. It may be relevant here to extract the observations of Hon'ble Supreme Court in the case of CIT v. Sun Engg.
Works (1992) 198 ITR 297 (SC): "......It is neither desirable nor permissible to pick out a word or a sentence from, the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings....." 8. As could be seen from the ledger account extracted above, the assessee has accepted the cash loan/deposit on 3rd May, 1993, though as per directions of AAIFR she had time upto 16th May, 1993. It is equally pertinent to note that the assessee had taken loan/deposit from the same party by an account payee cheque/draft, even on 11th May, 1993, which demonstrates that there was no urgency to receive the cash loan/deposit on 3rd May, 1993. This fact alone demolishes the contention of the assessee that the cash loan/deposit was accepted due to exceptional circumstances. Thus, in my considered view there was no reasonable cause for accepting the cash loan/deposit on 3rd May, 1993.
Identical view was taken by Tribunal Pune Bench in the case of Balaji Traders v. Dy. CIT (2001) 73 TTJ (Pune) 246 : (2001) 78 ITD 368 (Pune).
In the aforecited case the Pune Bench has considered the scope and ambit of Section 269SS/271D and also applicability of the decision of Hon'ble Supreme Court in the case of Hindusthan Steel Ltd. v. State of Orissa (supra) elaborately. My learned brother has laid emphasis on the statement of objects and reasons for enacting Section 269SS/271D to hold that penalty should not be levied for mere technical offence. The following observations of Hon'ble Supreme Court in the case of Govind Saran Ganga Saran v. Commr. of ST and Ors. (1985) 155 ITR 144 (SC) at p. 150, highlights that in a case where the language of statute is clear, there is no need to lay more emphasis on the statement of objects: "It is well settled that when the language of the statute is clear and admits of no ambiguity, recourse to the statement of objects and reasons for the purpose of construing a statutory provision is not permissible." 9. While intrepretirig an analogous provision i.e., Section 40A(3) the Hon'ble Supreme Court in the case of Atar Singh Gurmukh Singh v. ITO (supra) has stressed on the strict language of the section rather than objective behind legislation as could be seen from observations of their Lordships extracted in para 5 above.
10. Thus, considering the facts and circumstances of the case I am fully convinced that the assessee has accepted cash loan/deposit without proving any exigency for such acceptance, which is further reinforced by the fact that even on a later date the assessee accepted cheque/draft payment from the same party to meet the same purpose.
11. In the result, I do not find any infirmity in the order of CIT(A) in confirming penalty levied by the AO.We, having differed on the points in the above appeal filed by the assesses, refer the following points of difference to the President under Section 255(4) of the IT Act, 1961: Question No. 1: Whether on proper interpretation of Section 269SS and having regard to the legislative intention behind introduction of this section, the penalty under Section 27ID is leviable? Question No. 2: Whether on the facts of the case, the assessee was prevented by reasonable or sufficient cause from complying with the provisions of Section 269SS? This appeal came before me as a Third Member, to express my opinion on the following questions: "1. Whether on proper interpretation of Section 269SS and having regard to the legislative intention behind introduction of this section, the penalty under Section 271D is leviable? 2. Whether on the facts of the case, the assessee was prevented by reasonable or sufficient cause from complying with the provisions of Section 269SS?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. During the course of assessment proceedings, it was found by the AO that the assessee took the following cash loans from Tensile Steel Ltd. (hereinafter called TSL): 3. It was also noticed that after obtaining the above amounts in cash, the assessee had deposited the same in her bank account with Canara Bank, Khetwadi branch, Mumbai. Thereafter, the assessee had withdrawn these amounts from the bank and purchased fixed deposit receipts. After encashing the FDRs, an amount of Rs. 41,50,000 was ultimately returned to TSL by cheque. In the opinion of the AO, there was violation of provisions of Section 269SS of the IT Act, 1961 (hereinafter called the Act), as such he levied the penalty of Rs. 41,50,000 under Section 271D of the Act. The CIT(A) confirmed the penalty.
4. TSL is a public limited company registered under Companies Act, 1956. The registered office of the company is located at Hirabaug, Vishwamitri Road, Baroda. Assessee is daughter of Mr. Ramesh R. Desai, who is the chief promoter and managing director of this company. The assessee is also one of the promoters and directors of the company.
5. TSL was registered under the Sick Industrial Companies (Special Provision) Act, 1985, with the Board for Industrial and Financial Reconstruction (hereinafter, called BIFR) under Registration No. 25/87 in the year 1987. BIFR passed a winding up order on 19th March, 1993, against TSL. This order was appealed before the Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court approved the winding up. The operation of winding up was stayed upto 6th April, 1993. Against the said order, TSL filed an appeal before the Appellate Authority for Industrial and Financial Reconstruction, New Delhi (hereinafter called AAIFR) on 31st March, 1993. The said appeal was heard on 2nd April, 1993. The matter was adjourned to 16th April, 1993. On 16th April, 1993, AAIFR passed an order to deposit Rs. one crore in a no-lien account in Bank of India. It was stipulated that the matter will be heard subject to the fulfilment of this condition, otherwise winding up order will stand, 6. TSL had only one month time to deposit Rs. one crore with Bank of India in no-lien account. It was also apprehended by TSL that Bank of India may adjust the amount so deposited against their outstanding dues. Ex abundantI cautela it was decided not to deposit the amount with Bank of India but in some other nationalised bank, in the name of one of the promoter directors, who was not the guarantor to the bank's dues. As such, the name of the assessee was suggested.
7. TSL had its bank account at Baroda. It was decided that the assessee will deposit the amount with Canara Bank, Khetwadi branch, Mumbai. A new account was opened in the Canara Bank in the name of the assessee.
It was felt that if the fixed deposit receipt is obtained after depositing the Baroda cheque, it may take a longer time. There was also possibility of bouncing the cheque for some technical reasons. The fate of the company was at stake. In the eventuality of winding up, the future of 300 workers of the company was in jeopardy. There was total chaos. The father of the assessee left for New Delhi. He was trying to get the order of the AAIFR modified by filing SLP before the Hon'ble apex Court. The Hon'ble apex Court vide its order dt. 13th May, 1993 in SLP Civil No. 7393 of 1993, held as under: "The learned counsel for the petitioner states that instead of depositing 1 crore in the Bank of India, he will deposit it in the Canara Bank or any other bank as suggested by the AAIFR. We cannot look into this aspect. The petitioner may move before AAIFR. The petition is dismissed." 8. TSL filed an application on 14th May, 1993, before the AAIFR as per the direction of the Hon'ble apex Court for the modification of the order dt. 16th April, 1993, and appealed to accept the fixed deposit with Canara Bank or any other nationalised bank for the aggregate amount of Rs. one crore. It was mentioned before the AAIFR that the assessee took fixed deposits with Canara Bank and Bank of Baroda, It was pleaded that TSL had no faith in Bank of India because this bank may appropriate the amount towards its own debt instead of keeping it intact till the final scheme is formulated. This plea was not accepted but the time for deposit was extended for two weeks further.
9. On the basis of the aforesaid factual details it was contended that there existed a reasonable cause in accepting the cash deposit in excess of the limit prescribed under Section 269SS of the Act.
10. Section 269SS of the Act put an interdict against taking or accepting certain loans and deposits in cash. Testing the provisions on the touchstone of Heydon's rule, it transpires that prior to the insertion of Section 269SS of the Act, it was open to the assessee to explain the cash found in the course of searches representing loans taken from the deposits made by various persons.
11. The mischief or the defect for which the law did not provide remedy was that unaccounted income so brought into the books in the form of loans and deposits was easy to explain. Because there was no restriction on the cash deposits, it was not difficult to get confirmatory letters from such persons in support of their explanation.
12. To curb this mischief, Section 269SS of the Act was enacted, by which prohibition was laid against taking or accepting certain loans and deposits in cash. It debars 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 or the aggregate amount of such loan and deposit is Rs. 10,000 (raised to Rs. 20,000 w.e.f. 1st April, 1989) or more. The true reason for enacting Section 269SS of the Act was to counter the device of tax evasion, which enabled the taxpayers to explain away unaccounted cash or unaccounted deposits.
13. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. It is very important to keep the stream of justice clear and pure. Innocents should not suffer and recalcitrant should not go scot-free, Let justice be not a riddle and get lost in the labyrinth of procedure. Justice demands fairness.
Fairness itself is a flexible, pragmatic and relative, concept, and not a rigid, ritualistic or sophisticated abstraction. The prime object of law is to secure justice to the people. In view of this the legislature took proper safeguard under Section 273B of the Act, which enumerates the cases where penalty is not to be imposed. In such enumeration, Section 271D of the Act also finds a place. It is prescribed under Section 273B of the Act that penalty is not to be imposed on the assessee if he proves that there existed a reasonable cause for not complying with the provisions.
"Reasonable Fair, proper, just, moderate, suitable under the circumstances. Fit and appropriate to the end in view. Having the faculty of reason; rational; governed by reason; under the influence of reason; agreeable to reason. Thinking, speaking, or acting according to the dictates of reason. Not immoderate or excessive, being synonymous with rational, honest, equitable, fair, suitable, moderate, tolerable. Cass v. State 124 Tex. cR. R. 208, 61 S.W. 2d 500" 15. Reasonable cause means genuine belief based on reasonable grounds.
TSL was on the verge of winding up. The assessee was the promoter and director of TSL. Her father was the chief promoter and managing director of TSL. It was a closely-held company. The-assessee-was concerned with the revival of TSL. In the process of revival, the assessee took the cash loans from TSL. Genuineness of the loan was not doubted. The circumstances under which the loan was taken were not disputed. The assessee felt that, the delay may defeat the purpose. As such, to comply with the Court orders and to furnish the deposits as per the direction of AAIFR to TSL, the assessee took the loan. The purpose was not tax evasion. There was no animus to defile the provision of law. It was to revive a sick company in which the assessee was interested. The assessee proved the bona fide beyond the shadow of doubt. Once the bona fide is proved, what remains is only procedural default, which is of a venial nature. "De minimis non curat lex" (law takes no notice of trivialities) is the well known tenet, of law. The procedure should be the maid and not the mistress of, the legal justice.
16. Taking into consideration the entire conspectus of the case I am of the opinion that there existed a reasonable cause for accepting the cash loans. As such, the assessee may be exonerated from the rigour of Section 271D of the Act. In my opinion, the learned AM was correct in deleting the penalty. As such, I concur with his order.
17. The matter will now go before the Regular Bench for deciding the appeal in accordance with the opinion of the majority.
In view of the difference of opinion between the JM and AM, the following points were referred to the Third Member -- "Q. No. 1: Whether on proper interpretation of Section 269SS and having regard to the legislative intention behind introduction of this section, the penalty under Section 271D is leviable? Q. No. 2: Whether on the facts of the case, the assessee was prevented by reasonable or sufficient cause from complying with the provisions of Section 269SS?" 2. Shri M.K. Chaturvedi, the Hon'ble Vice President, Mumbai Zone, was nominated as a Third Member. In his order dt. 8th July, 2003, the learned Third Member concurred with the view taken by the AM and held that there existed a reasonable cause for the assessee to accept the cash loans and hence penalty under Section 271D is not leviable. In accordance with the majority view, the appeal, stands decided in favour of the assessee and the penalty levied under Section 271D stands deleted.