2002 (1) TMI 254 - AT - Income Tax

Summary

Issues involved:

1. Validity of the penalty imposed under Section 271D of the Income Tax Act, 1961.
2. Interpretation and application of Section 269SS of the Income Tax Act, 1961.
3. Whether the transaction between the assessee and his wife constituted a loan or deposit.
4. Consideration of reasonable cause under Section 273B of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the penalty imposed under Section 271D of the Income Tax Act, 1961:

The penalty of Rs. 2,75,000 was imposed by the Jt. CIT, Bhatinda, under Section 271D of the IT Act, 1961, for the alleged violation of Section 269SS. The assessee argued that the amount of Rs. 75,000 and Rs. 2,00,000 received from his wife was not a loan or deposit but was invested for the family's common cause. However, the Jt. CIT held that both the assessee and his wife were separate entities in the eyes of law and concluded that the assessee had accepted loans/deposits in violation of Section 269SS, thereby imposing the penalty.

2. Interpretation and application of Section 269SS of the Income Tax Act, 1961:

Section 269SS prohibits accepting any loan or deposit of Rs. 20,000 or more otherwise than by an account payee cheque or bank draft. The AO observed that the assessee received cash amounts from his wife and deposited them in his bank account, which was seen as a violation of Section 269SS. The CIT(A) upheld the penalty, noting that the wife could have deposited the amount in her own bank account, thus the argument of safe custody was an afterthought.

3. Whether the transaction between the assessee and his wife constituted a loan or deposit:

The assessee contended that the transaction was neither a loan nor a deposit, as there was no debtor-creditor relationship, and the amount was used to purchase land for their son. The Tribunal noted that the essence of a deposit is the liability to return it, which was not present in this case. The amount was used for purchasing agricultural land in the name of the son, and there was no intention to return the money or earn interest, thus it was not a loan or deposit.

4. Consideration of reasonable cause under Section 273B of the Income Tax Act, 1961:

Section 273B provides that no penalty shall be imposed if the person can prove there was a reasonable cause for the failure. The Tribunal considered the Board's Circular No. 387, which clarified that Section 269SS was not intended to apply to genuine transactions. The Tribunal found that the transaction was genuine, as the amount was ultimately used for the purchase of land in the son's name. Additionally, the Tribunal referred to previous judgments where ignorance of law and genuine transactions were considered reasonable causes for not imposing penalties.

Conclusion:

The Tribunal concluded that the authorities were not justified in invoking Section 269SS and levying the penalty under Section 271D. The transaction was genuine, and there was no intention to evade tax or violate the law. The Tribunal also accepted the alternative contention that ignorance of law could be a reasonable cause. Consequently, the penalty was deleted, and the appeal was allowed.