TaxTMI 
TaxTMI 
2008 (11) TMI 307
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....eted on 27th Dec., 2000 by accepting the same. Since the assessee company is in the business of providing finance, it has accepted deposits from the public. It was noticed by the Addl. CIT during the course of block assessment proceedings that the assessee company had accepted deposits of Rs. 20,000 or more in cash in violation of the provisions of s. 269SS of the Act and also repaid the deposits of Rs. 20,000 or more in cash in violation of provisions of s. 269T of the Act. It is to be noted here that s. 269SS/269T prescribes the mode of accepting/repayment of certain loans or deposits. For example, as per the provisions as it stood at the relevant point of time, it is mandatory to accept any loan or deposit from any other person only by way of an account payee cheque or account payee bank draft if the deposit or aggregate amount of deposit is Rs. 20,000 or more. Similarly if the amount of deposit or aggregate amount of deposit is Rs. 20,000 or more, it should be repaid only by way of account payee cheque or account payee bank draft. Violation of the provisions of ss. 269SS and 269T attracts penalty as per the provisions of ss. 271D and 271E respectively. 2.1 On noticing the ac....
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....: (a) It is not in dispute that the directors are well-qualified and are having enough experience in the finance field. The directors never pleaded about ignorance of law. However the fact remains that the directors have ventured into a new business after retiring from the service. The money being the working capital of any finance company, they had to mobilize public deposits from the public. Hence they have spent heavily on promotional campaign to mobilise deposits by appointing agents and by giving advertisements. (b) It is not true that the classification of deposits has not been verified by any lower authorities. The assessee, vide his letter dt. 18th Jan., 2001, furnished the details of deposits along with the remarks attached to each deposit. The classification extracted at p. 8 of the order of learned CIT(A) is only collation of the said details. (c) The genuineness of deposits has not been doubted at any stage. In fact in the block assessment proceedings, the assessee has offered voluntarily a sum of Rs. 37,500 out of the deposits accepted in cash. (d) The purpose of splitting up of deposits into different deposits of small amount is not a deliberate attempt on....
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....ny. In any case, it has not been shown that the said addresses or said persons are not genuine. The depositors only have furnished all these particulars in their application for making the deposits. Hence, there is no willful or deliberate attempt to violate the provisions of s. 269SS/269T of the Act, as alleged by the Department. 4.1 On the legal ground, learned Authorised Representative submitted the following: (a) The penalty proceedings have been initiated during the course of block assessment proceedings. The block assessment proceedings carried out in search cases are special and separate proceedings prescribed under Chapter XIV-B of the Act for a specific purpose. The regular assessment proceedings in respect of each previous year included in the block period and the block assessment proceedings are carried out separately. The authorities dealing with block assessment have to limit themselves to the materials found during the course of search and seizure operations. In view of the above restrictions, the penalty proceedings under ss. 271D and 271E of the Act cannot be initiated during the course of block assessment proceedings and they can be initiated only during the ....
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....ent is often 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 persons in support of their explanation. 32.2 With a view to countering 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 debarring 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 of 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 d....
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....2) 255 ITR 258 (SC), wherein the Hon'ble Supreme Court observed that the object of introducing s. 269SS was to ensure that a taxpayer was not allowed to give false explanation for his unaccounted money, or if he made some false entries, he shall not escape by giving false explanation for the same. The main object of s. 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. The Hon'ble apex Court further observed that s. 273B provides that if there was a genuine and bona fide transaction and the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty. 8. Before learned CIT(A), the assessee relied upon the decision of Hyderabad Bench of Tribunal in the case of Industrial Enterprises vs. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd) and learned CIT(A) has extracted following observations made in the said decision: "Provisions of s. 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading....
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.... in filing return is without any reasonable cause rests with the ITO or AAC. The Court at p. 871 explained the words "reasonable cause" as under: "A penalty as provided in cl. (i) may be imposed only when the ITO or the AAC is satisfied that the delay has occurred without reasonable cause. Every cause cannot explain away the delay in filing the return. If a cause, which is reasonable, in other words, a cause which appeals to or satisfies any reasonable mind, does not exist, then alone penalty can be imposed." The Court also discussed at p. 890 as to how the reasonable cause has to be construed, in the following lines: "It may also be emphasized that, having regard to the penal consequences, the expression 'reasonable cause' has to be liberally construed in favour of the assessee. Construing s. 5 of the Limitation Act there is a long line of cases beginning with Krishna vs. Chathappan (1889) ILR 13 Mad 269, which was approved by the Supreme Court in Ramlal vs. Rewa Coalfields AIR 1962 SC 361, that the word 'sufficient cause' should receive a liberal construction so as to advance substantial justice. This is particularly true with regard to a case where non-submission of ret....
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....canvassed that if smaller deposits were made, the depositor could make partial withdrawal by encashing one deposit or take loan thereon so as to avoid loss of interest. The assessee states this as one of the reasons for acceptance of smaller deposits from the same persons though the aggregate amount exceeded the prescribed limit. (d) Quiet a few deposits were collected in camps where there were no banking facilities. (e) Whenever the deposits were received in the names of women, the common feature was that most of them did not have bank accounts and the employees had accepted the deposits in cash. (f) Certain villages from where the deposits were collected were not having any banking facilities. Hence, the deposits had to be accepted in cash. 14. The observations of learned CIT(A), at pp. 7 and 8 of his order along with the classification of cash deposits accepted are furnished below: "Following are some of the circumstances under which deposits were accepted in cash- (a) There is no bank account for the depositor. (b) There is no banking facility in the village where the depositors reside. (c) The amounts were collected on a bank holiday from the depositors....
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.... ---------- From the data cited above, we notice that a sum of Rs. 16,22,050 represents deposits of less than Rs. 20,000 received for the first lime. Hence, it cannot be said there is violation of s. 269SS to the extent of Rs. 16,22,050. Out of Rs. 46.53 lacs, majority of deposits, i.e., a sum of about Rs. 39.75 lacs has been received from ladies/housewives/agriculturists who are not having bank accounts. A sum of Rs. 37,500 has been assessed as income of the assessee on which penalty cannot be levied [CIT vs. Standard Brands Ltd. (2006) 204 CTR (Del) 48 : (2006) 285 ITR 295 (Del)]. Rest of the deposits have been received at the places/time where/when banking services were not available. Similarly in the case of deposits repaid in cash, it has been submitted by the assessee that the cash payments were resorted to in those cases where the concerned depositor had no bank account and also in the cases where the depositor was either an....
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....y and through a deliberate design." As can be seen from the abovesaid observations. the Addl. CIT did not examine the 'reasonable cause' from the point of view of a man with a reasonable mind. He has assumed that the deposits in cash are made by people who are close to and have complete trust with the management. The genuineness of the deposit has not been doubted by the Department. The existence of business compulsion and business prudence has been completely ignored by the Addl. CIT. The fact that the Addl. CIT did not consider the explanations furnished by the assessee in right perspective is brought out by his observation that the assessee company should have desisted from accepting any deposits in cash. In the case of levy of penalty under s. 271E also, the Addl. CIT rejected the explanations of the assessee without assigning any reason. 17. At the same time, it has to be noted that the assessee company has continued to accept a portion of the deposits in cash since the date of its inception. The assessee company has explained the reasons for accepting the deposits in cash from the point of view of the depositors. We would have better appreciated the case, if the assesse....
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....d. 3. Bearing the above-mentioned principle in mind, it cannot be said that the explanation of the assessee, at least in respect of first three years, is not reasonable. At any rate, the view taken by my learned Brother is a plausible view on the issue and hence needs no contradiction, in view of the well-settled legal proposition that when two views are permissible, the one which is favourable to the assessee has to be taken [CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) and Gayatri Traders]. However, it needs to be noted that fixing a standard period of three years to enable an assessee to avail immunity from the provisions may give rise to misuse of the section apart from the fact that an assessee is indirectly licensed to act contrary to the strict provisions of s. 269SS/269T of the Act under the garb of business exigencies. I am, therefore, of the view that instead of fixing a specific lime frame, it needs to be left to the judicial discretion of the tax authorities, on an analysis of the facts and circumstances of each case, to consider as to whether business exigencies compel the assessee to accept or repay the deposits in cash in excess of th....