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TMI Blog2003 (7) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... s was made by the assessee to meet urgent business needs of making the payments to the labourers for enabling the assessee to carry on its business of working as a building contractor as the payments from the State Government which were due to the assessee were not forthcoming. From the record, it is, inter alia, noted that Central Board of Direct Taxes Circulars Nos. 387 and 345 also clarified that section 269SS was introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering major economic evil of proliferation of black money, etc. In the instant case, such facts do not appear as it is nobody s case that the assessee was a tax evader or she gave cooked up explanation for cash found during the course of search. It was explained by the assessee that as per order of the Appellate Authority for Industrial and Financial Reconstruction, New Delhi, M/s. Tensile Steel Ltd. was required to deposit the amount of Rs. 1 crore with the Bank of India by May 15, 1993 and hence the time be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for accepting the cash loan/ deposit on May 3, 1993. Identical view was taken by the Income-tax Appellate Tribunal, Pune Bench, in the case of Balaji Traders v. Deputy CIT [ 2000 (6) TMI 157 - ITAT PUNE] . In the case the Pune Bench has considered the scope and ambit of section 269SS/271D and also the applicability of the decision of the honourable Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [ 1978 (12) TMI 45 - SUPREME COURT] elaborately. My learned Brother has laid emphasis on the Statement of Objects and Reasons for enacting section 269SS/271D to hold that penalty should not be levied for mere technical offence. The following observations of the honourable Supreme Court in the case of Govind Saran Ganga Saran v. CST [ 1985 (4) TMI 65 - SUPREME COURT] , highlights that in a case where the language of the statute is clear, there is no need to lay more emphasis on the Statement of Objects. While interpreting an analogous provision, i.e., section 40A(3), the honourable Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO [ 1991 (8) TMI 5 - SUPREME COURT] has stressed on the strict language of the section rather than the objective behind the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise winding up order will stand. TSL had only one month time to deposit Rs. one crore with the Bank of India in a no-lien account. It was also apprehended by TSL that Bank of India may adjust the amount so deposited against their outstanding dues. Ex abundanti cautela it was decided not to deposit the amount with the Bank of India but in some other nationalized bank, in the name of one of the promoter directors, who was not the guarantor to the bank s dues. As such, the name of the assessee was suggested. Reasonable cause means genuine belief based on reasonable grounds. TSL was on the verge of winding up. The assessee was the promoter and director of TSL. Her father was the chief promoter and managing director of TSL. It was a closely held company. The assessee was concerned with the revival of TSL. In the process of revival, the assessee took the cash loans from TSL. Genuineness of the loan was not doubted. The circumstances under which the loan was taken were not disputed. The assessee felt that the delay may defeat the purpose. As such, to comply with the court orders and to furnish the deposits as per the direction of the AAIFR to TSL, the assessee took the loan. The pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) erred in holding that the issue is not debatable. The appellant respectfully submits that the issue is debatable and as such no penalty ought to have been levied on debatable issue. It is prayed that the penalty upheld by the learned Commissioner of Income-tax (Appeals) be cancelled. Ground No. 4 : On the facts and in the circumstances of the case, without prejudice to the earlier grounds, the appellant has reasonable cause for alleged violation of the provision of section 269SS of the Income-tax Act. It is, therefore, prayed that the levy of penalty being unjustified be cancelled. Ground No. 5 : On the facts and in the circumstances of the case the lower authorities failed to appreciate that in any event the loans have been taken from sister concern and as such as held by various judicial decisions there is no contravention of the provision of section 269SS of the Income-tax Act, 1961 and it is prayed that the penalty levied be cancelled. The facts in brief are that the assessment was completed in the case of the assessee on March 31, 1998, under section 143(3) accepting the nil income returned by the assessee. During the course of assessment proceedings, it was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer pointed out that except for the exceptions provided under the section, section 269SS does not exempt cash loans in any circumstances. As regards the assessee s arguments that there existed compelling circumstances, the Assessing Officer observed that the compelling circumstances were in the case of M/ s. Tensile Steel Ltd. (the payer) and not the assessee. In view of these argu ments and relying on certain judgments of the courts, the Assessing Officer held that the assessee had contravened the provisions of section 269SS by accepting the loan of Rs. 41,50,000 otherwise than by account payee cheque or account payee bank draft. He, therefore, imposed the impugned penalty. The assessee carried the matter in first appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) up held the order of the Assessing Officer by observing that there was no reasonable cause within the meaning of section 273B due to the provisions of the AAIFR/BIFR or any other reasons. Being aggrieved, the assessee has come up in appeal before us. Learned counsel for the assessee contended that the assessee is a shareholder of a private limited company in the name and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Harpal Singh Jaswant Singh v. ITO-reported Taxman Maga zine at page 81 under the head Case Digest ITAT ; (ix) CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 (SC) ; and (x) ITO v. Paramount Builders,-decided by the ITAT Mumbai Bench F in ITA No. 1812/Mum of 1998 dated January 17, 2001. On the other hand, the learned Departmental Representative contended that the facts of the case show that there was no urgency and it was not shown why the money could not be deposited to the BIFR directly rather than routing through the assessee. The learned Departmental Representative contended that all the decisions relied on by learned counsel are distinguishable in facts. It was stated that in the case of Dr. Deepak Muchala [1997] 58 TTJ 524 (Bom), the facts are distinguishable as in the present case the payer was a company. Similarly, it was contended that in Karnataka Ginning and Pressing Factory v. Joint CIT [2001] 77 ITD 478 (Mumbai) the facts are distinguishable as in that case transactions in cash were for business exigencies and were entered into with the sister concerns. In that case, it had been claimed that the amounts received were neither loans nor deposits within the meaning of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h falls before the date of cash loans. We have given a careful consideration to the rival submissions and the facts and circumstances of the case. It is evident that the assessee had received cash amounts from the company, M/s. Tensile Steel Ltd. in violation of the provisions contained in section 269SS. But like any other penalty, the operation of section 271D with reference to the violation of the provisions contained in section 269SS also is not automatic. Section 273B has provided a statutory fetter to the automatic application of section 271D. It provides that no penalty shall be imposable on a person under these provisions for any violation, if the person could establish the existence of any reasonable cause. It is only where a person could not explain any reasonable cause for the failure in complying with the provisions of section 269SS, that the penalty under section 271D would follow. The assessee has explained the circumstances under which the cash loan, which was in the nature of accommodation, was received by the assessee from M/s. Tensile Steel Ltd. It has been stated that the said company gave the assessee amount in cash to the extent of Rs. 41.50 lakhs in order to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the memorandum explaining the provisions of the Finance Bill, 1984 (see [1984] 146 ITR (St.) 157), it was explained as follows (page 162) : 22. Unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as rep resenting loans taken from or deposits made by various 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. 23. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the Income-tax Act debarring persons from taking or accepting, after June 30, 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 or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable cause as construed in section 273B. Even if it is taken that the assessee has violated the provisions of section 269SS by accepting the loans of an amount of more than Rs. 20,000 by way of other than crossed cheque or draft, that violation was only a technical violation. We are of the opinion that there is no reason to impose penalty under section 271D for the technical default of the assessee. This view is duly fortified by the decision of the hon ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26.The decision of the hon ble Supreme Court in the case of CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 is distinguishable facts as that refers to penalty under section 271(1)(c). The other decisions, which pertain to the transactions between sister concerns, are also distinguishable on facts as the assessee was only a shareholder in M/s. Tensile Steel Ltd. and the said company cannot be said to be a sister concern of the assessee. However, the decision of the Bombay Bench of the Tribunal in the case of Dr. Deepak Muchala v. ITO [1997] 58 TTJ 524, which is relied on by the assessee, is squarely applicable to the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposed in every case falling within sections 269SS and 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. Such a view finds ample support from the judgment of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. In the instant case, it was undisputed that the genuineness of the transactions in relation to which penalties had been imposed had not been doubted by the departmental authorities. It was also true that the loans/deposits as well as repayment of loans was a result of discounting of cheques/dishonouring of cheques issued by the assessee. Both the Shroffs from whom the cheques were discounted by the assessee or to whom the payments in cash were made on account of dishonouring of cheques issued by the assessee, were regular income-tax assessees. The discounting of cheques was made by the assessee to meet urgent business needs of making the payments to the labourers for enabling the assessee to carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay Bench C of Income-tax Appellate Tribunal vide their order dated October 16, 2001, in the case of ITO v. Bellona Infotech Ltd. in ITA No. 245 (Mum.) of 2001 for the assessment year 1998-99. The Accountant Member was a party to this order. We further point out that after the case was heard on July 19, 2001, it was noted by us that vide order sheet entry dated April 9, 2001, the assessee was required to file a copy of her account in the books of account of M/s. Tensile Steel Ltd. and explain the nature of entries therein. As learned counsel for the assessee did not file such copy of account on July 19, 2001, the case was refixed for hearing as a part-heard case. The desired copy of account was then filed by Sh. G. S. Pikale, learned counsel of the assessee. It is seen from the said copy of ledger account that the assessee had received two cash amounts of Rs. 35 lakhs and Rs. 6.50 lakhs on May 3, 1993, though two other amounts of Rs. 2.50 lakhs and Rs. 1.00 lakh were received by cheques by the assessee from M/s. Tensile Steel Ltd. on April 26, 1993, and May 11, 1993, respectively. When we asked the assessee as to what was the urgency to receive the impugned cash amounts on May 3, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has a reasonable cause in accepting the cash loan/deposit in excess of the limit prescribed under section 269SS of the Income-tax Act, 1961 (in short the Act ). In order to appreciate the issue, it is necessary to bear in mind the following facts. The copy of ledger account of the assessee as appearing in the books of M/s. Tensile Steel Ltd. (in short the company ) is as under : Copy of Ledger Account of Miss Rupali R. Desai in the books of M/s. Tensile Steel Limited for the period 1-4-1993 to 31-10-1993 Date Amount Rs. Date Amount Rs. 26-4-1993 To Bank 2,50,000 30-7-1993 By Cash 2,50,000 3-5-1993 To Cash 35,00,000 4-8-1993 By Cash 3,50,000 3-5-1993 To Cash 6,50,000 11-8-1993 By Bank 30,00,000 11-5-1993 To Bank 1,00,000 6-8-1993 By Bank 10,77,000 31-10-1993 To Balance c/d 1,77,000 46,77,000 46,77,000 It is also necessary to reproduce the relevant provisions of section 269SS: 269SS Mode of taking or accepting certain loans and deposits.No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be deposited within a period of one month from the date of the order, i.e., on or before May 16, 1993. Thus, the company was under an obligation to deposit an amount of Rs. 1 crore in a no-lien account with the Bank of India within one month from April 16, 1993. Though the copy of the order has not been furnished before us but the facts mentioned here are gathered from the order of the AAIFR dated May 14, 1993 passed in the case of company in Appeal No. 29 of 1993. The said order was made in pursuance of an application filed by the company before the AAIFR to permit them to deposit the sum in Bank of Baroda instead of the Bank of India and also sought the extension of further time of two months. A plain language of section 269SS will suggest that the genuineness of transaction coupled with the fact that parties are identifiable has nothing to do with the contravention for which the penalty is leviable. The ambit of section 269SS is wide enough to cover genuine transactions where parties are identifiable, so long as there is no reasonable cause for accepting the cash loan/deposit. There is a specific prohibition for all persons not to take or accept from any other person any lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accepting the deposit in cash. If the decision of the honourable Supreme Court in the case of Hindustan Steel Ltd. [1972] 83 ITR 26 is extended to the cases pertaining to section 269SS, I am afraid that the section itself would be rendered nugatory or otiose because section 269SS/ 271D seeks to levy penalty mainly on technical offences. It may be relevant here to extract the observations of the honourable Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (page 320) : It is neither desirable nor permissible to pick out a word or a sen tence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete law declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is further reinforced by the fact that even on a later date the assessee accepted cheque/draft payment from the same party to meet the same purpose. In the result, I do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) in confirming penalty levied by the Assessing Officer. Order of reference to third member We, having differed on the points in the above appeal filed by the assessee, refer the following points of difference to the President under section 255(4) of the Income-tax Act, 1961 : Question No. 1 : Whether on proper interpretation of section 269SS and having regard to the legislative intention behind the introduction of this section, the penalty under section 271D is leviable ? Question No. 2 : Whether, on the facts of the case, the assessee was prevented by reasonable or sufficient cause from complying with the provisions of section 269SS ? Order of Third member M. K. Chaturvedi (Vice-President)-This appeal came before me as a Third Member, to express my opinion on the following questions :- 1. Whether, on proper interpretation of section 269SS and having regard to the legislative intention behind introduction of this section, the pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was stipulated that the matter will be heard subject to the fulfilment of this condition, otherwise winding up order will stand. TSL had only one month time to deposit Rs. one crore with the Bank of India in a no-lien account. It was also apprehended by TSL that Bank of India may adjust the amount so deposited against their outstanding dues. Ex abundanti cautela it was decided not to deposit the amount with the Bank of India but in some other nationalized bank, in the name of one of the promoter directors, who was not the guarantor to the bank s dues. As such, the name of the assessee was suggested. TSL had its bank account at Baroda. It was decided that the assessee will deposit the amount with the Canara Bank, Khetwadi Branch, Mumbai. A new account was opened in the Canara Bank in the name of the assessee. It was felt that if the fixed deposit receipt is obtained after depositing the Baroda cheque, it may take a longer time. There was also possibility of bouncing the cheque for some technical reasons. The fate of the company was at stake. In the eventuality of winding up, the future of 300 workers of the company was in jeopardy. There was total chaos. The father of the assessee l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 (raised to Rs. 20,000 with effect from April 1, 1989) or more. The true reason for enacting section 269SS of the Act was to counter the device of tax evasion, which enabled the taxpayers to explain away, unaccounted cash or unaccounted deposits. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. It is very important to keep the stream of justice clear and pure. Innocents should not suffer and recalcitrant should not go scot-free. Let justice be not a riddle and get lost in the labyrinth of procedure. Justice demands fairness. Fairness itself is a flexible, pragmatic and relative concept, and not a rigid, ritualistic or sophisticated abstraction. The prime object of law is to secure justice to the people. In view of this the Legislature took proper safeguard under section 273B of the Act, which enumerates the cases where penalty is not to be imposed. In such enumeration, section 271D of the Act also finds a place. It is prescribed under section 273B of the Act that penalty is not to be imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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