TaxTMI 
TaxTMI 
2008 (4) TMI 360
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....e capital introduced was received by them from their grandfather Shri Rodhu Singh through cheque drawn on the District Co-operative Bank. 3. The Assessing Officer issued notice under section 148 requiring the assessee to file return of income. The assessee filed the return of income declaring income in the form of salary and interest from the above referred firm. In the course of assessment, the Assessing Officer required the assessees to furnish evidence about nature and source of deposit made by them. The assessees submitted that the amount was received from their grandfather out of his bank account. The grandfather had sizeable agricultural land generating agricultural income for providing financial help. The Assessing Officer was satisfied about the genuineness of the loan. However, on further enquiry, the Assessing Officer found that the amount was received by way of bearer cheque. He accordingly concluded that the amount was received otherwise than by account payee cheque and hence, in violation of the provisions of section 269SS of the Act. In the assessment order dated January 27, 2003, the Assessing Officer being the Income-tax Officer, Deoband, noted that "No doubt the l....
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....section 271D is attracted. 5. Before the learned Commissioner of Income-tax (Appeals), the assessee reiterated the submissions made before the Additional Commissioner of Income-tax. It was further submitted that Shri Rodhu Singh and the assessee both are having agricultural income and neither of them has any income chargeable to tax and hence, no penalty should be imposed as the matter is covered by the exception provided in the second proviso to section 269SS of the Act. Alternatively, it was submitted that the assessee had to purchase cane crusher and therefore, he was in urgent need of funds. To meet this urgency, he accepted the cash through grandfather. Considering the urgency of circumstances, penal action ought not to be taken. The amount taken by the assessee from the grandfather was not a loan or deposit but was a financial help. 6. The learned Commissioner of Income-tax (Appeals) held that the time limit for penalty would start from the show-cause notice issued by the competent authority who has authority to levy penalty. Reliance was placed on the decision of the hon'ble Karnataka High Court in the case of Shanbhag Restaurant v. Deputy CIT [2004] 266 ITR 393. He al....
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....eliance was placed on the decision of the Income-tax Appellate Tribunal, Jodhpur Bench, in the case of Hissaria Bros. [2001] 73 TTJ 1. As approved by the hon'ble Rajasthan High Court in the case of CIT v. Hissaria Bros. [2007] 291 ITR 244. Reliance is also placed on the decision of the hon'ble Bombay High Court in the case of CIT v. Chhajer Packaging and Plastics P. Ltd. [2008] 300 ITR 180. 8. Shri Malik further submitted that the assessee, being agriculturist and residing in village did not have any other income. Prior to setting up of the partnership firm, all the assessees herein as well as their grandfather were having income only from agricultural operations and did not have any taxable income. Thus, on the date of receipt of loan they had no other income. Accordingly, in terms of the second proviso to section 269SS, section 271D was not attracted. He also submitted that the amount so received from grandfather was by way of financial help and should not be viewed as loan in strict sense. The default, if any, is a technical one for which penalty is not attracted, which is as high as the amount of loan received itself. The assessee at all time was under bona fide belief....
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....roviso, it is clear that if the person from whom the loan is taken or accepted and the person by whom the loan is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act, section 269SS do not apply to them. Section 269SS is a transaction specific and not related to any assessment year. Thus, the provision is attracted if say only on the date of taking or accepting the loan, the subsequent events do not govern the applicability of section 269SS. Thus, on the date of acceptance of loan, if both the persons, namely, lender and borrower are having agricultural income and do not have income chargeable to tax under the Income-tax Act, section 269SS is not applicable. There is logic behind this. Penalty under section 271D is attracted under the Income-tax Act for alleged violation of certain provision contained in the Income-tax Act. However, if a person is not an assessee at all under the Income-tax Act, merely because certain other provisions are contained in the Income-tax Act, as in the case in hand, i.e., sections 269SS, 271D etc., the assessee cannot be penalised if he is not subject to the provisions of the Income-ta....
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.... through bearer cheque". This conclusively proves that the action for imposition of penalty has been initiated on January 10, 2003, as recorded in the assessment order dated January 27, 2003. It is a different fact that the Income-tax Officer, who has so initiated the penalty is not competent to levy penalty under section 271D. However, it cannot be said that the action has not been initiated. Once the penalty proceedings have been initiated, whosoever is the competent authority has to pass an order imposing penalty if he is of the opinion that penalty under section 271D is attracted. The authority competent to levy penalty is thereafter not initiating the proceedings for imposition of penalty but is only exercising his powers. But merely because he chooses to exercise his powers after a considerable time he cannot get a fresh limitation if on earlier occasion, the action for imposition of penalty has already been initiated. He can only continue the action earlier taken and in all case the order imposing penalty shall be passed within the limitation prescribed under section 275(1)(c). Since the action for imposition of penalty has been initiated on January 10, 2003, as per section ....
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....hs is to be computed from the last date of the month in which the penalty proceedings were initiated. Thus, April 30, 1999 would be the starting point of limitation of six months and consequently, October 29, 1999 would be the last date of the period of limitation, computed in accordance with the second half of clause (c) of section 275(1) of the Act. Thus, in the case on hands, by computing limitation in both permissible ways, the period of limitation is either March 31, 1999 or October 29, 1999. October 29, 1999 being later in time, that was the available outer limit for the Department to impose penalty. The order imposing penalty is passed on March 13, 2000. Coming to the opening part of sub-section (1), it says, 'no order imposing penalty . . . shall be passed.' Thus, once the period of limitation prescribed by either of clauses (a) to (c) has expired, the Departmental authorities have no powers to impose penalty. The opening part rules out any possibility of taking initiation of the proceedings as 'sufficient compliance' or as keeping the proceedings within limitation. The language is so couched that the penalty proceedings are expected to be concluded befo....