1998 (12) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Levying/confirming penalty u/s 271D and 271E for violation of provisions of ss. 269SS and 269T.
2. Whether the penalties were time-barred.
3. Existence of reasonable cause for the violations.

Summary:

Issue 1: Levying/Confirming Penalty u/s 271D and 271E
The Departmental authorities imposed penalties of Rs. 13,16,000 u/s 271D and Rs. 1,75,000 u/s 271E for the alleged violation of ss. 269SS and 269T by accepting and repaying loans/deposits in cash from two shroffs. The assessee argued that these transactions were in the nature of current accounts and not loans/deposits, were undertaken due to urgent business needs, and constituted a technical and venial breach. The CIT(A) upheld the penalties, citing a clear breach of statutory provisions.

Issue 2: Whether the Penalties Were Time-Barred
The assessee contended that the penalties were time-barred as the penalty proceedings were initiated by the ITO on 28th March 1994, and the penalties were imposed by the Dy. CIT on 28th March 1995. However, the Departmental Representative argued that the period of limitation starts with the issue of notice by the Dy. CIT, who issued the notice on 16th Sept 1994, making the penalties within the time limit.

Issue 3: Existence of Reasonable Cause for the Violations
The Tribunal examined whether the assessee had a reasonable cause for the violations u/s 273B. The transactions were genuine, undertaken due to urgent business needs, and involved regular income-tax assessees. The Tribunal noted that the violations were an innocent mistake due to ignorance of the law and constituted a reasonable cause. The Tribunal emphasized that the penal provisions confer discretion on the authorities to levy or not to levy penalties, which should be exercised justly. Citing the Supreme Court's judgment in Hindustan Steel Ltd. vs. State of Orissa, the Tribunal held that penalties should not be imposed for technical breaches or venial violations. Consequently, the penalties were canceled.

Conclusion:
The appeals were allowed, and the penalties u/s 271D and 271E were deleted due to the existence of reasonable cause and bona fide belief. The issue of whether the penalties were time-barred was not addressed further.