TMI Blog1999 (5) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... y the CIT(A) in quantum, is quite arbitrary and unjust. Both sides are aggrieved. Therefore, the Revenue filed its two appeals in the context of penalties under section 271D and section 271E respectively. So also, the assessee has filed its two appeals on the very same issues. It is how these four appeals have come up for hearing before this Tribunal. 2. The facts of the cases are briefly stated below--The assessee is a firm consisting of three partners. The firm is engaged in the manufacture and sale of bricks. It carries on its activities at the Industrial Development Area, Ramagundam. The assessee is a small scale industrial unit. It commenced its business activities with effect from 16-9-1991. The assessee filed its first return of income for the assessment year 1992-93 on 28-8-92. It declared an income of Rs. 7,470. The Assessing Officer made an agreed addition of Rs. 20,000 towards inadmissible and unvouched expenditure and determined the total income at Rs. 27,470. The assessment was completed under section 143(3) vide the proceedings of the ITO Ward- 1, Karimnagar, dated 8-12-1993. 3. Later on, it was seen from the assessment records pertaining to the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an amount more than Rs. 10,000 in each case. It was therefore, found that the assessee has violated the provisions of the Act contained in section 269SS and section 269T respectively. Accordingly, show-cause notices were issued to the assessee-firm asking it to show cause why penalties should not be imposed under sections 271D and 271E for failure in complying with the provisions of section 269SS and 269T respectively. 5. The assessee firm submitted before the Dy. Commissioner that during the relevant time, assessee's project was under construction, that the loans sanctioned by financial institutions and banks were not released at that time, that the assessee was hard pressed for funds to complete the project, that therefore, the assessee had to approach their friends and well wishers for hand loans whenever emergency arises; that those persons are not business people having regular bank dealings so as to transact through cheques and drafts; that after the commencement of commercial activities and the release of approved loans by banks and financial institutions, the assessee has made part payments and that therefore, the assessee was constrained to take and repay loans by cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Gujarat High Court has held in Sukhdev Rathi v. Union of India [1995] 211 ITR 157 [1994] 77 Taxman 7 that the qualification made in section 269SS is based on intelligible differentia and therefore, it cannot be said to be violative of the Constitution of India. 8. On the merits of the case, the learned CIT(A) held that assessee-firm has violated the legal provisions contained in sections 269SS and 269T not because of any ignorance of law, but for 'intentional' negligence. Therefore, the CIT(A) held that the assessee-firm was answerable to the violations of provisions contained in sections 269SS and 269T. 9. But the learned Commissioner (Appeals) found that as far as the initial amount of loans taken by the assessee from the aforesaid four different persons are concerned, there was no violation of section 269SS, because on those occasions, the loans taken by the assessee were for amounts less than Rs. 20,000 each prescribed under section 269SS. The learned Commissioner found that Rs. 10,000 each taken from the four persons totalling to Rs. 40,000 as loans have not violated the provisions of section 269SS. Therefore, he found that this amount of Rs. 40,000 did not come unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties have erred in observing that the transactions were in the nature of deposits and they are covered by the provisions of section 269T. 14. We heard Shri Sai Prasad Sastry, the learned Departmental Representative for the Revenue and Shri S. Rama Rao, the learned counsel for the assessee. We heard both sides in detail and considered the elaborate arguments advanced before us. 15. First of all, we will consider the penalty imposed under section 271D for the violation of section 269SS of the Income-tax Act, 1961. On a reading of the facts of the case, it is evident that the assessee-firm had taken loans from four different persons in violation of the provisions contained in section 269SS. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the CIT(A) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with stringent punishment of heavy penalty. 18. All these simple facts of this case bring out a formidable finding that even if the assessee-firm has violated the provisions of section 269SS by accepting loans for an amount of more than Rs. 20,000 by way of other than crossed cheque or draft, that violation is only a technical violation. The assessee was prevented by reasonable cause from complying with the provisions of section 269SS. The genuine hardships faced by the assessee in meeting the financial needs in the construction of the factory might not have been mitigated by taking the loans in question only through the modes permitted in section 269SS. The compelling circumstances in which the assessee was constrained to violate the provisions of section 269SS, which cannot be termed as intentional, have not in anyway defeated or tend to defeat the objectives of incorporation of section 269SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and consequently the impugned penalty under section 271E cannot be sustained. 22. The learned Departmental Representative on the other hand argued that the terms 'loans' and 'deposits' are used synonymously or interchangeably and even though the provisions of sections 269T and 271E have specified the term 'deposits' only, those provisions apply even to the repayment of loans, and the assessee was obliged to comply with the provisions of section 269T while repaying loans as well. 23. We considered this matter in detail. Section 269SS stipulates that no person shall take or accept any 'loan or deposit...for an amount of Rs. 20,000 or more otherwise than by way of account payee cheque or draft...' and section 271D, which is the penalty provision for the violation of section 269SS also speaks of a person taking or accepting 'loan or deposit' in contravention of section 269SS; whereas the provisions of section 269T speak only about the repayment of 'deposit' and nothing is mentioned therein about the repayment of 'loan'. The penal provisions of section 271E for violation of provisions of section 269T also speak of repayment of 'deposit' alone and have omitted the word 'loan'. A pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retched to extend to the scheme of section 269T as well, ignoring the conspicuous absence of the term 'loan' in the provisions of section 269T. The difference between the provisions, of these two sections is not confined to the missing term of 'loan' alone. While section 269SS begins with "No person shall, after the 30th day of June, 1984 take or accept from any other person...", section 269T begins with "No company (including a banking company) co-operative society or firm shall repay to any person..." The amounts prescribed for the coverage these two sections are also different. Therefore, we accept the of contention of the assessee that the provisions of section 269T are not applicable to the repayment of loans. 25. In the instant case what the assessee has done was the repayment of loans and not deposits. Therefore, the repayment of these loans by way of cash is not hit by the provisions of section 269T. Accordingly, we find that there is no case to invoke the penal provisions of section 271E. On this legal ground, we find that the imposition of penalty under section 271E will not stand. 26. Even otherwise, assessee has explained the circumstances in which it was constraine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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