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Issues:
Violation of provisions of section 269SS by borrowing sums otherwise than by account payee cheques/drafts; imposition of penalty under section 271D. Analysis: The case involved appeals against the imposition of penalties for violating section 269SS by borrowing sums without using account payee cheques/drafts. The Assessing Officer found that the appellant had borrowed significant amounts from the Managing Director, not through proper channels. The learned CIT(A) upheld the penalty, emphasizing the lack of a reasonable cause for the contravention. The appellant's argument that the borrowed amounts were used for various expenses and bank deposits was deemed insufficient, as complying with section 269SS would have been feasible. The closely held nature of the company and the interrelation between the appellant and the Director were acknowledged. However, the penalty was deemed justified due to the failure to adhere to statutory provisions. The appellant contended that the borrowed amounts were necessary to clear cheques and avoid legal consequences under the Negotiable Instrument Act. They argued that the Director's direct deposits into the company's account should not be considered a violation of the law. Citing previous decisions and a pragmatic approach, the appellant sought to establish a reasonable cause for the actions taken. They highlighted cases where penalties were not imposed in similar circumstances. The appellant maintained that the transactions did not involve actual cash borrowing and that the Director's deposits were in line with legal requirements, thus warranting a lenient interpretation of the law. The Tribunal examined the provisions of sections 269SS and 271D in detail. It recognized the intertwined nature of the appellant and its Director, particularly in financial matters. The Tribunal acknowledged the necessity of the Director's deposits to avert financial crises and emphasized the absence of a clear distinction between the company and its management. Considering the intent behind section 269SS to prevent tax evasion, the Tribunal found that the transactions did not fit the typical scenario the provision aimed to address. Referring to previous decisions, the Tribunal concluded that the Director's direct deposits into the company's account did not violate section 269SS and constituted a reasonable cause for the actions taken. Consequently, the penalties under section 271D were deemed unwarranted, and the appeals were allowed.
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