TaxTMI 
TaxTMI 
2022 (9) TMI 1460
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...., as such the Executive Directors are not any other person for the applicability of Sec. 269SS of the Income Tax Act, 1961. 3. On the fact and circumstances of the case, the Assessing Officer of National Faceless Assessment Centre, Delhi erred in levying the penalty u/s 271D of the Income Tax Act, 1961 wherein the transaction between the Executive Directors and the Company has not been doubted during the course of scrutiny assessment and found to be genuine. 4. On the fact and circumstances of the case, the Assessing Officer of National Faceless Assessment Centre, Delhi erred in levying the penalty u/s 271D of the Income Tax Act, 1961 as the Appellant Company was under the genuine belief that Sec. 269SS of the Income Tax Act, 1961 is not applicable between the Executive Directors and the Company wherein the Executive Directors are maintaining a running account with the Company which is the reasonable cause u/s 273B of the Income Tax Act, 1961. 5. On the fact and circumstances of the case, and under the provisions of law, the Commissioner of Income Tax (Appeals) erred in dismissing the appeal without following the jurisprudence wherein the Jurisdictional I....
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....xigency of the company wherein the above said Directors were holding management affairs of the company. The said directors are responsible for the day-to-day affairs of the company. 2.4 The Ld. A.R. in support of their submission relied on the Madras High Court in case of CIT Vs Idhayam Publications 285 ITR 281, Madhya Pradesh High Court in case of CIT Vs Indore Plastic Pvt. Ltd. 262 ITR 163, Dillu Cine Enterprises (P) Ltd. Vs Addl.CIT (2002) 80 ITD 484 (Hyd-Trib) and Guwahati High Court in case of CIT Vs Bhagwati Prasad Bajoria (HUF) 263 ITR 487 and also made a submission that Sec. 269SS of the Act is not applicable for a cash transaction between the Directors and Company, as the Directors are not any other person but they are the persons managing the whole affairs of the Company and also the Assessee Company is under the genuine belief that Sec. 269SS of the Act is not applicable for running transaction between the Director and Company. 2.5 In the Assessee Company's case, the Director Mr. K V Kanaghavi and Director Mr. Akhil Biraj are Executive Directors of the company and are responsible for the management of the company, they have advanced loan to the company in cash ....
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....r the belief that the transaction between the trustee and the trust, director and the company, partner and the firm, the provision of Sec. 269SS of the Act are not applicable as they are not such other persons. 2.14 The Ld. A.R. relied on the following case laws in support of his contention that running account between trustee and trust, partner and partnership firm, director and Company and person with their relatives, section 269SS of the Act is not applicable. 2.15 The jurisdictional I.T.A.T, Bangalore 'A' Bench in the case of Sri Sanmathi Ambanna Vs JCIT in ITA No.782/Bang/2017 for the Asst Year 2009-10 dated 02-012019 at para 7,8,9,10,11,12,13 and 14 held that "the transaction between the close relatives cannot be considered as other persons, section 269SS is not applicable. Therefore, imposition of penalty u/s 271D unsustainable." 2.16 Like that the transaction between the director and the company in the form of cash loans cannot be set to fall within the mischief of section 269SS of the Act as the relationship between directors and the company cannot be said to be other persons. Within the meaning of section 269SS of the Act. Hence, the imposition of penalty....
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....rector" in case of "company" or partner" in case of "firm". The term "any other person" in the context of the introduction of this section as appears means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operations under section 132, all these persons are invariably searched together. The legislature_ was intended to curb tax evasion in "search situations" and referred to confirmatory letters produced in such situations to counter "cash found'. The term "various persons" and such persons' is to be understood only in relation to "search Situation" as the section itself was introduced to meet such situations only. The assessee argued that it is unthinkable that the department would- search a husband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are not substantially interested or partner and firm. 'These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought off as sought to be explained off by the persons who are....
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....re so, the transaction undertaken by the assessee with managing trustee is incidental to attainment of main object of assessee society and in this context, if the assessee has not paid money to the contractors who have undertaken construction of the building, the managing trustee himself is liable for all the consequences of non-payment even bouncing of cheques for insufficient funds and in that view the money advanced by the managing trustee to the assessee to meet the urgent business exigency amounts to reasonable cause within the purview of section 2738 of the Act and on this count also, the penalty cannot be levied. Further, the concept of mutuality is primarily based on the principle that one cannot profit from himself. Thus, when the managing trustee provided funds to the society to meet urgent business exigency, it cannot be said that it was a loan transaction so as to attract penalty u/s. 269SS of the Act. Further, as held by the Hyderabad ITAT in the case of Citizen Co-operative Society Ltd. (supra), the term "various persons" and "such other persons" which relates to "such situation" as the section itself was introduced to meet such situation only. Thus, the managing trus....
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....s 271D of the Act for receiving the said amount in violation of section 269SS of the Act. The assessee pleaded before the lower authorities that the Directors Kallappa V. Kanaghavi and the Director Mr. Akhil Anand Biraj are Executive Directors of the company and are responsible for the day to day management of the company, they have advanced loan to the company in cash to meet the urgent requirements of the company, which, as such, it does not attract section 269SS of the Act, so as to levy of penalty u/s 271D of the Act. Further, he has submitted that in similar circumstances in the case of Idhayam Publications cited (supra) of Hon'ble Madras High Court, wherein held that the transaction between assessee company and Directors cannot be considered as loan in terms of section 269SS of the Act and consequently, the levy of penalty u/s 271D of the Act is not possible. 5.1 Further, coordinate bench of the Tribunal, Bangalore in the case of Aakash Education Development Trust (supra) held as under:- 17. We have heard both the parties and perused the material on record. In the present case, the assessee is engaged in the activity of providing education and registered u/s. 12A ....
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....ge Paniyala, Tehsil Kotputli, Distt. Jaipur. Shri R.P. Goyal was and has been its promoter-director as well as C.M.D. For establishment of the plant, the appellant approached financial institutions who sanctioned the loan in January, 1992. Pending the disbursement of loan, Mr. Goyal brought his own money from time-to-time for the project work during the two years under consideration. During the course of assessment proceedings, it was noticed by the AO that the balance sheet of the company indicated unsecured loan from Mr. Goyal at Rs. 1,60,70,138 out of which Rs. 79,78,368 was brought by Mr. Goyal in cash during asst. yr. 1992-93 violating the provisions of s. 269SS, thus the proceedings under s. 271D were initiated and ultimately penalty of Rs. 79,78,368 was levied. Similarly, in asst. yr. 1993-94, it was observed by the AO that Shri Goyal brought the amount of Rs. 1,98,55,171 in cash which was credited in the books of the appellant-company. For this year also penalty under s. 271D was levied equivalent to the amount alleged to be in default of s. 269SS of the Act. The appellant preferred appeals in both the years before the first appellate authority who confirmed penalty in both....
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.... the amounts are credited through journal entry to the amount of Shri Rajendra Goyal and debited to various heads. The details are summarized at pp. 31 and 32 of the paper book. These are for building, plant and machinery, other assets as also revenue expenditure during construction period. Thus, the fact remains that money was brought for its immediate disposal. It is true that the company has a separate status and entity than its shareholders and directors. It is also true that director's act as agents of the company and are answerable to their principal, i.e., the company. This is the reason why Mr. Goyal undertook all the construction activities of the appellant-company at his instance, as he was responsible and answerable to the company. It was in this background that when he found company being unable to make the resources available for the project work, he decided to involve and utilize his own money for construction work. There were neither compelling reasons nor a compelling force by the so-called artificial person-company to bring in the money, it appears that it was merely a suo motu decision of Mr. Goyal to expose himself to such a huge risk of utilizing hi....
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....advanced by Mr. Goyal would be the valuation of construction work, because, firstly, there is a direct nexus between the advance and expenditure, and secondly, hardly any activity other than construction was there during this period. This is for this reason that advances made by Mr. R.P. Goyal in the present case are inseparable from construction activity. Making of advance and spending for construction work cannot be considered to be independent from each other. The person at whose instance amounts were advanced or the construction was carried out was the same individual. Therefore, in the present case, the primary evidence of amount advanced by Mr. Goyal would be the amount spent on construction, whatever be the manner of incorporating them in the books of account. Thus, going by the nature of transactions, we are satisfied that the impugned transactions were neither loan nor deposits and there is enough material on record to suggest that the amounts were brought by Mr. Goyal for directly incurring on the construction expenditure which was not in terms of any agreement with the company, but was suo motu. The nomenclature used by the parties is immaterial and would not al....
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.... and Departmental Representative According to the assessee's counsel under s. 269SS, no person shall, after the 30th day of June, 1984, take or accept 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 on the date of taking or accepting such loan or deposit exceeds Rs. 20,000 or more. He submitted that, in this case, the amount was paid by the firm to the partners and vice versa. It was submitted that under the law of partnership, there is no distinction between the partner and firm. They are one and the same. It was submitted that a firm is a compendious name of all the partners taken together. Therefore, the payment, in this case, is not from one person to another. It is a payment to self. It may be treated as loan or deposit for the purposes of accounting only and not for. the purposes of general law. He relied upon the following decisions : CIT vs. R.M. Chidambaram Pillai 1977 CTR (SC) 71 : (1977) 106 ITR 292 (SC), Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509/23 Taxman 14W (SC), Malabar Fisher....
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.... a unit of assessment, by special provisions, but is not a full person. Thus, in that case, it was held that the payment of salary to a partner represents a special share of profits. Salary paid to a partner retains the same character of the income of the firm. The Hon'ble Supreme Court, therefore, relying on the commentary of Lindley on partnership held that the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. A partner may be a debtor or a creditor of his copartners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer. Therefore, it is obvious that in this case there cannot be a relationship of a debtor and creditor between the firm and the partners. The Hon'ble Bombay High Court in the case of Narayandas Kedarnath (supra), held that there is no presumption that all the payments by the firm and the pa....
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....n distribution takes place upon dissolution". The Hon'ble Tribunal- Ahmedabad Bench "C" in the case of Vir Sales Corpn. (supra), have held that transactions inter se between the sister-concern made with a view to meet the business necessity and made under the bona fide belief and with reasonable cause and no penalty is imposable under such circumstances. In this case, the Department has nowhere challenged that the loans advanced are not genuine. The loans are genuine and they have not been made by one person to another person. As discussed above, they have been made by that person to himself in the eyes of law. The reliance of the Department in the case of Lachhiram Puanmal & Ors. vs. ITO (1990) 184 ITR 186 (MP) is also not helpful for the Department as the firm and partners are separate assessable units in the IT Act. Therefore, if a disclosure was made in the hands of the firm, the benefit would go to the firm and not to the partners. This judgment of the Hon'ble High Court was on the facts of the case. We are, therefore, of the opinion, that the payment of the amount made by a partner to a firm is the payment itself to self and does not partake the character of loan or d....
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....e 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. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the bill seeks to make a new provision 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 the aggregate amount of such loan and deposit is Rs. 10,000 or 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 proposed prohibition would also apply to cases where the amount of such loan or deposit together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more." ....
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....e headings prefixed to sections or set of sections in some modern statutes are regarded as "preambles" to those sections. This view was approved by Farewell L.J. in Fletcher vs. Birkenhead Corporation (1907) 1 KB. Enterprises case (supra), we hold that the transactions between the assessee and Mr. P.K. Swamy do not fall within the mischief sought to be remedied by the section as there is no case against the assessee that these transactions had anything to do with evasion of tax or concealment of income." "On the contention of the assessee that the words "any other person" does not denote the director of the company, we are of the considered view that the same is correct when read with legislative intent as reproduced in the previous paragraphs i.e., Board Circular No. 387, dt. 6th July, 1984, (supra). We are convinced with the learned assessee's counsel's arguments that the Finance Act, 1984, states the legislative intent and describes a situation where explanation of taxpayer of loans obtained from "various persons". It also speaks of confirmatory letters from "such other person" during the course of search. This scheme of the section, the context in which the sec....
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.... the respondents that the transactions made between the two sister-concerns were under exceptional circumstances to accommodate the emergency needs of the sister-concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under s. 269SS of the IT Act. Therefore, the proceedings initiated under. ss. 276DD and 276E of the IT Act were against the provisions of law." 31. The Cochin Bench of the Tribunal in Muthoot M. George Bankers"case (47 TTJ 434) held as under :- "Against this background, we examine the transactions between the sister-concerns and the assessee. There are transfer of funds from and to the sister-concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister-concerns and the assessee are owned by the same family group of people with a common managing partner with centralized accounts under the same roof. Transfer of funds has taken place, in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or loans with certain conditions attached to them, either as regards the per....
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.... deposits. In our view, they can be more appropriately referred to as temporary advances. Such temporary advances are outside the purview of s. 269SS." Thus, in our considered opinion, and in view of the various judicial pronouncements on this matter, we hold that the transaction of this case on hand cannot be considered as "loan" so as to attract s. 269SS and s. 27ID of the Act. "We are also of the considered opinion that the transaction can be attributable to various exigencies and vicissitudes of business and thus constitutes a "reasonable cause" as contemplated by s. 273B of the Act, as the company had issued certain cheques and as they were coming up for encashment. The active director of the company considered it expedient to deposit cash in the bank account of the company to save the situation. The expression "reasonable cause" has to be considered pragmatically and as it is an open transaction done, to meet exigencies of business, it can be said to constitute "reasonable cause". Penalty provisions have been held by the Hon'ble Supreme Court of India, as penal in character and quasijudicial in nature. An order imposing penalty for failure to carry out a....
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....t. 6th July, 1984, was to curb the transaction of black money, is also liable to be accepted because in the present case, the Revenue has accepted the transaction as genuine and has not found the deposit being out of unaccounted cash or the deposit having been made with an effort to explain or introduce cash in the garb of loan/deposit. In view of all these facts, we, after following the decision of Tribunal in the case of Farrukhabad Investment India Ltd. (80 TTJ 82, Del) accept the assessee's plea that there was no violation of the provisions of s. 269SS and cancel the penalty. 35. Further, in the case of Citizen Co-operative Society Ltd., 41 DTR 305 (Hyd), the Hyderabad Tribunal held as follows:- "17. In the present case, assessee is subject to rules laid down by cooperative society Act and the assessee has been carrying out banking operation which are under audit of various authorities and therefore the assessee could not be put at par with the other cases of other concerns since the assessee have no control in respect of the amounts received from the customers in the form of deposits. The customer usually go to the bank to make deposits with an intention ....
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.... aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities and in case of any default assessee is liable for having penalty besides cancellation of its licence. This is not the case with other assessees. Further, the assessee has to maintain confidentiality in respect of the information collected by it from its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessee. In spite of this, the assessee has furnished the information as available with it. Now if the address of the customers of the assessee found to be incomplete, this cannot form the basis for levying the penalty. There is no finding by the lower authorities that the assessee violated any guidelines issued by the Regulatory authorities. Usually, the bank was not required to go for detailed verification of addresses, whereabouts of its customers. There is no absolute obligation to assessee to make enquiries about the proposed customer so as to examine the genuineness/sources of the deposits. Bank usually rely in the introduction of any old customer and that if the bank bona fide acted on the reference of a cu....
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....be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation and that penalty will also not be imposed merely because it is lawful to do so. The imposition of penalty for failure to perform statutory obligation is only a discretionary power of the authority exercising judicial functions on consideration of all the relevant circumstances. If the assessee acted on genuine belief that penal provisions have no application to deposits and it applied only to other kind of assessees, then penalty could not be levied. As such, in present case, there exists reasonable cause in accepting the deposits in cash and paying by cash. Assessee may therefore be exonerated from the levy of penalty. The other contention of the assessee counsel is that the words 'any other person' in section 269SS or 269T does not denote the director of the assessee or members of the assessee society, when read with the legislative intent as reproduced in Board circular No. 387, dated 6-9-1984. The term 'any other person' in the context of introduction of section 269SS appears to means persons who ar....
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....members as a clause must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the society for his development and for providing better amenities to the member. In view of the transaction took place between the assessee and its member, the strict provisions of the section 269SS/269T cannot be applied. 17.1 Further, the Legislature was intending to curb the tax evasion in a 'search situation' and referred to confirmatory letters produced in such situations to counter 'cash found'. A statute is an edict of the legislature and the conventional way of interpreting or constituting a statute is to seek the intention of its maker. A statute is to be constitute according to the intent of them who make it. The legislature in a modern state is actuated with some policy to curb some evils or to some public benefits. A bare mechanical interpretation of the words without the application of a legitimate intent, devoid of any concept or purpose will reduce most of the remedial and beneficial legislation to futility. Keeping in view of the intent of the legislature behind the enacting sections 269SS/269T, ....
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....ransaction were undertaken during the regular course of its business will not result in levy of penalty under sections 271D and 271E. 19. In view of the above discussion, we inclined to delete the penalty levied under sections 271D and 271E of the Income-tax Act for the assessment years 2006-07 and 2007-08." 36. In the present case, the assessee is a registered society u/s. 12AA of the Act and its income is exempt u/s. 11 of the Act. The assessee in the stage of establishment of educational institution has undertaken the construction activity of building for the purpose of achieving the object of assessee society. In the course of construction of the building, the assessee needed urgent funds to meet the day to day requirement of the construction. In that course of time, the assessee received Rs.15,64,50,000 in cash from the managing trustee viz., Shri K. Muniraju. This happened 8 times in the assessment year under consideration. As seen from the above, it is not a deliberate and intentional violation of the provisions of section 269SS of the Act. Penalty like 271D of the Act will not be imposed unless the party concerned has acted deliberately in defiance of law ....
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....ne cannot profit from himself. Thus, when the managing trustee provided funds to the society to meet urgent business exigency, it cannot be said that it was a loan transaction so as to attract penalty u/s. 269SS of the Act. Further, as held by the Hyderabad ITAT in the case of Citizen Co-operative Society Ltd. (supra), the term "various persons" and "such other persons" which relates to "such situation" as the section itself was introduced to meet such situation only. Thus, the managing trustee of the society is not covered by the expression "any other persons" occurring in section 269SS or 269T of the Act. The transaction also is attributed to various exigencies relied by the assessee which constitute reasonable cause contemplated by section 273B of the Act. 38. With respect to assessee's claim that the transaction in question was neither loan nor deposit because the amount having been received from the trustee, was receipt to oneself, there was no reason for levy of penalty under s. 271D of the Act and that the default, if any, was of technical and venial nature; in the absence of any decision, contrary to the decision relied upon by the counsel for the assessee, suc....