2008 (6) TMI 321 - HC - Income Tax

Penalty under section 271D on ground that loan in cash exceeding prescribed limit - The assessee had taken from seven persons a loan of Rs. 20,000 each. This is a finding of fact and not in dispute - Central Board of Direct Taxes vide Circular No. 572, dated August 3, 1990 has clarified that if loan or deposit are in excess of Rs. 20,000 it would attract section 271D - provisions of section 269SS are not applicable - Considering the circular issued by the Central Board of Direct Taxes and the loan being not in excess of Ps. 20,000 from each person and the interpretation given by the Tribunal to the said circular, the question of law does not arise It is now well settled that circulars issued by Central Board of Direct Taxes are statutory in character and are binding on the Departmental authorities.

Summary

Issues:
Interpretation of section 269SS of the Income-tax Act, 1961 regarding loans taken in cash exceeding Rs. 20,000 and applicability of penalty under section 271D.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against the Income-tax Appellate Tribunal's order. The case involved the assessee taking loans of Rs. 20,000 each from seven individuals. The Revenue argued that any loan exceeding Rs. 20,000 taken in cash, other than by cheque, would breach section 269SS, leading to a penalty under section 271D. The question of law was whether section 269SS applied only to loans taken in cash exceeding Rs. 20,000. The assessee relied on Circular No. 572 issued by the Central Board of Direct Taxes, which clarified the penalties for defaults under the Income-tax Act. The Circular stated that penalties under section 271D applied to loans or deposits exceeding Rs. 20,000 taken in cash. The Court noted that circulars issued by the Central Board of Direct Taxes are binding on departmental authorities, including the Assessing Officer. The Supreme Court's judgments emphasized the binding nature of such circulars, even if they deviate from the correct interpretation of the law.

The Court held that the Circular's interpretation that loans or deposits should be in excess of Rs. 20,000 for section 271D penalties to apply was binding. Despite the difference in language between the Circular and section 269SS, the Assessing Officer was bound by the Circular's provisions. The Court emphasized that the Board's circulars are legally binding on the Revenue, even if they deviate from the correct interpretation of the law, as long as they are issued under statutory powers. The Court dismissed the appeal, stating that the Assessing Officer could not act contrary to the Circular's provisions. Therefore, as the loans were not in excess of Rs. 20,000 from each person, the question of law did not arise, and the appeal was dismissed.