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TMI Blog1993 (4) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of such loans or deposits. Similarly, the learned Dy. CIT, noticed that the appellant had, during the relevant previous year, made repayments in cash of deposits amounting to Rs. 58,50,000 on various dates between 17-2-1989 and 31-3-1989 to different parties such as Mithoot M. George Chitty, Bangalore, Muthoot Bankers, Bangalore, Muthoot Bankers, New Delhi and Muthoot M. George Chitty, Faridabad, in violation of the provisions of section 269T of the Income-tax Act, 1961 and therefore levied penalty under section 271E of the said Act in a sum equal to the amount of Rs. 58,50,000. The appellant carried the matter in appeal against the levy of penalty respectively under sections 271D and 271E of the Act. It was contended before the learned CIT (Appeals) that the transactions involved transfer of funds from one sister concern to another sister concern and such transactions could not be termed as loans or deposits within the meaning of section 269SS or as deposits within the meaning of section 269T. Further, it was contended that the interest paid to the sister concerns was all accounted for and offered for income-tax assessment and no concealment of income was involved. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he excluded a sum of Rs. 28,00,000 from the ambit of section 269SS and a sum of Rs. 34,60,000 from the mischief of section 269T and sustained penalty in respect of acceptance of deposits in cash in a sum of Rs. 29,95,000 and in a sum of Rs. 23,90,000 in respect of repayment of deposits or loans in cash. The revenue is not in appeal against the exclusions made by the learned CIT (Appeals) and the reliefs thus granted. The assessee is on appeal against the levy of penalty in a sum of Rs. 29,95,000 under the provisions of section 271D and also the levy of penalty in a sum of Rs. 23,90,000 under the provisions of section 271E of the IT Act. 4. The learned CIT (Appeals) did not accept the other contentions of the appellant. According to him for the impugned provisions to be attracted it is immaterial whether the transfer of funds between the firms were found to be genuine or not. Once the appellant accepted the deposits or loans in cash in violation of section 269SS or made repayments of deposits in cash, in contravention of the provisions of section 269T, penal provisions of sections 271D and 271E are attracted. The argument that section 269SS is ultra vires the Constitution as decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in the case of the appellant are the provisions of sections 276DD and 276E. However. no action was taken under the above sections. The provisions of sections 271D and 271E can only apply prospectively to the transactions that take place on and from 1-4-1989. Thus, the levy of penalty under section 271D or under section 271E is without jurisdiction and is to be declared void ab initio. 6. Sri C. Abraham, the learned senior departmental representative contended that any amendment coming into force from the 1st April will be applicable to the assessment year beginning on 1st April of the year and as such it will cover all the transactions of the previous year relevant to the assessment year concerned. In this case, the previous year of the appellant ended on 31-3-1989 and the relevant assessment year is 1989-90. Sections 271D and 271E have come into force on and from 1-4-1989 and, therefore, there was nothing wrong in invoking the provisions of those sections for levy of penalty in respect of the contraventions of section 269SS and 269T. 7. We have considered rival submissions carefully. There is no indication in section 269SS or section 269T or any other provisions of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the date of applicability of the abovementioned amended sections of the Income-tax Act. It is hereby clarified that the amended provisions of sections 269SS and 269T will apply to payments or repayments made on or after 1-4-1989. In respect of disallowance of payments made under section 40A(3), the amendment will apply to payments made in the previous year relevant to the assessment year 1989-90 and subsequent years. " Further, in Circular No. 551 dated 23-1-1990, the Board explaining the amending Act of 1987, raising the monetary ceiling from Rs. 10,000 to Rs. 20,000, the insertion of the words " or other person " after the word " firm " and the enlargement of the term " deposit " has categorically stated at para 15.5 (page 5735 ibid) that " these amendments come into force with effect from 1-4-1989, and will, accordingly, apply in relation to the transactions entered into after this date ". Sections 271D and 271E were inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 and the Departmental Circular No. 551 dated 23-1-1990, at para 16.6 explained the scope of the provisions in the following terms at page 5817 ibid as follows : "16.6. Insertion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1-4-1989. In this view of the matter, we draw inspiration from the decision of the Supreme Court in the case of CIT v. Onkar Saran Sons [1992] 195 ITR 1 though such a decision was rendered in respect of quantum of penalty for concealment of income consequent to change of law. In that case, the original returns for the assessment years 1961-62 and 1962-63 were filed. The exact dates on which these returns were filed were not on record but assessments were completed in 1962 and 1963 respectively. Subsequently, notice under section 148 of the Income-tax Act, 1961, was served on the assessee for both the years on 9-3-1965. However, the assessee chose to file its returns in response to the notices only on 27-2-1969 disclosing the same incomes as in the original returns. The income-tax Officer made certain additions to the total income and additions of Rs. 22,988 and Rs. 9,604 respectively in those years became final. Penalty under section 271(1)(c) was imposed on the basis that the section as amended with effect from 1-4-1968 applied. The Tribunal held that there was a case of levy of penalty but directed that the penalty should be only on the basis of the law as it stood in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the decision was rendered by a Division Bench whereas in the other case the decision was rendered by a Single Judge Bench and hence the former will have precedence over the latter. He also contended that in the absence of jurisdictional High Court decision on the constitutional vires of the provisions of sections 269SS and 269T, the Tribunal, which is a creature of the law, cannot take cognizance of the decision of the Madras High Court which is in favour of the taxpayer and for this proposition he relied on the decision of the Punjab and Haryana High Court in the case Ved Prakash. Sri Srinivasan rejoined the issue by relying on the decision of the Bombay High Court in CIT v. Smt. Godavari devi Saraf [1978] 113 ITR 589 and also the decision of the Madhya Pradesh High Court in CIT v. Vrajlal Manila l Co. [1981] 127 ITR 512. We have carefully considered rival submissions. No doubt, the Tribunal as a creature of the statute cannot entertain the question of ultra vires of the provisions of an Act as it is foreign to the scope of its jurisdiction. That does not mean that if an Act has been declared ultra vires the Constitution by an High Court, the Tribunal should not take congniza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as they stood then prior to their omission with effect from 1-4-1989, the Andhra Pradesh High Court in the case of ITO v. Lakshmi Enterprises [1990] 185 ITR 595 held that the word " liable " used in the section gives discretion to the Court with regard to the imposition of fine. The Court may either chose to impose fine or may dispense with the imposition of fine. It cannot be said that the Court has no discretion with regard to the quantum of fine to be imposed. Though this decision was rendered in the context of the old sections 276DD and 276E, since similar expression is used in sections 271D and 271E, we hold that the levy of penalty is not mandatory but is only directory in nature. Further, the law is well settled that penalty will not be imposed merely because it is lawful to do so. In Hindustan Steel Ltd v. State of Orissa [1972] 83 ITR 26, the Apex Court observed whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judiciously and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be at least two parties - the giver and the receiver-both in physical existence or in legal existence. The meaning of " deposit " and " loan " has been succinctly explained at page 5735 of Chaturvedi and Pithisaria's Income-tax Law. Fourth Edition, Volume 5, which is as follows :-- " 'Deposit' and 'loan'- these two are not identical in meaning. - It is true that both in the case of a loan and in the case of a deposit there is a relationship of a debtor and a creditor between the party giving money and the party receiving money. But in the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money - the benefit normally being earning of interest from a party who customarily accepts deposits. Deposits could also be for safe-keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person who lends the money may also stand to gain thereby by earning interest on the amount lent. Ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transactions inter se between the sister concerns and the assessee cannot partake of the nature of either " deposit " or " loan ", though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of accounts of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting a deposit or accepting a loan. Therefore, we hold that the transactions as are found in the books of accounts of the assessee cannot be termed as deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business. Further, the transactions have not been impeached as non-genuine or bogus. Hence the provisions of sections 269SS and 269T are not attracted to the facts of the case. Even if they were to apply, in the facts and circumstances explained above, the action of the assessee firm in accepting the funds in cash or making refu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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