TaxTMI 
TaxTMI 
2009 (11) TMI 578
X X X X Extracts X X X X
X X X X Extracts X X X X
.....5 lakhs, Rs. 1.5 lakhs and Rs. 3 lakhs respectively. On the ground that the repayment was in violation of s. 269T, penalty proceedings were initiated under s. 271E of the Act. 3. In response to the penalty notices, the assessee explained that he was given the dealership of IOC gas agency in the name and style of M/s Tina Gas Service in the reserved category, that in order to augment the capital he accepted Rs. 8 lakhs from one Praful Patel who was the proprietor of Mahindra Traders as capital for the partnership which was proposed to be constituted under a MoU entered into on 8th March, 2001, that since the assessee could not succeed in getting the approval of the Government for constituting a partnership to takeover the gas agency the amount was returned and in these circumstances there was no violation of either s. 269SS or 269T of the Act. It was pointed out that the amount was repaid by cheques issued on three different dates and not in cash. It was also submitted that having regard to the legislative intent as explained in the Board Circular No. 387, dt. 6th July, 1984 [(1984) 43 CTR (TLT) 3] while introducing ss. 269SS and 269T, this was not a case for imposing the penalt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tribution. It was further pointed out that the amount advanced did not bear any interest which would not have been the case if it had been advanced as a loan or deposit. It was further pointed out that there was no tax planning or tax evasion as the motive for the transaction and having regard to the object for which the sections were brought in, this was not a fit case for levy of penalty. As regards the repayments, it was pointed out that they were made by cheques and not in cash as can be seen from the bank accounts, copies of which were placed at pp. 16 and 18 of the paper book and therefore there was no violation of s. 269T. It was finally submitted that the AO was not clear about the charge and this vagueness also invalidated the penalty. 7. In support of the above submissions, our attention was drawn by the learned counsel for the assessee to the following authorities: (i) A.M. Shamsudeen vs. Union of India (2000) 164 CTR (Mad) 466 : (2000) 244 ITR 266 (Mad); (ii) Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand, ITO (1998) 146 CTR (Del) 421 : (1998) 280 ITR 522 (Del); (iii) CIT vs. Bombay Conductors & Electricals Ltd. (2008) 3 DTR (Guj) 200 : (2008) 301 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....but deposited the entire sum on 24th Jan., 2001 in his current account No. 1034 with Bank of India, Bombay Market, Surat. This has been pointed out by him in his letter dt. 4th Aug., 2005 to the AO. No doubt the amount was shown under the head "Unsecured loans" in the assessee's balance sheet, but the nomenclature given by the parties to a transaction is not conclusive of its nature. The nature of the transaction has to be ascertained in accordance with the intention of the parties and surrounding circumstances. The MoU was entered into on 8th March, 2001 and a copy thereof is placed at pp. 31 to 35 of the paper book. The original is ill Gujarati on a stamp paper of Rs. 100. The stamp papers have been purchased on the same day viz. 8th March, 2001. There is no evidence to show that on the day when the MoU was entered into, any proceedings for the levy of penalty under the IT Act were pending against the assessee. It cannot therefore be said that the MoU was not a contemporaneous document or it had been got up as an afterthought, just to suit the occasion. The entering into of the MoU and the material contents thereof were confirmed by Praful Patel who was examined four years later ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it in s. 269SS merely says that it means a loan or deposit of money [Expln. (iii) below the section]. Under Expln. (iii) below s. 269T it is defined as money which is repayable after notice or after a period and in the case of a person other than a company includes loan or deposit of any nature. The popular meaning of a loan or deposit involves the idea of charging interest and in ordinary parlance it would be difficult to conceive of a loan or deposit of money without any provision for payment of interest. In the case of a capital contribution to a partnership firm, there can be a contract amongst the partners that the capital contribution would carry interest. In the present case however it was provided that if the partnership does not materialise, the money would be returned without interest. The idea of a loan or deposit within the meaning of ss. 269SS and 269T is therefore ruled out. In any case, there is considerable doubt as to whether an advance made without any provision for interest can amount to loan or deposit. In this view of the matter, it can even be stated that the assessee bona fide thought that he could take the capital contribution in cash since it did not carry ....