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TMI Blog2008 (11) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... any is in the business of providing finance, it has accepted deposits from the public. It was noticed by the Addl. CIT during the course of block assessment proceedings that the assessee company had accepted deposits of Rs. 20,000 or more in cash in violation of the provisions of s. 269SS of the Act and also repaid the deposits of Rs. 20,000 or more in cash in violation of provisions of s. 269T of the Act. It is to be noted here that s. 269SS/269T prescribes the mode of accepting/repayment of certain loans or deposits. For example, as per the provisions as it stood at the relevant point of time, it is mandatory to accept any loan or deposit from any other person only by way of an account payee cheque or account payee bank draft if the deposit or aggregate amount of deposit is Rs. 20,000 or more. Similarly if the amount of deposit or aggregate amount of deposit is Rs. 20,000 or more, it should be repaid only by way of account payee cheque or account payee bank draft. Violation of the provisions of ss. 269SS and 269T attracts penalty as per the provisions of ss. 271D and 271E respectively. 2.1 On noticing the acceptance and repayment of deposits in cash, the Addl. CIT issued show-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing enough experience in the finance field. The directors never pleaded about ignorance of law. However the fact remains that the directors have ventured into a new business after retiring from the service. The money being the working capital of any finance company, they had to mobilize public deposits from the public. Hence they have spent heavily on promotional campaign to mobilise deposits by appointing agents and by giving advertisements. (b) It is not true that the classification of deposits has not been verified by any lower authorities. The assessee, vide his letter dt. 18th Jan., 2001, furnished the details of deposits along with the remarks attached to each deposit. The classification extracted at p. 8 of the order of learned CIT(A) is only collation of the said details. (c) The genuineness of deposits has not been doubted at any stage. In fact in the block assessment proceedings, the assessee has offered voluntarily a sum of Rs. 37,500 out of the deposits accepted in cash. (d) The purpose of splitting up of deposits into different deposits of small amount is not a deliberate attempt on the part of the assessee to violate provisions of s. 269SS of the Act. The deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine. The depositors only have furnished all these particulars in their application for making the deposits. Hence, there is no willful or deliberate attempt to violate the provisions of s. 269SS/269T of the Act, as alleged by the Department. 4.1 On the legal ground, learned Authorised Representative submitted the following: (a) The penalty proceedings have been initiated during the course of block assessment proceedings. The block assessment proceedings carried out in search cases are special and separate proceedings prescribed under Chapter XIV-B of the Act for a specific purpose. The regular assessment proceedings in respect of each previous year included in the block period and the block assessment proceedings are carried out separately. The authorities dealing with block assessment have to limit themselves to the materials found during the course of search and seizure operations. In view of the above restrictions, the penalty proceedings under ss. 271D and 271E of the Act cannot be initiated during the course of block assessment proceedings and they can be initiated only during the course of regular assessment proceedings. (b) The Addl. CIT has passed a single order tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. 32.2 With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act, 1984, has inserted a new s. 269SS in the IT Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 of more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not.), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S was to ensure that a taxpayer was not allowed to give false explanation for his unaccounted money, or if he made some false entries, he shall not escape by giving false explanation for the same. The main object of s. 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. The Hon'ble apex Court further observed that s. 273B provides that if there was a genuine and bona fide transaction and the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty. 8. Before learned CIT(A), the assessee relied upon the decision of Hyderabad Bench of Tribunal in the case of Industrial Enterprises vs. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd) and learned CIT(A) has extracted following observations made in the said decision: "Provisions of s. 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B which reads 'Requirement as to mode of acceptance, payment or repayment in certain case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words "reasonable cause" as under: "A penalty as provided in cl. (i) may be imposed only when the ITO or the AAC is satisfied that the delay has occurred without reasonable cause. Every cause cannot explain away the delay in filing the return. If a cause, which is reasonable, in other words, a cause which appeals to or satisfies any reasonable mind, does not exist, then alone penalty can be imposed." The Court also discussed at p. 890 as to how the reasonable cause has to be construed, in the following lines: "It may also be emphasized that, having regard to the penal consequences, the expression 'reasonable cause' has to be liberally construed in favour of the assessee. Construing s. 5 of the Limitation Act there is a long line of cases beginning with Krishna vs. Chathappan (1889) ILR 13 Mad 269, which was approved by the Supreme Court in Ramlal vs. Rewa Coalfields AIR 1962 SC 361, that the word 'sufficient cause' should receive a liberal construction so as to advance substantial justice. This is particularly true with regard to a case where non-submission of return in time results in penal consequences." 11. The Hon'ble Jharkhand High Court in the case of OMEC Engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake loan thereon so as to avoid loss of interest. The assessee states this as one of the reasons for acceptance of smaller deposits from the same persons though the aggregate amount exceeded the prescribed limit. (d) Quiet a few deposits were collected in camps where there were no banking facilities. (e) Whenever the deposits were received in the names of women, the common feature was that most of them did not have bank accounts and the employees had accepted the deposits in cash. (f) Certain villages from where the deposits were collected were not having any banking facilities. Hence, the deposits had to be accepted in cash. 14. The observations of learned CIT(A), at pp. 7 and 8 of his order along with the classification of cash deposits accepted are furnished below: "Following are some of the circumstances under which deposits were accepted in cash- (a) There is no bank account for the depositor. (b) There is no banking facility in the village where the depositors reside. (c) The amounts were collected on a bank holiday from the depositors. (d) Deposits received after banking hours. Summary of amounts received under these circumstances is furnished below: Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement of the assessee company chose to retain them in the interest of business prudence and goodwill. Even the amounts assessed under the block assessment proceeding, it was stated that they are deposits which are voluntarily surrendered by the assessee. 16. The submission of the assessee that the deposits were received from persons who are not having bank accounts or from place where there was no banking facility has not been rejected by the Addl. CIT. Instead, the Addl. CIT decided against the assessee by making following observations: "The main reason as to why people deposited in finance companies was higher rate of interest. Acceptance of deposit through cheque/bank draft would add strength to the case of the depositor in case of problems with the company accepting deposits at a later date. Deposits in cash are made by people who are close to and have complete trust in the person accepting deposits. The provisions of s. 269SS insist on acceptance of loan or deposit through an account payee cheque/draft, which main objective of curbing circulation of black money through the said loan/deposits. Being fully aware of the provisions of law and also having issued instructions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made upto which the explanation given can be said to be a reasonable cause. In our opinion, a period of three years from the date of starting up of business would be a reasonable period for making such demarcation. We fix the period of three years for the reason that normally a business is expected to stabilize in a period of three years, barring unforeseen circumstances. As stated earlier, the penalty is not leviable, if the deposit or aggregate deposit received is less than Rs. 20,000. Only the additional deposits would attract penalty once the aggregate amount of deposit is Rs. 20,000 or more. 18. In view of the foregoing, we order for the deletion of penalty levied on the deposits accepted or repaid during the first three years mentioned above and accordingly set aside the issue to the file of the Addl. CIT for implementation of our order. 19. In the result, the appeals of the Revenue are partly allowed. D. MANMOHAN, J.M.: I have carefully perused the detailed order passed by my learned Brother, Shri B.R. Baskaran, AM. Though I agree with the final conclusions reached by my learned Brother, under the peculiar facts and circumstances of this case, I would deem it nece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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