TMI Blog1993 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises (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 for penalties under s. 271D and 271E to the Dy. CIT. 4. The Dy. CIT, Surat Range-I, Surat, vide order under s. 271D dt. 23rd July, 1992, observed that the assessee had taken or accepted loans or depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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 remitting the amount to the suppliers by way of a bank draft for obtaining supply of goods. Likewise, the assessee also gave funds to these sister concerns whenever they needed funds for sending the draft to the supplier of goods. Such entries in the current accounts has resulted in shifting bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fide and genuine transactions. On the basis of such facts stated in these replies a prayer was made for dropping the penalty proceedings. These facts have not been properly considered by the Departmental authorities. The learned counsel also placed reliance on the judgment of Hon'ble M.P. High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 Rs. 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 Rs. 10,000 to Rs. 20,000 in s. 269T, the Board has clarified that the amendments come into force w.e.f. 1st April, 1989 and will, accordingly, apply in relation to the transactions entered into after this date. On the strength of these circulars, the learned counsel argued that penalties levied under ss. 271D and 271E in relation to cash transactions of Rs. 20,000 or more, which have been made effective from 1st April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster 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 the relevant provisions of law, coupled with their bona fide belief that transactions with sister concerns in their respective current accounts constitute reasonable cause and no penalty would, therefore, be validly leviable in view of the provisions of s. 273B. He also invited our attention towards Circular No. 387, dt. 6th July, 1984 [(1984) 43 CTR (TLT) 3] explaining the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the account of that part to the extent of Rs. 4,125. He submitted that the transactions aggregating to Rs. 7,95,000 of M/s M.A. and Rs. 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 Rs. 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 result of payment of these amounts aggregating to Rs. 3,20,000, the credit balance got converted into debit balance and resulted in the increase of existing debit balance in the said account on those respective dates. Similar is the position with regard to Rs. 50,000 paid to M/s SSE on 29th May, 1988. These facts were submitted with a view to show that the penalties have been levied in a mechanical and arbitrary manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 normally cover any type of deposits received from any person including the sister concerns. In similar manner the provisions of s. 269T have also defined the deposits in Expln. (ii) saying that 'deposit' 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. The assessee is a partnership firm and, therefore, for the purpose of s. 269T deposit has been defined to include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vern 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 while other amendments introduced by the said amending Act were made effective from 1st April, 1989. The legislature in its wisdom thought it proper to make the provisions of ss. 271D and 271E applicable w.e.f. 1st April, 1989 and would, therefore, be clearly applicable for asst. yr. 1989-90. The circulars of the Board relied upon by the learned counsel nowhere states that the provisions of ss. 271D and 271E will apply in relation to transactions carried out after that date. Such a clarification has been given only with regard to the applicability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 contention of the learned counsel that the object of introducing the provisions of ss. 269SS and 269T, as explained in the Board's circular was to check the device of explaining the cash found during the course of search or for explaining the fictitious cash credits, etc., cannot in any manner help the assessee in view of the plain and clear language of the relevant sections. The sections no where prescribe that the provisions of these sections would be applicable only in case of doubtful nature of deposit and loans nor it has been prescribed that it would not apply in case of genuine cash deposits or loans or ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 Representative also stated that in case the appeal is being decided on the basis of various alternative grounds argued on behalf of the assessee and as a result of decision on those grounds, the decision on the question whether transaction in current account with sister concerns are covered by the expression 'loans and deposits' in s. 269SS and 'deposit' in s. 269T, may not be found to be necessary, a decision on this point may not be given because it may affect the rights of the parties one way or the other in relation to applicability of other relevant provisions contained in the law in the relevant year under consideration. 8.8 The learned Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the normal concept that the law as in force as on the first day of the assessment year would be the law applicable to that assessment year cannot be applied in relation to interpretation of s. 269SS or 269T. The reliance placed by the learned Departmental Representative on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha Peraj Chand Nowpaji vs. CGT does not in any manner support his contention as the said decision related to the interpretation of the provisions of s. 4(2) of the GT Act, 1958 dealing with assessment of gift. It was held in that case that the general principle of law is that the law in force on the first day of the assessment year is applicable in relation to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Board is reproduced hereunder: "Amendments to ss. 40A(3), 269SS and 269T by the Direct Tax Laws (Amendments) Act, 1987—Date of applicability—Clarification regarding—Provisions of ss. 40A(3), 269SS and 269T of the IT Act, 1961, have been amended by the Direct Tax Law (Amendment) Act, 1987 (Act No. 4 of 1988), and consequently, the monetary ceilings prescribed under the aforesaid sections have been raised from Rs. 2,500 to Rs. 10,000, Rs. 10,000 to Rs. 20,000 and Rs. 10,000 to Rs. 20,000 respectively. As per provisions of s. 1(2) of the Direct Tax Laws (Amendment) Act, 1987, these changes have been made effective from 1st April, 1989. 2. Board has received a number of representations regarding the date of applicability of the above mentioned amended sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uire 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 Rs. 20,000 or more. These defaults, however, attracted prosecution under the provisions of ss. 276DD and 276E. It was decided that such defaults should, instead of attracting prosecution, be made liable to penalties. The Amending Act, 1987, has, therefore, omitted the said ss. 276DD and 276E from the IT Act and has inserted two new ss. 271D and 271E to provide for penalties for these defaults. The amount of penalty is a sum of equal to the amount of loan or deposit taken or deposit repaid in contravention of s. 269SS or 269T." In the instant case, the assessing authority has levied penalty with reference to the transactions of loans and deposits of Rs. 20,000 and above. It is clear from the aforesaid circulars that the monetary limit of Rs. 10,000 earlier provided in ss. 269SS and 269T were raised to Rs. 20,000 w.e.f. 1st April, 1989 and the Board in the above referred circular has categorically clarified that the higher monetary limit will cover the transactions on and after 1st April, 1989. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Venkataraman Co. in which it was held that the taxing authority is undoubtedly a creature of the Act and function thereunder. They cannot ignore any source of income on the ground that relevant provisions offend the fundamental right or are bad for want of legislative competence. The Act does not confer any such right on them. Their jurisdiction is confined to the assessment of the income and the tax under the provisions of the Act. The question of ultra vires is foreign to the scope of the jurisdiction of the Tribunal. If an assessee raises such a question, the Tribunal can only reject it on the ground that it is has no jurisdiction to entertain such objection or decide on it. On the other hand, the learned counsel submitted that the ultra vires of the relevant provisions in question is not the subject-matter of decision by the Tribunal. However since a High Court has already declared the provision of s. 269SS to be ultra vires, the Tribunal in law, is bound to follow the said decision in the absence of any contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has held that penalty levied under ss. 271D and 271E cannot be sustained. Respectfully following the said decision of the Tribunal this point is also decided in favour of the assessee. 11. Before dealing with the various other contentions raised on behalf of the assessee and the Revenue on the merits of the case, it would be worthwhile to reproduce the relevant provisions for convenience of ready perusal: Mode of taking or accepting certain loans and deposits.—"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 cl. (a) together with the amount or the aggregate amount refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said provisions if he proves that there was reasonable cause for the said failure." 11.1 Now we will consider the remaining submissions made by the learned representatives. One of the contentions which was raised before us that the transactions in the current accounts of the sister concern made with a view to meet the urgent business necessities and which have shifted in debit or credit balances on different dates are not covered by the term 'loan and deposit' mentioned in s. 269SS nor it is covered by the term 'repayment of deposit' under s. 269T, such transactions are distinct in nature than the loan or deposit transactions contemplated in s. 269SS or 269T. The learned representatives of both the parties had submitted that in case these penalties are decided on other alternative grounds, a finding on this ground need not be given as it may adversely affect the rights of the parties or may affect the decision in other similar matters one way of the other. Considering such a submission made on behalf of both the parties and considering our decision in relation to the earlier points, we do not consider it proper to decide this point as to whether such transactions in current a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Dargapandarinath Tuljayya Co. (1977) 107 ITR 850 (AP) (FB) at page 875 (of ITR) has observed as under: "What is sufficient cause is always a reasonable cause. As stated in Stroud's Judicial Dictionary "the word 'reasonable' has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know". If a cause is reasonable having regard to the circumstances in which it has occurred and with reference to the person who has conducted himself in the course of the act which is under examination and if that act or cause is found to be reasonable in the light of the circumstances by a reasonable mind, it is accepted as sufficient cause." (b) The Hon'ble Gujarat High Court, while considering the question of condonation of delay on account of sufficient cause in the case of Saurashtra Cement Chemical Industries Ltd. vs. CIT 1978 CTR (Guj) 443 : (1978) 115 ITR 27 (Guj) at page 32 (of ITR) has observed as under: "It is clear from the observations of the Supreme Court in Lonand Grampanchayat's case AIR 1968 SC 222, that wherever there are cognate statutory provisions providing for limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such person in support of their explanation. 32.2 With a view to counter in this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act, 1984, has inserted a new s. 269SS in the IT Act debaring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more this prohibition will also apply in cases where 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) and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 ITR 595 (AP) had held that the provisions of the old ss. 276DD and 276E, prior to their omission w.e.f. 1st April, 1989 containing similar expression "shall be liable to pay" gives discretion to the Court with regard to the imposition of fine. 11.7 In the background of the aforesaid objects of inserting the provisions of ss. 269SS and 269T, its object and scope explained by the circulars issued by the Board and the fact that these provisions provide discretion to the authorities, the facts relating to the present case will have to be examined for the purpose of deciding whether it is covered by s. 273B. 11.8 It is an undisputed fact that the genuineness of all the transactions have been accepted by the Department. Both the sister concerns, namely, M/s. M.A. and M/s SSE, are existing assessees. It is also not in dispute that whenever the assessee needed funds for sending draft to their suppliers, it received funds from these two sister concerns and whenever these two sister concerns needed funds for similar purpose, the assessee also gave funds to them for enabling them to send draft to their suppliers of goods. The bone fide of the transactions in question has not been dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant provisions of law, according to the assessee, constitute reasonable cause within the meaning of s. 273B. Ordinarily a plea as to ignorance of law cannot support the breach of a statutory provision. But the fact of such an innocent mistake due to ignorance of the relevant provisions of law, coupled with the fact that the transactions in question are genuine and bona fide transactions and had to be made for meeting the urgent business necessity will, in our opinion, constitute a reasonable cause. 11.9 It will be worth while to state that the Hon'ble Supreme Court in the case of M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. AIR 1979 SC 621 : (1979) 118 ITR 326 (SC) at page 339 (of ITR) observed as under: "Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law but that is not a correct statement. There is no such maxim known to the law. Over a hundred and thirty years age, Maula J. pointed out in Matindale vs. Falkner (1946) 2 CB 706: "there is no presumption in this country that every person knows the law : it would be contrary to common sense and reason if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9 to 13 of the paper book). In this letter the details of various amounts received from M/s. M.A. and M/s. SSE, aggregating to Rs. 7,95,000 and Rs. 5,000 respectively have been given which, according to the assessee, did not constitute acceptance of any deposit or loan but it is a realisation of the existing debit balance outstanding against these two sister concerns on the respective dates. In similar manner it has been pointed out in a separate letter on 4th Feb., 1992, submitted to the CIT(A) that penalty levied under s. 271E for alleged violation of s. 269T is incorrect as the payments made to these two sister concerns on different dates did not amount to repayment of deposit but it is a payment given to these two sister concerns at a time when there was already a debit balance on those dates against the. This factual position could not be disputed by the learned Departmental Representative after going through the datewise accounts of the two sister concerns submitted in the compilation at pp. 3-4 of the paper book. On the basis of such details submitted in the above referred two letters dt. 4th Dec., 1992 before the CIT(A), it was pointed before him that penalty levied with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.5.88 196 - 14,700 49,099 DR 6.5.88 97 - 1,00,000* 1,49,099 DR 7.5.88 198 - 16,464 1,65,563 DR 29.5.88 220 - 25,000* 1,90,563 DR 31.5.88 221 5,000 - 1,75,563 DR 5.6.88 227 - 25,000 2,00,563 DR 17.6.88 229 25,000 - 1,75,563 DR 14.7.88 266 - 14,700 1,90,263 DR 18.7.88 270 - 20,000 2,10,263 DR 2.8.88 285 - 5,772 2,16,035 DR 6.8.88 289 50,000* - 1,66,035 DR 9.8.88 292 - 755 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 . M/s SHIV SHAKTI ENTERPRISES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received from them. The levy of penalty under s. 271D in respect of these amounts is, therefore, patently wrong. Some debate can be possible only in respect of the entry on 25th Jan., 1988 which bears the mark * as well as ? mark when the existing debit balance of Rs. 25,529 has been converted into a credit balance of Rs. 74,471. Similarly the items appearing on the debit side of the account of M/s M.A. bearing * mark have been treated as repayments of deposits in violation of s. 269T. A perusal of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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