TMI Blog2002 (3) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. On or prior to 28-6-1999 the Assessing Officer has not recorded such satisfaction for initiation of the penalty proceedings. (3) Because on 28-10-1999, the date of initiation of penalty proceedings, no 'proceeding' was pending for the assessment year in question. (4) Because, the penalty notice for the assessment year in question is barred by time. (5) Because, the impugned order is based on the transaction and amounts for which the appellant had already been penalised vide order dated 28-6-1999. (6) Because, the penalty having been imposed for all the transactions vide order dated 28-6-1999, the respondent had no jurisdiction or authority or other legal sanction to initiate fresh penalty for the same transactions. (7) Because, during the pendency of the appeal before the Commissioner (Appeals), and during the existence of order dated 28-6-1999 the respondent had no jurisdictional authority, occasion or other legal sanction to initiate second penalty proceedings for the transactions covered by order dated 28-6-1999. 3. After discussion, we admit the additional ground of appeal raised by the assessee as they raise substantive question of law. These grounds will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. In view of the finding of the CIT(A), the Assessing Officer issued show-cause notice to the assessee as to why the penalty under section 271D may not be imposed on the amount of loan or deposits accepted by the assessee in other years. As per the Assessing Officer, the amount of loans/ deposits accepted by the assessee in violation of section 269SS in different years was as under: Assessment year 1992-93 Rs. 1,43,050 Assessment year 1993-94 Rs. 1,37,000 Assessment year 1994-95 Rs. 11,51,000 Assessment year 1995-96 Rs. 27,76,960 Assessment year 1997-98 Rs. 71,71,360 Assessment year 1998-99 Rs. 18,17,762 6. In his order, the Assessing Officer has observed that last opportunity to the assessee was given vide letter dated 28-10-1999 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 8-11-1999. The Assessing Officer also observed that a notice was also sent to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is also the subject-matter of appeal before us. 10. On receipt of the penalty orders, the assessee challenged the same before the Hon'ble Allahabad High Court. In their order dated 5-5-2000. Their Lordships observed that in the writ petition, the orders imposing penalties under section 271D/271E of the Act have been challenged. 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. 11. Though various arguments were raised before the CIT(A) in the nut shell, the following submissions were made before him :- (i) As the amount of loan/deposits accepted and repaid were accepted by Assessing Officer to be genuine, no penalty under the above section was warranted. (ii) The violation was only technical. (iii) The Assessing Officer has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keshavji Ravji Co. v. CIT [1990] 183 ITR 1 (SC) at page 9 and Orissa State Warehousing Corpn. v. CIT [1999] 237 ITR 589 (SC) at page 605. 13. Regarding quantum of penalty, the CIT(A) held that the provisions of sections 271D and 271E make it clear that the penalty will be equal to the sum, the amount has been accepted/repaid in violation of the provisions of sections 269SS and 269T of the Act. There is no minimum or maximum penalty prescribed in the section. The CIT(A), therefore, dismissed the appeal filed by the assessee for all the years other than assessment year 1996-97. The assessee is in appeal before us against the finding of the CIT(A). 14. It is argued by the Ld. counsel that the penalty proceedings are quasi-criminal in nature. No penalty was imposable unless there was an evidence to suggest that there was a deliberate attempt to violate the law. The penalty could be initiated during the pendency of any proceedings under the Act. The assessment for all the years except for the assessment year 1996-97, were completed and no proceedings for these years were pending, the Assessing Officer was not justified in imposing the same. The Ld. counsel relied on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g found in reasonable time and there was no agent to receive the notice. In the instant case, none of the two conditions were fulfilled. While relying on the cases reported in 48 STC 426 (Cal.), CIT v. Satya Narain Poddar [1973] 89 ITR 136 (All.), Kalpanath Singh Suresh Singh v. CST 1978 CTR (All.) 10, the Ld. counsel stated that there is no evidence on record to suggest that the Assessing Officer had satisfied himself about the conditions mentioned in Order 5 Rule 17 of CPC before serving the same by affixture. It was also argued that all the notices in the case of the assessee have been issued in the name of the company and not its Principal Officer. So the notice itself as well as the services thereof was invalid. 16. Ld, counsel further argued that sections 269SS and 269T were brought on the statute by Finance Act (No. 2), 1984. The scope and object of these sections was explained by the Board in its Circular No. 387 dated 6-7-1984. The reading of the objectives makes it amply clear that such a provision was brought on the statute to prevent the unaccounted income being brought in the books of account in the form of loans/deposits. In the instant case, even the department ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises. It was stated that there was no contrary decision, so the same was binding of the authority. The reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. It was also stated that even the Hon'ble Bombay Bench of the ITAT in the case of Unique Constructions 52 TTJ (Bom.) 96 has taken the same view. 19. Ld. counsel stated that the penalty imposed by the Assessing Officer was beyond the limitation period. He stated that the penalties under section 271D / 271E were governed by the provisions of section 275(1)(c) of the Act. The assessment for the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 were completed up to 19-3-1997. The penalty proceedings were initiated on 1-11-1999. The assessment order for the assessment years 1997-98 and 1998-99 was made on 26-3-1998 and 8-3-1999 respectively. The penalty order was passed on 14-12-1999. It was stated that the penalty proceedings under the above sections are deemed to have been initiated on the date of assessment order. As the penalties have not been imposed within the time prescribed under section 275(1)(c), the entire penalty sustained by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979] 118 ITR 326. He further argued that the assessment orders under section 143(3) were passed by two different Assessing Officers. None of them could catch this point when they issued notices for initiating penalties under section 271(1)(c) of the Act. It was argued that if two Assessing Officers who were senior officers of the IT Deptt. could not know the provisions as to whether there was any violation of the provisions of section 269SS/269T of the Act and assessee who was a layman in the field could not be supposed to know the law. Ld. counsel further stated that even assuming that both the Assessing Officers were aware of the violation of the provisions of section 269SS/269T of the Act, it will be presumed that they were satisfied that no penalties under the above sections was imposable as there was reasonable cause for such violation. Ld. counsel also relied on the decision in Kumari A.B. Shanti v. Asstt. Director of Inspection [1992] 197 ITR. 330 (Mad.) to the effect that the provisions of section 269SS were declared as ultra vires though subsequently the same was overruled. It was also stated that the offence committed by the assessee was venial in nature and no penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o help can be sought from the marginal note or the aims and objects set out in the statement of objects and reasons. The Legislature must be deemed to have expressed its intention through the language of its enactments." The above observation has been made on the basis of the following authorities, (1) Tara Prasad Singh v. Union of India. AIR 980 SC 1682. (2) Inaroo Ltd. v. CIT[1993] 204 ITR 312 (Bom.). (3) Subhash Ganpatrao Buty v. -44.K. Dorlikar AIR 1975 Bom. 244. 23. It has been held in the case No. (3) above that "Marginal notes to the sections of a statute and the title of its Chapters cannot take away the effect of the provisions contained in the Act ......" Even the latest judgment of the Hon'ble Supreme Court in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 reiterates the above position of law. The following observations at page 13 may kindly be noted : "Nextly, the Commission has elaborately, discussed the object of introduction of Chap. XIV-A in the Act, the history behind the introduction and schematic rationalisation of the provisions of Chap. XIX-A brought about through the Finance Act, 1987 to hold that in exercising its power under Chap. XIX-A, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer/CIT(A) were justified in holding that there was none. The generalised reasons given, viz. that it was normal in the case of the assessee to receive deposits in cash and to repay them in cash, and that Farrukhabad Distt. is rich in agriculture and the agriculturists of that area made deposits in cash do not constitute reasonable cause of not complying with the provisions of sections 269SS and 269T. Whatever might have been the mode of doing business prior to 1984, but since 1984, that mode had to be brought in conformity with the two sections mentioned above. If the assessee had any reasonable cause not to comply with the said two sections, the assessee should have stated it and proved it. No such attempt was, however, made. The non-compliance with the provisions of the aforesaid two sections has, therefore, to be held as without reasonable cause, and no fault can be found with the order of the Ld. CIT(A) for holding so. The plea of ignorance of law, based on the judgment of the Hon'ble Supreme Court in Motilal Padampat Sugar Mills Co. Ltd.'s case, in fact, is in contradiction of the first plea of the assessee. The assessee was keeping itself abreast of the case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 6, 6.1, 7 and 8 of the said order. 24. In the light of the above, it was prayed that the order of the Ld. CIT(A) may kindly be sustained. 25. Regarding additional/preliminary objections of the assessee's counsel, the revenue's counsel submitted that the language of sections 271D and 271E did not warrant the presumption made by the Ld. counsel, namely, that the penalty proceedings ought to be initiated during the course of assessment proceedings. In this connection, the attention of the Hon. Bench was drawn to the language of section 271 and section 273 and that of sections 271D and 271E. Whereas in the former, there was reference to "in the course of any proceedings under this Act" "in the course of any proceedings in connection with the regular assessment for any assessment year". There was no such reference in the language of section 271D or 271E. The said sections merely noted the failure of a person to comply with the provisions of sections 269SS and 269T as the penal event. That the said failures ought to be noted in the course of assessment proceedings of the respective years is not the requirement. In fact the said penal events are de hors the assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal...." Clause (b) refers to "a subject-matter of revision u/s 263. . . .' Clause (c) refers to 'any other case', namely, the case, where there has been neither appeal nor revision under section 263. The first part of clause (c) refers to an assessment or any other order, in the course of which initiation of penalty is required. If a penalty is independent of assessment or other proceeding, the earlier part of clause (c) would riot be applicable. To such proceedings only, the latter part of clause (c) would apply i.e., "six months from the end of the month in which action for imposition of penalty is initiated". In view of this, the entire argument developed by the Ld. counsel on the logic of concurrent running of the two periods, may be for one (lay, breaks down. This legal position came to be discussed at length by the Hon. Jaipur Bench of the ITAT in the case of Manohar Lal v. Dy. CIT [1995] that case the Assessing Officer had initiated penalty proceedings under sections 271D and 271E on 26-5-1992; assessment was completed on 26-6-1992 and the penalty orders were passed on 24-8-1993. The assessment order was appealed against in that case. On these facts, the Hon'ble Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no legal flaw in the initiation nor any delay. 28. In respect of assessment, years 1992-93 and 1994-95, assessments were, undoubtedly, made under section 143(3). The Assessing Officer omitted to initiate proceedings under sections 271D and 271E even though he had initiated proceedings under section 271(1)(c). For this omission, however, it is not legally possible to infer that the Assessing Officer had applied his mind and then he did not initiate the proceedings. It was not optional to him to ignore the violation of sections 269SS and 269T. In any case, there is nothing on record to suggest any application of mind in this regard. Admittedly, the assessee had not shown any reasonable cause, and if that was shown there could be no occasion not to initiate penalty proceedings under sections 271D and 271E. The plea of the assessee is not tenable, as it is based on bald presumption and assumption. 29. There was no delay either in regard to these years. There is no time frame for the initiation of the proceedings under sections 271D and 271E. The issue has to be determined on the facts and circumstances of case. In the present case, the violations of sections 269SS and 269T came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Courthouse and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business, or personally worked for gain ... as the court thinks fit." 33. The factual background in which the Assessing Officer was satisfied that the assessee was keeping out of the way to avoid service were brought to the kind attention of the Hon. Bench and the same are recounted as follows :- (1) Company's licence to carry on finance business was cancelled by RBI in May 1999. (2) Thereafter, the depositors ransacked the office premises. (3) FIR's were filed with the Police. (4) The notices of demand and orders under sections 271D and 271E for assessment year 1996-97 had to be served by affixture on 30-6-1999 as the office was found locked and the assessee had left without giving address. 34. In view of this background, the Assessing Officer was satisfied that the service of the notice in the normal course might not be possible. He, therefore, made the order to serve by affixture in terms of Rule 20 of orders of CPC. This was entirely in accordance with law and it is not correct to say that the notice was not served on the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 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 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:" "269T(1) No company (includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pting 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 to 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." 40. Keeping the above circular in view, the Hyderabad Bench of the ITAT in case of Industrial Enterprises v. Dy. CIT[2000] 73 ITD 252 in paragraph 17.2 of its order held as under: "Provision 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 Chap. XX-B of the Income-tax 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 befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 to frutility. Hon'ble Supreme Court in the case of VO Tractor Export v. Tarapore Co. AIR 1970 (SC) 1168 observed as under : "A statute not be construed as a therein of Euclid but the statute must be construed with some imagination of the purpose which lies behind the statute. The doctrine of literal interpretation is not always the best method for ascertaining the intention of Parliament. The better rule of interpretation is that a statute should be so construed as to prevent the mischief and advance the remedy according to the true intent of the makers of statute. VO. Tractor Fxport v. Taropore Co. [1969] 3 SCC 562, 586:(1969) 2 SCR 699: AIR 1970 SC 1168." 43. In the case of Mahadeo Lal Kanodia v. Administrator General AIR 1960 SC 936, the Hon'ble Supreme Court further observed as under : "The intention of the Legislature has always to be gathered from the words used by it giving to the words their plain, normal, grammatical meaning. However, if the strict grammatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly. Moreover, the Madras High Court itself has given different judgments in this matter. The Gujarat and Kerala High Courts have upheld the constitutional validity of this provision. Hence, we have no other alternative but to dismiss this ground of the assessee." 48. Regarding Ld. 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.,. At page 496 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 I 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 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as I am not prepared to agree with that contention of the Ld. counsel for the appellant, I hold that the appeals are liable to be dismissed. 51. Though the judgment of Hon'ble Andhra Pradesh High Court was in the context of 276DD, the proposition of law therein was the same which is before us. No contradictory judgment is brought to our notice. Thus, we have no alternative but to hold that once the discretion was with the court either to impose fine or to dispense with the imposition of fine, when such discretion is there with regard to the imposition of fine itself, it cannot be said that the court has no discretion with regard to the quantum of penalty. 52. We find that the Ld. counsel of the assessee has challenged the imposition/sustenance of the penalties on the ground of being barred by limitation. Admittedly, the time for limit for imposition of penalties of this nature is prescribed under section 275(1)(c) of the Act. Clauses (a) and (b) of section 275(1) are not applicable in the instant case. Clause (c) provides the following time limit for imposition of penalties : (i) Within the financial year in which the proceedings in the course of which action for impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 31-3-1999 i.e., end of the financial year in which the penalty proceedings were initiated or by 30-6-1999 i.e., 6 months from the end of the months in which penalty proceedings were initiated. As the later period expired on 30-6-1999, the penalty could have been imposed by 30-6-1999 only. 54. Similar facts were before the Hyderabad Bench of the ITAT in the case of Dillu Cine Enterprises (P.) Ltd. At page 496 of the report, the Tribunal observed as under: "Moreover, initiation of penalty can be done only once and that too during the course of assessment proceedings. We hold that the penalty has been initiated by the Assessing Officer on 21-3-1997 when he had issued a notice for levy of penalty. The argument of the Ld. D.R. that the Addl. Commissioner had initiated the penalty proceedings on 1-12-1997 is not correct, as the term "initiation" means, "begin" or "set going" and can be done only once. You cannot initiate proceedings again and again and such act can only be termed as re-initiation. We hold that the "initiation" can be done only once and reinitiation is not contemplated anywhere in the Act.' 55. Thus, the penalties imposed in those cases which were imposed in De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambit of this section. Regarding claim that the assessee was not aware of the provisions of section 269SS/269T, the Tribunal observed that whether the assessee was aware of the provisions or not was a question of fact which could be decided on the basis of material placed on record. Needless to say that while considering the claim of the assessee to the effect that they had bona fide belief that no violation has taken place, we have held that the assessee was not aware of the provisions of law. These observations were made by us on the basis of record. We also find that the Mumbai Bench of the ITAT in the case of Karnataka Ginning Pressing Factory v. Jt. CIT [2001] 77 ITD 478 at 486 has observed as under: "As regards the genuineness of the borrowing in the present case, there does not appear to be any doubt. The income-tax authorities have raised no doubt about the genuineness as is clear from the fact that no addition of the amounts received from VE has been made by invoking section 68 of the Act. Apparently, the Assessing Officer was satisfied with the assessee's explanation regarding the nature and source of the amount. Thus, the transaction between the assessee and VE did ..... X X X X Extracts X X X X X X X X Extracts X X X X
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