2004 (9) TMI 564 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty orders under sections 271D and 271E of the Income-tax Act by the CIT(A).
2. Determination of the applicable limitation period for levying penalties under section 275 of the Act.
3. Nature of transactions (whether they were loans/deposits or 'Amanat') and applicability of sections 269SS and 269T.
4. Reasonable cause and bona fide nature of transactions.
5. Distinction between 'loan' and 'deposit' under section 269T.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Orders under Sections 271D and 271E:
The Department appealed against the CIT(A)'s decision to cancel penalty orders under sections 271D and 271E. The penalties were imposed for accepting and repaying loans/deposits in cash, contravening sections 269SS and 269T. The CIT(A) cancelled the penalties, citing that they were barred by limitation and that the transactions were not loans/deposits but 'Amanat' (safe custody).

2. Determination of the Applicable Limitation Period:
The CIT(A) held that the penalties were barred by limitation under section 275(1)(c), which prescribes a six-month period from the end of the month in which action for imposition of penalty is taken or before the end of the financial year, whichever is later. The penalties were initiated on 24-8-2001, and should have been levied by 31-3-2002. However, they were imposed on 29-10-2002, making them time-barred. The Department argued that the limitation under section 275(1)(a) should apply, but the Tribunal upheld the CIT(A)'s view that section 275(1)(c) was applicable, as the penalties were independent of the quantum appeal.

3. Nature of Transactions and Applicability of Sections 269SS and 269T:
The CIT(A) found that the transactions were not loans/deposits but 'Amanat' from agriculturists who left their money with the assessee-firm, a Kacha Arhatiya (Commission Agent), without interest. The Tribunal noted that the assessee failed to prove that it acted as a Commission Agent for these transactions. The statements and affidavits of the agriculturists were self-serving and not corroborated by documentary evidence. The Tribunal directed the Addl. CIT to reconsider the case, asking the assessee to provide evidence of acting as a Commission Agent for the sale of agricultural produce.

4. Reasonable Cause and Bona Fide Nature of Transactions:
The assessee argued that the transactions were genuine and not intended to contravene sections 269SS and 269T. The Tribunal, however, found that the assessee, being a regular taxpayer advised by legal experts, could not claim ignorance of the law. The Tribunal held that the assessee failed to prove the genuineness of the transactions and the claim of 'Amanat' was not substantiated.

5. Distinction between 'Loan' and 'Deposit' under Section 269T:
The Tribunal noted that section 269T, as it stood at the time, applied only to 'deposits' and not 'loans'. The distinction between 'loan' and 'deposit' was crucial, as the obligation to repay a loan arises immediately, while a deposit becomes payable on demand. The Tribunal held that the penalty under section 271E was rightly cancelled by the CIT(A) since the amended law including 'loan' in section 269T came into effect only from 1-6-2002, after the penalties were imposed.

Conclusion:
The Tribunal allowed the Department's appeal for statistical purposes, directing a fresh consideration of the nature of transactions by the Addl. CIT. The appeal regarding the penalty under section 271E was dismissed, and the cross-objections filed by the assessee were also dismissed as withdrawn.