1996 (9) TMI 163 - AT - Income Tax

Summary

Issues Involved:
1. Violation of provisions of s. 269SS by accepting loans/deposits in cash.
2. Validity of penalty proceedings initiated by Dy. CIT without AO's findings.
3. Lack of personal hearing and opportunity to produce evidence.
4. Misleading advertisement by the Department.
5. Interpretation of the term "aggregate" in s. 269SS.

Summary of Judgment:

1. Violation of Provisions of s. 269SS:
The assessee-firm accepted loans/deposits of Rs. 20,000 each from 13 parties in cash, which was in contravention of s. 269SS. The AO reported this to the Dy. CIT, who initiated penalty proceedings u/s 271D. The assessee argued that the loans were for business expediency and that the Department's advertisement misled them into believing that loans up to Rs. 20,000 could be accepted in cash. However, the Dy. CIT found the explanations unsatisfactory and levied a penalty of Rs. 2,60,000 u/s 271D.

2. Validity of Penalty Proceedings:
The assessee contended that the penalty proceedings were invalid as the AO did not find any violation of s. 269SS in the assessment order. The CIT(A) rejected this argument, noting that the decision of the Madras High Court declaring s. 269SS as ultra vires was stayed by the Supreme Court. The CIT(A) upheld the penalty, stating that the statutory provisions were clear and mandatory.

3. Lack of Personal Hearing and Opportunity to Produce Evidence:
The assessee claimed that the Dy. CIT did not provide a personal hearing or an opportunity to produce evidence supporting their written submissions. The Tribunal noted that the Dy. CIT should have given the assessee an opportunity to furnish details and evidence. The Tribunal inferred that the submissions made were supported by transactions recorded in the books of accounts.

4. Misleading Advertisement by the Department:
The assessee argued that a Board Circular and a Department advertisement gave the impression that only loans/deposits exceeding Rs. 20,000 needed to be by account-payee cheque or bank draft. The Tribunal found that this constituted a reasonable cause for accepting the loans/deposits in cash.

5. Interpretation of the Term "Aggregate":
The CIT(A) interpreted the term "aggregate" in s. 269SS to mean that the total amount of loans/deposits should not exceed Rs. 20,000. The Tribunal, however, noted that the impression from the Department's circular and advertisement was that only amounts exceeding Rs. 20,000 were prohibited from being accepted in cash.

Conclusion:
The Tribunal held that there existed a reasonable cause for accepting the loans/deposits in cash due to urgent business requirements and the misleading impression from the Department's circular and advertisement. Consequently, the penalty u/s 271D was not leviable, and the penalty levied was canceled. The appeal filed by the assessee was allowed.