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TMI Blog2006 (7) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... uents or remittance of such amount to the constituents are not considered to be repayment of the deposits or loan. The assessing authorities were bound by the general instructions contained in the circular issued by the Board so far as the dealings of kachcha adhatiya of the nature found by the Assessing Officer himself in the present case. Therefore, there was hardly any occasion for invoking sections 269SS and 269T on the supposed omission on the part of the assessee to comply with the requirement of the said provisions for inviting application of penalty provisions of sections 271D and 271E. Therefore, we are in agreement with the Tribunal that the provisions of sections 271D and 271E could not have been invoked in the present case. Even assuming that the provisions of sections 269SS and 269T could be invoked , the findings of the Tribunal that reasonable cause existed for the assessee which resulted in failure to comply with the provisions of sections 269SS and 270T are findings of fact which do not give rise to any question of law. In the aforesaid view of the matter, penalty under sections 271D and 271E was not imposable substantively and was rightly set aside by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following questions have been framed as substantial questions of law inviting consideration in these appeals: 1. Whether, on the fact and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the penalty proceedings and the order passed by the Joint Commissioner of Income Tax under Section 271D are vitiated being time-barred by virtue of the provisions of Section 275(1)(c) of the Act held to be applicable whereas the case of the assessee is covered under Section 275(1)(a) of the Act since the penalty proceedings pertained to the assessment order under appeal and Section 275(1)(c) was not applicable to it ? 2. Whether, on the facts and in the circumstances of the case the notice issued for initiating penalty proceedings and the penalty order passed pursuant thereto by the Joint Commissioner of Income Tax in accordance with the provisions of Section 271D(2) of the Act was bad and unlawful though passed within limitation ? 3. Whether, on the facts and in the circumstances of the case, the Assessing Officer was empowered to initiate proceedings and pass penalty order under Section 271D of the Act for the reason of issuing show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of loan were initiated during the assessment proceedings for the three assessment years stated hereinabove and as a result of initiating penalty proceedings under Sections 271D and 271E the Assessing Officer imposed penalties in each case. 6. The Commissioner of Income Tax (Appeals) cancelled the penalties holding the instance to be known as balancing of accounts . Such transactions neither fall in the category of deposits under Section 269SS and repayment under Section 269T nor the penalty was otherwise justified because the Commissioner of Income Tax (Appeals) also found that the assessee has shown reasonable cause for non-adherence to the requirement of dealing through banks as per Sections 269SS and 269T. However, the Commissioner of Income Tax (Appeals) held some instances to be of cash credits as per annexure A totalling to Rs. 1,89,000. Transactions pertaining to three persons, namely, Shri Prem Prakash, Shri Gangaram and Shri Shivraj were held to be in the nature of deposit and violative of Section 269SS and in turn the repayment and withdrawals to be in violation to Section 269T and sustained penalty in respect thereof. 7. In respect of those transactions, the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of a deposit. Therefore, the repayment of such sale proceeds does not fall within the purview of Section 269T of the Act, it came to the conclusion that to the facts of the present case, the circular of the Board aptly applies. Therefore, the money received by the assessee as kachcha arhatiya as sale proceeds of the agricultural produce received from his constituents and retained by him cannot be considered deposits. Consequently its remittance in part or full to the constituents or its utilisation by such constituents also does not fall within the purview of repayment of such deposits within the meaning of Section 269T. Coupled with this finding of fact about all transactions to be genuine and bona fide, looking to the practice prevailing and requirements of the farmers, the Tribunal was also of the opinion that the assessee had reasonable and sufficient cause for not complying with Sections 269SS and 269T even if the same were to be considered as deposit and repayment of deposits. About the additions sustained by the Commissioner of Income Tax (Appeals) in respect of alleged cash credit, the Tribunal found such transaction to be not outside the purview of the transactions car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion other than a finding about absence or existence of reasonableness can be considered vitiated. It is not the case here. Moreover, we are of the opinion that in view of clear instructions of the Central Board of Direct Taxes relating to the transaction of the nature in which the assessee has indulged as kachcha adhatiya on behalf of his constituents referred to herein and in the order of the Tribunal is not to be considered as a deposit when the money is retained by the kachcha adhatiya for remitting to the constituents and subsequent remittance or adjustment of such amount by discharging obligation of his constituents or remittance of such amount to the constituents are not considered to be repayment of the deposits or loan. The assessing authorities were bound by the general instructions contained in the circular issued by the Board so far as the dealings of kachcha adhatiya of the nature found by the Assessing Officer himself in the present case. Therefore, there was hardly any occasion for invoking Sections 269SS and 269T on the supposed omission on the part of the assessee to comply with the requirement of the said provisions for inviting application of penalty provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; (b) in a case, where the relevant assessment or other order is the subject-matter of revision under Section 263, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. (2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March, 1989. Explanation.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch penalty proceedings were initiated became the subject-matter of appeal and there was modification or reversal of findings, it affected final result of penalty proceedings also. 24. Section 275 was substituted by the Taxation Laws (Amendment) Act, 1970 which came into effect with effect from April 1, 1971. The change was explained by the Board vide circular 56 dated March 19, 1971. Significantly, it postulated that Section 275 of the Income Tax Act which specified the time-limit for completion of penalty proceedings has been substituted by a new section. Under the existing section, penalty proceedings for concealment of income or defaults in furnishing the return or accounts called for by notice or failure to pay advance tax on the taxpayer's own estimate, etc., are required to be completed within two years from the date of completion of the proceedings in the course of which the penalty proceedings were commenced. The operation of this time-limit has resulted in practical difficulties in cases where the Appellate Assistant Commissioner remands the appeal against the assessment for further enquiry by the Income Tax Officer or deletes or reduces the addition made on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of which only penalty proceedings were required to be initiated. Such consequences of default were not linked with the principal assessment proceedings for any specific assessment year but were independent of it. 28. By substituting Section 275(1), which became operative from April 1, 1989, the provision divided cases for the purpose of prescribing limitation for completing penalty proceedings into three categories: (i) Category I covers cases where the assessment to which the proceedings for imposition of penalty relate is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under Section 246 or with effect from June 1, 2000 Section 246A or an appeal to the Appellate Tribunal under Section 253; (ii) Category II covers cases where the relevant assessment is the subject-matter of revision under Section 263 ; and (iii) Category III covers all other cases not falling within Category I and Category II which is governed by Clause (c). 29. By dividing into three categories the period of limitation for cases falling under category (i) i.e. Clause (1)(a) is the financial year in which the proceedings, in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs may not require rectification or modification depending on the outcome of the appeal against the orders passed in the relevant assessment proceedings or the other proceedings in the course of which the penalty proceedings are required to be initiated. 35. We have also noticed that Sections 271 and 273 were the two original penalty provisions, which require the penalty proceedings to be initiated during the course of relevant assessment proceedings or the other relevant proceedings as the case may be. The penalty proceedings could also be initiated during the appellate proceedings arising out of the relevant assessment proceedings. It is only where the assessment proceedings are independent and not directly linked to the assessment proceedings that the result of such proceedings in the course of which the penalty proceedings were initiated does not affect the levy of penalty. On such penalty proceedings, independent of the assessment proceedings Clause (c) has been made applicable. In this category the period of limitation for completing the penalty proceedings is linked with the initiation of the penalty proceedings itself. 36. In such cases, the penalty proceedings can b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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