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TMI Blog2005 (12) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... chemes run by such companies. 4.2 During assessment proceedings in assessment year 1994-95 the Assessing Officer noticed that the assessee had received certain cash deposits above Rs. 20,000 from various depositors and has thus contravened the provisions of section 269SS of the Income-tax Act. The Assessing Officer, therefore, sent a proposal for initiation of penalty proceedings under section 271D. 4.3 During penalty proceedings, the Assessing Officer required the assessee to furnish details of cash deposits beyond Rs. 20,000. In this regard show cause notice dated 9-3-1998 was also sent besides other notices. The concerned officer also required the assessee to furnish the particulars of loans/deposits of Rs. 20,000 or more as required in para 10 of 3CD report. It was also mentioned that as per directions of the Assessing Officer issued under section 142(2A) accounts of the assessee were to be audited and a report was to be submitted in which the loans and deposits of Rs. 20,000 or more were to be included in the points to furnish details. 4.4 The Assessing Officer has observed in the penalty order that the assessee did not furnish details required through show-cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , taken by way of contravention he took assistance from the details of one branch namely Basti Branch for assessment year 1995-96 and found that deposit during the year in that branch were Rs. 3,38,41,342 out of which cash deposit of Rs. 20,000 or more was at Rs. 29,84,200. Thus, the ratio of deposits of Rs. 20,000 or more was 8.82 per cent to the balance deposit of Rs. 4,40,21,52,811 (Rs. 4,42,81,70,243 - 2,60,17,432). The figures of deposits in contravention of section 269SS was worked out by him by applying the ratio of 8.82 per cent to the balance deposit of Rs. 4,40,21,52,811 at Rs. 38,82,69,877. Thus, he added this figure to the quantified amount of Rs. 2,60,17,432 and took the figure of Rs. 41,42,87,305 as the total figure of deposits beyond Rs. 20,000 or more as taken by contravening the provisions of section 269SS. 4.7 The Assessing Officer then considered the legal aspect. The contention of the assessee was that it was only an agent and was taking loans and deposits on behalf of its principals and not in its own account and as such the entire deposits collected by the assessee were in fiduciary capacity and hence the same did not belong to the assessee-firm as the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf. It was further argued that provisions of section 269SS are attracted in case of acceptance of deposits and not on their collection or receipts. 4.12 The learned CIT(A) considered the facts and circumstances of the case and cancelled the penalty after accepting the pleas raised on behalf of the assessee. In doing so he assigned, inter alia, following reasons: (a) The break up of the identified deposits of Rs. 20,000 or more of various branches was not given to the assessee. After collecting details from the Department, he found that large number of deposits did not violate the provisions of section 269SS. (b) During the penalty proceedings the Assessing Officer issued various show-cause notices for making roving inquiries in respect of deposits which might have violated the provisions of section 269SS. (c) The Assessing Officer was not justified in estimating the amount relating to contravention of provisions of section 269SS and that too by picking up the accounts of one branch for subsequent assessment year. If the audit report was defective, then the penalty could have been imposed under section 271B. (d) Penalty can be imposed under section 271D only when a sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 271 (SC); and CIT v. Rayala Corpn. (P.) Ltd. [1995] 215 ITR 883 (Mad.). According to him, the Assessing Officer was fair enough in estimating the amount. He thus supported the order of Assessing Officer on factual as well as legal aspects. According to him, principles of Contract Law did not apply in the case of the assessee because the assessee was itself collecting the deposits and in any case the term "no person" appearing in section 269SS puts prohibition on every person collecting or taking the loan or amount or enters into any monetary transaction. 6. The learned counsel for the assessee, on the other hand, fully supported the order of learned CIT(A) and in support of the same raised further following arguments: (i) Penalty notices were issued in the case of the assessee as well as in the case of its principal companies but penalty was imposed in the case of the assessee only i.e. the agent and no action was taken in the cases of the principals. In this regard he made reference to the notice dated 15-9- 1997 issued to M/s. Sahara India Savings Investments Corporation Ltd. and notice issued to M/s. Sahara India Mutual Benefit Co. Ltd. dated 15-9-1997 under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp. Cas. 112 (Bom.). (x) Penalty cannot be levied under section 271D on estimate basis and exact amount has to be determined before initiating penalty. In the case of the assessee there is no concrete fixation of the amount and, therefore, the levy of penalty cannot succeed. In support of this argument the learned counsel placed reliance on the ratio of decisions in CIT v. Vedlapatla Veeravenkataramiah [1943] 11 ITR 308 (Mad.); CIT v. Golaprai Hoonlal Co. [1977] 110 ITR 896 (Gauhati); 41 ITD 247 (sic); and Pennwalt India Ltd. v. Registrar of Companies [1987] 62 Comp. Cas. 112 (Bom.). 7. The learned CIT DR in rejoinder vehemently opposed the arguments raised on behalf of the assessee and submitted that the learned CIT(A) was not justified in cancelling the penalty. 8. We have carefully considered the facts and circumstances relating to this matter, the rival contentions including the case laws to which reference was made at the time of hearing before us. 8.1 Provisions of section 269SS are as under: "No person shall, after the 30th day of June, 1984, take or accept from any other person (hereinafter in this section referred to as the depositor), any loan or deposit other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 269SS then he cannot be treated to be a person taking or accepting a loan because he has not taken or accepted the loan or deposit for himself but on behalf of somebody else and, therefore, penal provision of section 271D cannot be attracted in his case. On this view, the learned CIT(A) has correctly appreciated the provisions of sections 269SS and 271D and therefore we do not find any scope to interfere in his findings. 8.4 We have examined the relevant agreements and other documents connected with the agreements in relation to the liability of the assessee. The assessee was appointed as agent by the companies to collect the deposits etc. The memorandum of understanding executed between M/s. Sahara India Savings Investment Corporation Ltd. and the assessee dated 1-4-1993 clearly provides that the assessee-firm shall act as an agent of the company. The relevant covenants of this agreement are as under: "1. The Firm shall work as Agents to the company to conduct, promote, introduce, induce and secure business on behalf of the company under all its schemes - which may be changed, varied, suspended and modified from time to time as per the instructions of the Company. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee your honour will appreciate that during the relevant previous year no scheme was being operated by the assessee in its own account, all the schemes which were being operated by the assessee earlier have since matured and no new scheme was operated by the assessee, and as such no deposits have been accepted in contravention of the provision of section 269SS by the assessee in its own account for which the assessee can be treated to have committed any default within the meaning of section 271D of the Income-tax Act." 8.8 Another written reply dated 17-3-1998, available at pages 13 14 of the paper book, also contained a similar explanation of the assessee. This reply is as under: "As already mentioned in our early reply, the assessee-firm is carrying on the business of the agency which fact is verifiable with reference to the assessment records of the assessee as well. The assessee is collecting deposits and servicing those deposits by way of giving loans, meeting their maturities etc. in the capacity of agent for and on behalf of the principals and not in its own account. As such, the entire deposits collected by the assessee are in a fiduciary capacity which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her. The English Common Law reads relating to agency stems out of two Latin maxims, qui per alium facit, per seipsum facere videtur "He who does an act through another is deemed in law to do it himself", and "qui fcit per alium, facit per se". He who acts by another acts by himself. The justification for the whole law of agency is the idea of a unilateral manifestation of willingness to be bound. The base of agency is the consent of one party, the principal that the other party the agent shall act on his behalf and the agent consents so to act. The relationship of principal and agent can only be established by the consent of the principal and agent. 8.11 Section 188 of the Indian Contract Act defines the authority of the agent to do lawful things on behalf of its principal. This provision is as under: "An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose or usually done in the course of conducting such business." 8.12 The object of this provision has been described in the commentary of T.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee violated the provisions of section 269SS by exceeding the limits prescribed. In fact even the company never imposed any restriction of any amount for collecting the deposits. The deposits were being regularly transferred to the principals and they too never made any objection of the amount taken in cash beyond Rs. 20,000. 9.1 In view of the above and on the facts and in the circumstances pertaining to the case of the present assessee, in our opinion, no case for imposition of penalty under section 271D is made out against the assessee who was simply collecting the deposits of being authorized by the companies, who were its principals and violation, if any, of the provision of section 269SS might have been considered in the hands of the principals, who were operating the schemes for collecting the deposits. 10. So far as the quantification of the amount is concerned, the objections raised on behalf of the assessee as enumerated above and the observations of the learned CIT(A) are found to be correct. The Assessing Officer has adopted unique method for estimating the amount. Firstly he has shown the break up of identified amount but no show-cause notice was given to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Such amount cannot be estimated. Thus, the approach of the learned Assessing Officer in estimating the amount cannot be justified. 11. The approach of the Department is also not consistent. As pointed out by the learned counsel for the assessee, neither in earlier years nor in subsequent years penal action under section 271D was taken against the assessee, although the assessee was doing the same business on behalf of the principals in earlier and subsequent assessment years. In the assessment year under consideration, although notices were sent to the principals also for initiating penalty under section 271D, but nothing was done against them. The reasons are not known. It is also not clear as to on what basis no further action under section 271D was carried against them. On this basis also, the action of the Assessing Officer in initiating penalty against the assessee, who undisputedly worked as agent, cannot be justified. 12. In the case of Dillu Cine Enterprises (P.) Ltd. v. Addl CIT [2002] 80 ITD 484 (Hyd.), the Hyderabad Bench of the ITAT has observed as under: "Penalty provisions have been held by the Supreme Court as penal in character and quasi-judicial in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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