1999 (6) TMI 52 - AT - Income Tax

Tribunal upholds penalty for violating tax provisions, dismissing assessee's appeal and partly allowing Revenue's appeal.

The Tribunal upheld the imposition of a penalty of Rs. 68,400 under Section 271D for violating the provisions of Section 269SS, dismissing the appeal of ... - Issues Involved:1. Violation of the provisions of Section 269SS of the Income Tax Act.2. Exigibility of penalty under Section 271D of the Income Tax Act.3. Quantification of the penalty to be imposed.Detailed Analysis:1. Violation of the Provisions of Section 269SS of the Act:The primary issue was whether the assessee violated the provisions of Section 269SS by accepting cash deposits exceeding Rs. 20,000. The assessee argued that the amounts received were not loans or deposits but balances in current accounts, thus not covered under Section 269SS. The assessee relied on the Cochin Bench Tribunal's judgment in Muthoot M. George Bros. vs. Asstt. CIT and the Madhya Pradesh High Court's judgment in CIT vs. Kalani Asbestos (P) Ltd. to support their claim. However, the Tribunal found these cases inapplicable due to differing facts, particularly the nature of the transactions and the relationship between the parties involved.The Tribunal clarified the distinction between 'loan' and 'deposit,' emphasizing that both create a debtor-creditor relationship. In the present case, the deposits were not merely current account balances but were structured with an obligation to return the amount along with credited interest. Thus, the Tribunal concluded that the amounts received by the assessee were indeed deposits within the meaning of Section 269SS, and the assessee had violated the provisions by accepting these deposits in cash exceeding Rs. 20,000.2. Exigibility of Penalty under Section 271D of the Act:The next issue was whether the penalty under Section 271D was exigible. The assessee contended that since the transactions were genuine and the depositors were existing assessees, no penalty should be imposed. The assessee also cited various judgments, including Vir Sales Corporation vs. Asstt. CIT and Hindustan Steel Ltd. vs. State of Orissa, arguing that ignorance of law and the absence of any intent to evade tax should constitute a reasonable cause for not imposing the penalty.However, the Tribunal found these arguments unconvincing. It held that the provisions of Section 269SS are mandatory, and the genuineness of the transactions or the absence of tax evasion is irrelevant. The Tribunal emphasized that the default itself attracted the penalty, and the assessee failed to show any reasonable cause to exempt them from the penalty. Consequently, the Tribunal upheld the imposition of the penalty under Section 271D.3. Quantification of the Penalty:The final issue was the correct quantification of the penalty. The CIT(A) had reduced the penalty from Rs. 89,650 to Rs. 23,000, considering only the deposit from Smt. Promila Kumari as violating Section 269SS. However, the Revenue argued that the CIT(A) erred in not considering the deposits from Shri Kulwant Rai, Shri Swaran Dass, and Shri Satpal, which also violated Section 269SS.The Tribunal agreed with the Revenue, noting that the credit balances in the accounts of these individuals were already in excess of Rs. 20,000 as on 1st April 1989. Thus, the deposits from these individuals also violated Section 269SS. The Tribunal concluded that the AO was justified in imposing a penalty of Rs. 68,400 and that the CIT(A) erred in reducing it to Rs. 23,000. The Tribunal modified the orders of the lower authorities accordingly.Conclusion:The Tribunal dismissed the appeal of the assessee and partly allowed the appeal of the Revenue, upholding the imposition of a penalty of Rs. 68,400 under Section 271D for violating the provisions of Section 269SS.