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TMI Blog2001 (9) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was in requirement of funds, Mr. P.K. Swamy, brought in the funds from his personal account and was also withdrawing this money as and when he required the same. So, money was both taken by him and given back to him. During the previous year relevant to the assessment year in question, the director Mr. P.K. Swamy had given a total amount of Rs.12,63,500 to the company, other than by way of account payee cheque or bank draft. The assessee-company claimed that Mr. P.K. Swamy, directly deposited these amounts in the bank account of the assesseecompany. The Addl. Commissioner of Income-tax rejected the versions and contention and explanation given by the assessee and levied a penalty of Rs.12,63,500 under section 27 ID of the Income-tax Act, 1961, holding that the assessee had contravened the provisions of section 269SS. On appeal, the Id. CIT(A) confirmed the penalty. Aggrieved of this, the assessee is before us in appeal. 3.4. The Id. counsel for the assessee inter alia contended that-- (a) Section 269SS was violative of article 14 of the Constitution of India, as held by the Hon'ble -Madras High Court, in the case of Kum. A.B. Shanthi alias Vennira Adai Nirmala v. Asstt. Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular assessment year, which would result in extending the time-limit of levy by six months from the date of the appellate order. Penalty under section 271D is neither related to the income returned or tax paid. So, there is no rationale in waiting till the assessment reaches finality. (d) Ld. counsel further argued that the intention of the legislature in introducing section 269SS is only to curb tax evasion and circulation of black money. He argued that this section has no application in cases of genuine transactions for the simple reason that there is no tax evasion. The alleged loans given by Mr. P.K. Swamy to the assessee-company, recorded in the assessee's books as well as in that of the Director's own accounts, in which these amounts appeared are both disclosed to the department. No interest has been paid by the appellant nor received by him. He contended that had the loans been bogus, the Assessing Officer would have certainly brought them to tax in the hands of the company under section 68 of the Income-tax Act. (e) He further argued that the alleged loan being a bilateral transaction, it cannot be said that lending is genuine but only borrowal is bogus. He drew the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly by the director in the bank account of the company. (j) He submitted that the transactions were in the nature of Current Account and they do not bear any interest or compensation and as it is a running account, it cannot be termed as a loan. He reiterated the arguments that were raised by him before the Addl. Commissioner and also before the Id. CIT(A). 5. He concluded his arguments stating that the levy of penalty was ab initio void as it is levied by an Addl. Commissioner, who is not authorised to do so. On law, he summed up that section 269SS was ultra vires of the Constitution, penalty is barred by limitation, the facts of the case do not attract levy of penalty under section 27 ID as the transactions involved are not connected to tax evasion or black money. On facts, he summed up, stating that the nature of transactions were neither loans nor deposits, the transactions were between the Director and the company and bilateral in nature and there is 'reasonable cause' for non-levy of penalty, due to exigencies of business. 6. The Id. Deptl. Representative vehemently argued that:- (a) Constitutional validity of section 269SS was upheld by the Hon'ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question of ultra vires of the Constitution of India. The constitutional validity or otherwise of the section can only be decided by the High Court or the Apex Court only. Moreover, the Madras High Court itself has given different judgments in this matter. The Gujarat and Kerala High Courts have upheld the constitutional validity of this provision. Hence, we have no other alternative but to dismiss this ground of the assessee. (b) On the issue of levy of penalty by a DCIT, though section 271D is very specific on the point, subsection (19B) of section 2 equates the DCIT (Appeals) with that of an Addl. CIT(A). Though there is no such equation in sub-clause (19A) of section 2, it is not in dispute that the Addl. CIT was discharging the functions and exercising all the powers of the erstwhile Dy. Commissioner of Income-tax. Section 120 of the Income-tax Act confers wide powers to the Board and such situations are well taken care of in the Act. We are of the considered opinion that the Addl. Commissioner of Income-tax, being a superior authority discharging the functions of the hitherto DCIT and in view of section 120, it cannot be said that he has acted without jurisdiction and we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner or an appeal by the Income-tax Officer to the Appellate Tribunal, the time-limit for com pleting the penalty proceeding will be either the two-year period as stated above or a period of six months from the end of the month in which the order of the Appellate Assistant Commissioner or, as the case may be, of the Appellate Tribunal is received by the Commissioner, whichever period expires later. It may be noted that the two year period will henceforth expire at the end of a financial year, instead of on different dates during the financial,year at present, and the six month will facilitate the exercise of vigilance by Tax Administration on the expiry of the limitation period and ensure that penalty proceedings are completed in all cases in good time. The Explanation to section 275 which provides that the time taken on re-hearing the assessee (due to change in the incumbent of the office of Income-tax Officer, Inspecting Assistant Commissioner, or Appellate Commissioner having jurisdiction) and any period during which the penalty proceedings have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the assessment of his income. Therefore, the usual concepts like the assessee, the previous year, the assessment year or the law applicable to the assessment year cannot be imported into the provisions of section 269SS or section 269T. As a result, we are unable to accept the contention of the revenue that as the transactions have taken place in the previous year relevant to the assessment year 1989-90, the penal provisions of sections 271D and 271E which came into force with effect from 1-4-1989 would stand attracted to the case of the assessee." To our mind, the intent of the legislature is to give more time to such cases falling in Category I only, ie. where penalty is related to quantum of additions to income. Otherwise, we see no reason why sub-clause (c) of section 275(1) is required to be part of the Statute. Category III covers all cases not covered by Category I and Category II. This penalty under section 271D has nothing to do whatsoever with the quantum appeal, assessment year, previous year etc. We are supported by the decision of the Cochin Bench of the Tribunal, in this regard. Hence, we hold that penalty under section 271D for violation of section 269SS are go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression, shall be liable to pay'in sections 271D and 271E and the provisions of section 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire relevant facts and materials existing on records - ITO v. Lakshmi Enterprises [1990] 185 ITR 595 (AP) applied." Though the judgment of A.P. High Court is delivered in the con text of section 276DD, the 'proposition of law' therein of the jurisdictional High Court is binding on us. The word 'liable' has been interpreted in this judgment and the Hon'ble A.P. High Court held that when a court has the discretion to impose a fine or dispense with a fine, the court has discretion as to the quantum of fine and it need not necessarily be equal to the amount of deposit. No contradictory judgment is brought to our notice. As this is a jurisdictional High Court's judgment, we are bound by the same. We have no other alternative than to uphold this contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ything to do with evasion of tax or concealment of income. As rightly pointed by the CIT(A) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with stringent punishment of heavy penalty." We find force in the argument of the Id. counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provi sions of section 269SS. It is not the case of the Revenue that the amount involved were unaccounted transactions. It is an undisputed fact that the transactions are genuine. Both the assessee and the Director were on the records of the Income-tax Department and both declared these transactions to the Depart ment. The Chapter XXB and-section 269SS begins with the heading Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. The term "certain" used there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmatory letters produced in such situations to counter "cash found'. The term 'various persons" and 'such persons' is to be understood only in relation to 'search situation' as the section itself was introduced to meet such situations only. The Id. counsel argued that it is unthinkable that the department would search ahusband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are not substantially interested or partner and firm. These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought off as sought to be explained off by the persons who are in the dragnet of search operations. So, we are convinced that the term other person' as appearing in this section means, other than those intimately connected as in the present case. We do not agree to the finding of the Id. CIT(A) on page 4, para 3 of her order that provisions of section 2(31) are applicable when considering this term 'any other person'. The 'context' in which the Chapter and section was introduced by the legislature and the legislative inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... George Bankers' case held as under:- 'Against this background, we examine the transactions between the sister concerns and the assessee. There are transfer of funds from and to the sister concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee are owned by the same family group of people with a common managing partner with centralised accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished before us all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus constitutes a "reasonable cause" as contemplated by section 273B of the Act, as the company had issued certain cheques and as they were coming up for encashment. The active Director of the company considered it expedient to deposit cash in the bank account of the company to save the situation. The expression "reasonable cause" has to be considered pragmatically and as it is an open transaction done, to meet exigencies of business, it can be said to constitute 'reasonable cause". Penalty provisions have been held by the Hon'ble Supreme Court of India as penal in character and quasi-judicial in nature. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will not be ordinarily imposed unless the party has either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregards of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on considerations of all rele ..... X X X X Extracts X X X X X X X X Extracts X X X X
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