2004 (3) TMI 382 - AT - Income Tax

Summary

Issues Involved:
1. Whether the penalty order passed by the Addl. CIT was barred by limitation.
2. Whether the penalty under section 271D of Rs. 2,70,000 was justified.
3. Whether the appellant had a reasonable cause for the default under section 269SS.

Detailed Analysis:

1. Whether the penalty order passed by the Addl. CIT was barred by limitation:
The primary issue was the timeliness of the penalty order. The assessee argued that the penalty order dated 13-3-2000 was barred by limitation as per section 275(1)(c) of the Income-tax Act, 1961. The relevant date for initiating penalty proceedings was 6-4-1999, when the Addl. CIT issued a show-cause notice. According to section 275(1)(c), the penalty order should be passed within six months from the end of the month in which the penalty proceedings were initiated, which would be by 31st October 1999. Since the penalty order was passed on 13-3-2000, it was beyond the prescribed period of limitation. The Tribunal, referencing the decisions in Manoharlal v. Dy. CIT and Asstt. CIT v. Shree Nivas Chemicals, concurred that the penalty proceedings were independent of assessment proceedings and thus, the penalty order was time-barred.

2. Whether the penalty under section 271D of Rs. 2,70,000 was justified:
The assessee accepted loans/deposits in cash, contravening section 269SS. The Addl. CIT imposed a penalty of Rs. 2,70,000 under section 271D. The assessee contended that the transactions were genuine, borrowed from friends and relatives, and used for business purposes. However, the Addl. CIT found no merit in this argument, stating that the assessee failed to provide a reasonable cause for the contravention of section 269SS.

3. Whether the appellant had a reasonable cause for the default under section 269SS:
The assessee argued that they were under a bona fide belief that temporary transfers of funds in cash were permissible since they were genuine. They also claimed that the transactions were not loans or deposits but mere transfers from directors/relatives, and thus, did not contravene section 269SS. The CIT(A) rejected these arguments, stating that the directors were well aware of the law, and the transactions clearly showed interest payments, indicating they were indeed loans/deposits. The CIT(A) upheld the penalty, stating that the assessee deliberately contravened the provisions of section 269SS.

Conclusion:
The Tribunal concluded that the penalty order dated 13-3-2000 was barred by limitation as it was passed beyond the six-month period prescribed under section 275(1)(c). Consequently, the impugned penalty was canceled. Given this conclusion, the Tribunal did not delve into the merits of the case regarding the justification of the penalty and the reasonable cause for the default. The appeal was allowed in favor of the assessee.