TaxTMI 
TaxTMI 
2005 (1) TMI 309
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....when no assessment proceedings were pending before the learned AG. 2. That the learned authorities below have not properly appreciated the purpose, aims and objects of inserting s. 26988 as clarified by the CBDT in its Circular 387, dt. 6th July, 1984, according to which these provisions were brought to curb the tendency of tax evaders to prove the unaccounted money found in search, loans. 3. That the learned authorities have not properly appreciated that the transaction is neither a loan nor a deposit as the trustee is giver of amount and individual and he is also the receiver of amount as trustee of the trust for making payment of land to farmers and to meet urgent needs for material used in construction 4. That the default, if any, is of technical and venial nature as the genuineness and availability of cash given by the trustee to trust to meet urgent needs has not been doubted. 5. That the appellant craves leave to add, amend, alter or withdraw any ground of appeal." 3. The parties were heard first with respect to the request for raising additional grounds and since the learned Departmental Representative, did not raise any objection against admission of the sam....
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....ch in the case of Noble Pictures vs. Jt. CIT (2004) 84 TTJ (Coch) 718 : (2004) 268 ITR 109 (Coch)(AT). 5. The next argument advanced by the learned counsel for the appellant was that the intention of legislature while enacting the provisions of ss. 26933, 269T, 27ID and 27IE was, as have been explained, in Circular No. 387, dt. 6th July, 1984, to curb the transactions of black money for explaining the genuineness of cash found during the time of search or otherwise-meaning thereby, that, if the transaction in question does not involve the black money rather is found to be genuine then there is no violation of S. 26933 or 269T, as the case may be and consequently, there is no justification for making penalty under s. 271D or 271E of the Act, as the case may be. Reverting to the present case, the counsel for the assessee submitted that since the Revenue has accepted the transaction as genuine, there was no involvement of black money and consequently, this is not a fit case where penalty under s. 271D may be imposed. In support of this submission, reliance was placed on the decision of Tribunal. Agra Bench in the case of Farrukhabad Investment (I) Ltd. vs. Jt. CIT (2003) 80 TTJ (De....
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....nuine, no penalty was leviable, the learned Departmental Representative submitted that there is no such prohibition under the law. Only requirement is that of receipt of amount exceeding Rs. 20,000 in cash and once this requirement is satisfied, penalty under s. 271D is leviable. The learned Departmental Representative further submitted that when the amount was received by the assessee, it was not known as to who has paid because it was only when Mr. Y.K. Gupta had disclosed the amount under VDIS Scheme that it came to be known that it was Mr. Y.K. Gupta, who had given the amount. Closing his averments, the learned Departmental Representative supported the order of the CIT(A). 10. We have considered the- rival submissions, facts and circumstances of the case and various decisions relied upon by the counsel for the assessee. 11. The brief facts, as have been revealed from the records, are that (i) The appellant is a public charitable trust, which has set up and established an engineering and management college in Farah, District Mathura in affiliation with Uttar Pradesh Technical University and approval of All India Council of Technical Education, Ministry of Human Resources D....
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....id by Shri Y.K. Gupta to the trust on this account being in cash was declared by him in voluntary disclosure scheme and income-tax due thereon was paid by him. No interest was charged on the amounts paid by Shri Y.K. Gupta and credited in the books of unsecured loans as the intention of the managing trustee was to assist the trust in its objective of setting up an engineering and management college in periphery of Agra. There was no tax evasion in the entire transaction. (vii) The Addl. CIT Range-I. Agra issued a show-cause notice under s. 271D of the Act on 12th June, 2003, proposing to impose penalty under s. 271D of the Act for assessee's default in accepting the loan during the period relevant to asst. yr. 1996-97. The assessee submitted that the amount in question having been received from the trustee, it was neither loan nor deposit. Another submission made was that since the assessee had purchased land for starting college, the farmers were pressing hard for the payment in cash and they had no bank accounts. It was in view of these facts that the assessee accepted the amount in cash. The Addl. CIT did not accept assessee's explanation as sufficient cause and levied penalt....
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.... it as the assessee was engaged in the production of films. The said statement was to be filed within 30 days of completion of the production. The first film was released on 28th Sept., 1989, and the second one released on 22nd March, 1991. Hence, the statement was due on or before 28th Oct., 1989 and 21st April, 1991, respectively. However, the assessee did not comply with the above requirement. The AO held that the failure on the part of the assessee to file the said statements within the prescribed time attracts penalty under cl. (c) of sub-s. (2) of S. 272A of the Act. Accordingly, notice under S. 274(1) r/w S. 272A of the Act, on 14th July, 1999 for both the assessment years in question, calling the assessee to appear before the AO on 27th July, 1999, so as to explain why penalty could not be imposed. The assessee did not reply, Second notice was issued on 27th Oct., 1999, calling the assessee to state its reply on or before 15th Nov., 1999. The assessee did not respond again. According to the AO various notices issued to the assessee were acknowledged yet for reasons better known to the assessee, the assessees did not reply or respond. Therefore, the AO held that "it can o....
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....first appellate authority already dismissed the assessee's appeal vide para 4 of his order observing as under: 'On a consideration of the facts of the case, it is noticed that the AO has imposed the penalty as Form No. 52A was not on record, either for the asst. yr. 1990-91 or for the asst. yr. 1991-92. During the course of the appellate proceedings, the Authorised Representative of the appellant was required to give evidence in regard to the claim that Form No. 52A was actually filed. However, he expressed his inability to give any direct evidence of having filed Form No. 52A with the IT authorities at Aluva or Trichur. Since the appellant has been insisting on having filed Form No. 52A with the IT authorities, no explanation was offered at the time of hearing in regard to non-filing of Form No. 52A at all. Under the circumstances, the AO was justified in levying penalty under s. 272A(2)(c) of the IT Act." (ii)(b). It was in view of the above facts and circumstances of the case that the Hon'ble Tribunal held as under: "We have heard rival submissions, gone through the orders of the Revenue authorities and the decisions cited. Before going through the circumstantial eviden....
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....ld have initiated some action for the imposition of penalty in the course of such proceedings. It depends on the facts of each case whether any such action has been initiated before the date of completion of the assessment. If, even before the completion of the assessment, the ITO has issued a penalty notice, it is clear that he has taken necessary action for the imposition of penalty. This condition can also be said to be satisfied where, though a penalty notice has not been issued before that date, it is seen that the officer had given a direction to his office before completing the assessment that such a notice should be issued. Similarly, in cases governed by s. 274(2) (which has been deleted w.e.f. 1st April, 1976), action could be considered to have been initiated if the officer had made a reference to the IAC under that provision though the IAC might apply his mind and issue a further notice to the assessee only long thereafter. But some definite step by way of initiation of penalty proceedings should be taken by the officer before the assessment proceedings come to an end. It is not enough for the ITO to record in the assessment order that penalty proceedings are to be or w....
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....iry of the financial year in which the proceedings in the course of which action for the imposition of penalty has been initiated are completed or six months from the end of the month in which action for imposition of penalty is initiated. In the instant case of the assessee, it was neither completed before 31st March, 1993, nor even initiated before the six months contemplated by the second limb of the provision, i.e., 31st Aug., 1993. It was initiated in the year 1999. First of all there should be a reasonable time within which penalty proceedings is to be initiated or to be completed. Even if a time is not prescribed under the law, the penalty cannot hang on the head of an assessee as a sword of Damocles indefinitely. It is true that there is no equity in tax. But there cannot be injustice. The penalty proceedings are like criminal proceedings, though on a different footing. It may be improper to use the word "harassment" but the least, it is not fair play to penalize an assessee against whom no penalty was initiated during the assessment proceedings or if started to keep penalty proceedings ad infinitum. In the light of the above, we set aside the order of the learned CIT....
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....us. In view of the finding of the CIT(A), the AO issued show-cause notice to the assessee as to why the penalty under s. 271D may not be imposed on the amount of loans or deposits accepted by the assessee in other years. As per the AO, the amount of loans/deposits accepted by the assessee in violation of s. 26988 in different years was as under: Asst. yr. Amount 1992-93 1,43,050 1993-94 1,37,000 1994-95 11,51,000 1995-96 27,76,960 1997-98 71,71,360 &n....
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.... 22,050 1994-95 25,000 1995-96 65,000 1997-98 24,82,927 1998-99 34,87,711 9. The penalty under ss. 271D and 271E of the Act for asst. yr. 1996-97 were partly sustained by the CIT(A) as mentioned above which is also the subject-matter of appeal before us. 10. On receipt of the penalty orders, the assessee challenged the same before the Hon'ble Allahabad High Court. In their order dt. 5th June, 2000, their Lordships observed that in the writ petition, the orders imposing penalties under s. 271D/271E of the Act have been challenged. The Hon'ble Court observed that as the petitioner had alternate remedy of filing the appeal under the IT Act, the petitioner may file appeal within 3 weeks from the date of their orders. Their Lordships also observed that the appeals shall be decided by the ap....
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....any deposit referred to in S. 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the deposit so repaid. (2) Any penalty imposable under sub-so (1) shall be imposed by the Dy. Jt. CIT' The provisions. of ss. 269SS and 269T were brought on the statute by the Finance Act, 1984 w.e.f. 1st April, 1984. The intention behind bringing the above provisions on the statute was clarified by the CBDT vide its Circular No. 387, dt. 6th 8ept., 1984 [sic-Memorandum Explaining the Provision of the Finance Bill, 1984]. The relevant part of the circular is as under: '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 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....
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....ne and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provisions of s. 269SS. It is not the case of the Revenue that the amount involved were unaccounted transactions. It is an undisputed fact that the transactions are genuine. The Chapter XX-B and s. 269SS begins with the heading-Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. The term 'certain' used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not attracted. This section attracts only 'certain' loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the headings prefixed to sections or set of sections in some modern statutes are regarded as 'preambles' to those sections. This view was approved by Farewel L.J. Fletcher vs. Birkenhead Corporation (1907) 1 KB 205.' 42. A statute is an edict of the legislature and the conventional wa....
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....atute. It is permissible to control the wide language used in a statute if that is possible by the setting in which the words are used and the intention of the law-making body which may be apparent from the circumstances in which the particular provision came to be made.' 45. Similar views were expressed in the cases of Sodhi Transport Co. vs. State of U.P. AIR 1986 SC 1099, 1956 SCR 577, Manmohan Das Shah vs. Bishun Das AIR 1967 SC 643, State of Madhya Pradesh vs. Azad Bharat Finance Co. AIR 1967 SC 276 and Ajay Hasia vs. Khalid Mujib Sehravadi AIR 1981 SC 487. 46. Keeping in view the intent of the legislature behind enacting the above sections, we hold that the loans/deposits brought in by the assessee was not to explain its unaccounted cash and, therefore, the question of violating the provisions of s. 269SS/269T did not arise. We may mention here that even there is no suggestion from the Revenue that by way of accepting loans and deposits in cash, the assessee has introduced its unaccounted cash in the garb of loans. 48. Regarding learned counsel's arguments that the time-limit for imposition of penalty was governed by the provisions of s. 275(1)(c), we find force in i....
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....sh 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 the years rejecting the plea of the appellant and hence these appeals. Since both the appeals involve similar issue, they are disposed of through this common order and common discussion. During the course of hearing, oral arguments as well as written submissions were made on behalf of both the parties which are considered while disposing of these appeals." (iv)b. It was in view of the above facts that the Hon'ble Tribunal cancelled the penalty after observing as under: "We have carefully gone through the facts of the case, arguments advanced and written submissions and case laws relied upon. At the outset, we may mention that it has been argued by both the parties that true character/nature of transactions should be determined without being influenced by manner of entries passed in the books of account or, the method of accounting or disclosure made in balance sheet. We agree w....
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....ipal, 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 his personal money for company's purposes, with the hope that he would take it back when the loans are disbursed to the company. In other words, it is a case where agent utilized his own money in order to fulfil his obligations towards the principal upon which he became entitled to get back the money. This is thus a unilateral transaction on the part of Mr. Goyal to involve and utilize his own money by withdrawing it from his own sources. An unilateral act cannot result in a contract for which existence of two parties is a sine qua non. Whether loan or deposit the....
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....ary 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 alter the nature of captioned monies Having decided that impugned amounts were neither loans nor deposits, all other allegations and arguments become irrelevant to the context since the provisions of s. 269SS are not attracted in the facts of the present case." (v) Mohan Karkare vs. Dy. CIT: (v)(a). The facts in this case were that on 10th Jan., 1989, the assessee had obtained a sum of Rs. 40,000 and on 11th Jan., 1989, another sum of Rs. 30,000 both amounts in cash; from 'his father to purchase a matador from Bajaj Auto Ltd. Poona. In the assessment proceedings, the transaction was accepted as genuine, but penalty....
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....-------------------- According to the AO, this was in contravention of the provisions of s. 269SS of the IT Act and after giving the assessee an opportunity of being heard, he came to a conclusion that the assessee was liable to be penalized under s. 271D of the Act. Accordingly, he imposed a penalty of Rs. 2,17,000. When the matter was taken to the CIT(A), he confirmed the penalty. (vi)(b). It was on the above facts and circumstances that the Hon'ble Tribunal deleted the penalty by holding as under: "2. We have heard the assessee's counsel 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....
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....larification has been given in the Department Circular No. 387, dt. 6th July, 1984, which is a clarification of binding nature on the Departmental authorities. There is no dispute in this case that it is not a case where any search and seizure had taken place and it is also not a case of explaining deposits or loans taken through cash in past. The Hon'ble Supreme Court in the case of R.M. Chidambaram Pillai held that a firm is not a legal person even though it has some attributes of personality. In IT law a firm is 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 liabiliti....
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....4 ITR 57 (SC) held, "...... although for purpose of income tax a firm has certain attributes simulative of personality, we have to take it that a partnership is not a person but plurality of a person". In the classic decision of the Hon'ble Supreme Court in Malabar Fisheries Co.'s case it has been held, "there is no transfer of assets involved even in the sense of any extinguishments of the firm's rights in the partnership assets when distribution takes place upon dissolution". The Hon'ble Tribunal-Ahmedabad Bench "C" in the case of Vir Sales Corpn., 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....
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....rovisions of s. 269SS. On appeal, the learned CIT(A) confirmed the penalty. Aggrieved of this, the assessee is before us in appeal." (vii)(b). Based on these facts, the Hon'ble Tribunal as per para 6(e) to para 7 of its order, has held as under: "On the question of legislative intent, the CBDT has explained the object of introduction of s. 26988 by the Finance Act, 1984, in its Circular No. 387, dt. 6th July, 1984, (1984) 43 CTR (St) 3 : (1985) 152 ITR (St) 1 thus: '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 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 ....
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....ctions are genuine. Both the assessee and the director were on the records of the IT Department and both declared these transactions to the Department. The Chapter XX-B and s. 269SS begins with the heading "Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax". The term "certain" used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not attracted. This section attracts only "certain" loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the 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 K.B. Enterprises case, we hold that the transactions between the assessee and Mr. P.K. 8wamy 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 ev....
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....case. We do not agree to finding of the learned CIT(A) on p. 4 para 3 of her order that provisions of s. 2(21) are applicable when considering this term "any other person". The "context" in which the Chapter and section was introduced by the legislature and the legislative intent are very clear in this regard and we agree with the argument of the learned counsel for the assessee. Thus, we hold that the active director of the assessee-company is clearly not covered by the expression "any other person" occurring in s. 26988 of the Act." [Para 6(g)] (vii)(c)(ii) On the issue that these are bilateral transactions, we follow the judgment of the Tribunal, Jaipur Bench, in the case of Chandra Cement Ltd. vs. Dy. CIT the relevant portion of which is as follows: "When one single individual is managing the affairs of two concerns and the decision to transfer the funds from one concern to another or to repay the funds could have been said to have been largely influenced by the same individual, it cannot be said that transaction partakes the nature of either deposit or loan. Further, the transactions have not been impeached as non-genuine or bogus in the respective assessments. ....
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.... concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transaction inter se between the sister-concerns and the assessee cannot partake the nature of either "deposit" or "loan" though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business" (vii)(c)(v). The Mumbai "B Bench of the Tribunal in the case of Karnataka Ginning & Pressing Factory vs. Jt. CIT (2001) 72 TTJ (Mumbai) 307 : (2001) 77 ITD 478 (Mumbai), at p. 487, held as follows: "Quite apart from the question of existence of reasonable cause, we are not sure whether the amounts received by the assessee from VE can be termed as "loans" or "dep....
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....Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on considerations of all relevant circumstances-Hindustan Steel Ltd. vs. State of Orissa. 7. We can safely infer that the default, in any, can be said to be "technical" and "venial" one. The "bona fides" of the assessee can also be said to be there when we examine the facts of the case. The assessee had a "bona fide" belief that no offence was committed. The levy of penalty is not automatic since the Hon'ble Supreme Court of India in the case of Mati La1 Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC) has observed that there is no presumption that every person knows the law. In the light of the above, we hold that both on law and on facts, the penalty levied by the Addl. CIT under s. 27ID and c0nfirmed by the learned CIT(A) is not maintainable. Accordingly, we delete the penalty levied." (viii). Decision of Tribunal, Ahmedabad Bench, in Paras Brass Extrusion Ltd. vs. Dy. CIT: (viii)(a). In this case the brief facts were that the assessee had taken various amounts in cash-each exceeding Rs. 20,00....