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TMI Blog2007 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act. After the assessment was made, a penalty proceeding under section 271D of the said Act was initiated by the assessing authority for receiving and accepting those deposits in violation of the provisions under section 269SS of the Act. In compliance with the notice issued by the assessing authority, the assessee submitted its explanation stating, inter alia that the assessee-firm was in urgent need of money for payment to the labourers and sufficient cash was not available, therefore, it received deposits from different persons in cash. The assessee further stated that its return was finally accepted under section 143(3) of the Act and no loss of revenue was found. The assessee further stated that it has not acted deliberately in defiance of law. The Deputy Commissioner of Income-tax, Ranchi, finally passed the order in the penalty proceeding imposing penalty of Rs. 7 lakhs which is equal to the deposits accepted by the assessee. The authority took the view that the provision under section 269SS is a rule of procedure to avoid evasion of tax and to safeguard interest of the Revenue and admittedly the assessee has violated the provisions under section 269SS which made him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scuss the relevant provisions of the Income-tax Act. 9 Section 269SS was inserted by the Finance Act, 1984, with effect from April 1, 1984, which lays down the mode of taking and accepting certain loans and deposits. Section 269SS reads as under: "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,— (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) 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), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA section 271D, section 271E, section 271F, section 271FA, section 271FB, section 271G, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (I) of section 272AA, or section 272B, or sub-section (1) or sub-section (IA) of section 272BB or sub section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure." 13 Before expressing our opinion on the question of law referred by the Tribunal, it would be use to consider the purpose and object of the insertion of the provisions of sections 269SS, 271D and 273B of the Income-tax 1961 14 The Memorandum Explaining the Provisions in the Finance Bill, 1984, was placed before Parliament by the Finance Minister. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing, namely (a) Government; (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956; (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing notify in this behalf in the Official Gazette 25. For the purposes of the proposed provision, the expression 'banking company' shall have the meaning assigned to it in clause (a) of the Explanation to section 40A(8) of the Income-tax Act and the expression 'co-operative bank' shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. The expression 'loan or deposit', for the purposes of the proposed provision, would mean loan or deposit of money. 26. If a person without reasonable cause or excuse takes or accepts any loan or deposit in contravention of the aforesaid provisions, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to a fine equal to the amount of such loan or dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest or acted in conscious disregard of his obligation. Penalty will also not be imposed merely because it is lawful to so. Rather penalty should be imposed for failure to perform a statutory obligation which is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Reference may be made to the decision in Hindustan Steel Ltd. [1972] 83 ITR 26 (SC). 19 One of the cardinal principles of the English criminal law is expressed in the maxim actus non facit reum, nisi mens sit rea, that is, a person cannot be convicted and punished in a proceeding of a criminal nature unless it can be shown that he had a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out." 21 In the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249, a Bench of the Calcutta High Court while considering the provisions of section 271(1) (c) following the decision of the Supreme Court in case of Hindustan Steel Ltd.'s case [1972] 83 ITR 26, observed that it is not mandatory under section 271 that a penalty must be imposed in ever case. 22 The words "reasonable cause" have not been defined under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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