TMI Blog1993 (8) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, whenever assessee needed funds for remitting the money to Nirma group for getting the supply of goods, the sister concerns, namely, M/s Meena Agencies and M/s Shiv Sakti Enterprises (hereinafter referred to as `M/s M.A. and M/s SSE') gave the required funds in cash to the assessee. Whenever those sister concerns required such amount the appellant gives moneys to them. The assessee had thus received in cash amounts from these two sister concerns and had also refunded those amounts as well as gave advances to these two sister concerns from time to time as per details appearing in the respective accounts of these two sister concerns. 3. The previous year relating to asst. yr. 1989-90 (the year under consideration) covered the period from 23rd Oct., 1987 to 31st March, 1989. The assessment order under s. 143(3) was made on 25th Nov., 1991 by the Asstt. CIT, Surat. While passing the said order, the Assessing Officer (AO) observed that the deposits taken from and repaid to the two sister concerns, namely, M/s M.A. and M/s SSE, were mainly in cash. These were in excess of the limits prescribed under ss. 269SS and 269T. Therefore, he forwarded a proposal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords. An application for entertaining an additional ground dt. 27th July, 1993 has been submitted in both these appeals in which the additional ground raised is that the lower authorities have erred in not appreciating that as all the impugned transactions had taken place before the provisions of s. 271D or s. 271E were introduced, the same cannot be invoked. 7. The learned counsel for the assessee submitted that the additional ground submitted by the assessee is already covered in the grounds annexed with the appeals wherein it has been submitted that the CIT(A) has erred in confirming the aforesaid penalties. Even otherwise, since the ground raised by way of additional ground goes to the root of the matter and involves consideration of a pure question of law, the same deserves to be entertained and considered. 7.1 The learned counsel submitted that a perusal of the accounts of these two sister concerns, placed in the paper book at page 1 to 4, clearly reveals that these are transactions representing transactions in current accounts which represent flow of funds from these two sister concerns to the assessee as and when the assessee needed the funds for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts outstanding from the sundry debtors for goods and in order to (sic) the suppliers, the assessee had to take amounts from M/s M.A. and M/s SSE. The partners of these two firms are related to the partners of the assessee. Thus the partners of all the three concerns are closely related socially. The amounts in question were taken or refunded in the financial year 1988-89. There was no mala fide intention. The amounts taken were utilized for obtaining the bank draft or pay order for the purposes of obtaining supply of goods. Both these firms are assessed to income-tax and sizable account of tax is being paid regularly. The assessee has not borrowed any loan or accepted deposits from any other parties. If the assessee would not have taken the money at the time of need from these sister concerns, it would have suffered great loss and would have ultimately resulted in closure of the business. The assessee was under a bona fide belief that such type of deposits can be taken in order to solve the financial problems. The mistake, if any, has occurred due to such a bona fide belief and on account of ignorance of the relevant provisions of law which can be excused in cases of such bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Law' by Chaturvedi Pithisaria, Vol. 2. In this circular, the amendment made in the provisions of ss. 269SS and 269T raising the monetary ceiling from ₹ 10,000 to ₹ 20,000 was explained. It was clarified that the amended provisions of ss. 269SS and 269T raising such monetary ceiling prescribed in the said sections will apply to payments or repayments made on or after 1st April, 1989. This amendment was also made effective from 1st April, 1989. He also invited our attention towards another Board Circular No. 551, dt. 23rd Jan., 1990 explaining that the default of ss. 269SS and 269T requiring taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or drafts if the amount of the deposit or loan is ₹ 20,000 or more will instead of attracting the old provisions relating to prosecution under ss. 276DD and 276E will now be made liable to penalties under ss. 271D and 271E, w.e.f. 1st April, 1989, this was clarified in para 16.6 of the said circular. In para 15.5 of the same circular dealing with raising of monetary limits from ₹ 10,000 to ₹ 20,000 in s. 269T, the Board has clarified that the amendments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d towards various charts placed in the paper book to show that the funds received by the assessee from the aforesaid two sister concerns were urgently required for meeting urgent necessity of remitting the same by way of a bank draft to the supplier of goods. The charts submitted in the compilation clearly reveal that amount only to the extent of such a need was taken from the sister concerns which raised the balance just adequate to obtain the bank draft on that very day for sending the same to the supplier of the goods. Likewise the funds given by the assessee to the sister concerns as and when they needed the same for sending the same to the suppliers. This was submitted with a view to convince us that the funds were given to the sister concerns or were received from them to meet the urgent business need. The assessee was also under a bona fide belief that such accommodation transactions between the sister concerns, which were controlled by the same group of persons belonging to related families, do not violate any provisions of law particularly when the genuineness of the transactions in questions has not been disputed or doubted. The ignorance of the persons concerned about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, as on all those respective dates there was already a debit balance in the account of M/s M.A. and by receiving the amount on those respective dates it has merely reduced the existing debit balance. In similar manner ₹ 50,000 received from M/s SSE on 11th May, 1988 cannot be treated as acceptance of deposits as immediately prior to receiving the said amount there was already a debit balance in the account of that part to the extent of ₹ 4,125. He submitted that the transactions aggregating to ₹ 7,95,000 of M/s M.A. and ₹ 50,000 of M/s SSE cannot, therefore, be treated as acceptance of deposits. Likewise the learned counsel submitted that the penalty levied under s. 271E for alleged violation of s. 269T is also apparently invalid in respect of the alleged repayments of ₹ 3,20,000 paid to M/s M.A., the details of which has been given in para 12.1 of a separate letter dt. 4th Dec., 1992 submitted before the CIT(A) in the proceedings under s. 271E. On the dates on which those amounts have been paid and debited in the account of M/s M.A. there was no credit balance. Hence, question of treating these amounts as repayments does not arise. In fact as a resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contained code and the breach of the relevant statutory provisions of that Act has to be decided on the basis of the language of the relevant sections. The provisions contained in Limitation Act relied upon by the learned counsel are not at all relevant for deciding the issue in question. The Limitation Act merely prescribes the period of limitation within which proceedings for recovery thereof in accordance with the provisions of law can be initiated. They have classified the loans and deposits into various categories for the purpose of determining the separate method of computing the limitation period prescribed for each type of deposits and loans. The contention of the assessee based on the provisions of Limitation Act does not in any manner support the assessee's prayer for cancellation of the penalty in question. The provisions of s. 269SS, which provides the mode of taking or accepting certain loans and deposits and the provisions of s. 269T providing the mode of repayment of certain deposits contain the definition of the relevant terms. In Expln. (iii) of s. 269SS loan or deposit means loan or deposit of money. Such enlarged definition of loan or deposit would norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of ss. 271D and 271E clearly supports the orders of the Departmental authorities. He further submitted that the provisions of ss. 271D and 271E were inserted in substitution for more harsh provisions containing provision for prosecution in respect of defaults of not complying with the requirements of ss. 269SS and 269T. These lighter and liberal provisions of law as inserted w.e.f. 1st April, 1989. It is well settled law that the provisions which are in force as on the 1st day of April, at the commencement of the assessment year would govern the proceedings relating to that assessment year. In the present case the assessment year in question is asst. yr. 1989-90, therefore, the provisions inserted w.e.f. 1st day of April 1989 will be applicable to all the transactions carried out in the previous year relating to asst. yr. 1989-90. He placed reliance on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha Peraj Chand Nowpaji vs. CGT (1988) 73 CTR (AP) 25 : (1988) 173 ITR 439 (AP). He further submitted that the provisions of Direct Taxes (Amendment) Act, 1987 contain various significant amendments. Some amendments were made effective from 1st April, 1988 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the suppliers on the same day. He submitted that the Bench in the course of arguments made by the learned counsel required him to state as to whether the bank account of the assessee as well as of the two sister concerns are in the same branch of the same bank. If that is found to be in the same branch, then it would further more have been possible for the assessee to have complied with the provisions of ss. 269SS and 269T by taking the deposits/loans by account payee cheques/drafts and also in repaying the deposits by account payee cheques/drafts. Since the assessee has clearly violated these provisions, the penalty has rightly been levied and has validly been confirmed by the CIT(A). The plea of the assessee that they were ignorant about relevant provisions of law or were under a bona fide belief that such provisions did not apply in relation to transactions in the current account or that the funds were needed for meeting the urgent business necessity do not in any manner constitute any reasonable cause as the assessee could very well have carried out these transactions by account payee cheques/drafts in view of the circumstances explained above. 8.4 The contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 271E unless the assessee proves that there was a reasonable cause for such a default. The reasonable cause explained by the assessee in the letter submitted before the Dy. CIT cannot be regarded as reasonable cause justifying the defaults in question. The assessee also cannot plead ignorance about the relevant provisions of law as they are existing IT assessees and are being assessed for last so many years. They are assisted by competent Chartered Accountants or representatives. The provisions of ss. 269SS and 269T came into force from this year 1984 and these are not recent provisions introduced in the IT Act. The judgment of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC) does not in any manner support the assessee's contention. He relied on the judgment of Hon'ble Punjab Haryana High Court in the case of Daljit Singh vs. CWT (1981) 21 CTR (P H) 113 : (1981) 130 ITR 236 (P H) to support his contention that ignorance of law cannot be accepted as a valid argument or as a reasonable cause for cancellation of the penalty. 8.7 Before concluding his arguments, the learned Departmental R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Act, namely, Direct Taxes Laws (Amendment) Act, 1987 received the assent of the President on 24th Jan., 1988. The said amending Act also provides that save as otherwise provided in that Act, it shall come into force on the 1st day of April, 1989. A perusal of s. 269SS or 269T does not provide that the amount of deposits or loans accepted or the amount of deposits repaid otherwise than by an account payee cheque/bank draft are to be treated as income of the assessee. There is another provision, namely, s. 269D which deals with the amount of hundi loans accepted or repaid otherwise than through account payee cheque to be treated as income of the assessee. The provisions of ss. 269SS and 269T are prohibitive in nature and these provisions prescribe the manner or the mode by which certain transactions of loans and deposits are not to be done by persons mentioned therein regardless of the fact whether such person is an assessee or not. These provisions may apply regardless of the fact whether the person derives assessable income or not. The scope of ss. 269SS and 269T are very wide and they need not be confined to the case of an assessee or to the assessment of his income. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 148. The Hon'ble Supreme Court in the case of Brij Mohan vs. CIT (1979) 12 CTR (SC) 198 : (1979) 120 ITR 1 (SC), in relation to interpretation of s. 271(1)(c) also held that the penalty was imposed on account of the commission of a wrongful act and it was the law operating on the day on which the wrongful act was committed which determine the penalty. On a parity of the same reasoning we have arrived at the conclusion that the penal provisions contained in ss. 271D and 271E can be involved only in relation to transactions carried out after the relevant provisions came in force, namely, the transactions done after 1st April, 1989 would alone be covered by the said penal provisions. 9.5 This matter can be examined from one more angle. The Board vide Circular No. 522, dt. 18th Aug., 1988 [printed at (1988) 72 CTR (St) 38] published at page 1747 of Vol. 2.4th Edn. of `Income-tax Law' by Chaturvedi Pithisaria clarified the amendments made to s. 40A(3), 269SS and 269T in relation to the date of applicability of the amended provisions raising the monetary limits prescribed in the aforesaid provisions. The relevant parts of the said circular issued by the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The definition of the term `deposit' has been amended. For the purpose of the section, the term `deposit' now means any 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 deposit of any nature. 15.5. These amendments come into force w.e.f. 1st April, 1989, and will, accordingly, apply in relation to the transactions entered into after this date. The Board has also explained the scope of the provisions of ss. 271D and 271E in para 16.6 which is also reproduced hereunder from page 5817 of the said book : 16.6. Insertion of the new ss. 271D and 271E to provide for levy of penalties for failure to comply with the provisions of ss. 269SS and 269T.'Under the old provisions of Chapter XXI of the IT Act, no penalties were prescribed for failure to comply with the provisions of ss. 269SS and 269T, which require the taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or account payee bank drafts if the amount of the deposit or loan is ₹ 20,000 or more. These defaults, however, attracted prosecut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as the judgment of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1972 CTR (SC) 177 : (1973) 88 ITR 192 (SC) in which the Hon'ble Supreme Court held that if a taxing provision is capable of more than one meaning or is ambiguous then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provisions relates to imposition of a penalty. On this ground also, the contention of the assessee in relation to the aforesaid legal point deserves to be accepted. 10. We will now consider another legal objection taken by the learned counsel for the assessee. It has been argued that the provisions of s. 269SS has been held to be ultra vires by the Hon'ble High Court in the case of Kum. A.B. Shanti (supra). On the strength of the said judgment, the learned counsel for the assessee submitted that the Tribunal should follow the said judgment regardless of the fact that the Tribunal is a creature of the statute and cannot themselves decide the ultra vires of the provisions of the Act. The learned Departmental Representative had relied on the judgment of Hon'ble Supreme Court in the case of K.S. Ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Act is declared unconstitutional by the High Court in its writ jurisdiction under Art. 226 before an appeal is heard by the Tribunal. In such a case, the Tribunal, being bound by the ruling of the High Court, has to give effect to it. In so doing the Tribunal does not itself declare a provision unconstitutional but only ignores the provision which has already been declared to be unconstitutional by a superior authority . 10.4 The Cochin Bench of the Tribunal in the case of M. George Bankers (supra) also considered a similar point and came to the conclusion that there is no doubt that the Tribunal is a creature of the statute and cannot entertain the question of ultra vires of the provisions of the Act. But that does not mean that if an Act has been declared ultra vires the constitution by a High Court, the Tribunal should not take cognizance of such a decision in deciding the dispute between the Revenue and the assessee. The Tribunal in the aforesaid case has followed the judgment of the Hon'ble Madras High Court declaring the provisions of s. 269SS to be ultra vires and on that basis it has held that penalty levied under ss. 271D and 271E cannot be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is repayable after notice or repayable after a period. Penalty for failure to comply with the provisions of s. 269SS.'`₹ 271D (1) If a person takes or accepts any loan or deposit in contravention of the provisions of s. 269SS he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-s. (1) shall be imposed by the Dy. CIT. Penalty for failure to comply with the provisions of s. 269T.'`₹ 271E. (1) If a person repays any deposit referred to in s. 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 deposit so repaid. (2) Any penalty imposable under sub-s. (1) shall be imposed by the Dy. CIT. Penalty not to be imposed in certain cases.'`₹ 273B. Notwithstanding anything contained in the provisions of cl. (b) of sub-s. (1) of s. 271, s. 271A, s. 271B, s. 271BB, s. 271C, s. 271D, s. 271E, cl. (c) or cl. (d) of sub-s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or sub-s. (1) of s. 272BB or cl. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and copies of letters submitted before the Departmental authorities were shown to corroborate the explanations given before them and it was also argued that the breach, if any, was merely a venial violation or technical breach which do not warrant or justify the levy of penalty. All these submissions can be dealt with together as a consideration of the point as to whether there was a reasonable cause or not will cover all these aspects and different facets of the arguments made on behalf of the parties. 11.3 The provisions of s. 273B were inserted by the Taxation Laws (Amendment Miscellaneous Provisions) Act, 1986 w.e.f. 10th Sept., 1986. The various sections originally enumerated in s. 273B were substituted by the Direct Tax Laws (Amendment) Act, w.e.f. 1st April, 1989. The provisions of ss. 271D and 271E were accordingly incorporated in s. 273B w.e.f. 1st April, 1989 simultaneously when these penal provisions were introduced. It provides that no penalty shall be imposable on the person for failure referred to in the said provisions (ss. 271D or 271E) if he proves that there was a reasonable cause for the said failure. 11.4 In order to properly consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Kerala High Court in the case of Kerala Urban Development Finance Corpn. Ltd. vs. CIT (1987) 65 CTR (Ker) 282 : (1987) 167 ITR 289 (Ker), at page 290-91 (of ITR) has observed as under : It is true that the word sufficient cause occurring in the proviso to s. 264(3) of the Act should receive a liberal construction so as to advance substantial justice. It is further true that the discretion vested in the CIT is a judicial one to be exercised in accordance with law'vide Kanga and Palkhiwala, The Law and Practice of Income-tax, 7th Edition, page 1178, the nature and content of the said power and the manner of its exercise have been elaborately discussed in Saurashtra Cement Chemical Industries Ltd. vs. CIT (1978) CTR (Guj) 443 : 1978 115 ITR 27 (Guj) . 11.5 In order to examine the question relating to existence or absence of reasonable cause for the purpose of s. 271E for violation of ss. 269SS and 269T it will be necessary to examine the legislative intention of the object for which the provisions of ss. 269SS and 269T were inserted by the Finance Act, 1984. The Board, vide Circular No. 387 dt. 6th July, 1984 [printed at (1984) 43 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax (Second Amendment) Act, 1981 (hereinafter referred to as the Amending Act), represents another step in the same direction. 2.2 It came to Government's notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative societies and partnership firms either in their own names or in benami names. The Income-tax (Second Amendment) Act, 1981, seeks to counter attempts to circulate black money in this manner. It is clear from the aforesaid circulars issued by the Board that these provisions were introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering the major economic evil of proliferation of black money, etc. 11.6 It will also be worthwhile to mention that a harmonious construction of the relevant provisions of ss. 271D, 271E and 273B clearly reveals that the use of the expression shall be liable to pay in ss. 271D and 271E and the provisions of s. 273B providing that no pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut such transactions by an account payee cheque. The urgency about the business necessity or the commercial exigencies are solely within the domain of the trader's own decision. The assessee has produced various charts with reference to each transaction of acceptance of loan or deposit or in respect of repayment of deposit which support the assessee's contention that the amount was taken from the sister concern on the same day when the money as required to be remitted to Nirma group of concerns for supply of goods by them to the assessee. It is also corroborated from the said charts that money was received only to that extent to which it was barely necessary for obtaining those bank drafts on that very day. The receipt of amount from the sister concerns, the quantum of amount received from them and the remittance of bank draft on that very day to Nirma group proves the contention of the assessee that the money was needed for meeting the urgent business needs. Similar is the position with regard to repayment of funds made by the assessee to these two sister concerns. The assessee submitted before the Departmental authorities that these transactions represent bona fide transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 IJR (Raj) 150 has also held that now settled law is that there is no presumption that every person knows the law. There is no such maxim known to law. 11.10 In the light of aforesaid facts and the legal position, we are of the considered opinion that the transactions inter se between the sister concerns made with a view to meet the urgent business necessity and made under the bona fide belief and under ignorance of the relevant provisions of law is a valid excuse and constitute a reasonable cause within the meaning of s. 273B. In our view the material existing on records adequately prove that there was a reasonable cause on the part of the assessee in relation to the aforesaid transactions of receiving the funds from the sister concerns at the time of need and at the time when the deposits in questions were repaid to them. On this ground also the penalty is not imposable on the assessee in view of the clear provisions of s. 273B. 11.11 One more argument which was made during the course of hearing is that the penalty has been levied in a mechanical manner without application of mind by the Departmental authorities. It was pointed out that penalty levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantially correct. We are reproducing hereunder the datewise copy of account of M/s M.A. and M/s SSE : M/s MEENA AGENCY 23.10.1987 to 31.3.1989 Date Particulars Credit Debit Balance . . . Rs. Rs. Rs. . 23.10.87 Opening Balance C.B.P. No. . 4,90,492 4,90,492 . 16.11.87 25 3,860 - 4,86,632 DR 20.11.87 29 8,085 - 4,78,547 DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,000 - 3,74,471 DR 15.3.88 145 - 1,470 3,73,001 DR 25.3.88 155 - 1,00,000 2,73,001 DR 21.4.88 182 - 1,00,000 1,73,001 DR 29.4.88 186 - 1,00,000 73,001 DR 2.5.88 192 - 1,00,000 26,999 DR 4.5.88 195 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,66,790 DR 30.11.88 21 - 11,865 1,78,655 DR 7.3.89 118 - 16,460 1,62,195 DR 8.3.89 119 40,000 - 1,22,195 DR 10.3.89 121 32,000 - 92,195 DR 27.3.89 138 - 70,000 1,62,195 DR . . 11,41,423 13,03,618 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR 2.7.88 254 - 30,000 35,875 DR 3.8.88 286 50,000 - 85,875 DR 8.8.88 291 80,000 - 1,65,875 DR 13.8.88 296 1,00,000 - 2,65,875 DR 15.9.88 329 - 40,000 2,25,875 DR 28.9.88 342 - 40,000 1,85,875 DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance column of the said account reveals that these amounts paid to M/s M.A. cannot be treated as repayment of deposit as there was already an existing debit balance in their account. In order to establish repayment of any deposit, there ought to have been a credit balance on the preceding date and only then the payment to the said party could be treated as repayment of deposit. In fact when these payments bearing mark have been made, the existing debit balance lying in the account of M/s M.A. has increased and, therefore, such payments cannot be regarded as repayment of deposits. There could be a debate only in respect of payment made on 2nd May, 1988 which has resulted in shifting of the existing credit balance of ₹ 73,001 to a debit balance of ₹ 26,999. Penalty levied under s. 271E in respect of these payments made to M/s M.A. which has resulted in increasing the debit balance existing in their account on the respective dates is, therefore, apparently invalid and wholly unjustified. Since we have already cancelled the total amount of penalties levied under ss. 271D and 271E, this alternative submission made on behalf on the assessee does not require any elaborat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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