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TMI Blog2010 (3) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... n violation of section 269SS of the Act. Accordingly, a show-cause notice under section 274 read with sections 271D and 273B of the Act was issued to the assessee-company on March 25, 1996. After the change of jurisdiction further detailed show-cause letters were issued to the assessee on September 17, 1996 and September 24, 1996 and the assessee was required to explain as to why penalty under section 271D may not be imposed in their case as they had clearly violated the provisions of section 269SS of the Act. The Assessing Officer observed that a perusal of the audit report filed along with the revised return of income filed for the assessment year 1993-94 in 1994 shows that a large number of loans/deposits have been accepted by the assessee in cash. In the following cases the aggregate of the arrear balance along with the fresh loan obtained during the year is exceeding Rs. 20,000 : S. No. Name of the party Opening balance Deposits/Loan during the year Closing balance 1. Sureshkumar C. Vania 22,500 18,000 40,500 2. Krishandas Vallabhdas 16,000 15,000 31,000 3. Girdharbhai Jamnadas 28,800 17,000 45,800 4. Valamjibhai Arjanbhai 33,900 15,000 48,900 5. Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee claims to have borrowed funds in cash at the last moment are from outside Baroda and it is not known as to how the assessee-company was able to borrow funds from these parties at a very short notice. Thus the assessee's explanation does not appear to be convincing. Firstly the liabilities mentioned by the assessee are such where the assessee is always allowed reasonable time for making payments. Secondly the parties are mostly outside parties and the assessee must have required time to contact these parties for loans/deposits. On the facts and in the circumstances of the case, therefore it is evident that the amounts which have been borrowed in cash could have been borrowed through banking channels also, as the entire expenditure must have been known to the assessee in advance. The submission of the assessee in this regard is therefore not convincing/acceptable at all. The last contention of the assessee is that since in its case the deposits obtained are genuine, the provisions of section 269SS should not be invoked. It has been argued that this section was introduced with a motive to counter the introduction of unaccounted cash in the books of account as loans or deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiation of penalty. (1) CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj). (2) Addl. CIT v. Nihalchand Badrilal [1982] 135 ITR 519 (MP). (3) Addl. CIT v. Kejriwal Iron Stores [1987] 168 ITR 715 (Raj). Regarding the argument of the reasonable cause, it is observed that the loans had been borrowed by the appellant to make immediate payments to its suppliers and to discharge its other statutory obligations. These facts had not been disputed either by the Assessing Officer imposing the penalty or by the successor in his report. Reasonable cause will have to be appreciated in the overall context of a prudent businessman sitting in his chair and looking after his financial affair. I do not agree with the observation of the Deputy Commissioner of Income-tax, Central Range, Baroda that the appellant should have instructed its lenders to make the payments on its behalf by crossed demand drafts. When a supplier or a party is pressing hard for payment, the immediate concern of a businessman is to arrange the necessary funds and to make the payment and not to bother about the mode and modality of the payment. The reasonable cause should be viewed from the angle of a businessman. There is suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as acknowledgment of debt due to the depositor by passing the journal entries giving credit of the deposit for the payments made by the said depositor on behalf of the assessee. To further elaborate, the assessee's counsel submitted that the nature of transactions are such that considering the exigencies of the business and the urgency of payments the assessee used to request and instruct the lender to make the payments to the suppliers/parties for and on behalf of the assessee. The depositor in turn used to normally obtain the demand draft in favour of the suppliers/creditors, which the assessee used to acknowledge the debt by passing journal entries debiting the party/expenditure and by crediting the depositor. According to learned counsel, in effect the assessee has never received any monies and what has been credited in the books of account are by way of acknowledgment of debts and therefore in cases where the assessee merely acknowledges the debt incurred and therefore in the humble opinion of the assessee where there is no transfer of money from one person to another the provisions of section 269SS cannot be applied. This view is also supported by the order of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty deserves to be cancelled. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order, the order of the Commissioner of Income-tax (Appeals), penalty order and the assessee's paper book containing pages 1 to 314. The first party, i.e., Chhaganlal Keshvji Vania in respect of whom penalty was levied at Rs. 35,06,806 on the basis of audit report. Before us, the assessee has placed complete ledger accounts at the assessee's paper book pages 67 to 84 and we find that most of the receipts credited to the account of the above party in compilation are on account of general voucher entry. The payments to suppliers and towards telephone bills including statutory dues are not in the ambit of section 269SS of the Act. The entry in respect of this party is as regards trade entries or general voucher entry for squaring of accounts of trade and not a loan or deposit. As regards the deposit of the second party, Shri A. B. Vachhani, the penalty was levied at Rs. 18,76,841. We find from the orders of the lower authorities that there is no finding by any of the lower authorities that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excuse and constitute a reasonable cause within the meaning of section 273B. The penal provisions of sections 271D and 271E read with section 273B confer a discretion on the authorities to levy or not to levy penalty. Such discretion needs to be exercised with wisdom and in a fair and just manner. Even if the relevant provisions of law prescribed levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within section 269SS or 269T. Even if the minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breach flows from a bona fide belief like in the present case. Since the transactions in question were bonafide and genuine transactions and were made on account of urgent business necessity and there was no guilty intention or guilty mind on the part of the assessee at the time when the transactions were made, the penalties levied on the assessee also deserves to be cancelled.-Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) followed." Further in the case of Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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