1989 (9) TMI 5 - HC - Income Tax

Summary

Issues involved: Validity of section 269SS of the Income-tax Act, 1961 and challenge to section 44AB.

Validity of section 269SS:
The petitioners argued that section 269SS is draconian as it imposes penalties without considering reasonable causes, even for legitimate transactions. They contended that the provision is arbitrary in nature. However, the Department's counsel highlighted the safeguards provided under sections 278AA and 279, which require showing reasonable cause and prosecution only at the instance of the highest functionary of the Income-tax Department. Section 269SS prohibits taking loans or deposits over Rs. 10,000 without an account payee instrument, with exceptions for certain entities. Failure to comply attracts punishment under section 276DD. The court noted that the use of the non obstante clause in section 278AA allows for showing reasonable cause before prosecution under section 276DD, providing a safeguard against arbitrary enforcement. Section 279 further ensures that prosecution is initiated by senior officials, reducing arbitrariness in enforcement.

Challenge to section 44AB:
The petitioners also challenged the validity of section 44AB, but the court had previously upheld its validity in a separate case. Consequently, the court upheld the validity of section 269SS as well, dismissing the writ petitions without costs.