Income Tax Appellate Tribunal - Agra
Sharda Educational Trust vs Assistant Commissioner Of Income Tax on 20 January, 2005
Equivalent citations: (2006)99TTJ(AGRA)212
ORDER
I.S. Verma, J.M.
1. This is an appeal by the assessee against the order of CIT(A) dt. 22nd March, 2004 and the grounds listed in the original memorandum of appeal read as under :
1. That the learned CIT(A) has erred in law and facts in sustaining penalty of Rs. 16,12,000 imposed by the learned. Addl. CIT under Section 271D without properly appreciating the facts, circumstances and the submissions of the appellant.
2. That the appellant craves leave to add, amend, alter or withdraw any ground of appeal.
2. Later on, the assessee as per its petition dt. 20th Jan., 2005, sought to raise the following additional grounds :
1. That the learned CIT(A) has not properly appreciated that the requirements of Section 275 of the IT Act have not been fulfilled as the penalty proceedings have been initiated on 12th June, 2003, after a gap of about seven years from the end of relevant assessment year and that too when no assessment proceedings were pending before the learned AO.
2. That the learned authorities below have not properly appreciated the purpose, aims and objects of inserting Section 269SS as clarified by the CBDT in its Circular 387, dt. 6th July, 1984, according to which these provisions were brought to curb the tendency of tax evaders to prove the unaccounted money found in search, loans.
3. That the learned authorities have not properly appreciated that the transaction is neither a loan nor a deposit as the trustee is giver of amount and individual and he is also the receiver of amount as trustee of the trust for making payment of land to farmers and to meet urgent needs for material used in construction
4. That the default, if any, is of technical and venial nature as the genuineness and availability of cash given by the trustee to trust to meet urgent needs has not been doubted.
5. That the appellant craves leave to add, amend, alter or withdraw any ground of appeal.
3. The parties were heard first with respect to the request for raising additional grounds and since the learned Departmental Representative did not raise any objection against admission of the same, the additional grounds were admitted and the parties were heard.
4. The first submission, advanced by the counsel for the assessee was that as per provisions of Section 275, there is limitation for imposition of penalty under the IT Act and this section prescribes different limitations under different circumstances. Referring to provisions of Section 275, the counsel submitted that limitation prescribed under Clauses (a) and (b) of Sub-section (1) is applicable where the relevant assessment order or other order, giving rise to the penalty proceedings is subject-matter of appeal under Section 246 or Section 246A or Section 253 or is subject-matter of revision under Section 263 or Section 264 of the Act, whereas limitation prescribed under Clause (c) of Sub-section (1) of Section 275 is applicable in cases where the concerned assessments or orders are not subject-matter of appeal or revision. Analyzing the provisions of Clause (c), the learned Counsel submitted that this clause had got two limbs and according to the first limb, the penalty can be imposed till the expiry of the financial year, in which the proceedings giving rise to the action for imposition of penalty were completed, whereas the second limb prescribes the limitation of six months from the end of the month in which the action for imposition of penalty is initiated. According to the learned Counsel, Sub-clause (c) leads to an interpretation that penalty proceedings under the IT Act have to be initiated during the course of some proceedings because if there are no proceedings pending then the limitation prescribed under Clause (c) cannot apply.
4.1 The second argument, advanced by the counsel for the assessee was that the limitation prescribed under Section 275 further goes to lead to an interpretation that the penalty proceedings have to be initiated within the reasonable time because sword of Damocles cannot be allowed to hang on the assessee's hand indefinitely. Diverting to the present case, the counsel submitted that the amount in question was taken by the assessee during the previous year relevant to the asst. yr. 1996-97, whereas the penalty proceedings were initiated only on 12th June, 2003, i.e., after a period of more than seven years. In view of such delayed initiation of penalty proceedings, the penalty in question was claimed to be bad in law. In support of these submissions, the learned Counsel relied upon the decision of Tribunal, Cochin Bench in the case of Noble Pictures v. Jt. CIT (Coch)(AT).
5. The next argument advanced by the learned Counsel for the appellant was that the intention of legislature while enacting the provisions of Sections 269SS, 269T, 27ID and 27IE was, as have been explained, in Circular No. 387, dt. 6th July, 1984, to curb the transactions of black money for explaining the genuineness of cash found during the time of search or otherwise--meaning thereby, that, if the transaction in question does not involve the black money rather is found to be genuine then there is no violation of Section 269SS or 269T, as the case may be and consequently, there is no justification for making penalty under Section 271D or 271E of the Act, as the case may be. Reverting to the present case, the counsel for the assessee submitted that since the Revenue has accepted the transaction as genuine, there was no involvement of black money and consequently, this is not a fit case where penalty under Section 271D may be imposed. In support of this submission, reliance was placed on the decision of Tribunal, Agra Bench in the case of Farrukhabad Investment (I) Ltd. v. Jt. CIT (2003) 80 TTJ (Del) 82 : (2003) 85 ITD 230 (Del), specially the observations at pp. 249 to 253 in para 38 to 48 and at p. 256 para 60 of the order.
6. The next argument, advanced by the counsel for the assessee was that the amount in question received by the trust being from trustee itself, the transaction was neither of loan nor deposits and in any case, was not in contravention of Section 269SS of the Act and in support of this submission, reliance was placed on the following decisions :
(i) Chandra Cement Ltd. v. Dy. CIT (2000) 68 TTJ (Jp) 35
(ii) Mohan Karkare v. Dy. CIT (1995) 51 TTJ (Ind) 599 : (1995) 52 ITD 236 (Ind)
(iii) Shrepak Enterprises v. Dy. CIT (1998) 60 TTJ (Ahd) 119 : (1998) 64 ITD 300 (Ahd)
(iv) Paras Brass Extrusion Ltd. v. Dy. CIT (2004) 3 SOT 554 (Ahd)
7. The next argument of the counsel for the assessee was that since the payment was taken by the assessee for paying the price of land purchased from various farmers, who had no bank accounts, the assessee has reasonable cause for taking the amount in cash. Another submission made by the counsel for the assessee was that the trustee in question had disclosed this amount under voluntary disclosure scheme and since under the voluntary disclosure scheme, availability of cash was to be establish, the trustee had deposited the same with the assessee to discharge that onus. In support of this submission, reliance was placed on the decision in case of Paras Brass Extrusion Ltd. v. Dy. CIT (supra).
8. The final plank of arguments, advanced by the counsel for the assessee was that in view of the facts that the assessee was a charitable trust and had taken the amount from trustee itself, the default, if any, was of technical and venial nature, for which the assessee was not liable to penalty under Section 271D of the Act. Reliance in this respect was placed on the decision in the case of Dillu Cine Enterprises (P) Ltd. v. Addl. CIT (2004) 87 TTJ (Hyd) 1098 and the decision of Hon'ble Supreme Court in the case of Hindustan Steels Ltd. v. State of Orissa .
9. The learned Departmental Representative, on the other hand, submitted that so far as the time for initiation of penalty proceedings is concerned, there is no such limit in the provisions of Section 271D and, therefore, this plea of the assessee is not maintainable. With regard to the assessee's submission that the transaction being genuine, no penalty was leviable, the learned Departmental Representative submitted that there is no such prohibition under the law. Only requirement is that of receipt of amount exceeding Rs. 20,000 in cash and once this requirement is satisfied, penalty under Section 271D is leviable. The learned Departmental Representative further submitted that when the amount was received by the assessee, it was not known as to who has paid because it was only when Mr. Y.K. Gupta had disclosed the amount under VDIS Scheme that it came to be known that it was Mr. Y.K. Gupta, who had given the amount. Closing his averments, the learned Departmental Representative supported the order of the CIT(A).
10. We have considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the counsel for the assessee.
11. The brief facts, as have been revealed from the records, are that -
(i) The appellant is a public charitable trust, which has set up and established an engineering and management college in Farah, District Mathura in affiliation with Uttar Pradesh Technical University and approval of All India Council of Technical Education, Ministry of Human Resources Development, Government of India. The college admits students who pass out the all UP combined entrance examination at par with the Government colleges. The colleges are run and managed in accordance with the guidelines and under direction and supervision of AICTE (All India Council of Technical Education) regarding admissions, fees structure and realizations, appointment of staff and their remuneration, examinations, constructions of building, purchase of equipments and all other such matters relating to setting up and running the colleges on day-to-day basis with hardly any discretion to the trust management.
(ii) The objects of the trust are of charitable nature and all income derived by the trust from its property viz., colleges is exempt from income-tax under Chapter III of the IT Act. The exemption of income of the trust from income-tax is not from the nature of its income but from its applicability, i.e., any income of the trust applied for charitable purpose is exempt from income-tax.
(iii) The day-to-day affairs of the appellant trust are managed by the following managing trustees :
1. Shri P.K. Gupta
2. Shri Y.K. Gupta
3. Shri Anand Swaroop Gupta
(iv) That the trust has been able to set up a management and engineering college in Agra. These trustees have even sacrificed their personal business interests, savings and have also contributed their personal earnings to set up Hindustan College of Engineering and Technology, Hindustan College of Management and Hindustan College of Computer Sciences under the appellant trust which have provided a new landmark for the city of Agra and have been instrumental in promoting Agra city as the future city of education. The trustees have no personal interests, they do not charge any remuneration from the trust and have gone to the extent of providing their personal guarantees against bank loans taken by the trust for setting up the colleges.
(v) During the financial year 1995-96, these trustees purchased land in the trust for setting up the colleges and from time-to-time made payments for advancing to the farmers which payments were deposited in the cash book of the trust and debited to the account of the farmers. The payments were made in cash as farmers do not accept cheque payments when taking advances or land payments and this is a usual practice in all rural land deals.
(vi) The amount paid by Shri Y.K. Gupta to the trust on this account being in cash was declared by him in voluntary disclosure scheme and income-tax due thereon was paid by him. No interest was charged on the amounts paid by Shri Y.K. Gupta and credited in the books of unsecured loans as the intention of the managing trustee was to assist the trust in its objective of setting up an engineering and management college in periphery of Agra. There was no tax evasion in the entire transaction.
(vii) The Addl. CIT Range-I, Agra issued a show-cause notice under Section 271D of the Act on 12th June, 2003, proposing to impose penalty under Section 271D of the Act for assessee's default in accepting the loan during the period relevant to asst. yr. 1996-97. The assessee submitted that the amount in question having been received from the trustee, it was neither loan nor deposit. Another submission made was that since the assessee had purchased land for starting college, the farmers were pressing hard for the payment in cash and they had no bank accounts. It was in view of these facts that the assessee accepted the amount in cash. The Addl. CIT did not accept assessee's explanation as sufficient cause and levied penalty for alleged default for contravening the provisions of Section 269SS of the Act.
11.1 The assessee went in appeal before the CIT(A) and reiterated the submissions made before the AO as well as made further arguments, but the CIT(A) also did not accept the assessee's explanation as a sufficient cause. It was in the light of above facts and circumstances of the case that the parties have advanced their arguments.
12. Before coming to the findings, we, first of all, consider it necessary to consider the provisions of Section 275(1)(c) and various decisions relied upon by the counsel for the assessee, which are in the following terms :
(i) Section 275(1)--No order imposing a penalty under this chapter shall be passed--
(a)...
(b)...
(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.
(i)(a) From the aforesaid provisions, we are inclined to agree with the submissions of the counsel for the assessee that for applying the limitation provided under this clause, it is necessary that the penalty proceedings under the IT Act should have been initiated during the course of some proceedings, i.e., either during the course of assessment proceedings or some other proceedings under the Act.
(ii) Decision of Tribunal, Cochin Bench, in the case of Noble Pictures v. Jt. CIT (supra).
(a) The brief facts in this case and as have been revealed from the order are as under :
The assessee filed returns for the asst. yrs. 1990-91 and 1991-92 disclosing a loss of Rs. 24,42,200 and Rs. 24,68,020, respectively. Returns were processed under Section 143(1)(a) of the Act on 21st March, 1991 and 23rd Sept., 1991, respectively. Subsequently, the assessments were completed under Section 143(3) of the Act. The assessee produced a feature film named 'Oru Sayahanathinte Swapnom' and was released on 28th Sept., 1989 and another feature film named 'Arangu' which was released on 22nd March, 1991. The AO was of the view that the assessee was required to file a statement in Form No. 52A, containing the particulars of all payments of over five thousand rupees in the aggregate made by it or due from it as the assessee was engaged in the production of films. The said statement was to be filed within 30 days of completion of the production. The first film was released on 28th Sept., 1989 and the second one released on 22nd March, 1991. Hence, the statement was due on or before 28th Oct., 1989 and 21st April, 1991, respectively. However, the assessee did not comply with the above requirement. The AO held that the failure on the part of the assessee to file the said statements within the prescribed time attracts penalty under Clause (c) of Sub-section (2) of Section 272A of the Act. Accordingly, notice under Section 274(1) read with Section 272A of the Act, on 14th July, 1999 for both the assessment years in question, calling the assessee to appear before the AO on 27th July, 1999, so as to explain why penalty could not be imposed. The assessee did not reply. Second notice was issued on 27th Oct., 1999, calling the assessee to state its reply on or before 15th Nov., 1999. The assessee did not respond again. According to the AO various notices issued to the assessee were acknowledged yet for reasons better known to the assessee, the assessees did not reply or respond. Therefore, the AO held that "it can only be surmised that the assessee has no explanation to offer in this matter. There is gross negligence or disregard on the part of the assessee towards fulfilling a statutory compliance". Thus, he was of the view that this is a fit case for imposition of penalty under Section 272A(2)(c) and levied penalty as stated above for both the years. For the asst. yr. 1990-91, the AO levied penalty amounting to Rs. 3,68,800 against the maximum imposable penalty of Rs. 7,37,600. While doing so, the AO noted that for the asst. yr. 1990-91, the last date for filing Form No. 52A was 28th Oct., 1998. Since no details were furnished on the completion of the film, the release date was treated as the completion date. The number of days was taken at 3,686 days. Since the penalty order was dt. 3rd Dec, 1999, for every day of delay, penalty was taken at Rs. 100. Similarly, for the asst. yr. 1991-92, the film was released on 21st April, 1991 and the AO treated the said date as completion date and thus the date for filing Form No. 52A was due on 21st April, 1991. The period of failure was accounted 3,148 days and at Rs. 100 per day, penalty was calculated at Rs. 3,14,800. Aggrieved by the above orders of the AO, the assessee approached the first appellate authority who dismissed the assessee's appeals by his consolidated order dt. 3rd Nov., 2000.
Since both the appeals arise out of the consolidated order of the first appellate authority, the facts involved in both the appeals being similar and identical, we have clubbed, heard and disposed of these two appeals together, for the sake of convenience and brevity.
Before the learned first appellate authority it was submitted by the assessee's representative that Form No. 52A was filed in time in the IT Office, Ward-I, Aluva, before transferring the jurisdiction from Aluva to Trichur. The returns were filed before the Dy. CIT, Trichur, on 30th Aug., 1990, showing loss of Rs. 24,42,200 for the asst. yr. 1990-91 and the Dy. CIT, Special Range, Trichur, processed the return under Section 143(1)(a) on 21st March, 1991, without pointing out any shortfalls. It was the case of the assessee that since the Dy. CIT processed the return without pointing out any discrepancy or irregularity, it was possible that Form No. 52A might have got misplaced/lost after completing the assessment proceedings. Similar is the case for the asst. yr. 1991-92. The first appellate authority already dismissed the assessee's appeal vide para 4 of his order observing as under:
On a consideration of the facts of the case, it is noticed that the AO has imposed the penalty as Form No. 52A was not on record, either for the asst. yr. 1990-91 or for the asst. yr. 1991-92. During the course of the appellate proceedings, the Authorised Representative of the appellant was required to give evidence in regard to the claim that Form No. 52A was actually filed. However, he expressed his inability to give any direct evidence of having filed Form No. 52A with the IT authorities at Aluva or Trichur. Since the appellant has been insisting on having filed Form No. 52A with the IT authorities, no explanation was offered at the time of hearing in regard to non-filing of Form No. 52A at all. Under the circumstances, the AO was justified in levying penalty under Section 272A(2)(c) of the IT Act.
(ii)(b). It was in view of the above facts and circumstances of the case that the Hon'ble Tribunal held as under :
We have heard rival submissions, gone through the orders of the Revenue authorities and the decisions cited. Before going through the circumstantial evidence in support of the assessee's contention that the assessee had filed the requisite form at the right time, we would proceed to consider the issue in the light of the provisions of the law.
Under Section 285B, the assessee has to submit a statement, the assessee being a producer of cinematograph films. It is not disputed that the assessee is carrying the production of films and the film was released in 1989 and 1991, as the date given by the AO. As such the assessee was to prepare and deliver the statement to the AO within 30 days from the end of the financial year or within 30 days of the completion of the production of the film. Not going through the evidence, let us proceed with the presumption that the assessee has not filed the requisite form. An assessee in failure to furnish the details in the prescribed form is to be penalized under Section 272A(2)(c) of the Act as he has not complied with Section 285B.
But the statute prescribes a limitation time for imposing penalty under Section 275 of the Act. For an easy reference, this section is reproduced hereunder :
'Section 275 Bar of limitation for imposing penalties--(1) No order imposing a penalty under this chapter shall be 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.
Section clearly states that no penalty shall be imposed in any other case, i.e., other than the one mentioned in Clauses (a) and (b), after the expiry of the financial year in which the proceedings in the course of which action for 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 late.
In this regard the Hon'ble Delhi High Court in the case of CIT v. Rajinder Kumar Somani clearly held that (headnote) :
'By necessary implication, Section 275 of the IT Act, 1961 has also provided that action for imposition for penalty must be initiated in the course of the assessment proceedings. It is not enough that the ITO is satisfied in the course of the assessment proceedings that a case for penalty exists, it is further necessary that he should have initiated some action for the imposition of penalty in the course of such proceedings. It depends on the facts of each case whether any such action has been initiated before the date of completion of the assessment. If, even before the completion of the assessment, the ITO has issued a penalty notice, it is clear that he has taken necessary action for the imposition of penalty. This condition can also be said to be satisfied where, though a penalty notice has not been issued before that date, it is seen that the officer had given a direction to his office before completing the assessment that such a notice should be issued. Similarly, in cases governed by Section 274(2) (which has been deleted w.e.f. 1st April, 1976), action could be considered to have been initiated if the officer had made a reference to the IAC under that provision though the IAC might apply his mind and issue a further notice to the assessee only long thereafter. But some definite step by way of initiation of penalty proceedings should be taken by the officer before the assessment proceedings come to an end. It is not enough for the ITO to record in the assessment order that penalty proceedings are to be or will be, initiated separately. There should be some other step such as an actual direction to the office to issue a penalty notice (which thereafter needs only ministerial compliance), the actual issue of a penalty notice, a reference to the IAC or some other similar action.' The case of the Revenue is that, decision was rendered while considering the proceedings initiated under Section 271(1)(c) and, therefore, penalty like continuance of penalty under Section 272A(2)(c) such initiation is not necessary. They are independent. We are afraid, the contention of the Revenue is misplaced.
Section 275 is the only section dealing with the time-limit for imposition of penalties. Sub-section (1)(c) starts with the wording "in any other case.... This means Section 275(1)(c) is applicable to all other section, i.e. other than the ones mentioned in Sections 275(1)(a) and (b). The Hon'ble Delhi High Court held, as noted above, that the penalty proceedings should be started during the course of assessment proceedings. In that case, the Hon'ble High Court not only held that a mere writing in the assessment order that penalty proceedings will be separately initiated alone is not sufficient but before the completion of the assessment, at least, the first initial step of issuance of notice should have taken place or instruction to the concerned officer to issue notice of penalty should separately be given.
In the instant case of the assessee, penalty proceedings start after a gap of almost six years and ten months. Natural justice demands that there should be an end to the assessment order either by mistake or for valid reason did not initiate the proceedings and impose the penalty. However, after a long gap proceedings are initiated. We are constrained to say that the proceedings initiated after such a long gap is against the fairplay and justice. Even otherwise, as we have already noted in terms of Section 275(1)(c) the penalty proceedings, since was not initiated during the assessment proceedings nor even completed within the contemplated time, the penalty proceedings initiated are bad in law.
Section 275 which prescribes time-limit for imposing penalty is applicable to Chapter XXI given under the head "Penalties imposable". Section 272A falls within this Chapter. Section 275(1)(c) stipulates that no order imposing penalty under this Chapter (Chapter XXI) shall be passed 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.
In the instant case of the assessee, it was neither completed before 31st March, 1993, nor even initiated before the six months contemplated by the second limb of the provision, i.e., 31st Aug., 1993. It was initiated in the year 1999. First of all there should be a reasonable time within which penalty proceedings is to be initiated or to be completed. Even if a time is not prescribed under the law, the penalty cannot hang on the head of an assessee as a sword of Damocles indefinitely. It is true that there is no equity in tax. But there cannot be injustice. The penalty proceedings are like criminal proceedings, though on a different footing. It may be improper to use the word "harassment" but the least, it is not fair play to penalize an assessee against whom no penalty was initiated during the assessment proceedings or if started to keep penalty proceedings ad infinitum.
In the light of the above, we set aside the order of the learned CIT(A) sustaining the penalty imposed by the AO as it is against the provisions of law.
(iii) Decision of Tribunal, Agra Bench in the case of Farrukhabad Investment India Ltd. v. Jt. CIT (supra)
(iii)(a). The facts in this case and as have been revealed from the records were as under :
4. Briefly the facts of the case are that the assessee is a non-banking financial company. In the course of its business, it accepts/renews loans and deposits and reinvest the same. During the course of assessment proceedings for asst. yr. 1996-97, the AO examined the account books of the assessee and noted that it has accepted loans/deposits exceeding Rs. 20,000 in cash. In some years, the loans/deposits accepted in cash in earlier years as well as in this year and outstanding at the end of the year exceeded Rs. 20,000. The AO felt that such acceptance of deposits was in violation of the provisions of Section 269SS and was liable to penalty under Section 271D of the Act. Accordingly, the show-cause notice was issued to the assessee as to why the penalty under Section 271D may not be imposed. The AO also noted that total loans/deposits accepted by the assessee in violation of Section 269SS amounted to Rs. 1,83,09,025. Accordingly, AO imposed the penalty equal to this sum under Section 271D of the Act vide his order dt. 28th June, 1999.
5. Aggrieved by the order of the AO, the appeal was preferred before the CIT(A). It was claimed before him that though the AO has imposed the penalty under Section 271D at Rs. 1,83,09,025 but the fact was that the entire loans/deposits on which the penalty was levied was not accepted during the accounting year relevant to the asst. yr. 1996-97. The CIT(A) asked the AO to offer his comments on the submissions of the assessee. The AO noted that a sum of Rs. 64,62,489 was accepted as loan or deposits in violation of the provisions of Section 269SS relevant to the asst. yr. 1996-97. A remand report was submitted to the CIT(A) accordingly. After considering the submissions of the AO, the CIT(A) held that penalty under Section 271D was imposable on those amounts of loans or deposits which were accepted in the previous year relevant to the asst. yr. 1996-97, in violation of the provisions of Section 269SS. He, therefore, restricted the penalty under Section 271D to Rs. 64,62,489 for asst. yr. 1996-97. The findings of the CIT(A) were accepted by the Revenue and no second appeal was preferred before us. In view of the finding of the CIT(A), the AO issued show-cause notice to the assessee as to why the penalty under Section 271D may not be imposed on the amount of loans or deposits accepted by the assessee in other years. As per the AO, the amount of loans/deposits accepted by the assessee in violation of Section 269SS in different years was as under :
Asst. yr. Amount 1992-93 1,43,050 1993-94 1,37,000 1994-95 11,51,000 1995-96 27,76,960 1997-98 71,71,360 1998-99 18,17,762
6. In his order, the AO has observed that last opportunity to the assessee was given vide letter dt. 28th Oct.,1999, as to why the penalty under Section 271D may not be imposed for accepting loans/deposits in violation of the provisions of Section 269SS for abovementioned years. The hearing was fixed on 8th Nov., 1999. The AO also observed that a notice was also sent to the assessee by Registered Post on 1st Nov., 1999, on the known address of the assessee. But the said notice came back unserved with the postal remarks dt. 3rd Nov., 1999. "Without address returned to senders." The copy of the said notice was got served on the assessee by affixture on 1st Nov., 1999. But as none appeared on the appointed date and also by the date of passing the order, the AO imposed the penalty under Section 271D of the Act as mentioned above.
7. Similarly, the AO also observed that at the time of assessment proceedings, for asst. yr. 1996-97, it was noted that the assessee has returned back the deposits to the extent of Rs. 55,26,734 in violation of the provisions of Section 269T of the Act. Relying on the reasons while imposing penalty under Section 271D, the AO imposed the Penalty of Rs. 55,26,734 for asst. yr. 1996-97 under Section 271E of the Act.
8. On appeal, the CIT(A) observed that the entire penalty imposed by the AO does not relate to the repayment of deposits during the asst. yr. 1996-97. He held that the penalty under Section 271E could be imposed on the amount of repayment of deposits made by the assessee in violation of the provisions of Section 269T in the previous year relevant to the asst. yr. 1996-97. He, therefore, asked for a remand report from the AO and after considering such remand report, the CIT(A) restricted the penalty under Section 271E of the Act for asst. yr. 1996-97 to Rs. 11,12,936. The Revenue accepted the findings of the CIT(A). Consequently, the AO issued show-cause notice to the assessee for different assessment years on the basis of observations made by him while imposing the penalty under Section 271D, The AO accordingly imposed the following penalties under Section 271E of the Act :
Asst. yrs. Amount 1993-94 22,050 1994-95 25,000 1995-96 65,000 1997-98 24,82,927 1998-99 34,87,711
9. The penalty under Sections 271D and 271E of the Act for asst. yr. 1996-97 were partly sustained by the CIT(A) as mentioned above which is also the subject-matter of appeal before us.
10. On receipt of the penalty orders, the assessee challenged the same before the Hon'ble Allahabad High Court. In their order dt. 5th June, 2000, their Lordships observed that in the writ petition, the orders imposing penalties under Section 271D/271E of the Act have been challenged. The Hon'ble Court observed that as the petitioner had alternate remedy of filing the appeal under the IT Act, the petitioner may file appeal within 3 weeks from the date of their orders. Their Lordships also observed that the appeals shall be decided by the appellate authority preferably within two months from the date of filing the appeal in accordance with law. The assessee, therefore, preferred appeal before the CIT(A) in respect of the amount and the assessment years mentioned earlier."
(iii)(b). It was in view of the above facts and circumstances that the Hon'ble Tribunal deleted the penalty after observing as under :
38. We have considered the rival submissions. The assessee is a non-banking financial company whose business was accepting loans and deposits and investing the same. As certain loans/deposits were accepted and repaid in cash exceeding certain limit, the penalties under Sections 271D and 271E were sustained by the CIT(A). The provisions of Sections 269SS and 269T read as under :
'269SS, 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 ' '269T (1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more :'
39. For the violation of the above provisions, the penalties have been provided under Sections 271D and 271E which read as under :
'271D(1) If a person takes or accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.
(2) Any penalty imposable under Sub-section (1) shall be imposed by the Dy. Jt. CIT, '271E (1) If a person repays any deposit referred to in Section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the deposit so repaid.
(2) Any penalty imposable under Sub-section (1) shall be imposed by the Dy. Jt. CIT' The provisions of Sections 269SS and 269T were brought on the statute by the Finance Act, 1984 w.e.f. 1st April, 1984. The intention behind bringing the above provisions on the statute was clarified by the CBDT vide its Circular No. 387, dt. 6th Sept., 1984 [sic-Memorandum Explaining the Provision of the Finance Bill, 1984] [reported in (1984) 146 ITR 162 (St)]. The relevant part of the circular is as under :
'Unaccounted cash found in the course of searches carried out by the IT Department, is often explained by taxpayers as representing 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.
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 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 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 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 proposed prohibition would also apply to cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.'
40. Keeping the above circular in view, the Hyderabad Bench of the Tribunal in the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd) in para 17.2 of its order held as under :
'Provision of Section 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 of the IT Act, 1961 which reads requirements as to mode of acceptance, payment or repayment in certain cases to counteract. 'Evasion of Tax'. Legislative intention in bringing Section 269SS in the IT Act was to avoid certain circumstances of tax evasion whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the CIT(A) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with stringent punishment of heavy penalty.'
41. The same Bench considered this issue in the case of Dillu Cine Enterprises (P) Ltd. v. Addl. CIT (2004) 87 TTJ (Hyd) 1098. The Bench ordered as follows :
'We find force in the argument of the learned Counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provisions of Section 269SS. It is not the case of the Revenue that the amount involved were unaccounted transactions. It is an undisputed fact that the transactions are genuine. The Chapter XX-B and Section 269SS begins with the heading--Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. The term 'certain' used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not attracted. This section attracts only 'certain' loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the headings prefixed to sections or set of sections in some modern statutes are regarded as 'preambles' to those sections. This view was approved by Farewel L.J. Fletcher v. Birkenhead Corporation (1907) 1 KB 205.'
42. A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the intentions of its maker. A statute is to be construed according to the intent of them who make it. Our observations find support from the decision of the Hon'ble Supreme Court in Vishnu Pratap Sugar Works (P) Ltd. v. Chief Inspector of Stamps AIR 1968 SC 102. The legislation in a modern state is actuated with some policy to curb some evils or to some public benefits. A bare mechanical interpretation of the words without application of a legitimate intend, devoid of any concept of purpose will reduce most of the remedial and beneficial legislation of frutility. Hon'ble Supreme Court in the case of VO Tractor Export v. Tarapore & Co. observed as under :
'A statute not to be construed as a theorem of Euclid but the statute must be construed with some imagination of the purpose which lies behind the statute. The doctrine of literal interpretation is not always the best method for ascertaining the intention of Parliament. The better rule of interpretation is that a statute should be so construed as to prevent the mischief and advance the remedy according to the true intent of the makers of statute.--VO Tractor Export v. Tarapore & Co. .'
43. In the case of Mahadeo Lal Kanodia v. Administrator General , the Hon'ble Supreme Court further observed as under :
'The intention of the legislature has always to be gathered from the words used by it giving to the words their plain, normal, grammatical meaning.
However, if the strict grammatical interpretation gives rise to an absurdity or inconsistency, such interpretation should be discarded and an interpretation which will give effect to the purpose the legislature may reasonably be considered to have had will be put on the words, if necessary even by modification of the language used.'
44. In the case of R.L. Arora v. State of UP , the Supreme Court, regarding interpretation of the statute, observed as under :
'A literal interpretation is not always the only interpretation of a provision in a statute and the Court has to look at the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used in a provision of the statute. It is permissible to control the wide language used in a statute if that is possible by the setting in which the words are used and the intention of the law-making body which may be apparent from the circumstances in which the particular provision came to be made.'
45. Similar views were expressed in the cases of Sodhi Transport Co. v. State of U.P. , Manmohan Das Shah v. Bishun Das , State of Madhya Pradesh v. Azad Bharat Finance Co. and Ajay Hasia v. Khalid Mujib Sehravadi .
46. Keeping in view the intent of the legislature behind enacting the above sections, we hold that the loans/deposits brought in by the assessee was not to explain its unaccounted cash and, therefore, the question of violating the provisions of Section 269SS/269T did not arise. We may mention here that even there is no suggestion from the Revenue that by way of accepting loans and deposits in cash, the assessee has introduced its unaccounted cash in the garb of loans.
48. Regarding learned Counsel's arguments that the time-limit for imposition of penalty was governed by the provisions of Section 275(1)(c), we find force in it. This issue was adjudicated by Hyderabad Bench of the Tribunal in the case of Dillu Cine Enterprises (P) Ltd. (supra). At p. 495 of the report, the Bench held as under :
'To our mind, the intent of the legislature is to give more time to such cases falling in Category 1 only, i.e., where penalty is related to quantum of additions to income. Otherwise, we see no reason why Sub-clause (c) to Section 275(1) is required to be part of the Statute. Category III covers all cases not covered by Category I and Category II. This penalty under Section 271DD has nothing to do whatsoever with the quantum appeal, assessment year, previous year, etc. We are supported by the decision of the Cochin Bench of the Tribunal supra, in this regard. Hence, we hold that penalty under Section 271D for violation of Section 269SS are governed by Section 275(1)(c) of the Act for the purposes of limitation.' 49 to 59 - not required.
60. In view of our findings that the penalties under Sections 271D and 271E for all the years sustained by the CIT(A) were not justified, we are not going into the merits of the other submissions of the learned Counsel.
61. In the result, penalties under Section 271D/271E sustained by the CIT(A) for all the years before us are deleted. All the appeals directed by the assessee are allowed.
(iv) Chandra Cement Ltd. v. Dy. CIT (supra) :
(iv)a The brief facts in this case, as per para 2 of the order, were as under :
2. The brief facts of the case are that the appellant-company was setting up mini cement plant at village Paniyala, Tehsil Kotputli, Distt. Jaipur. Shri R.P. Goyal was and has been its promoter-director as well as C.M.D. For establishment of the plant, the appellant approached financial institutions who sanctioned the loan in January, 1992. Pending the disbursement of loan, Mr. Goyal brought his own money from time-to-time for the project work during the two years under consideration. During the course of assessment proceedings, it was noticed by the AO that the balance sheet of the company indicated unsecured loan from Mr. Goyal at Rs. 1,60,70,138 out of which Rs. 79,78,368 was brought by Mr. Goyal in cash during asst. yr. 1992-93 violating the provisions of Section 269SS, thus the proceedings under Section 271D were initiated and ultimately penalty of Rs. 79,78,368 was levied. Similarly, in asst. yr. 1993-94, it was observed by the AO that Shri Goyal brought the amount of Rs. 1,98,55,171 in cash which was credited in the books of the appellant-company. For this year also penalty under Section 271D was levied equivalent to the amount alleged to be in default of Section 269SS of the Act. The appellant preferred appeals in both the years before the first appellate authority who confirmed penalty in both the years rejecting the plea of the appellant and hence these appeals. Since both the appeals involve similar issue, they are disposed of through this common order and common discussion. During the course of hearing, oral arguments as well as written submissions were made on behalf of both the parties which are considered while disposing of these appeals.
(iv)b. It was in view of the above facts that the Hon'ble Tribunal cancelled the penalty after observing as under :
We have carefully gone through the facts of the case, arguments advanced and written submissions and case laws relied upon. At the outset, we may mention that it has been argued by both the parties that true character/nature of transactions should be determined without being influenced by manner of entries passed in the books of account or, the method of accounting or disclosure made in balance sheet. We agree with this contention put forth by both the parties, and, therefore, we would like to first determine the nature of transactions in the present case in respect of which the penalties under Section 271D have been levied.
Admittedly, Mr. R.P. Goyal, the chairman-cum-managing director, was the promoter-director of the appellant-company, who supervised entire project of the company and who remained actively engaged in looking after the construction and other activities of the company. It is equally undisputed that it was he who managed and arranged resources for the construction activity during the period when company was awaiting disbursement from financial institutions. Mr. R.P. Goyal provided financial assistance to the company by bringing in requisite money from time-to-time in piecemeal during the construction period. The money was not brought in one, two or three instalments but was brought in a number of instalments. It appears that the bringing of money every time was in response to the immediate requirement in the project activity. On going through the details of amounts brought in and spent, it is evident that the (sic) period. For this purpose, we perused the utilization of the money brought on pp. 13 to 30 of the paper book for financial year 1991-92. First two receipts of Rs. 10,000 and Rs. 1,270 are for expenditure for the incorporation of the company. The next one on 31st July, 1991, is for the purchase of land where Rs. 4,05,960 is paid and credited to Shri Rajendra Goyal. A number of expenditure are for purchase of machinery, automobile, construction material and so on. These payments cannot be made from office because till then there was no office or the factory. It is obvious that the payments are made by Shri Rajendra Goyal and he rendered the account. Likewise in the next year 1992-93 where the amounts are credited through journal entry to the amount of Shri Rajendra Goyal and debited to various heads. The details are summarized at pp. 31 and 32 of the paper book. These are for building, plant and machinery, other assets as also revenue expenditure during construction period. Thus, the fact remains that money was brought for its immediate disposal.
It is true that the company has a separate status and entity than its shareholders and directors. It is also true that director's act as agents of the company and are answerable to their principal, i.e., the company. This is the reason why Mr. Goyal undertook all the construction activities of the appellant-company at his instance, as he was responsible and answerable to the company. It was in this background that when he found company being unable to make the resources available for the project work, he decided to involve and utilize his own money for construction work. There were neither compelling reasons nor a compelling force by the so-called artificial person-company to bring in the money, it appears that it was merely a suo motu decision of Mr. Goyal to expose himself to such a huge risk of utilizing his personal money for company's purposes, with the hope that he would take it back when the loans are disbursed to the company.
In other words, it is a case where agent utilized his own money in order to fulfil his obligations towards the principal upon which he became entitled to get back the money. This is thus a unilateral transaction on the part of Mr. Goyal to involve and utilize his own money by withdrawing it from his own sources. An unilateral act cannot result in a contract for which existence of two parties is a sine qua non. Whether loan or deposit they both are contracts only, originated from bilateral act. We are impressed by the reference of Section 69 of the Indian Contract Act, 1872, which, helps on understanding the true character of these transactions. Section 69 of said Act falling within Chapter V thereof reads as follows :
'Chapter V of certain relations resembling those created by contract....
Section 69 : A person who is interested in the payment of money which he is bound by law to pay and who, therefore, pays it, is entitled to be reimbursed by the other.' The transactions under consideration are evidently of the nature referred to in Section 69 of the Indian Contract Act, 1872. The company was bound to pay for the construction expenditure. The director Shri R.P. Goyal paid it because he was interested in the capacity as promoter and also because his personal guarantees are involved in the finances to the company. Thus, he paid the amount and became entitled for the reimbursement by the company.
It is true, neither a loan which is a bilateral transaction at the instance of borrower having predetermined repayment period, nor a deposit which is at the instance of depositor and is repayable on fulfilment of certain conditions. Mr. R.P. Goyal, the director and the agent of the company suo motu spent his own money for his principal, i.e., the company, who by way of incorporation of the transaction in its books, undertook the obligation to repay.
Let us also consider as to what would constitute primary evidence of the amount advanced by Mr. Goyal in cash in the present facts. There is no loan agreement and no deposit receipts are issued. In our opinion, if any dispute ever arises about the amount spent by Mr. Goyal on company's construction, the appropriate method for measurement of amounts advanced by Mr. Goyal would be the valuation of construction work, because, firstly, there is a direct nexus between the advance and expenditure and secondly, hardly any activity other than construction was there during this period. This is for this reason that advances made by Mr. R.P. Goyal in the present case are inseparable from construction activity. Making of advance and spending for construction work cannot be considered to be independent from each other. The person at whose instance amounts were advanced or the construction was carried out was the same individual. Therefore, in the present case, the primary evidence of amount advanced by Mr. Goyal would be the amount spent on construction, whatever be the manner of incorporating them in the books of account.
Thus, going by the nature of transactions, we are satisfied that the impugned transactions were neither loan nor deposits and there is enough material on record to suggest that the amounts were brought by Mr. Goyal for directly incurring on the construction expenditure which was not in terms of any agreement with the company, but was suo motu. The nomenclature used by the parties is immaterial and would not alter the nature of captioned monies. Having decided that impugned amounts were neither loans nor deposits, all other allegations and arguments become irrelevant to the context since the provisions of Section 269SS are not attracted in the facts of the present case.
(v) Mohan Karkare v. Dy. CIT (supra) :
(v)(a). The facts in this case were that on 10th Jan., 1989, the assessee had obtained a sum of Rs. 40,000 and on 11th Jan., 1989, another sum of Rs. 30,000 both amounts in cash; from his father to purchase a matador from Bajaj Auto Ltd. Poona. In the assessment proceedings, the transaction was accepted as genuine, but penalty proceedings under Section 271D of the Act were initiated.
(v)(b). In the penalty proceedings, the assessee had pleaded another line that the amount was received in cash on account of exigencies because the last date for concessional purchase of matador in Gwalior fair was 14th Jan., 1989 and the assessee was availing that benefit. The assessee had filed an affidavit of his father stating that the amount was given by him to his son for purchase of matador and was directly deposited in the bank account instead of handing over it to the son. The AO did not accept assessee's explanation and imposed penalty under Section 271D of the Act.
(v)(c). Based on above facts and circumstances, the Hon'ble Tribunal deleted the penalty.
(vi) Shrepak Enterprises v. Dy. CIT (supra):
(vi)(a). The brief facts, as have been revealed from the order, were as under :
During the assessment proceedings, the AO noted that the assessee had received cash deposits of Rs. 2,17,000 as below :
Name of the Date of Mode of
depositor Deposit Deposit
& the
amount
M/s Arvind
Panalal
Invest-
ment (P)
(P) Ltd. 11-12-1990 In cash
Rs.
15,000
-do- 17-12-1990 In cash
Rs.
30,000
-do- 8-12-1990 In cash
Rs.
1,72,000
Total Rs.
2,17,000
According to the AO, this was in contravention of the provisions of Section 269SS of the IT Act and after giving the assessee an opportunity of being heard, he came to a conclusion that the assessee was liable to be penalized under Section 271D of the Act. Accordingly, he imposed a penalty of Rs. 2,17,000. When the matter was taken to the CIT(A), he confirmed the penalty.
(vi)(b). It was on the above facts and circumstances that the Hon'ble Tribunal deleted the penalty by holding as under :
2. We have heard the assessee's counsel and Departmental Representative According to the assessee's counsel under Section 269SS, no person shall, after the 30th day of June, 1984, take or accept 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 on the date of taking or accepting such loan or deposit exceeds Rs. 20,000 or more. He submitted that, in this case, the amount was paid by the firm to the partners and vice versa. It was submitted that under the law of partnership, there is no distinction between the partner and firm. They are one and the same. It was submitted that a firm is a compendious name of all the partners taken together. Therefore, the payment, in this case, is not from one person to another. It is a payment to self. It may be treated as loan or deposit for the purposes of accounting only and not for the purposes of general law. He relied upon the following decisions :
CIT v. R.M. Chidambaram Pillai , Sunil Siddharthbhai v. CIT , Malabar Fisheries Co. v. CIT , ITO v. Arunagiri Chettiar (sic), CIT v. Madhukant M. Mehta (1981) 132 ITR 159 : (1981) 5 Taxman 11 (Guj), Vir Sales Corporation v. Asstt. CIT (1994) 50 TTJ (Adh) 130 and Mohamad Ali v. Karji Koudho Rayaguru AIR 1945 Pat 286.
The Departmental Representative invited our attention to the provisions of Sections 188 and 189, of the IT Act to submit that a specific mention has been made in the Act where the firm and the partners are treated as separate entities. As far as Section 269SS is concerned, the firm and partners are separate entities for the purposes of income-tax and for the purposes of application of the provisions of the IT Act. He invited our attention to the decisions CIT v. A. W. Figgies & Co. and Ors. , Chief Controlling Revenue Authority v. Manohar Lal Dudeja (FB) Narayandas Kedarnath v. CIT and CIT v. R. Rangaswamy Naidu . The assessee's counsel in reply submitted that Section 188A has been specifically brought into existence to clarify what has already been taken for granted in general law. He invited our attention to Section 48 of the Partnership Act.
We are of the opinion that in view of the Departmental Circular No. 387, dt. 6th July, 1984, this provision was brought in to cover those situations where unaccounted cash found in the course of search or was even explained by the taxpayers as representing loans taken or deposits made by various persons. This particular section was brought in with a view to counter such tactics of the assessee in question. The clarification has been given in the Department Circular No. 387, dt. 6th July, 1984, which is a clarification of binding nature on the Departmental authorities. There is no dispute in this case that it is not a case where any search and seizure had taken place and it is also not a case of explaining deposits or loans taken through cash in past. The Hon'ble Supreme Court in the case of R.M. Chidambaram Pillai (supra) held that a firm is not a legal person even though it has some attributes of personality. In IT law a firm is a unit of assessment, by special provisions, but is not a full person. Thus, in that case, it was held that the payment of salary to a partner represents a special share of profits. Salary paid to a partner retains the same character of the income of the firm. The Hon'ble Supreme Court, therefore, relying on the commentary of Lindley on partnership held that the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property and what are called the debts and liabilities of the firm are their debts and their liabilities. A partner may be a debtor or a creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer. Therefore, it is obvious that in this case there cannot be a relationship of a debtor and creditor between the firm and the partners. The Hon'ble Bombay High Court in the case of Narayandas Kedarnath (supra), held, that there is no presumption that all the payments by the firm and the partners are separate payments. But in that case the Hon'ble High Court was not required to decide as to whether the firm and the partners are the same. It was a very narrow compass, which was to be decided. The reliance of the Department on the case of A.W. Figgies & Co. (supra) is also of no help to it. At p. 409, the Hon'ble Supreme Court have held that the partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purpose of assessment. It has been held that the provisions of the IT Act go to show that the technical view of the nature of a partnership, under English Law or Indian Law, cannot be taken in applying the law of income-tax. Therefore only for the purpose of making an assessment that the IT Act has made distinction between the firm and the partners. In general law, they continue to be one and the same. Therefore, the decision of the Hon'ble Supreme Court also does not help the Department. Reliance of the Department on the decision of the Madras High Court in the case of R. Rangaswamy Naidu (supra) is also not helpful. The Hon'ble Madras High Court have held that under the IT law, the position is different from general law and the firm and the partners are distinct assessable entities. The law has for some specific purposes relaxed its general rigid notions and extended a limited personality to a firm. Therefore, the Hon'ble Madras High Court has only stated that the firm and the partners are distinct assessable entities, but it has nowhere said that the firm is not a separate legal entity. The Hon'ble Gujrat High Court in the case of Madhukant M. Mehta (supra) had also held that a firm has no distinct legal entity apart from the partners except that in IT Act a firm is a unit of assessment and has certain attributes simulative of a personality. The Hon'ble Supreme Court in the case of CIT v. Ramniklal Kothah held," ... although for purpose of income tax a firm has certain attributes simulative of personality, we have to take it that a partnership is not a person but plurality of a person". In the classic decision of the Hon'ble Supreme Court in Malabar Fisheries Co.'s case (supra) it has been held, "there is no transfer of assets involved even in the sense of any extinguishments of the firm's rights in the partnership assets when distribution takes place upon dissolution". The Hon'ble Tribunal- Ahmedabad Bench "C" in the case of Vir Sales Corpn. (supra), have held that transactions inter se between the sister-concern made with a view to meet the business necessity and made under the bona fide belief and with reasonable cause and no penalty is imposable under such circumstances. In this case, the Department has nowhere challenged that the loans advanced are not genuine. The loans are genuine and they have not been made by one person to another person. As discussed above, they have been made by that person to himself in the eyes of law. The reliance of the Department in the case of Lachhiram Puanmal and Ors. v. ITO is also not helpful for the Department as the firm and partners are separate assessable units in the IT Act. Therefore, if a disclosure was made in the hands of the firm, the benefit would go to the firm and not to the partners. This judgment of the Hon'ble High Court was on the facts of the case. We are, therefore, of the opinion, that the payment of the amount made by a partner to a firm is the payment itself to self and does not partake the character of loan or deposit in general law. Therefore, the provisions of Section 269SS are not applicable to the facts of the case and no penalty imposable under Section 271D. We also feel that the assessee could be under genuine impression that advancing of loan by a partner to firm is not a transfer from one person to the another and hence, there is no violation of provisions of Section 269SS. In view of the above, we cancel the penalty imposed and allow the assessee's appeal.
(vii) Decision of Tribunal Hyderabad Bench in the case of Dillu Cine Enterprises (P) Ltd. v. Addl. CIT (supra)
(vii)(a). The brief facts in this case and as have been revealed from the records, were as under :
The facts as gathered from the record are as follows. The assessee is a domestic company in which public are not substantially interested. The assessee derives income from two cinema theatres and a shopping complex. The assessee-company has been managed by three directors, one of whom has since expired. All the three directors had personal accounts in the form of current account in the books of the assessee-company. Mr. P.K. Swamy, one of the directors was actively looking after the affairs of the assessee-company. Whenever the assessee-company was in requirement of funds, Mr. P.K. Swamy, brought in the funds from his personal account and was also withdrawing this money as and when he required the same. So, money was both taken by him and given back to him. During the previous year relevant to the assessment year in question, the director Mr. P.K. Swamy had given a total amount of Rs. 12,63,500, to the company, other than by way of account payee cheque or bank draft. The assessee-company claimed that Mr. P.K. Swamy, directly deposited these amounts in the bank account of the assessee-company. The Addl. CIT rejected the versions and contention and explanation given by the assessee and levied a penalty of Rs. 12,63,500 under Section 271D of the IT Act, 1961, holding that the assessee had contravened the provisions of Section 269SS. On appeal, the learned CIT(A) confirmed the penalty. Aggrieved of this, the assessee is before us in appeal.
(vii)(b). Based on these facts, the Hon'ble Tribunal as per para 6(e) to para 7 of its order, has held as under :
[Para 6 (e)] On the question of legislative intent, the CBDT has explained the object of introduction of Section 269SS by the Finance Act, 1984, in its Circular No. 387, dt. 6th July, 1984, (1985) 152 ITR (St) 1 thus :
'Unaccounted cash found in the course of searches carried out by the IT Department is often explained by taxpayers as representing 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.
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 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 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 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 proposed prohibition would also apply to cases where the amount of such loan or deposit together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.
(vii)(c). The Hon'ble Tribunal further referred to some other decisions as under:
(vii)(c)(i). This Bench of the Tribunal in Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd), held in para 17 of its order, as follows :
'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 of the IT Act, 1961 which reads "requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax". Legislative intention in bringing Section 269SS in the IT Act was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the CIT(A) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law so as to be visited with stringent punishment of heavy penalty.' We find force in the argument of the learned Counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provisions of Section 269SS. It is not the case of the Revenue that the amount involved were unaccounted transactions. It is an undisputed fact that the transactions are genuine. Both the assessee and the director were on the records of the IT Department and both declared these transactions to the Department. The Chapter XX-B and Section 269SS begins with the heading "Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax". The term "certain" used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not attracted. This section attracts only "certain" loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the headings prefixed to sections or set of sections in some modern statutes are regarded as "preambles" to those sections. This view was approved by Farewell L.J. in Fletcher v. Birkenhead Corporation (1907) 1 K.B. Enterprises case (supra), we hold that the transactions between the assessee and Mr. P.K. Swamy do not fall within the mischief sought to be remedied by the section as there is no case against the assessee that these transactions had anything to do with evasion of tax or concealment of income.
[Para 6 (f)] On the contention of the assessee that the words "any other person" does not denote the director of the company, we are of the considered view that the same is correct when read with legislative intent as reproduced in the previous paragraphs i.e., Board Circular No. 387, dt. 6th July, 1984, (supra). We are convinced with the learned assessee's counsel's arguments that the Finance Act, 1984, states the legislative intent and describes a situation where explanation of taxpayer of loans obtained from "various persons". It also speaks of confirmatory letters from "such other person" during the course of search. This scheme of the section, the context in which the section is introduced and the legislative intend definitely do not mean "husband and wife", "director" and "company" or "partner and firm". The legislature was not referring to confirmatory letters produced to explain unaccounted money found during search operations from "spouse" in case of "individual" or "director" in case of "company" or "partner" in case of "firm": The term "any other person" in the context of introduction of this section as appears to us means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operation under Section 132, all these persons are invariably searched together. The legislature was intending to curb tax evasion in a "search situation" and referred to confirmatory letters produced in such situations to counter "cash found". The term "various persons" and "such persons" is to be understood only in relation to "search situation" as the section itself was introduced to meet such situations only. The learned Counsel argued that it is unthinkable that the Department would search a husband and the wife will not be covered in the search proceeding. The same is the case of every director of a private limited company or a company in which public are 'not substantially interested or partner and firm. These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought of as sought to be explained off by the persons who are in the dragnet of search operations. So, we are convinced that the term "other person" as appearing in this section means, other than those intimately connected as in the present case.
We do not agree to finding of the learned CIT(A) on p. 4 para 3 of her order that provisions of Section 2(21) are applicable when considering this term "any other person". The "context" in which the Chapter and section was introduced by the legislature and the legislative intent are very clear in this regard and we agree with the argument of the learned Counsel for the assessee.
Thus, we hold that the active director of the assessee-company is clearly not covered by the expression "any other person" occurring in Section 269SS of the Act.
[Para 6(g)]
(vii)(c)(ii) On the issue that these are bilateral transactions, we follow the judgment of the Tribunal, Jaipur Bench, in the case of Chandra Cement Ltd. v. Dy. CIT (supra) the relevant portion of which is as follows :
When one single individual is managing the affairs of two concerns and the decision to transfer the funds from one concern to another or to repay the funds could have been said to have been largely influenced by the same individual, it cannot be said that transaction partakes the nature of either deposit or loan. Further, the transactions have not been impeached as non-genuine or bogus in the respective assessments. The arguments at this stage that Department wants to verify the genuineness is only for the sake of arguments. It was the assessment order, which should have spoken about the ingenuity of the transactions. Thus, for all these reasons, the provisions of Section 269SS are not attracted to the facts of the case. The penalties levied are, therefore, cancelled. Even if they were to apply, in the facts and circumstances explained above the bona fide belief that provisions of Section 269SS would not be attracted in the nature of transactions will constitute reasonable cause in this case--Muthoot M. George Bankers v. Asstt. CIT (1993) 47 TTJ (Coch) 434 : (1993) 46 ITD 10 (Coch) and ITO v. Rajendra Trading Co. (1994) 48 ITD 210 (Chd) relied on.
(vii)(c)(iii). The Hon'ble Madhya Pradesh High Court has in the case of Patiram Jain (supra) held that :
It has also been accepted by the respondents that the transactions made between the two sister-concerns were under exceptional circumstances to accommodate the emergency needs of the sister-concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under Section 269SS of the IT Act. Therefore, the proceedings initiated under Sections 276DD and 276E of the IT Act were against the provisions of law.
(vii)(c)(iv). The Cochin Bench of the Tribunal in Muthoot M. George Bankers' case (supra) held as under :
Against this background, we examine the transactions between the sister-concerns and the assessee. There are transfer of funds from and to the sister-concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister-concerns and the assessee are owned by the same family group of people with a common managing partner with centralized accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regards to their repayments. From the copies of the accounts furnished before us, all that can be gathered is that funds have been transferred from and to the sister-concerns as and when required and since the managing partner is common to all the sister-concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transaction inter se between the sister-concerns and the assessee cannot partake the nature of either "deposit" or "loan" though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business.
(vii)(c)(v). The Mumbai "B Bench of the Tribunal in the case of Karnataka Ginning & Pressing Factory v. Jt. CIT (2001) 72 TTJ (Mumbai) 307 : (2001) 77 ITD 478 (Mumbai), at p. 487, held as follows :
Quite apart from the question of existence of reasonable cause, we are not sure whether the amounts received by the assessee from VE can be termed as "loans" or "deposits". The words are not defined in the Expln. (iii) below Section 269SS except saying that "loan" or" deposit" means loan or deposit of money. The terms "loan" and "deposit" are not mutually exclusive there are a number of common features between the two. It was held by the Madras High Court in Abdul Hamid Sahib v. Rahmat Bi AIR 1965 Mad 427, that a loan is repayable the moment it is incurred while it is not so with the deposit. In a deposit, unlike a loan, there is no immediate obligation to repay. Normally a deposit is for a fixed tenure. The amounts taken by the assessee in the present case from VE are temporary advances and there is no evidence that there was any stipulation as to the period or any stipulation for interest. It is, therefore, a matter of grave doubt as to whether the amount received from VE can be characterised as loans or deposits. In our view, they can be more appropriately referred to as temporary advances. Such temporary advances are outside the purview of Section 269SS.
Thus, in our considered opinion and in view of the various judicial pronouncements on this matter, we hold that the transaction of this case on hand cannot be considered as "loan" so as to attract Section 269SS and Section 271D of the Act.
[Para 6(h)] We are also of the considered opinion that the transaction can be attributable to various exigencies and vicissitudes of business and thus constitutes a "reasonable cause" as contemplated by Section 273B of the Act, as the company had issued certain cheques and as they were coming up for encashment. The active director of the company considered it expedient to deposit cash in the bank account of the company to save the situation. The expression "reasonable cause" has to be considered pragmatically and as it is an open transaction done, to meet exigencies of business, it can be said to constitute "reasonable cause". Penalty provisions have been held by the Hon'ble Supreme Court of India, as penal in character and quasi-judicial in nature. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will not be ordinarily imposed unless the party has either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on considerations of all relevant circumstances--Hindustan Steel Ltd. v. State of Orissa (supra).
7. We can safely infer that the default, in any, can be said to be "technical" and "venial" one. The "bona fides" of the assessee can also be said to be there when we examine the facts of the case. The assessee had a "bona fide" belief that no offence was committed. The levy of penalty is not automatic since the Hon'ble Supreme Court of India in the case of Moti Lal Padampat Sugar Mills Co. Ltd. v. State of U.P. (1979) 118 ITR 326 (SC) has observed that there is no presumption that every person knows the law.
In the light of the above, we hold that both on law and on facts, the penalty levied by the Addl. CIT under Section 271D and confirmed by the learned CIT(A) is not maintainable. Accordingly, we delete the penalty levied.
(viii). Decision of Tribunal, Ahmedabad Bench, in Paras Brass Extrusion Ltd. v. Dy. CIT (supra) :
(viii)(a). In this case the brief facts were that the assessee had taken various amounts in cash--each exceeding Rs. 20,000 from seven persons--totalling to Rs. 10,00,000. The AO imposed penalty under Section 271D of the Act. Before the Tribunal, the assessee submitted that keeping in view the object of introduction of Section 269SS, the case was not searched and seizure case where unaccounted money had been found. The other argument was that amount was deposited in cash by the directors or members of the assessee-company and the same were declared under the VDIS scheme in the personal capacity as they did not have any bank account. In view of these facts, the Hon'ble Tribunal cancelled the penalty after relying on the various decisions listed in the order itself.
13. After having considered the rival submissions, facts and circumstances of the case, provisions of Section 275(1)(c) of the Act and aforesaid various decisions and the Circular No. 387 relied upon by the counsel for the assessee and the fact that the learned Departmental Representative has not brought any decision contrary to various decisions relied upon by the counsel for the assessee, to our notice at the time of hearing, we are of the opinion that the assessee is to succeed on all counts such as:
(i). In the present case, it is an admitted fact that neither the assessee had furnished any return for the asst. yr. 1996-97, nor any assessment was made nor any proceedings under the IT Act relating to the assessee was pending before the IT Authorities on 12th June, 2003, or later on, till the date of levy of penalty under Section 271D, i.e., on 12th June, 2003, when the proceedings were initiated or on 11th Dec, 2003, when the penalty order was passed and therefore, the penalty proceedings having not been initiated during the course of any proceedings, the same were illegal and bad in law.
It is also an admitted fact that the penalty proceedings in question were initiated after a lapse of a period of more than seven years. Consequently, we are unable to uphold the levy of penalty. Our conclusion is supported by the decision of Tribunal, Cochin Bench, in the case of Noble Pictures (supra), wherein it has been held that the penalty proceedings under Section 272A having been initiated after a period of more than 6 years were barred by limitation and also by the decision of Delhi High Court in the case of CIT v. Rajinder Kumar Somani (supra), which had been followed by the Tribunal in the case of Noble Pictures (supra).
(ii). Similarly, the assessee's plea that in view of the intention of the legislature while enacting the provisions of Section 269SS and 269T as well as 271D and 271E, which, as explained in Circular No. 387, dt. 6th July, 1984, was to curb the transaction of black money, is also liable to be accepted because in the present case, the Revenue has accepted the transaction as genuine and has not found the deposit being out of unaccounted cash or the deposit having been made with an effort to explain or introduce cash in the garb of loan/deposit. In view of all these facts, we, after following the decision of Tribunal, Agra Bench, in the case of Farrukhabad Investment India Ltd. (supra) accept the assessee's plea that there was no violation of the provisions of Section 269SS and cancel the penalty.
(iii). With respect to assessee's claim that the transaction in question was neither loan nor deposit because the amount having been received from the trustee, was receipt to oneself, there was no reason for levy of penalty under Section 271D of the Act and that the default, if any, was of technical and venial nature, we, in absence of any decision, contrary to the decision relied upon by the counsel for the assessee, such as the decision of Tribunal, Jaipur Bench, in the case of Chandra Cement Ltd. (supra), decision of Tribunal Indore Bench in the case of Mohan Karkare (supra), decision of Tribunal Ahmedabad Bench in the case of Shrepak Enterprises (supra) and the decision of Hon'ble Supreme Court in the case of Hindustan Steels Ltd. (supra), are of the opinion that the assessee's case is fully covered by the proposition of law, laid down in the aforesaid decisions and consequently, following these decisions, cancel the penalty.
(iv) So far as other decisions relied upon by the counsel for the assessee are concerned, the same, if not directly, indirectly support the assessee's case that it was not fit case for levy of penalty under Section 271D of the Act.
14. In the totality of facts and circumstances of the case, we, after following the decision relied upon by the counsel and the fact that the Revenue has not disputed either the facts of applicability of these decisions, cancel the penalty imposed in this case.
15. In the Result, the appeal of the assessee is allowed.