2003 (7) TMI 647 - AT - Income Tax

Imposition of penalty u/s 271D - violation of the provisions contained in section 269SS - Reasonable cause - Difference of opinion Third Member - Whether on proper interpretation of section 269SS and having regard to the legislative intention behind the introduction of this section, the penalty u/s 271D is leviable ? Jaidev (Accountant Member) - HELD THAT - In the instant case, it was undisputed that the genuineness of the transactions in relation to which penalties had been imposed had not been doubted by the departmental authorities. It was also true that the loans/deposits as well as repayment of loans was a result of discounting of cheques/dishonouring of cheques issued by the assessee. Both the Shroffs from whom the cheques were discounted by the assessee or to whom the payments in cash were made on account of dishonouring of cheques issued by the assessee, were regular income-tax assessees. The discounting of cheques was made by the assessee to meet urgent business needs of making the payments to the labourers for enabling the assessee to carry on its business of working as a building contractor as the payments from the State Government which were due to the assessee were not forthcoming. From the record, it is, inter alia, noted that Central Board of Direct Taxes Circulars Nos. 387 and 345 also clarified that section 269SS was introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering major economic evil of proliferation of black money, etc. In the instant case, such facts do not appear as it is nobody s case that the assessee was a tax evader or she gave cooked up explanation for cash found during the course of search. It was explained by the assessee that as per order of the Appellate Authority for Industrial and Financial Reconstruction, New Delhi, M/s. Tensile Steel Ltd. was required to deposit the amount of Rs. 1 crore with the Bank of India by May 15, 1993 and hence the time being short, the assessee (who is the daughter of promoter of M/s. Tensile Steel Ltd.) accepted the impugned amounts by cash to enable her to put the amounts quickly in her bank account to obtain FDRs on the security of which further loans were to be raised to advance the same to M/s. Tensile Steel Ltd. It was stated that bank account of M/s. Tensile Steel Ltd. was in Baroda and the assessee was located in Bombay and hence it would have taken much longer time in clearing of cheques if the impugned amounts had been obtained by cheques and hence purpose would not have been served as M/s. Tensile Steel Ltd. needed the money for making deposit as per order of the AAIFR before May 15, 1993. We have considered the arguments of learned counsel for the assessee and have also heard the learned Departmental Representative. In view of the facts of the case as, we are satisfied that there was reasonable cause for the assessee to accept the impugned amounts by cash. In the circumstances, we hold that it was not a fit case for imposition of penalty u/s 271D for violation of the provisions of section 269SS. Accordingly, we set aside the order of the Commissioner of Income-tax (Appeals) in relation to penalty u/s 271D and cancel the impugned penalty levied by the Additional Commissioner of Income-tax. In the result, the appeal of the assessee is allowed. I. P. Bansal (Judicial Member) - HELD THAT - A plain language of section 269SS will suggest that the genuineness of transaction coupled with the fact that parties are identifiable has nothing to do with the contravention for which the penalty is leviable. The ambit of section 269SS is wide enough to cover genuine transactions where parties are identifiable, so long as there is no reasonable cause for accepting the cash loan/deposit. As could be seen from the record, the assessee has accepted the cash loan/deposit on May 3, 1993 though as per directions of the AAIFR she had time up to May 16, 1993. It is equally pertinent to note that the assessee had taken the loan/deposit from the same party by an account payee cheque/draft. Even on May 11, 1993, which demonstrates that there was no urgency to receive the cash loan/deposit on May 3, 1993. This fact alone demolishes the contention of the assessee that the cash loan/deposit was accepted due to exceptional circumstances. Thus in my considered view there was no reasonable cause for accepting the cash loan/ deposit on May 3, 1993. Identical view was taken by the Income-tax Appellate Tribunal, Pune Bench, in the case of Balaji Traders v. Deputy CIT 2000 (6) TMI 157 - ITAT PUNE . In the case the Pune Bench has considered the scope and ambit of section 269SS/271D and also the applicability of the decision of the honourable Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 1978 (12) TMI 45 - SUPREME COURT elaborately. My learned Brother has laid emphasis on the Statement of Objects and Reasons for enacting section 269SS/271D to hold that penalty should not be levied for mere technical offence. The following observations of the honourable Supreme Court in the case of Govind Saran Ganga Saran v. CST 1985 (4) TMI 65 - SUPREME COURT , highlights that in a case where the language of the statute is clear, there is no need to lay more emphasis on the Statement of Objects. While interpreting an analogous provision, i.e., section 40A(3), the honourable Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO 1991 (8) TMI 5 - SUPREME COURT has stressed on the strict language of the section rather than the objective behind the legislation as could be seen from the observations of their Lordships. Thus, I am fully convinced that the assessee has accepted cash loan/deposit without proving any exigency for such acceptance, which is further reinforced by the fact that even on a later date the assessee accepted cheque/draft payment from the same party to meet the same purpose. In the result, I do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) in confirming penalty levied by the Assessing Officer. Order of Third member - It was also noticed that after obtaining the above amounts in cash, the assessee had deposited the same in her bank account with the Canara Bank, Khetwadi Branch, Mumbai. Thereafter, the assessee had withdrawn these amounts from the bank and purchased fixed deposit receipts. After encashing the FDRs, an amount of Rs. 41,50,000 was ultimately returned to TSL by cheque. In the opinion of the Assessing Officer, there was violation of the provisions of section 269SS of the Income-tax Act, 1961 ( the Act ), as such he levied the penalty of Rs. 41,50,000 u/s 271D of the Act. The Commissioner of Income-tax (Appeals) confirmed the penalty. TSL is a public limited company registered under the Companies Act, 1956. The registered office of the company is located at Hirabaug, Vishwamitri Road, Baroda. The assessee is the daughter of Mr. Ramesh R. Desai, who is the chief promoter and managing director of this company. The assessee is also one of the promoters and directors of the company. TSL was registered under the Sick Industrial Companies (Special Provisions) Act, 1985, with the Board for Industrial and Financial Re-construction ion (BIFR) under registration No. 25/87 in the year 1987. BIFR passed a winding up order on March 19, 1993 against TSL. This order was appealed before the hon ble Gujarat High Court. The hon ble Gujarat High Court approved the winding up. The operation of winding up was stayed up to April 6, 1993. Against the said order, TSL filed an appeal before the Appellate Authority for Industrial and Financial Reconstruction, New Delhi (AAIFR) on March 31, 1993. The said appeal was heard on April 2, 1993. The matter was adjourned to April 16, 1993. On April 16, 1993, AAIFR passed an order to deposit Rs. 1 crore in a nolien account in Bank of India. It was stipulated that the matter will be heard subject to the fulfilment of this condition, otherwise winding up order will stand. TSL had only one month time to deposit Rs. one crore with the Bank of India in a no-lien account. It was also apprehended by TSL that Bank of India may adjust the amount so deposited against their outstanding dues. Ex abundanti cautela it was decided not to deposit the amount with the Bank of India but in some other nationalized bank, in the name of one of the promoter directors, who was not the guarantor to the bank s dues. As such, the name of the assessee was suggested. Reasonable cause means genuine belief based on reasonable grounds. TSL was on the verge of winding up. The assessee was the promoter and director of TSL. Her father was the chief promoter and managing director of TSL. It was a closely held company. The assessee was concerned with the revival of TSL. In the process of revival, the assessee took the cash loans from TSL. Genuineness of the loan was not doubted. The circumstances under which the loan was taken were not disputed. The assessee felt that the delay may defeat the purpose. As such, to comply with the court orders and to furnish the deposits as per the direction of the AAIFR to TSL, the assessee took the loan. The purpose was not tax evasion. There was no animus to defile the provision of law. It was to revive a sick company in which the assessee was interested. The assessee proved the bona fide beyond the shadow of doubt. Once the bona fide is proved, what remains is only procedural default, which is of a venial nature. de minimis non curat lex (law takes no notice of trivialities) is the well-known tenet of law. The procedure should be the maid and not the mistress of the legal justice. Taking into consideration the entire conspectus of the case I am of the opinion that there existed a reasonable cause for accepting the cash loans. As such, the assessee may be exonerated from the rigour of section 271D of the Act. In my opinion, the learned Accountant Member was correct in deleting the penalty. As such, I concur with his order. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.

Summary

Issues Involved:
1. Whether the penalty u/s 271D is leviable for contravention of section 269SS.
2. Whether the assessee had reasonable cause for accepting cash loans in violation of section 269SS.

Summary:

Issue 1: Penalty u/s 271D for Contravention of Section 269SS
The assessee appealed against the penalty of Rs. 41,50,000 levied by the Assessing Officer (AO) u/s 271D for contravening section 269SS by accepting cash loans from M/s. Tensile Steels Ltd. The AO found that the assessee received cash loans totaling Rs. 41,50,000 and deposited the same in her bank account, which was later used to purchase fixed deposit receipts (FDRs). The AO initiated penalty proceedings, stating that section 269SS does not exempt genuine transactions or loans taken under compelling circumstances. The Commissioner of Income-tax (Appeals) upheld the AO's order, stating there was no reasonable cause within the meaning of section 273B. The Tribunal noted that section 269SS aims to counter tax evasion by prohibiting cash transactions above a certain limit. However, the Tribunal found that the transactions were genuine and the loans were returned by cheque, indicating no intention of tax evasion.

Issue 2: Reasonable Cause for Accepting Cash Loans
The assessee argued that the cash loans were taken under compelling circumstances to comply with the directions of the AAIFR for reviving the sick company, M/s. Tensile Steels Ltd. The Tribunal observed that the assessee had to deposit Rs. 1 crore in a no-lien account as per AAIFR's order, and the urgency justified accepting cash loans. The Tribunal found that the assessee had a reasonable cause for the violation, as the transactions were genuine and there was no intention to evade tax. The Tribunal referred to various judicial decisions supporting the view that penalties should not be imposed for technical or venial breaches when there is a reasonable cause.

Conclusion:
The Tribunal concluded that the assessee had a reasonable cause for accepting cash loans in violation of section 269SS, and therefore, the penalty u/s 271D should not be imposed. The appeal of the assessee was allowed, and the penalty was canceled.