1994 (1) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Violation of provisions of Section 269SS of the IT Act.
2. Imposition of penalty under Section 271D of the IT Act.
3. Bona fide belief and reasonable cause under Section 273B of the IT Act.

Summary:

1. Violation of provisions of Section 269SS of the IT Act:
The Assessing Officer observed that the assessee had accepted loans/deposits of Rs. 20,000 and above from various persons otherwise than by payees account cheques or drafts, violating Section 269SS of the IT Act. The assessee contended that as a kacha arhtia, it acted as an agent for agriculturists, keeping their money in safe custody, and not as a principal accepting loans or deposits. The Dy. CIT found no violation in certain cases but identified contraventions in others.

2. Imposition of penalty under Section 271D of the IT Act:
The CIT(A) upheld the penalty imposed by the Assessing Officer, rejecting the assessee's plea of bona fide belief and reasonable cause. The CIT(A) noted that the appellant firm had taxable income for several years and was aware of the provisions of Section 269SS. The CIT(A) also distinguished the reliance on the Madras High Court decision in the case of Smt. A.B. Shanthi Devi, stating that the penalty under Section 271D is not covered by that decision.

3. Bona fide belief and reasonable cause under Section 273B of the IT Act:
The Tribunal accepted the assessee's contention that the purpose of Sections 269SS and 271D is not to penalize genuine transactions. The Tribunal emphasized that the assessee, being a kacha arhtia dealing with agriculturists, had a bona fide belief that it could keep money in safe custody without violating Section 269SS. The Tribunal also referred to the CBDT Circular No. 556, which clarified that sale proceeds of agricultural commodities left with kacha arhtias do not constitute deposits.

Conclusion:
The Tribunal allowed the appeal, canceling the penalty imposed under Section 271D, and held that the assessee's bona fide belief and the genuine nature of transactions constituted reasonable cause for not invoking the penal provisions of Sections 269SS and 271D.