TaxTMI 
TaxTMI 
1993 (8) TMI 312
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.... In these circumstances, whenever assessee needed funds for remitting the money to Nirma group for getting the supply of goods, the sister concerns, namely, M/s Meena Agencies and M/s Shiv Sakti Enterprises (hereinafter referred to as `M/s M.A. and M/s SSE') gave the required funds in cash to the assessee. Whenever those sister concerns required such amount the appellant gives moneys to them. The assessee had thus received in cash amounts from these two sister concerns and had also refunded those amounts as well as gave advances to these two sister concerns from time to time as per details appearing in the respective accounts of these two sister concerns. 3. The previous year relating to asst. yr. 1989-90 (the year under consideration) covered the period from 23rd Oct., 1987 to 31st March, 1989. The assessment order under s. 143(3) was made on 25th Nov., 1991 by the Asstt. CIT, Surat. While passing the said order, the Assessing Officer (AO) observed that the deposits taken from and repaid to the two sister concerns, namely, M/s M.A. and M/s SSE, were mainly in cash. These were in excess of the limits prescribed under ss. 269SS and 269T. Therefore, he forwarded a proposal for....
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.... July, 1993 has been submitted in both these appeals in which the additional ground raised is that the lower authorities have erred in not appreciating that as all the impugned transactions had taken place before the provisions of s. 271D or s. 271E were introduced, the same cannot be invoked. 7. The learned counsel for the assessee submitted that the additional ground submitted by the assessee is already covered in the grounds annexed with the appeals wherein it has been submitted that the CIT(A) has erred in confirming the aforesaid penalties. Even otherwise, since the ground raised by way of additional ground goes to the root of the matter and involves consideration of a pure question of law, the same deserves to be entertained and considered. 7.1 The learned counsel submitted that a perusal of the accounts of these two sister concerns, placed in the paper book at page 1 to 4, clearly reveals that these are transactions representing transactions in current accounts which represent flow of funds from these two sister concerns to the assessee as and when the assessee needed the funds for remitting the amount to the suppliers by way of a bank draft for obtaining supply of goo....
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...., the assessee had to take amounts from M/s M.A. and M/s SSE. The partners of these two firms are related to the partners of the assessee. Thus the partners of all the three concerns are closely related socially. The amounts in question were taken or refunded in the financial year 1988-89. There was no mala fide intention. The amounts taken were utilized for obtaining the bank draft or pay order for the purposes of obtaining supply of goods. Both these firms are assessed to income-tax and sizable account of tax is being paid regularly. The assessee has not borrowed any loan or accepted deposits from any other parties. If the assessee would not have taken the money at the time of need from these sister concerns, it would have suffered great loss and would have ultimately resulted in closure of the business. The assessee was under a bona fide belief that such type of deposits can be taken in order to solve the financial problems. The mistake, if any, has occurred due to such a bona fide belief and on account of ignorance of the relevant provisions of law which can be excused in cases of such bona fide and genuine transactions. On the basis of such facts stated in these replies a pray....
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....ions of ss. 269SS and 269T raising the monetary ceiling from Rs. 10,000 to Rs. 20,000 was explained. It was clarified that the amended provisions of ss. 269SS and 269T raising such monetary ceiling prescribed in the said sections will apply to payments or repayments made on or after 1st April, 1989. This amendment was also made effective from 1st April, 1989. He also invited our attention towards another Board Circular No. 551, dt. 23rd Jan., 1990 explaining that the default of ss. 269SS and 269T requiring taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or drafts if the amount of the deposit or loan is Rs. 20,000 or more will instead of attracting the old provisions relating to prosecution under ss. 276DD and 276E will now be made liable to penalties under ss. 271D and 271E, w.e.f. 1st April, 1989, this was clarified in para 16.6 of the said circular. In para 15.5 of the same circular dealing with raising of monetary limits from Rs. 10,000 to Rs. 20,000 in s. 269T, the Board has clarified that the amendments come into force w.e.f. 1st April, 1989 and will, accordingly, apply in relation to the transactions entered into afte....
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....urgently required for meeting urgent necessity of remitting the same by way of a bank draft to the supplier of goods. The charts submitted in the compilation clearly reveal that amount only to the extent of such a need was taken from the sister concerns which raised the balance just adequate to obtain the bank draft on that very day for sending the same to the supplier of the goods. Likewise the funds given by the assessee to the sister concerns as and when they needed the same for sending the same to the suppliers. This was submitted with a view to convince us that the funds were given to the sister concerns or were received from them to meet the urgent business need. The assessee was also under a bona fide belief that such accommodation transactions between the sister concerns, which were controlled by the same group of persons belonging to related families, do not violate any provisions of law particularly when the genuineness of the transactions in questions has not been disputed or doubted. The ignorance of the persons concerned about the relevant provisions of law, coupled with their bona fide belief that transactions with sister concerns in their respective current accounts ....
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....s merely reduced the existing debit balance. In similar manner Rs. 50,000 received from M/s SSE on 11th May, 1988 cannot be treated as acceptance of deposits as immediately prior to receiving the said amount there was already a debit balance in the account of that part to the extent of Rs. 4,125. He submitted that the transactions aggregating to Rs. 7,95,000 of M/s M.A. and Rs. 50,000 of M/s SSE cannot, therefore, be treated as acceptance of deposits. Likewise the learned counsel submitted that the penalty levied under s. 271E for alleged violation of s. 269T is also apparently invalid in respect of the alleged repayments of Rs. 3,20,000 paid to M/s M.A., the details of which has been given in para 12.1 of a separate letter dt. 4th Dec., 1992 submitted before the CIT(A) in the proceedings under s. 271E. On the dates on which those amounts have been paid and debited in the account of M/s M.A. there was no credit balance. Hence, question of treating these amounts as repayments does not arise. In fact as a result of payment of these amounts aggregating to Rs. 3,20,000, the credit balance got converted into debit balance and resulted in the increase of existing debit balance in the sai....
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....counsel are not at all relevant for deciding the issue in question. The Limitation Act merely prescribes the period of limitation within which proceedings for recovery thereof in accordance with the provisions of law can be initiated. They have classified the loans and deposits into various categories for the purpose of determining the separate method of computing the limitation period prescribed for each type of deposits and loans. The contention of the assessee based on the provisions of Limitation Act does not in any manner support the assessee's prayer for cancellation of the penalty in question. The provisions of s. 269SS, which provides the mode of taking or accepting certain loans and deposits and the provisions of s. 269T providing the mode of repayment of certain deposits contain the definition of the relevant terms. In Expln. (iii) of s. 269SS "loan" or deposit" means loan or deposit of money. Such enlarged definition of loan or deposit would normally cover any type of deposits received from any person including the sister concerns. In similar manner the provisions of s. 269T have also defined the deposits in Expln. (ii) saying that `deposit' means any deposit of ....
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....in respect of defaults of not complying with the requirements of ss. 269SS and 269T. These lighter and liberal provisions of law as inserted w.e.f. 1st April, 1989. It is well settled law that the provisions which are in force as on the 1st day of April, at the commencement of the assessment year would govern the proceedings relating to that assessment year. In the present case the assessment year in question is asst. yr. 1989-90, therefore, the provisions inserted w.e.f. 1st day of April 1989 will be applicable to all the transactions carried out in the previous year relating to asst. yr. 1989-90. He placed reliance on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha Peraj Chand Nowpaji vs. CGT (1988) 73 CTR (AP) 25 : (1988) 173 ITR 439 (AP). He further submitted that the provisions of Direct Taxes (Amendment) Act, 1987 contain various significant amendments. Some amendments were made effective from 1st April, 1988 while other amendments introduced by the said amending Act were made effective from 1st April, 1989. The legislature in its wisdom thought it proper to make the provisions of ss. 271D and 271E applicable w.e.f. 1st April, 1989 and would, theref....
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....at is found to be in the same branch, then it would further more have been possible for the assessee to have complied with the provisions of ss. 269SS and 269T by taking the deposits/loans by account payee cheques/drafts and also in repaying the deposits by account payee cheques/drafts. Since the assessee has clearly violated these provisions, the penalty has rightly been levied and has validly been confirmed by the CIT(A). The plea of the assessee that they were ignorant about relevant provisions of law or were under a bona fide belief that such provisions did not apply in relation to transactions in the current account or that the funds were needed for meeting the urgent business necessity do not in any manner constitute any reasonable cause as the assessee could very well have carried out these transactions by account payee cheques/drafts in view of the circumstances explained above. 8.4 The contention of the learned counsel that the object of introducing the provisions of ss. 269SS and 269T, as explained in the Board's circular was to check the device of explaining the cash found during the course of search or for explaining the fictitious cash credits, etc., cannot in a....
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....out the relevant provisions of law as they are existing IT assessees and are being assessed for last so many years. They are assisted by competent Chartered Accountants or representatives. The provisions of ss. 269SS and 269T came into force from this year 1984 and these are not recent provisions introduced in the IT Act. The judgment of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC) does not in any manner support the assessee's contention. He relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of Daljit Singh vs. CWT (1981) 21 CTR (P&H) 113 : (1981) 130 ITR 236 (P&H) to support his contention that ignorance of law cannot be accepted as a valid argument or as a reasonable cause for cancellation of the penalty. 8.7 Before concluding his arguments, the learned Departmental Representative also stated that in case the appeal is being decided on the basis of various alternative grounds argued on behalf of the assessee and as a result of decision on those grounds, the decision on the question whether transaction in current account with sister concerns are covered by the expression `....
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....amount of deposits repaid otherwise than by an account payee cheque/bank draft are to be treated as income of the assessee. There is another provision, namely, s. 269D which deals with the amount of hundi loans accepted or repaid otherwise than through account payee cheque to be treated as income of the assessee. The provisions of ss. 269SS and 269T are prohibitive in nature and these provisions prescribe the manner or the mode by which certain transactions of loans and deposits are not to be done by persons mentioned therein regardless of the fact whether such person is an assessee or not. These provisions may apply regardless of the fact whether the person derives assessable income or not. The scope of ss. 269SS and 269T are very wide and they need not be confined to the case of an assessee or to the assessment of his income. Therefore, the normal concept that the law as in force as on the first day of the assessment year would be the law applicable to that assessment year cannot be applied in relation to interpretation of s. 269SS or 269T. The reliance placed by the learned Departmental Representative on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha ....
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....a parity of the same reasoning we have arrived at the conclusion that the penal provisions contained in ss. 271D and 271E can be involved only in relation to transactions carried out after the relevant provisions came in force, namely, the transactions done after 1st April, 1989 would alone be covered by the said penal provisions. 9.5 This matter can be examined from one more angle. The Board vide Circular No. 522, dt. 18th Aug., 1988 [printed at (1988) 72 CTR (St) 38] published at page 1747 of Vol. 2.4th Edn. of `Income-tax Law' by Chaturvedi & Pithisaria clarified the amendments made to s. 40A(3), 269SS and 269T in relation to the date of applicability of the amended provisions raising the monetary limits prescribed in the aforesaid provisions. The relevant parts of the said circular issued by the Board is reproduced hereunder : "Amendments to ss. 40A(3), 269SS and 269T by the Direct Tax Laws (Amendments) Act, 1987'Date of applicability'Clarification regarding'Provisions of ss. 40A(3), 269SS and 269T of the IT Act, 1961, have been amended by the Direct Tax Law (Amendment) Act, 1987 (Act No. 4 of 1988), and consequently, the monetary ceilings prescribed under....
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....visions of ss. 271D and 271E in para 16.6 which is also reproduced hereunder from page 5817 of the said book : "16.6. Insertion of the new ss. 271D and 271E to provide for levy of penalties for failure to comply with the provisions of ss. 269SS and 269T.'Under the old provisions of Chapter XXI of the IT Act, no penalties were prescribed for failure to comply with the provisions of ss. 269SS and 269T, which require the taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or account payee bank drafts if the amount of the deposit or loan is Rs. 20,000 or more. These defaults, however, attracted prosecution under the provisions of ss. 276DD and 276E. It was decided that such defaults should, instead of attracting prosecution, be made liable to penalties. The Amending Act, 1987, has, therefore, omitted the said ss. 276DD and 276E from the IT Act and has inserted two new ss. 271D and 271E to provide for penalties for these defaults. The amount of penalty is a sum of equal to the amount of loan or deposit taken or deposit repaid in contravention of s. 269SS or 269T." In the instant case, the assessing authority has levied pen....
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....l objection taken by the learned counsel for the assessee. It has been argued that the provisions of s. 269SS has been held to be ultra vires by the Hon'ble High Court in the case of Kum. A.B. Shanti (supra). On the strength of the said judgment, the learned counsel for the assessee submitted that the Tribunal should follow the said judgment regardless of the fact that the Tribunal is a creature of the statute and cannot themselves decide the ultra vires of the provisions of the Act. The learned Departmental Representative had relied on the judgment of Hon'ble Supreme Court in the case of K.S. Venkataraman & Co. (supra) in which it was held that the taxing authority is undoubtedly a creature of the Act and function thereunder. They cannot ignore any source of income on the ground that relevant provisions offend the fundamental right or are bad for want of legislative competence. The Act does not confer any such right on them. Their jurisdiction is confined to the assessment of the income and the tax under the provisions of the Act. The question of ultra vires is foreign to the scope of the jurisdiction of the Tribunal. If an assessee raises such a question, the Tribunal can....
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....l is a creature of the statute and cannot entertain the question of ultra vires of the provisions of the Act. But that does not mean that if an Act has been declared ultra vires the constitution by a High Court, the Tribunal should not take cognizance of such a decision in deciding the dispute between the Revenue and the assessee. The Tribunal in the aforesaid case has followed the judgment of the Hon'ble Madras High Court declaring the provisions of s. 269SS to be ultra vires and on that basis it has held that penalty levied under ss. 271D and 271E cannot be sustained. Respectfully following the said decision of the Tribunal this point is also decided in favour of the assessee. 11. Before dealing with the various other contentions raised on behalf of the assessee and the Revenue on the merits of the case, it would be worthwhile to reproduce the relevant provisions for convenience of ready perusal : Mode of taking or accepting certain loans and deposits.'`Rs. 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheq....
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....nder sub-s. (1) shall be imposed by the Dy. CIT." Penalty not to be imposed in certain cases.'`Rs. 273B. Notwithstanding anything contained in the provisions of cl. (b) of sub-s. (1) of s. 271, s. 271A, s. 271B, s. 271BB, s. 271C, s. 271D, s. 271E, cl. (c) or cl. (d) of sub-s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or sub-s. (1) of s. 272BB or cl. (b) of sub-s. (1) or cl. (b) or cl. (c) of sub-cl. (2) of s. 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure." 11.1 Now we will consider the remaining submissions made by the learned representatives. One of the contentions which was raised before us that the transactions in the current accounts of the sister concern made with a view to meet the urgent business necessities and which have shifted in debit or credit balances on different dates are not covered by the term `loan and deposit' mentioned in s. 269SS nor it is covered by the term `repayment of deposit' under s. 269T, such transactions are distinct in nature than the loan or deposit transactions co....
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....orated in s. 273B w.e.f. 1st April, 1989 simultaneously when these penal provisions were introduced. It provides that no penalty shall be imposable on the person for failure referred to in the said provisions (ss. 271D or 271E) if he proves that there was a reasonable cause for the said failure. 11.4 In order to properly consider the existence or absence of a reasonable cause it will be worthwhile to make a useful reference to certain decisions whereby the expression "reasonable cause" has been considered : (a) The Hon'ble A.P. High Court in the case of Addl. CIT vs. Dargapandarinath Tuljayya & Co. (1977) 107 ITR 850 (AP) (FB) at page 875 (of ITR) has observed as under : "What is sufficient cause is always a reasonable cause. As stated in Stroud's Judicial Dictionary "the word `reasonable' has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know". If a cause is reasonable having regard to the circumstances in which it has occurred and with reference to the person who has conducted himself in the course of the act which is under examination and if that act or cause i....
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....on of ss. 269SS and 269T it will be necessary to examine the legislative intention of the object for which the provisions of ss. 269SS and 269T were inserted by the Finance Act, 1984. The Board, vide Circular No. 387 dt. 6th July, 1984 [printed at (1984) 43 CTR (TLT) 3], have elaborately explained the scope and intention of inserting the provisions of ss. 269SS and 269T in the following words in para 32.1 and 32.2 and published in Income-tax Law, 5th Vol. at page 5732, so far as s. 269SS is concerned : "32.1 Unaccounted cash found in the course of searches carried out by the IT Department 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 person in support of their explanation. 32.2 With a view to counter in 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 debaring persons from taking or accepting, after 30th June, 1984, from any other person any loan o....
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....ions of ss. 271D, 271E and 273B clearly reveals that the use of the expression "shall be liable to pay" in ss. 271D and 271E and the provisions of s. 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure, that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire relevant facts and material existing on records. The Hon'ble A.P. High Court in the case of ITO vs. Lakshmi Enterprises & Ors. (1990) 185 ITR 595 (AP) had held that the provisions of the old ss. 276DD and 276E, prior to their omission w.e.f. 1st April, 1989 containing similar expression "shall be liable to pay" gives discretion to the Court with regard to the imposition of fine. 11.7 In the background of the aforesaid objects of inserting the provisions of ss. 269SS and 269T, its object and scope explained by the circulars issued by the Board and the fact that these provisions provide discretion to the authorities, the facts relating to the present case will have to be examined for the purpose of ....
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.... by the assessee to these two sister concerns. The assessee submitted before the Departmental authorities that these transactions represent bona fide transactions and were carried out in cash to meet such urgent business necessity. It was further submitted that the assessee remained under a bona fide belief that by carrying to meet the urgent business necessity did not violate any provisions of law and even if it was a mistake and amounted to a venial breach of the provisions of ss. 269SS and 269T, it was a bona fide and innocent mistake without any intention to defraud the Revenue. Such innocent mistake and ignorance of the relevant provisions of law, according to the assessee, constitute reasonable cause within the meaning of s. 273B. Ordinarily a plea as to ignorance of law cannot support the breach of a statutory provision. But the fact of such an innocent mistake due to ignorance of the relevant provisions of law, coupled with the fact that the transactions in question are genuine and bona fide transactions and had to be made for meeting the urgent business necessity will, in our opinion, constitute a reasonable cause. 11.9 It will be worth while to state that the Hon'b....
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....anner without application of mind by the Departmental authorities. It was pointed out that penalty levied under s. 271D in relation to acceptance of deposits on various dates did not in fact amount to acceptance of deposits as on those respective dates when the amounts in question were received there was already a debit balance in the accounts of these two sister concerns thus at the time when these amounts were received, it was realisation of the existing debit balance rather than acceptance of deposits from them on those dates. The details of such transactions have been given in the letter dt. 4th Dec., 1992 submitted before the CIT(A) (pp. 9 to 13 of the paper book). In this letter the details of various amounts received from M/s. M.A. and M/s. SSE, aggregating to Rs. 7,95,000 and Rs. 5,000 respectively have been given which, according to the assessee, did not constitute acceptance of any deposit or loan but it is a realisation of the existing debit balance outstanding against these two sister concerns on the respective dates. In similar manner it has been pointed out in a separate letter on 4th Feb., 1992, submitted to the CIT(A) that penalty levied under s. 271E for alleged vi....
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.... 3,73,001 DR 25.3.88 155 - 1,00,000 2,73,001 DR 21.4.88 182 - 1,00,000 1,73,001 DR 29.4.88 186 - 1,00,000 73,001 DR 2.5.88 192 - 1,00,000 26,999 DR 4.5.88 195 - 7,400 34,399 DR 5.5.88 196 - 14,700 49,099 DR 6.5.88 97 - 1,00,000 1,49,099 DR 7.5.88 198 - 16,464 1,65,563 DR 29.5.88 220 - 25,000 1,90,563 DR 31.5.88 221 5,000 - 1,75,563 DR 5.6.88 227 - 25,000 2,00,563 DR 17.6.88 229 25,000 - 1,75,563 DR 14.7.88 266 - 14,700 1,90,263 DR 18.7.88 270 - 20,000 2,10,263 DR 2.8.88 285 - 5,772 2,16,035 DR 6.8.88 289 50,000 - 1,66,035 DR 9.8.88 292 - 755 1,66,790 DR 30.11.88 21 - 11,865 1,78,655 DR 7.3.89 118 - 16,460 1,62,195 DR 8.3.89 119 40,000 - 1,22,195 DR 10.3.89 121 32,000 - 92,195 DR 27.3.89 138 - 70,000 1,62,195 DR . . 11,41,423 13,03,618 . M/s SHIV SHAKTI ENTE....
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....larly the items appearing on the debit side of the account of M/s M.A. bearing mark have been treated as repayments of deposits in violation of s. 269T. A perusal of the balance column of the said account reveals that these amounts paid to M/s M.A. cannot be treated as repayment of deposit as there was already an existing debit balance in their account. In order to establish repayment of any deposit, there ought to have been a credit balance on the preceding date and only then the payment to the said party could be treated as repayment of deposit. In fact when these payments bearing mark have been made, the existing debit balance lying in the account of M/s M.A. has increased and, therefore, such payments cannot be regarded as repayment of deposits. There could be a debate only in respect of payment made on 2nd May, 1988 which has resulted in shifting of the existing credit balance of Rs. 73,001 to a debit balance of Rs. 26,999. Penalty levied under s. 271E in respect of these payments made to M/s M.A. which has resulted in increasing the debit balance existing in their account on the respective dates is, therefore, apparently invalid and wholly unjustified. Since we have already c....