2006 (7) TMI 163 - HC - Income Tax

Non-compliance of sections 269SS and 269T - sale proceeds received on behalf of farmer constituents as their kachha adhatiya to be deposits and consequently its user by the farmer constituents as repayment of deposits - Penalty levied Order u/s 271D and 271E - Bar of limitation u/s 275 - bona fide belief - reasonable and sufficient cause - precedence and trade practice allegedly amounting to res judicata - HELD THAT - We are of the opinion that in view of clear instructions of the Central Board of Direct Taxes relating to the transaction of the nature in which the assessee has indulged as kachcha adhatiya on behalf of his constituents referred to herein and in the order of the Tribunal is not to be considered as a deposit when the money is retained by the kachcha adhatiya for remitting to the constituents and subsequent remittance or adjustment of such amount by discharging obligation of his constituents or remittance of such amount to the constituents are not considered to be repayment of the deposits or loan. The assessing authorities were bound by the general instructions contained in the circular issued by the Board so far as the dealings of kachcha adhatiya of the nature found by the Assessing Officer himself in the present case. Therefore, there was hardly any occasion for invoking sections 269SS and 269T on the supposed omission on the part of the assessee to comply with the requirement of the said provisions for inviting application of penalty provisions of sections 271D and 271E. Therefore, we are in agreement with the Tribunal that the provisions of sections 271D and 271E could not have been invoked in the present case. Even assuming that the provisions of sections 269SS and 269T could be invoked , the findings of the Tribunal that reasonable cause existed for the assessee which resulted in failure to comply with the provisions of sections 269SS and 270T are findings of fact which do not give rise to any question of law. In the aforesaid view of the matter, penalty under sections 271D and 271E was not imposable substantively and was rightly set aside by the Tribunal. We are of the opinion that since penalty proceedings for default in not having transactions through the bank as required under sections 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under sections 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, clause (a) of sub-section (1) of section 275 cannot be attracted to such proceedings. If that were not so clause (c) of section 275(1) would be redundant because otherwise as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if clause (a) was to be invoked, no necessity of clause (c) would arise. Thus, both on the ground that the transaction in question retention of sale price by the kachha adhatiya did not amount to deposit and its utilisation and dealing with it at the instance of farmer constituents did not amount to repayment of loan or deposits within the meaning of section 269SS or section 269T and on the ground that limitation u/s 275(1)(c) applies to such proceedings. we hold in favour of the respondents. Accordingly, these appeals fail and are hereby dismissed.

Issues Involved:
1. Applicability of Section 275(1)(c) versus Section 275(1)(a) for the limitation period of penalty proceedings.
2. Legality of the penalty order under Section 271D.
3. Empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D.
4. Justification of the assessee's actions under bona fide belief and reasonable cause as per Section 271D.

Issue-wise Detailed Analysis:

1. Applicability of Section 275(1)(c) versus Section 275(1)(a) for the limitation period of penalty proceedings:
The Tribunal held that the penalty orders should have been passed within 6 months from the end of the month in which the assessment was completed, making the penalty orders time-barred under Section 275(1)(c). The Revenue contended that the limitation should be governed by Section 275(1)(a) due to the appeals against the assessment orders. However, the Tribunal opined that penalty proceedings are independent of assessment proceedings, and the filing of an appeal against the assessment orders is irrelevant. The court agreed that since the penalty proceedings for defaults under Sections 269SS and 269T are independent of assessment proceedings, Section 275(1)(c) applies, and the orders were indeed time-barred.

2. Legality of the penalty order under Section 271D:
The Tribunal found that the transactions in question, involving the retention of sale proceeds by the assessee as a kachha adhatiya, did not amount to deposits under Section 269SS nor their utilization as repayment of loans under Section 269T. The Tribunal relied on the Central Board of Direct Taxes (CBDT) circular, which clarified that such transactions do not constitute deposits. Consequently, the penalty under Sections 271D and 271E could not be imposed. The court upheld this view, agreeing that the transactions were not deposits and the penalty provisions were not applicable.

3. Empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D:
The Tribunal and the court did not find any specific issue regarding the empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D. The focus was more on the nature of transactions and the applicability of penalty provisions rather than the procedural aspects of who initiated the proceedings.

4. Justification of the assessee's actions under bona fide belief and reasonable cause as per Section 271D:
The Tribunal and the Commissioner of Income Tax (Appeals) found that the assessee acted under a bona fide belief and had reasonable and sufficient cause for non-compliance with Sections 269SS and 269T. The Tribunal noted the trade practices, the inconvenience to rural agriculturists, and the bona fide conduct of the assessee. The court agreed that these findings were factual and did not raise a question of law. The court also noted that the CBDT circular supported the assessee's position, reinforcing that no penalty was warranted under Sections 271D and 271E.

Conclusion:
The court dismissed the appeals, agreeing with the Tribunal that the penalty proceedings were time-barred under Section 275(1)(c) and that the transactions in question did not constitute deposits under Sections 269SS and 269T. Additionally, the assessee had reasonable cause for non-compliance, and the penalty provisions were not applicable. The court upheld the Tribunal's decision to set aside the penalties.

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