TaxTMI 
TaxTMI 
TaxTMI 
2004 (6) TMI 317
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..... 43,040 vide return filed on 26-10-1994. A survey under section 133A of the Act was conducted by the Assistant Director of Income-tax (Investigation), Unit 1, Coimbatore in a hotel room, where the assessee was staying at that time. During the course of survey, the ADIT (Inv.) found and impounded personal diaries and loose sheets maintained by the assessee. During the course of assessment proceedings these loose sheets and personal diaries were tabulated and confronted to the assessee and the assessee vide his letter dated 25-3-1999 admitted that the entire unexplained income from seized records to be taxed in his individual hands. During the course of assessment proceedings, the assessee vide letter dated 23-1-1998 submitted a list of 30 persons from whom he has borrowed money on loan amounting to Rs. 13,35,000. The Assessing Officer on 26-11-1998 recorded the statement of the assessee who stated that the entire amount of Rs. 13,35,000 was taken as loan during the financial year 1993-94 relevant to the assessment year 1994-95 in cash. The Assessing Officer required the details viz., amount lent, mode of lending, repayment of amount etc. and accordingly sent notices under section 1....
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.... 18-3-2002 for levy of penalty under section 271D of the Act, for violation of the provisions of section 269SS of the Act in respect of loans otherwise than by account payee cheque or bankdraft which worked out to Rs. 13,35,000. Before the JCIT, the assessee submitted that the penalty should be dropped as the transactions involved in this case is nothing to do with evasion of tax or concealment of income. For this, he has given the reason that there is a mere technical breach of the provisions of section 269SS of the Act which does not warrant the levy of penalty automatically. Before the JCIT, it was pleaded that the loans are genuine and the additions made on the basis of these loans/cash credits have been deleted by the Assessing Officer in consequent to the order passed by the CIT (Appeals). The JCIT, after giving various reasons and deliberating the case laws cited by the assessee held that there was no reasonable cause on the part of the assessee with regard to cash borrowals/cash credits. Further he held that the assessee has not properly explained the circumstances under which and also the need for which he resorted to such practise. As there was no reasonable cause in exis....
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....ion there should be an introduction of unaccounted funds in the form of loans and there should be adequate proof before the Assessing Officer to make such loans as the subject-matter of the assessment. He relied on the following case laws to support his contentions: 1. CIT v. Parma Nand [2004] 266 ITR 255 (Delhi) 2. CIT v. Bhagwati Prasad Bajoria (HUF) [2003] 263 ITR 487 (Gau.) 3. Patiram Jain v. Union of India [1997] 225 ITR 409 (MP) 4. Karnataka Ginning & Pressing Factory v. Jt. CIT [2001] 77 ITD 478 (Mum.) 5. Industrial Enterprises v. Dy. CIT [2000] 73 ITD 252 (Hyd.) 6. Dillu Cine Enterprises (P.) Ltd. v. Addl. CIT [2002] 80 ITD 484 (Hyd.) 7. Ravi Iron & Scrap Co. v. Dy. CIT [2001] 118 Taxman 111 (Chd.)(Mag.) 8. CIT v. Ajanta Dyeing & Printing Milk [2003] 130 Taxman 442 (Raj.) In view of the above arguments he pleaded that the order of the CIT (Appeals) upholding levy of penalty under section 271D may be set aside and the appeal may be allowed. 7. On the other hand, the learned Departmental Representative, Sri K. Anangapal relied on the order of the CIT (Appeals) as well as that of the JCIT. He argued that genuineness of the loan is not a reasonable cause. He f....
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....regarding the names of persons to whom hire purchase was given, how much amount in how many instalments to be collected and the amount collected are available. The amount mentioned at the back of the sheet of this book is the principal amount. For example, in the book marked APM/9, the amount mentioned at the back of page 1 is Rs. 60,000. The principal given for Hire Purchase Finance along with interest comes to Rs. 94,000 which is collected in instalments. For belated payment of instalments, interest at the rate of 24% will be charged and collected. Question No. 11: In APM/5-10, though continuous page numbers have been given, many pages have been missing. Explain this? The pages torn represent that the account has been settled. Question No. 12: Does the income and expenditure mentioned in these books have been reflected in the cash book and ledger maintained in Chennai Office? The business run in different addresses are recorded in cash book and ledger. But the entries in books APM 5 to 10 are not recorded. Question No. 13: How much have you invested in your hire purchase finance business. Out of which, how much have you written in your accounts for which Income-tax ha....
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..... Babulal Panchalasidha (Raj) 40,000 22. Dholat Ram, Panchalasidha (Raj.) 45,000 23. Jarnes, Tuticorin 40,000 24. P. Ramasamy, Tuticorin 50,000 25. Arul Selvam, Tirunelveli 45,000 26. P. Arputham, Tirunelveli 40,000 27. A. Gunsekar Pandian, Tirunelveli 50,000 28. Pancharam, Panchalasidha (Raj.) 45,000 29. Dhanraj Raj, Panchalasidha (Raj.) 50,000 30. J.J. Dhanraj, Tirunelveli 50,000 Total 13,35,000" From the above it is clear that the assessee has not recorded the above transactions in the books of account and these transactions surfaced only after the survey conducted by the Investigation Wing of the I.T. Department on 26-10-1994. 9.2 It is further seen from question No. 12 that these transactions in Books APM 5 to 10 are not recorded and these are in the shape of loose papers/personal diaries. Even after four years, the assessee, before the Assessing Officer on 26-11-1998 during the course of assessment proceedings vide question No. 5 admitted that since these were out of books, he has not maintained any records. This clearly shows that the intention of the assessee to generate unaccounted money outside the books and also kept it away from ....
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.... to in clause (b), is (twenty) thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) Any banking company, post office savings bank or co-operative bank; (c) Any corporation established by a Central, State or Provincial Act, (d) Any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) Such other institution, association or body or class of institutions, Associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation,- For the purposes of this section,- (i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any Bank o....
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....an or deposit or the aggregate amount of such loan and deposit is Rs. 20,000 or more. The only saving clause is provided in section 273B wherein it was mentioned that the penalty not to be imposed on the person or the assessee for any failure referred to in that provisions (that section covers the provisions of section 271D) if he proves that there was reasonable cause for the said failure. Even the memorandum explaining provisions in Finance Bill, 1984 during the introduction of this particular provision, it was explained that unaccounted cash found during the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. It was further explained that unaccounted income is brought into the books of account in the form of such loans and deposits and it was particularly mentioned that the taxpayers are also able to get confirmatory letters from such cash creditors/persons in support of their explanation. The only saving clause for reasonable cause is provided in section 273B for violation of section 269SS of the Act and in view of that section, no penalty under section 271D of the Act ....
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....y the authorities below in the light of explanation offered by the assessee before the JCIT as well as before the CIT (Appeals). The only plea raised by way of four grounds in this appeal is that the transactions are genuine. 15. Now, we deal with the decisions relied on by the learned counsel for the assessee. In the case of CIT v. Bhagwati Prasad Bajoria (HUF)[2003] 263 ITR 487 (Gau.), the Hon'ble High Court has held that "Keeping in view the object of introducing section 269SS, the Legislature has given discretion to the assessing authority under section 273B of the Income-tax Act to levy the penalty as provided under section 271D of the Act or not. Under section 273B if the court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied." The Hon'ble High Court has given a finding that to satisfy the immediate requirement of money, the person normally approaches the money-lender or his friend or relative who could lend money to satisfy his immediate requirement. In those circumstances it was held as under: "In those circumstances it cannot be sai....
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.... 15.3 In the case of Industrial Enterprises v. Dy. CIT [2000] 73 ITD 252 which was relied on by the assessee's counsel, it was held by the Tribunal, Hyderabad Bench 'A' that: "The assessee in this case is a small scale industrial unit, which has set up its factory in a backward region of Andhra Pradesh. Almost all the loans were taken by the assessee-firm during the construction period. Though the assessee-firm had succeeded in securing certain loans sanctioned by banks and financial institutions, those finances had not come in time to meet the financial needs of the assessee during the construction stage of the factory, and as such the assessee was put under much pressure for money. In such circumstances the assessee-firm had to approach its friends and well wishers to extract as much cash as possible from them to meet the day to day exigencies of the business for money, so that it could complete the project within time. Therefore, there is no doubt that the assessee was very much constrained to accept the hand as and when emergencies arose. In such exigencies and emergencies for money which compelled the assessee to borrow monies from friends and well wishers from....
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....ed to be supported by financial assistance. He was, therefore, advancing them finance and adjusting the said amounts from the final payments and, therefore, he contended that it cannot be termed as an operation of granting loan in the strict sense. While, interpreting the term "books of account" referred to in sub-clause (1) of Explanation 5 to section 271(1)(c) of the Income-tax Act, A Division Bench of this court in the case of Sheraton Apparels v. Asstt. CIT [2002] 256 ITR 20 held that the said term means those books of account whose main object was to provide credible data of accounts and information to file a tax return and it must answer all the qualifications for calculating profit or loss, to depict the financial position of the business; to portray liquidity position; to provide up to date information of assets and liabilities so as to provide a profit and loss account and to have a balance-sheet to determine income and the source thereof." Further it was held by the Hon'ble High Court that: "Section 269SS was inserted in the Income-tax Act by the Finance Act of 1984 with effect from April 1, 1984, and was made operative from July 1, 1984. The Income-tax Department,....
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....t of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or it has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity." Finally, the Hon'ble Apex Court upheld the constitutional validity of the provisions of section 269SS of the I.T. Act. 16.2 Another case law relied on by the Departmental Representative in the case of Balaji Traders v. Dy. CIT [2001] 78 ITD 368, the Tribunal Pune Bench has held that: "Regarding penalty under section 271D, the first contention on behalf of the assessee was that the provisions ....
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....axable income and is being assessed to tax. Therefore, this proviso will not help the assessee. 18. The plea of the assessee was that section 269SS of the Act would not apply to the genuine credits. There can be no dispute whatsoever as regards the object of section 269SS of the Act. The object of this section was to curb tax evasion. Taking or accepting of loans or deposits exceeding certain amount in cash is prohibited as a measure in this direction. The memorandum explaining the provisions state that unaccounted income is also brought into the books of account in the form of loans or deposits and the taxpayers are also able to get confirmatory letters from such persons in support of their explanation. If this section would not apply to genuine credits, whether this section will apply to the credits which are not properly explained. If this being the situation, then what will happen to section 68 of the Act. If a credit is proved to be bogus, the same is to be disallowed and is to be added back under section 68 of the Act. In these circumstances, the provisions of section 269SS of the Act will become redundant and the very purpose of introduction of this provisions will be lost.....