1993 (8) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Legality of penalties u/s 271D and 271E for transactions prior to 1st April 1989.
2. Whether transactions in current accounts with sister concerns are "loans" or "deposits" under ss. 269SS and 269T.
3. Constitutionality of s. 269SS.
4. Existence of "reasonable cause" for non-compliance under s. 273B.

Summary of the Judgment:

1. Legality of penalties u/s 271D and 271E for transactions prior to 1st April 1989:
The Tribunal held that penalties u/s 271D and 271E, which came into force from 1st April 1989, cannot be applied to transactions that occurred before this date. The Direct Taxes Laws (Amendment) Act, 1987, effective from 1st April 1989, introduced these penal provisions. The Tribunal cited Supreme Court judgments and CBDT Circulars (No. 522 and No. 551) to support the view that these provisions apply prospectively. Therefore, penalties for transactions before 1st April 1989 are invalid.

2. Whether transactions in current accounts with sister concerns are "loans" or "deposits" under ss. 269SS and 269T:
The Tribunal did not provide a definitive ruling on whether transactions in current accounts with sister concerns qualify as "loans" or "deposits" under ss. 269SS and 269T. Both parties agreed that a decision on this point was not necessary if the appeals were decided on other grounds. However, the Tribunal assumed these transactions to be loans or deposits for argument's sake and found that even if they were, penalties should not be imposed due to reasonable cause.

3. Constitutionality of s. 269SS:
The Tribunal followed the judgment of the Hon'ble Madras High Court in Kum. A.B. Shanti vs. ADI (1992) 197 ITR 330 (Mad), which declared s. 269SS ultra vires the Constitution. The Tribunal, bound by this High Court decision, held that penalties u/s 271D and 271E cannot be sustained.

4. Existence of "reasonable cause" for non-compliance under s. 273B:
The Tribunal found that the transactions between the assessee and its sister concerns were genuine and made to meet urgent business needs. The assessee's ignorance of the law and bona fide belief that such transactions did not violate any provisions constituted a "reasonable cause" under s. 273B. The Tribunal cited Supreme Court and High Court judgments to support that ignorance of law coupled with bona fide belief and urgent business necessity constitutes reasonable cause. Therefore, penalties under ss. 271D and 271E were not imposable.

Conclusion:
The Tribunal allowed the appeals, cancelling the penalties levied under ss. 271D and 271E, based on the non-applicability of these provisions to transactions before 1st April 1989, the bona fide nature of the transactions, and the existence of reasonable cause.