TMI Blog2004 (6) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... el room, where the assessee was staying at that time. During the course of survey, the ADIT (Inv.) found and impounded personal diaries and loose sheets maintained by the assessee. During the course of assessment proceedings these loose sheets and personal diaries were tabulated and confronted to the assessee and the assessee vide his letter dated 25-3-1999 admitted that the entire unexplained income from seized records to be taxed in his individual hands. During the course of assessment proceedings, the assessee vide letter dated 23-1-1998 submitted a list of 30 persons from whom he has borrowed money on loan amounting to Rs. 13,35,000. The Assessing Officer on 26-11-1998 recorded the statement of the assessee who stated that the entire amount of Rs. 13,35,000 was taken as loan during the financial year 1993-94 relevant to the assessment year 1994-95 in cash. The Assessing Officer required the details viz., amount lent, mode of lending, repayment of amount etc. and accordingly sent notices under section 133(6) of the Act to 30 cash creditors. The assessee submitted that all the cash creditors were agriculturists residing in Rajasthan and Tirunelveli. As regards the cash creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkdraft which worked out to Rs. 13,35,000. Before the JCIT, the assessee submitted that the penalty should be dropped as the transactions involved in this case is nothing to do with evasion of tax or concealment of income. For this, he has given the reason that there is a mere technical breach of the provisions of section 269SS of the Act which does not warrant the levy of penalty automatically. Before the JCIT, it was pleaded that the loans are genuine and the additions made on the basis of these loans/cash credits have been deleted by the Assessing Officer in consequent to the order passed by the CIT (Appeals). The JCIT, after giving various reasons and deliberating the case laws cited by the assessee held that there was no reasonable cause on the part of the assessee with regard to cash borrowals/cash credits. Further he held that the assessee has not properly explained the circumstances under which and also the need for which he resorted to such practise. As there was no reasonable cause in existence, the JCIT not satisfied with the explanation of the assessee, concluded that the assessee has contravened the provisions of section 269SS of the Act and he levied the penalty of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment. He relied on the following case laws to support his contentions: 1. CIT v. Parma Nand [2004] 266 ITR 255 (Delhi) 2. CIT v. Bhagwati Prasad Bajoria (HUF) [2003] 263 ITR 487 (Gau.) 3. Patiram Jain v. Union of India [1997] 225 ITR 409 (MP) 4. Karnataka Ginning Pressing Factory v. Jt. CIT [2001] 77 ITD 478 (Mum.) 5. Industrial Enterprises v. Dy. CIT [2000] 73 ITD 252 (Hyd.) 6. Dillu Cine Enterprises (P.) Ltd. v. Addl. CIT [2002] 80 ITD 484 (Hyd.) 7. Ravi Iron Scrap Co. v. Dy. CIT [2001] 118 Taxman 111 (Chd.)(Mag.) 8. CIT v. Ajanta Dyeing Printing Milk [2003] 130 Taxman 442 (Raj.) In view of the above arguments he pleaded that the order of the CIT (Appeals) upholding levy of penalty under section 271D may be set aside and the appeal may be allowed. 7. On the other hand, the learned Departmental Representative, Sri K. Anangapal relied on the order of the CIT (Appeals) as well as that of the JCIT. He argued that genuineness of the loan is not a reasonable cause. He further argued that these transactions were not accounted for in the books of account as it is evident from the statement of the assessee recorded during the survey. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the back of the sheet of this book is the principal amount. For example, in the book marked APM/9, the amount mentioned at the back of page 1 is Rs. 60,000. The principal given for Hire Purchase Finance along with interest comes to Rs. 94,000 which is collected in instalments. For belated payment of instalments, interest at the rate of 24% will be charged and collected. Question No. 11: In APM/5-10, though continuous page numbers have been given, many pages have been missing. Explain this? The pages torn represent that the account has been settled. Question No. 12: Does the income and expenditure mentioned in these books have been reflected in the cash book and ledger maintained in Chennai Office? The business run in different addresses are recorded in cash book and ledger. But the entries in books APM 5 to 10 are not recorded. Question No. 13: How much have you invested in your hire purchase finance business. Out of which, how much have you written in your accounts for which Income-tax have been paid? Ans: At No. 47, Kalathi Pillai Street, Chennai, I run business at the following names: 1. Thanmal Sons; 2. Dharamchand 3. Moolchand. I have invested Rs. 90 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,000 18. M Selvaraj, Tirunelveli 45,000 19. K. Jayapal, Tirunelveli 45,000 20. Sohan Raj, Panchalasidha (Raj) 45,000 21. Babulal Panchalasidha (Raj) 40,000 22. Dholat Ram, Panchalasidha (Raj.) 45,000 23. Jarnes, Tuticorin 40,000 24. P. Ramasamy, Tuticorin 50,000 25. Arul Selvam, Tirunelveli 45,000 26. P. Arputham, Tirunelveli 40,000 27. A. Gunsekar Pandian, Tirunelveli 50,000 28. Pancharam, Panchalasidha (Raj.) 45,000 29. Dhanraj Raj, Panchalasidha (Raj.) 50,000 30. J.J. Dhanraj, Tirunelveli 50,000 ------------ Total 13,35,000" ------------ From the above it is clear that the assessee has not recorded the above transactions in the books of account and these transactions surfaced only after the survey cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9SS. No person shall, after the 30th day of June, 1984, take or accept from any other person, 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 (b), is (twenty) thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) Any banking company, post office savings bank or co-operative bank; (c) Any corporation established by a Central, State or Provincial Act, (d) Any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) Such other institution, association or body or class of institutions, Associations or bodies which the Central Government may, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so apply in 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." 12. It is seen from the provisions of section 269SS of the Act that there is no such word occurring in this section that this will not apply to genuine transactions. Here, the provision is very strict and the provision will apply strictly where the loans or deposits taken or accepted from any other person otherwise by an account payee cheque or account payee draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 20,000 or more. The only saving clause is provided in section 273B wherein it was mentioned that the penalty not to be imposed on the person or the assessee for any failure referred to in that provisions (that section covers the provisions of section 271D) if he proves that there was reasonable cause for the said failure. Even the memorandum explaining provisions in Finance Bill, 1984 during the introduction of this particular provision, it was explained that unaccounted cash found during the course of searches carried out by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich prevents a reasonable man or man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide explanation. 14. It is pertinent to note that as to whether there exists a reasonable cause or not. In the present case in hand, the assessee has never explained any reasonable cause for violation of the provisions of section 269SS of the Act which invokes the provisions of section 271D of the Act for levy of penalty. In the present case, there is absence of reasonable cause and this fact as being objectively found by the authorities below in the light of explanation offered by the assessee before the JCIT as well as before the CIT (Appeals). The only plea raised by way of four grounds in this appeal is that the transactions are genuine. 15. Now, we deal with the decisions relied on by the learned counsel for the assessee. In the case of CIT v. Bhagwati Prasad Bajoria (HUF)[2003] 263 ITR 487 (Gau.), the Hon'ble High Court has held that "Keeping in view the object of introducing section 269SS, the Legislature has given discretion to the assessing authority under section 273B of the Income-tax Act to levy the penalty as provided under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (Delhi), it was held by the Hon'ble Delhi High Court that: "Where the Appellate Tribunal held that the assessee was benefited by receiving money in cash in excess of the limit specified in section 269SS of the Income-tax Act, 1961, since there was a discount of 2 per cent, for payment in time, and the loans were taken only to clear the cheques issued by the assessee and the amounts were prepaid through account payee cheques and the bona fide intention of the assessee had been proved and deleted the penalty levied under section 271D:" 15.3 In the case of Industrial Enterprises v. Dy. CIT [2000] 73 ITD 252 which was relied on by the assessee's counsel, it was held by the Tribunal, Hyderabad Bench 'A' that: "The assessee in this case is a small scale industrial unit, which has set up its factory in a backward region of Andhra Pradesh. Almost all the loans were taken by the assessee-firm during the construction period. Though the assessee-firm had succeeded in securing certain loans sanctioned by banks and financial institutions, those finances had not come in time to meet the financial needs of the assessee during the construction stage of the factory, and as such the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all the registers maintained show only outgoings and there was no transaction of receipts. At one point of time it was the case of the assessee that he was handling a specialized area of land acquisition cases and he used to appear before the Land Acquisition Officer for receiving the award amounts pursuant to the award under section 11 of the Acquisition Act, before the reference court for enhancement of compensation and also in the appeals before this court and during all these proceedings the claimants were required to be supported by financial assistance. He was, therefore, advancing them finance and adjusting the said amounts from the final payments and, therefore, he contended that it cannot be termed as an operation of granting loan in the strict sense. While, interpreting the term "books of account" referred to in sub-clause (1) of Explanation 5 to section 271(1)(c) of the Income-tax Act, A Division Bench of this court in the case of Sheraton Apparels v. Asstt. CIT [2002] 256 ITR 20 held that the said term means those books of account whose main object was to provide credible data of accounts and information to file a tax return and it must answer all the qualifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said objections raised by the assessee against invoking the provisions of section 269SS and thus levying penalty under section 271D of the Income-tax Act were without any material force and it was only a defence for name sake." 16.1 In the case of Asstt. Director of Inspection (Investigation) v. Kum. A.B. Shanti [2002] 255 ITR 258 which was relied on by the learned Departmental Representative, the Hon'ble Supreme Court has held that "The contention of the appellant's counsel has no force. The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or it has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 269SS of the Act, there is no violation of section 269SS of the Act. It is seen from the said section itself which is reproduced at page 10 that these provisions shall not apply to any loan or deposit if, the loan or deposit is taken or accepted, both the persons are having agricultural income and neither of them has any income chargeable to tax under this Act. It is seen that the persons who are provided loans are agriculturists and in the present case, the assessee is a business man having taxable income and is being assessed to tax. Therefore, this proviso will not help the assessee. 18. The plea of the assessee was that section 269SS of the Act would not apply to the genuine credits. There can be no dispute whatsoever as regards the object of section 269SS of the Act. The object of this section was to curb tax evasion. Taking or accepting of loans or deposits exceeding certain amount in cash is prohibited as a measure in this direction. The memorandum explaining the provisions state that unaccounted income is also brought into the books of account in the form of loans or deposits and the taxpayers are also able to get confirmatory letters from such persons in support ..... X X X X Extracts X X X X X X X X Extracts X X X X
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