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TMI Blog2012 (6) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... and securities. 4. In the assessment year in question, the assessee had filed its return of income declaring loss of Rs. 17,27,21,815/-. The assessment was completed on 5th November 2003 under Section 143(3) of the Income Tax Act, 1961 ('Act' for short) determining loss at Rs. 9,84,92,500/-. 5. Prior to 1st April 2002, the assessee had accepted a sum of Rs. 4,29,04,722/- as and by way of loan/inter-corporate deposit from the Investment Trust of India which was repayable during the assessment year 2003-2004. During the previous year relevant to the assessment year in question, the assessee on 3rd October 2002 had transferred 1,99,300 shares of Rashal Agrotech Limited held by it to the Investment Trust of India for an aggregate consideration of Rs. 4,28,99,325/-. Thus, in the assessment year in question, the assessee was liable to repay the loan/inter-corporate deposit amounting to Rs. 4,29,04,722/- to the Investment Trust of India and receive Rs. 4,28,99,325/- from Investment Trust of India towards sale price of the shares of Rashal Agrotech Limited sold by the assessee to the Investment Trust of India. Instead of repaying the loan/inter-corporate deposit to the Investment Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and had flouted all the norms of risk management by making transactions through a large number of entities so as to hide the nexus between the sources of funds and their ultimate use with the sole motive of evading tax. He submitted that since the language of Section 269T of the Act is clear and unambiguous, the Tribunal ought to have held that repayment of the loan/inter-corporate deposit otherwise than by account payee cheque or demand draft was in violation of the provisions of Section 269T of the Act and, hence, the penalty imposed under Section 271E of the Act was justified. 9. Mr. Pardiwala, learned Senior Advocate appearing on behalf of the respondent - assessee, on the other hand submitted that Section 269T of the Act has been enacted to curb the menace of giving false explanation of the unaccounted money found during the course of search and seizure. He submitted that the bona fide transaction of repayment of loan or deposit by way of adjustment through book entries carried out in the ordinary course of business would not come within the mischief of the provisions of Section 269T of the Act. Referring to the legislative history as also the circulars issued by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax v. J H Gotla reported in 156 ITR 323, counsel for the assessee submitted that if a strict and literal construction of a statute leads to an absurd result, that is, a result not intended to be sub-served by the object of the legislation ascertained from the scheme of the legislation and if another construction is possible apart from the strict and literal construction, then, that construction should be preferred to strict literal construction. 12. Referring to the provisions contained in the Code of Civil Procedure and books on accountancy, counsel for the assessee submitted that set off of the claim/counter-claim otherwise than by account-payee cheque or bank draft are legally permissible in commercial transactions as also in the accounting practice. Therefore, it must be held that genuine transactions like the transaction in the present case involving repayment of loan through journal entries do not violate Section 269T of the Act. In any event, it is contended that having regard to the commercial dealings between the parties it must be held that there was reasonable cause for repaying the loan through journal entries and in view of Section 273B of the Act penalty was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, - (i) ... (ii) ... (iii) "loan or deposit" means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature." ** ** ** "Penalty for failure to comply with the provisions of Section 269T 271E.- (1) If a person repays any loan or deposit referred to in Section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so repaid. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner." ** ** ** "Penalty not to be imposed in certain cases. 273B.- Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271D, section 271E, section 271F, section 271G, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) of section 272BB or sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner of doubt that repayment of deposit in the manner prescribed under Section 269T is mandatory. 18. With effect from 1st April 1989, Section 276E dealing with the consequences on failure to comply with Section 269T has been omitted and Section 271E has been inserted which provides penalty for failure to comply with Section 269T of the Act. Section 269T has been substituted by Finance Act 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheque/draft has been extended to repayment of loans as well. Thus, with effect from 1st June 2002, it is mandatory under Section 269T of the Act for the persons specified therein to repay any loan/deposit together with interest, if any, exceeding the limits prescribed therein, by account payee cheque/bank draft and failure to do so is made liable for penalty under Section 271E of the Act. 19. In the present case, it is not in dispute that the assessee has repaid loan/deposit by debiting the account through journal entries. The question is, whether such repayment of loan/deposit is in contravention of the modes of repayment set out in Section 269T ? The arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign reinsurer would be an empty formality and a meaningless ritual on the facts of that case. Accordingly, the Apex Court held that the Company was entitled to 80-O deduction in respect of the commission retained by the Company. In our opinion, the aforesaid decision of the Apex Court has no relevance to the facts of the present case, because, Section 80-O and Section 269T operate in completely different fields. The object of Section 80-O is to encourage Indian Companies to develop technical knowhow and make it available to foreign companies and foreign enterprises so as to augment the foreign exchange earnings, where as, the object of Section 269T in Chapter XXB of the Act is to counteract evasion of tax. For Section 80-O, receiving income in convertible foreign exchange is the basic requirement, where as, for Section 269T, compliance of the conditions set out therein is the basic requirement. Section 80-O does not prescribe any particular mode for receiving the convertible foreign exchange, where as, Section 269T bars repayment of loan or deposit by any mode other than the mode stipulated under that Section and for contravention of Section 269T penalty is imposable under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(3), 253(5) and 260A(2A) of the Act, the legislature has used the expression 'reasonable cause' in Section 273B of the Act. A cause which is reasonable may not be a sufficient cause. Thus, the expression 'reasonable cause' would have wider connotation than the expression 'sufficient cause'. Therefore, the expression 'reasonable cause' in Section 273B for non-imposition of penalty under Section 271E would have to be construed liberally depending upon the facts of each case. 24. In the present case, the cause shown by the assessee for repayment of the loan/deposit otherwise than by account-payee cheque/bank draft was on account of the fact that the assessee was liable to receive amount towards the sale price of the shares sold by the assessee to the person from whom loan/deposit was received by the assessee. It would have been an empty formality to repay the loan/deposit amount by account-payee cheque/draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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