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Issues involved: Challenge to the validity of section 269SS of the Income-tax Act, 1961 on the grounds of being violative of articles 14 and 19(1)(g) of the Constitution and quashing of penalty order dated January 28, 1993.
Judgment Summary: The petitioner, a businessman and taxpayer, was issued a show-cause notice by the Assessing Officer regarding five deposits of Rs. 20,000 each, contravening section 269SS of the Income-tax Act, 1961, leading to a penalty imposition. The petitioner challenged the validity of section 269SS, citing violation of constitutional articles and seeking to quash the penalty order. The petitioner contended that section 269SS unfairly places the burden on borrowers, not lenders, in loan or deposit transactions, leading to discrimination. However, the court found that the provision was inserted to counter tax evasion through unaccounted cash and deposits, with the objective of regulating loan and deposit transactions to prevent tax evasion practices. The court disagreed with the Madras High Court's view that section 269SS was discriminatory, stating that borrowers, by evading tax through false means, were distinct from lenders in the context of tax evasion. The classification made by the Legislature was deemed rational and not violative of article 14 of the Constitution. Section 269SS was upheld as a preventive measure against tax evasion, with safeguards in place to prevent arbitrary action. The court dismissed the petitioner's contentions, ruling that the provision was reasonable and enacted in the interest of public revenue. The petition was thus dismissed, and the rule discharged with no order as to costs.
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