TMI Blog2005 (1) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... vant assessment year and that too when no assessment proceedings were pending before the learned AO. 2. That the learned authorities below have not properly appreciated the purpose, aims and objects of inserting Section 269SS as clarified by the CBDT in its Circular 387, dt. 6th July, 1984, according to which these provisions were brought to curb the tendency of tax evaders to prove the unaccounted money found in search, loans. 3. That the learned authorities have not properly appreciated that the transaction is neither a loan nor a deposit as the trustee is giver of amount and individual and he is also the receiver of amount as trustee of the trust for making payment of land to farmers and to meet urgent needs for material used in construction 4. That the default, if any, is of technical and venial nature as the genuineness and availability of cash given by the trustee to trust to meet urgent needs has not been doubted. 5. That the appellant craves leave to add, amend, alter or withdraw any ground of appeal. 3. The parties were heard first with respect to the request for raising additional grounds and since the learned Departmental Representative did not raise any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law. In support of these submissions, the learned Counsel relied upon the decision of Tribunal, Cochin Bench in the case of Noble Pictures v. Jt. CIT (Coch)(AT). 5. The next argument advanced by the learned Counsel for the appellant was that the intention of legislature while enacting the provisions of Sections 269SS, 269T, 27ID and 27IE was, as have been explained, in Circular No. 387, dt. 6th July, 1984, to curb the transactions of black money for explaining the genuineness of cash found during the time of search or otherwise--meaning thereby, that, if the transaction in question does not involve the black money rather is found to be genuine then there is no violation of Section 269SS or 269T, as the case may be and consequently, there is no justification for making penalty under Section 271D or 271E of the Act, as the case may be. Reverting to the present case, the counsel for the assessee submitted that since the Revenue has accepted the transaction as genuine, there was no involvement of black money and consequently, this is not a fit case where penalty under Section 271D may be imposed. In support of this submission, reliance was placed on the decision of Tribunal, Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainable. With regard to the assessee's submission that the transaction being genuine, no penalty was leviable, the learned Departmental Representative submitted that there is no such prohibition under the law. Only requirement is that of receipt of amount exceeding ₹ 20,000 in cash and once this requirement is satisfied, penalty under Section 271D is leviable. The learned Departmental Representative further submitted that when the amount was received by the assessee, it was not known as to who has paid because it was only when Mr. Y.K. Gupta had disclosed the amount under VDIS Scheme that it came to be known that it was Mr. Y.K. Gupta, who had given the amount. Closing his averments, the learned Departmental Representative supported the order of the CIT(A). 10. We have considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the counsel for the assessee. 11. The brief facts, as have been revealed from the records, are that - (i) The appellant is a public charitable trust, which has set up and established an engineering and management college in Farah, District Mathura in affiliation with Uttar Pradesh Technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances or land payments and this is a usual practice in all rural land deals. (vi) The amount paid by Shri Y.K. Gupta to the trust on this account being in cash was declared by him in voluntary disclosure scheme and income-tax due thereon was paid by him. No interest was charged on the amounts paid by Shri Y.K. Gupta and credited in the books of unsecured loans as the intention of the managing trustee was to assist the trust in its objective of setting up an engineering and management college in periphery of Agra. There was no tax evasion in the entire transaction. (vii) The Addl. CIT Range-I, Agra issued a show-cause notice under Section 271D of the Act on 12th June, 2003, proposing to impose penalty under Section 271D of the Act for assessee's default in accepting the loan during the period relevant to asst. yr. 1996-97. The assessee submitted that the amount in question having been received from the trustee, it was neither loan nor deposit. Another submission made was that since the assessee had purchased land for starting college, the farmers were pressing hard for the payment in cash and they had no bank accounts. It was in view of these facts that the assessee acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in Form No. 52A, containing the particulars of all payments of over five thousand rupees in the aggregate made by it or due from it as the assessee was engaged in the production of films. The said statement was to be filed within 30 days of completion of the production. The first film was released on 28th Sept., 1989 and the second one released on 22nd March, 1991. Hence, the statement was due on or before 28th Oct., 1989 and 21st April, 1991, respectively. However, the assessee did not comply with the above requirement. The AO held that the failure on the part of the assessee to file the said statements within the prescribed time attracts penalty under Clause (c) of Sub-section (2) of Section 272A of the Act. Accordingly, notice under Section 274(1) read with Section 272A of the Act, on 14th July, 1999 for both the assessment years in question, calling the assessee to appear before the AO on 27th July, 1999, so as to explain why penalty could not be imposed. The assessee did not reply. Second notice was issued on 27th Oct., 1999, calling the assessee to state its reply on or before 15th Nov., 1999. The assessee did not respond again. According to the AO various notices issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any discrepancy or irregularity, it was possible that Form No. 52A might have got misplaced/lost after completing the assessment proceedings. Similar is the case for the asst. yr. 1991-92. The first appellate authority already dismissed the assessee's appeal vide para 4 of his order observing as under: On a consideration of the facts of the case, it is noticed that the AO has imposed the penalty as Form No. 52A was not on record, either for the asst. yr. 1990-91 or for the asst. yr. 1991-92. During the course of the appellate proceedings, the Authorised Representative of the appellant was required to give evidence in regard to the claim that Form No. 52A was actually filed. However, he expressed his inability to give any direct evidence of having filed Form No. 52A with the IT authorities at Aluva or Trichur. Since the appellant has been insisting on having filed Form No. 52A with the IT authorities, no explanation was offered at the time of hearing in regard to non-filing of Form No. 52A at all. Under the circumstances, the AO was justified in levying penalty under Section 272A(2)(c) of the IT Act. (ii)(b). It was in view of the above facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for penalty must be initiated in the course of the assessment proceedings. It is not enough that the ITO is satisfied in the course of the assessment proceedings that a case for penalty exists, it is further necessary that he should have initiated some action for the imposition of penalty in the course of such proceedings. It depends on the facts of each case whether any such action has been initiated before the date of completion of the assessment. If, even before the completion of the assessment, the ITO has issued a penalty notice, it is clear that he has taken necessary action for the imposition of penalty. This condition can also be said to be satisfied where, though a penalty notice has not been issued before that date, it is seen that the officer had given a direction to his office before completing the assessment that such a notice should be issued. Similarly, in cases governed by Section 274(2) (which has been deleted w.e.f. 1st April, 1976), action could be considered to have been initiated if the officer had made a reference to the IAC under that provision though the IAC might apply his mind and issue a further notice to the assessee only long thereafter. But some defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribes time-limit for imposing penalty is applicable to Chapter XXI given under the head Penalties imposable . Section 272A falls within this Chapter. Section 275(1)(c) stipulates that no order imposing penalty under this Chapter (Chapter XXI) shall be passed in any other case after the expiry of the financial year in which the proceedings in the course of which action for the imposition of penalty has been initiated are completed or six months from the end of the month in which action for imposition of penalty is initiated. In the instant case of the assessee, it was neither completed before 31st March, 1993, nor even initiated before the six months contemplated by the second limb of the provision, i.e., 31st Aug., 1993. It was initiated in the year 1999. First of all there should be a reasonable time within which penalty proceedings is to be initiated or to be completed. Even if a time is not prescribed under the law, the penalty cannot hang on the head of an assessee as a sword of Damocles indefinitely. It is true that there is no equity in tax. But there cannot be injustice. The penalty proceedings are like criminal proceedings, though on a different footing. It may be impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposable on those amounts of loans or deposits which were accepted in the previous year relevant to the asst. yr. 1996-97, in violation of the provisions of Section 269SS. He, therefore, restricted the penalty under Section 271D to ₹ 64,62,489 for asst. yr. 1996-97. The findings of the CIT(A) were accepted by the Revenue and no second appeal was preferred before us. In view of the finding of the CIT(A), the AO issued show-cause notice to the assessee as to why the penalty under Section 271D may not be imposed on the amount of loans or deposits accepted by the assessee in other years. As per the AO, the amount of loans/deposits accepted by the assessee in violation of Section 269SS in different years was as under : Asst. yr. Amount 1992-93 1,43,050 1993-94 1,37,000 1994-95 11,51,000 1995-96 27,76,960 1997-98 71,71,360 1998-99 18,17,762 6. In his order, the AO has observed that last opportunity to the assessee was given vide letter dt. 28th Oct.,1999, as to why the penalty under Section 271D may not be imposed for accepting loans/deposits in violation of the provisions of Section 269SS for abovementioned years. The hearing was fixed on 8th Nov., 1999. The AO also observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged. The Hon'ble Court observed that as the petitioner had alternate remedy of filing the appeal under the IT Act, the petitioner may file appeal within 3 weeks from the date of their orders. Their Lordships also observed that the appeals shall be decided by the appellate authority preferably within two months from the date of filing the appeal in accordance with law. The assessee, therefore, preferred appeal before the CIT(A) in respect of the amount and the assessment years mentioned earlier. (iii)(b). It was in view of the above facts and circumstances that the Hon'ble Tribunal deleted the penalty after observing as under : 38. We have considered the rival submissions. The assessee is a non-banking financial company whose business was accepting loans and deposits and investing the same. As certain loans/deposits were accepted and repaid in cash exceeding certain limit, the penalties under Sections 271D and 271E were sustained by the CIT(A). The provisions of Sections 269SS and 269T read as under : '269SS, No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deposits made by various persons. Unaccounted income is also brought, into the books of account in the form of such loans and deposits and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the 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 the aggregate amount of such loan and deposit is ₹ 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 ₹ 10,000 or more. The proposed prohibition would also apply to cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the headings prefixed to sections or set of sections in some modern statutes are regarded as 'preambles' to those sections. This view was approved by Farewel L.J. Fletcher v. Birkenhead Corporation (1907) 1 KB 205.' 42. A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the intentions of its maker. A statute is to be construed according to the intent of them who make it. Our observations find support from the decision of the Hon'ble Supreme Court in Vishnu Pratap Sugar Works (P) Ltd. v. Chief Inspector of Stamps AIR 1968 SC 102. The legislation in a modern state is actuated with some policy to curb some evils or to some public benefits. A bare mechanical interpretation of the words without application of a legitimate intend, devoid of any concept of purpose will reduce most of the remedial and beneficial legislation of frutility. Hon'ble Supreme Court in the case of VO Tractor Export v. Tarapore Co. observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. We may mention here that even there is no suggestion from the Revenue that by way of accepting loans and deposits in cash, the assessee has introduced its unaccounted cash in the garb of loans. 48. Regarding learned Counsel's arguments that the time-limit for imposition of penalty was governed by the provisions of Section 275(1)(c), we find force in it. This issue was adjudicated by Hyderabad Bench of the Tribunal in the case of Dillu Cine Enterprises (P) Ltd. (supra). At p. 495 of the report, the Bench held as under : 'To our mind, the intent of the legislature is to give more time to such cases falling in Category 1 only, i.e., where penalty is related to quantum of additions to income. Otherwise, we see no reason why Sub-clause (c) to Section 275(1) is required to be part of the Statute. Category III covers all cases not covered by Category I and Category II. This penalty under Section 271DD has nothing to do whatsoever with the quantum appeal, assessment year, previous year, etc. We are supported by the decision of the Cochin Bench of the Tribunal supra, in this regard. Hence, we hold that penalty under Section 271D for violation of Section 269SS are go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal cancelled the penalty after observing as under : We have carefully gone through the facts of the case, arguments advanced and written submissions and case laws relied upon. At the outset, we may mention that it has been argued by both the parties that true character/nature of transactions should be determined without being influenced by manner of entries passed in the books of account or, the method of accounting or disclosure made in balance sheet. We agree with this contention put forth by both the parties, and, therefore, we would like to first determine the nature of transactions in the present case in respect of which the penalties under Section 271D have been levied. Admittedly, Mr. R.P. Goyal, the chairman-cum-managing director, was the promoter-director of the appellant-company, who supervised entire project of the company and who remained actively engaged in looking after the construction and other activities of the company. It is equally undisputed that it was he who managed and arranged resources for the construction activity during the period when company was awaiting disbursement from financial institutions. Mr. R.P. Goyal provided financial assistance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t back when the loans are disbursed to the company. In other words, it is a case where agent utilized his own money in order to fulfil his obligations towards the principal upon which he became entitled to get back the money. This is thus a unilateral transaction on the part of Mr. Goyal to involve and utilize his own money by withdrawing it from his own sources. An unilateral act cannot result in a contract for which existence of two parties is a sine qua non. Whether loan or deposit they both are contracts only, originated from bilateral act. We are impressed by the reference of Section 69 of the Indian Contract Act, 1872, which, helps on understanding the true character of these transactions. Section 69 of said Act falling within Chapter V thereof reads as follows : 'Chapter V of certain relations resembling those created by contract.... Section 69 : A person who is interested in the payment of money which he is bound by law to pay and who, therefore, pays it, is entitled to be reimbursed by the other.' The transactions under consideration are evidently of the nature referred to in Section 69 of the Indian Contract Act, 1872. The company was bound to pay for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, all other allegations and arguments become irrelevant to the context since the provisions of Section 269SS are not attracted in the facts of the present case. (v) Mohan Karkare v. Dy. CIT (supra) : (v)(a). The facts in this case were that on 10th Jan., 1989, the assessee had obtained a sum of ₹ 40,000 and on 11th Jan., 1989, another sum of ₹ 30,000 both amounts in cash; from his father to purchase a matador from Bajaj Auto Ltd. Poona. In the assessment proceedings, the transaction was accepted as genuine, but penalty proceedings under Section 271D of the Act were initiated. (v)(b). In the penalty proceedings, the assessee had pleaded another line that the amount was received in cash on account of exigencies because the last date for concessional purchase of matador in Gwalior fair was 14th Jan., 1989 and the assessee was availing that benefit. The assessee had filed an affidavit of his father stating that the amount was given by him to his son for purchase of matador and was directly deposited in the bank account instead of handing over it to the son. The AO did not accept assessee's explanation and imposed penalty under Section 271D of the Act. (v)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tt. CIT (1994) 50 TTJ (Adh) 130 and Mohamad Ali v. Karji Koudho Rayaguru AIR 1945 Pat 286. The Departmental Representative invited our attention to the provisions of Sections 188 and 189, of the IT Act to submit that a specific mention has been made in the Act where the firm and the partners are treated as separate entities. As far as Section 269SS is concerned, the firm and partners are separate entities for the purposes of income-tax and for the purposes of application of the provisions of the IT Act. He invited our attention to the decisions CIT v. A. W. Figgies Co. and Ors., Chief Controlling Revenue Authority v. Manohar Lal Dudeja (FB) Narayandas Kedarnath v. CIT and CIT v. R. Rangaswamy Naidu. The assessee's counsel in reply submitted that Section 188A has been specifically brought into existence to clarify what has already been taken for granted in general law. He invited our attention to Section 48 of the Partnership Act. We are of the opinion that in view of the Departmental Circular No. 387 , dt. 6th July, 1984, this provision was brought in to cover those situations where unaccounted cash found in the course of search or was even explained by the taxpayers as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. It has been held that the provisions of the IT Act go to show that the technical view of the nature of a partnership, under English Law or Indian Law, cannot be taken in applying the law of income-tax. Therefore only for the purpose of making an assessment that the IT Act has made distinction between the firm and the partners. In general law, they continue to be one and the same. Therefore, the decision of the Hon'ble Supreme Court also does not help the Department. Reliance of the Department on the decision of the Madras High Court in the case of R. Rangaswamy Naidu (supra) is also not helpful. The Hon'ble Madras High Court have held that under the IT law, the position is different from general law and the firm and the partners are distinct assessable entities. The law has for some specific purposes relaxed its general rigid notions and extended a limited personality to a firm. Therefore, the Hon'ble Madras High Court has only stated that the firm and the partners are distinct assessable entities, but it has nowhere said that the firm is not a separate legal entity. The Hon'ble Gujrat High Court in the case of Madhukant M. Mehta (supra) had also held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises (P) Ltd. v. Addl. CIT (supra) (vii)(a). The brief facts in this case and as have been revealed from the records, were as under : The facts as gathered from the record are as follows. The assessee is a domestic company in which public are not substantially interested. The assessee derives income from two cinema theatres and a shopping complex. The assessee-company has been managed by three directors, one of whom has since expired. All the three directors had personal accounts in the form of current account in the books of the assessee-company. Mr. P.K. Swamy, one of the directors was actively looking after the affairs of the assessee-company. Whenever the assessee-company was in requirement of funds, Mr. P.K. Swamy, brought in the funds from his personal account and was also withdrawing this money as and when he required the same. So, money was both taken by him and given back to him. During the previous year relevant to the assessment year in question, the director Mr. P.K. Swamy had given a total amount of ₹ 12,63,500, to the company, other than by way of account payee cheque or bank draft. The assessee-company claimed that Mr. P.K. Swamy, directly deposited th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (Hyd), held in para 17 of its order, as follows : 'Provisions of S. 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B of the IT Act, 1961 which reads requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax . Legislative intention in bringing Section 269SS in the IT Act was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the 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.' We find force in the argument of the learned Counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and firm . The legislature was not referring to confirmatory letters produced to explain unaccounted money found during search operations from spouse in case of individual or director in case of company or partner in case of firm : The term any other person in the context of introduction of this section as appears to us means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operation under Section 132, all these persons are invariably searched together. The legislature was intending to curb tax evasion in a search situation and referred to confirmatory letters produced in such situations to counter cash found . The term various persons and such persons is to be understood only in relation to search situation as the section itself was introduced to meet such situations only. The learned Counsel argued that it is unthinkable that the Department would search a husband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are 'not substantially interested or partner and firm. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Patiram Jain (supra) held that : It has also been accepted by the respondents that the transactions made between the two sister-concerns were under exceptional circumstances to accommodate the emergency needs of the sister-concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under Section 269SS of the IT Act. Therefore, the proceedings initiated under Sections 276DD and 276E of the IT Act were against the provisions of law. (vii)(c)(iv). The Cochin Bench of the Tribunal in Muthoot M. George Bankers' case (supra) held as under : Against this background, we examine the transactions between the sister-concerns and the assessee. There are transfer of funds from and to the sister-concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister-concerns and the assessee are owned by the same family group of people with a common managing partner with centralized accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the amount received from VE can be characterised as loans or deposits. In our view, they can be more appropriately referred to as temporary advances. Such temporary advances are outside the purview of Section 269SS. Thus, in our considered opinion and in view of the various judicial pronouncements on this matter, we hold that the transaction of this case on hand cannot be considered as loan so as to attract Section 269SS and Section 271D of the Act. [Para 6(h)] We are also of the considered opinion that the transaction can be attributable to various exigencies and vicissitudes of business and thus constitutes a reasonable cause as contemplated by Section 273B of the Act, as the company had issued certain cheques and as they were coming up for encashment. The active director of the company considered it expedient to deposit cash in the bank account of the company to save the situation. The expression reasonable cause has to be considered pragmatically and as it is an open transaction done, to meet exigencies of business, it can be said to constitute reasonable cause . Penalty provisions have been held by the Hon'ble Supreme Court of India, as penal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case, provisions of Section 275(1)(c) of the Act and aforesaid various decisions and the Circular No. 387 relied upon by the counsel for the assessee and the fact that the learned Departmental Representative has not brought any decision contrary to various decisions relied upon by the counsel for the assessee, to our notice at the time of hearing, we are of the opinion that the assessee is to succeed on all counts such as: (i). In the present case, it is an admitted fact that neither the assessee had furnished any return for the asst. yr. 1996-97, nor any assessment was made nor any proceedings under the IT Act relating to the assessee was pending before the IT Authorities on 12th June, 2003, or later on, till the date of levy of penalty under Section 271D, i.e., on 12th June, 2003, when the proceedings were initiated or on 11th Dec., 2003, when the penalty order was passed and therefore, the penalty proceedings having not been initiated during the course of any proceedings, the same were illegal and bad in law. It is also an admitted fact that the penalty proceedings in question were initiated after a lapse of a period of more than seven years. Consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X
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