2006 (4) TMI 356 - AT - Income Tax

Penalty levied u/s 271D - contravention of section 269SS - whether the assessee has accepted any deposit or loan in cash - HELD THAT - It is well-settled that when a bank accepts a deposit from its constituents it is acting in its own right and not as an agent. The money deposited with a bank belongs to it and it can deploy the money in whatever manner it wants. Any profit or loss on such deployment belongs to the bank and not to the customer. The bank is not required to render any accounts to the customers in this regard. The customer is entitled only to the balance standing to the credit of his account. The fundamental principle of banking law is that the relationship between the bank and its customer is like a debtor and creditor. The bank may act as the agent of the customer under a special contract. In the case on hand no such special contract is shown to exist. It follows that the bank has accepted the deposits in question as a banker and not as the agent of the assessee. If this be so the conclusion is that the assessee has not accepted any deposit or loan in cash in contravention of section 269SS. The explanation furnished by the assessee is based on the evidences produced before the assessing authority viz. cash book ledger bank passbook and before the Additional Commissioner in the form of Certificates issued by the respective banks. Therefore the explanation cannot be rejected as an afterthought. The purpose of section 269SS is to track the movement of cash and restrict the loan operations only through the banking channels. In the instant case this purpose is substantially complied with for the banks on the basis of their records are in a position to certify the movement of funds and the transactions have been carried through the bank. Hence even for this reason no penalty is leviable. In the result the appeal by the assessee is allowed.

Summary

Issues:
- Confirmation of penalty under section 271D by CIT(A)
- Interpretation of section 269SS regarding acceptance of loan or deposit in cash
- Whether transactions between closely related persons fall under section 269SS
- Reasonable cause for accepting cash deposits
- Validity of explanation provided by the assessee
- Responsibility for actions of closely related persons in banking transactions

Confirmation of penalty under section 271D by CIT(A):
The appeal was against the confirmation of a penalty under section 271D by the CIT(A). The penalty was levied by the Additional Commissioner after cash deposits were made in various bank accounts of the assessee by the son. The CIT(A) partially confirmed the penalty, leading to the appeal.

Interpretation of section 269SS regarding acceptance of loan or deposit in cash:
The main issue revolved around whether the assessee had accepted any deposit or loan in cash as per section 269SS. The department did not dispute the claim that the cash deposits were made by the son without the volition of the assessee. The department argued that the bank accepting the cash deposit acted as the agent of the assessee, but it was clarified that the bank accepted the deposits as a banker, not as the assessee's agent. This interpretation was crucial in determining the applicability of the section.

Transactions between closely related persons under section 269SS:
The interpretation of the expression "any other person" in section 269SS was debated. Two different views existed regarding whether closely related persons like father and son should be considered under this section. The Tribunal accepted the view that transactions between closely related persons fell outside the scope of section 269SS, favoring the assessee.

Reasonable cause for accepting cash deposits:
Temporary borrowings by the assessee to meet immediate financial commitments, where the son deposited cash, were considered reasonable cause for accepting the cash deposits. The department acknowledged this position but raised objections regarding the timing and validity of the explanation provided by the assessee.

Validity of explanation provided by the assessee:
The department objected to the explanation provided by the assessee, claiming it was an afterthought and that the transactions could have been routed differently through the son's bank account. However, the Tribunal found the explanation based on evidence produced before the assessing authority and the Additional Commissioner to be valid and not an afterthought.

Responsibility for actions of closely related persons in banking transactions:
The department's objection regarding the son's actions and the routing of transactions through the same bank account raised questions about the assessee's responsibility for the actions of closely related persons. The Tribunal highlighted that the purpose of section 269SS was to track cash movements and ensure loan operations through banking channels, which were substantially complied with in this case.

In conclusion, the Tribunal allowed the appeal by the assessee, emphasizing the interpretation of legal provisions, the validity of explanations provided, and the responsibility for actions in closely related banking transactions.