2000 (1) TMI 155 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271D for violation of provisions of s. 269SS.
2. Nature of transactions: Whether they constitute loans or deposits.
3. Bona fide belief and reasonable cause for accepting funds in cash.

Summary:

1. Levy of Penalty u/s 271D:
The assessee appealed against the CIT(A)'s order confirming the levy of penalty u/s 271D amounting to Rs. 79,78,368 and Rs. 1,98,55,171 for the assessment years 1992-93 and 1993-94, respectively. The penalty was imposed for violating the provisions of s. 269SS, which prohibits accepting loans or deposits in cash exceeding a specified limit.

2. Nature of Transactions:
The appellant company was setting up a mini cement plant, and its promoter-director, Mr. R.P. Goyal, brought his own money in cash for the project work pending the disbursement of a sanctioned loan. The AO observed unsecured loans from Mr. Goyal in the company's balance sheet, leading to the initiation of penalty proceedings u/s 271D. The appellant argued that the money brought by Mr. Goyal was neither a loan nor a deposit but was directly spent on the project work. The Tribunal agreed, stating that the transactions were unilateral acts by Mr. Goyal to meet immediate construction needs and were not loans or deposits as defined by law. The Tribunal referenced s. 69 of the Indian Contract Act, 1872, which deals with situations resembling contracts but not actual contracts, to support this view.

3. Bona Fide Belief and Reasonable Cause:
The appellant contended that the transactions were genuine and undertaken out of a bona fide belief and ignorance of the law. The Tribunal noted that the transactions were not impeached as non-genuine or bogus in the assessments. The Tribunal concluded that the provisions of s. 269SS were not attracted in this case due to the nature of the transactions. Even if they were, the appellant's bona fide belief and the genuineness of the transactions constituted a reasonable cause, justifying the cancellation of the penalties.

Conclusion:
The Tribunal canceled the penalties levied u/s 271D, allowing the appeals in favor of the assessee.