TMI Blog2004 (10) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, the AO noticed from the tax audit report filed under s. 44AB of the IT Act that the assessee has violated the provisions of s. 269SS of the Act. In the tax audit report, it was mentioned that the assessee has accepted the deposits of Rs. 20,000 or more in cash and complete list was provided with the audit report in Annex. J to Form No. 3CD. The assessee could not adduce the reasons or the reasons adduced were not acceptable and in view of this, he levied the penalty on the following transactions: "15-4-1991 20,000 cash 14-5-1991 45,000 cash 27-8-1991 75,000 cash 11-9-1991 44,917 Compulsory deposit 19-10-1991 75,000 cash 18-12-1991 1,00,000 cash 8-2-1992 35,000 cash -- 1,25,000 cash" Before the Dy. CIT, Special Range-III, Madras, the reasons stated were as under: "1. The receipts are mostly from rental income and refund of compulsory deposit. A Mohsina Begum possesses properties at Bangalore and Ranipet and she has appointed an agent to collect the rent and has instructed to give the rents collected to the firm to be credited to her account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the firm. He further argued that where the loans or deposits are genuine, the provisions of s. 269SS of the Act will not apply. Further, he argued that Smt. Mohsina Begum was partner in the firm till 31st May, 1985 and she continued the practice of keeping funds with the firm. The learned counsel for the assessee relied on the decision of the Gauhati High Court in the case of CIT vs. Bhagwati Prasad Bajoria (HUF) (2003) 183 CTR (Gau) 484: (2003) 263 ITR 487 (Gau) and the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Indore Plastics (P) Ltd. (2003) 262 ITR 163 (MP) as well as the case laws cited before the CIT(A). 6. On the other hand, the learned Departmental Representative argued that the money was deposited in cash in spite of that, the assessee was not in need of money and therefore, there is no reasonable cause. He further argued that the depositor, Smt. Mohsina Begum, is having bank accounts and after withdrawing the money from the bank at Bangalore, she has deposited the money in cash with the assessee-firm. In view of this, the Dy. CIT has rightly levied the penalty as there was no reasonable cause to accept the deposits in cash. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee-firm. Even this firm did not pay any interest on the deposits. The CIT(A) has given the complete details of the cash receipts drawn from the bank which is again being reproduced as it is: "Particulars of cash receipts of Mrs. A Mohsina Begum: ------------------------------------------------- Cash received Drawn from bank in account Date Amount Account Date Amount No. ------------------------------------------------- 15-4-1991 20,000 (SB) 15-4-1991 20,000 CAP 49014 ------------------------------------------------- 14-5-1991 45,000 Canara 9-5-1991 35,000 Bank 6551 ------------------------------------------------- 27-8-1991 75,000 Canara 27-8-1991 75,000 Bank ------------------------------------------------- 19-10-1991 75,000 (SBI) 19-9-1991 75,000 CAP 49014 ------------------------------------------------- 18-12-1991 1,00,000 Canara 16-12-1991 1,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cl. (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 s. 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, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 s. 273B of the Act wherein it was mentioned that the penalty (is) not to be imposed on the person or the assessee for any failure referred to in that provision (that section covers the provisions of s. 271D) if he proves that there was reasonable cause for the said failure. Even the memorandum explaining 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 the IT Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. It was further explained that unaccounted income is brought into the books of account in the form of such loans and deposits and it was particularly mentioned that the taxpayers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money, the person normally approaches the money-lender or his friend or relative who could lend money to satisfy his immediate requirement. In those circumstances it was held as under: "In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment or to defraud the Revenue. The element of mens rea is not borne out from the nature and the manner in which the transaction was carried out. In these circumstances we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the CIT for consideration of reasonableness within the meaning of s. 273B of the Act. In the facts and circumstances of the case, we hold that the Tribunal was justified and correct in law in upholding the judgment of the CIT in deleting the penalty of Rs. 45,000 imposed on the assessee under s. 271D of the IT Act, though for different reasons." 11.4 Further, we find that in the case of Patiram Jain Ors. vs. Union of India (1997) 141 CTR (MP) 312 : (1997) 225 ITR 409 (MP), the Hon'ble Madhya Pradesh High Court has held as under: "Once the proceedings were dropped and the explanations offered by the petitioners were accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergencies for money which compelled the assessee to borrow monies from friends and well wishers from time to time to meet the day-to-day business demands in the construction of factory, receipt of such loans by way of cheques or drafts would not be conducive to meet the exigent demands on hand, as clearance of such instruments equally takes some time, more particularly when the lenders are from a different station. As a matter of fact, the AO who completed the assessment as well as the Dy. CIT who imposed the penalty have no knowledge whatsoever about the genuineness of the loans and the identity of those lenders and their creditworthiness. Therefore, it is clear that the assessee-firm had no intention to conceal any particulars of those transactions." 11.7 It is also seen that in the case of Dhanji R. Zalte vs. Asstt. CIT (2004) 186 CTR (Bom) 772 : (2004) 265 ITR 204 (Bom), the Hon'ble Bombay High Court has held as under: "A plea has been taken before us, like it was taken before the appellate forums below, that most of the parties to whom the assessee had advanced money or taken loans from, were agriculturists and they did not have the benefit of banking operations. In additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits. The Department was not able to unearth such unaccounted cash. In order to plug the loopholes and to put an end to the practice of giving false and spurious explanations by the taxpayers, Parliament sought to introduce a new provision debarring parties from taking or accepting from any other person any loan or deposit. Originally the ceiling amount of cash transaction was at Rs. 10,000 and the same was subsequently increased to Rs. 20,000 w.e.f. 1st April, 1989. Sec. 276DD stated that if a party-person takes or accepts any loan or deposit in contravention of the provisions of s. 269SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine to the extent of equal amount of such loan or deposit. Subsequently s. 271D, which is a penal clause in the Act, which provides for imposition of penalty for failure to comply with the provisions of s. 269SS was introduced w.e.f. 1st April, 1989, omitting s. 276DD from the said date. Thus, the original s. 276DD was replaced by s. 271D and the punishment of imprisonment was taken away. The failure to comply with the provisions of s. 269SS could only be visited with a penalty of fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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