Income Tax Appellate Tribunal - Delhi
Farrukhabad Investment (I) Ltd. vs Joint Commissioner Of Income Tax on 27 March, 2002
Equivalent citations: [2003]85ITD230(DELHI), (2003)80TTJ(DELHI)82
ORDER
Keshaw Prasad, AM.
1. The appeals directed by the assessee arise out of the order of the CIT(A) dt. 18th July, 2000, sustaining the penalty under Section 271D of the IT Act for asst. yrs. 1992-93 to 1995-96, 1997-98 and 1998-99 and against sustaining penalty under Section 271E of the Act pertaining asst. yrs. 1992-93 to 1995-96,1997-98 and 1998-99. As the issues in all the appeals are common, the same are being disposed of by a consolidated order.
2. Though various grounds have been raised, the assessee has raised the following additional grounds of appeals :
(1) Because, the impugned orders dt. 14th Dec., 1999 are wholly invalid, illegal and without jurisdiction as they have been passed in violation of Section 275 of the Act.
(2) Because, satisfaction for initiation of penalty proceedings had to be recorded by the AO during the assessment proceedings. On or prior to 28th June, 1999, the AO has not recorded such satisfaction for initiation of the penalty proceedings.
(3) Because, on 28th Oct., 1999, the date of initiation of penalty proceedings, no 'proceeding' was pending for the assessment year in question.
(4) Because, the penalty notice for the assessment year in question is barred by time.
(5) Because, the impugned order is based on the transaction and amounts for which the appellant had already been penalised vide order dt. 28th June, 1999.
(6) Because, the penalty having been imposed for all the transactions vide order dt. 28th June, 1999, the respondent had no jurisdiction or authority or other legal sanction to initiate fresh penalty for the same transactions.
(7) Because, during the pendency of the appeal before the CIT(A) and during the existence of order dt. 28th June, 1999, the respondent had no jurisdictional authority, occasion or other legal sanction to initiate second penalty proceedings for the transactions covered by order dt. 28th June, 1999.
3. After discussion, we admit the additional grounds of appeal raised by the assessee as they raise substantive question of law. These grounds will be disposed of along with various grounds of appeal raised by the assessee.
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 the 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 loans 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. 1992-93 Rs. 1,43,050 Asst. yr, 1993-94 Rs. 1,37,000 Asst. yr. 1994-95 Rs. 11,51,000 Asst. yr. 1995-96 Rs. 27,76,960 Asst. yr. 1997-98 Rs. 71,71,360 Asst. yr. 1998-99 Rs. 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 (in Rs.) 1993-94 22,050 1994-95 25,000 1995-96 65,000 1997-98 24,82,927 1998-99 34,87,711
9. The penalties 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 May, 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 amounts and the assessment years mentioned earlier.
11. Though various arguments were raised before the CIT(A), in the nut shell, the following submissions were made before him :
(i) As the amounts of loans/deposits accepted and repaid were accepted by AO to be genuine, no penalty under the above section was warranted.
(ii) The violation was only technical.
(iii) The AO has not recorded his satisfaction prior to 28th Oct., 1999 for initiating the penalty proceedings.
(iv) The penalty proceedings were not initiated during the assessment proceedings.
(v) The penalty imposed by the AO was barred by limitation in view of the provisions of Section 275(1)(c).
(vi) Since the AO had originally imposed the penalty in the asst, yr. 1996-97, for all the transactions up to that date and the CIT(A) has held that the penalty imposed on the transactions relatable to the earlier years was not in accordance with law, there was no legal sanction to initiate penalty under Section 271D/271E for the years other than 1996-97.
(vii) Penalty imposed by the AO was excessive-reliance was placed on the decision in ITO v. Lakshmi Enterprises (1990) 185 ITR 595 (AP).
(viii) There was reasonable cause and, therefore, no penalty could be imposed in view of the provisions of Section 273B of the Act.
(ix) The aims and objects of incorporating Sections 269SS and 269T was to prevent the transaction of black money accepted/repaid. But in the case of the assessee, there was no such transaction of black money.
12. The CIT(A) considered the submissions of the assessee. He observed that there was no dispute that the loans/deposits were accepted and repaid in violation of the provisions of the Sections 269SS and 269T of the Act. He observed that prior to imposition of penalty under the above sections, it was not necessary that the penalty should be initiated during the course of assessment proceedings or any pending proceedings. Thus, when no proceedings were pending for the years except asst. yr. 1996-97, the penalty proceedings under Section 271D/271E could be initiated independent of the assessment order. The CIT(A) also noted that even if the CA of the assessee did not inform the assessee that the acceptance of loans/deposits in cash beyond limit and refund the deposits in cash beyond limit was violative of the provisions of Section 269SS/269T of the Act, it was not reasonable cause for non-imposition of penalty. The CIT(A) also held that there was no doubt that for bringing an enactment, there were certain aims and objectives, but once the provisions have been violated the penalties were imposable. There was no ambiguity in the section in this regard. The reliance was placed on the decision in Keshavji Ravji & Co. v. CIT (1990) 183 ITR 1 (SC) at p. 9 and Orissa State Warehousing Corporation v. CIT (1999) 237 ITR 589 (SC) at p. 605.
13. Regarding quantum of penalty, the CIT(A) held that the provisions of Sections 271D and 271E make it clear that the penalty will be equal to the sum, the amount has been accepted/repaid in violation of the provisions of Sections 269SS and 269T of the Act. There is no minimum or maximum penalty prescribed in the section. The CIT(A), therefore, dismissed the appeals filed by the assessee for all the years other than asst. yr. 1996-97. The assessee is in appeal before us against the finding of the CIT(A).
14. It is argued by the learned counsel that the penalty proceedings are quasi-criminal in nature. No penalty was imposable unless there was an evidence to suggest that there was a deliberate attempt to violate the law. The penalty could be initiated during the pendency of any proceedings under the Act. The assessments for all the years except for the asst. yr. 1996-97, were completed and no proceedings for these years were pending, the AO was not justified in imposing the same. The learned counsel relied on the decision of Calcutta Bench of the Tribunal in the case of Indian Handloom Textiles v. ITO (1999) 64 TTJ (Cal) 13 : (1999) 68 ITD 560 (Cal) wherein it was held that the penalty under Section 271B has to be initiated during the assessment proceedings. The conspicuous absence of initiation of penalty under Section 271B in the assessment order indicates that the AO has exercised his mind over the issue and decided not to initiate the same. Thus, he cannot initiate the penalty proceedings at a later date. The same view was expressed by Ahmedabad Bench of the Tribunal in the case in H. Ajitbhai & Co. v. Asstt CIT (1993) 47 TTJ (AM) 22. While explaining the said decisions, the learned counsel stated that when the AO passed the assessment order under Section 143(3) of the Act, he had also initiated penalty proceedings under Section 271(1)(c) of the Act for asst. yrs. 1992-93 and 1994-95. Thus, even at that time, the AO must be aware of the violation of the provisions of Section 269SS/269T of the Act. But as the AO chose not to initiate penalty proceedings under Section 271D/271E, it is presumed that AO has applied his mind to the issue and came to the conclusion that it was not a fit case where penalties under Section 271D/271E were attracted.
15. Learned counsel further argued for imposing penalty, the issue of show-cause notice was mandatory, The reliance was placed on the decision in A.A. Kochandi v. Agrl. ITO (1977) 110 ITR 406 (Ker). Learned counsel stated that Section 282 of the Act provides for the service of the notice either by post or by the procedure mentioned in the Civil Procedure Code (CPC). He argued that there was no dispute that the AO issued a show-cause notice before imposing that penalty. Such show-cause notice came back unserved on 3rd Nov., 1999. The AO has also mentioned that a copy of the said notice was got served on the assessee by affixture. He stated that under what circumstances, the notice could be served by the affixture was mentioned in Order 5 Rule 17 of CPC. It provides that the notice could be served by the affixture under two circumstances. First, when the person concerned refuses to sign that acknowledgement or second where the serving officer after using all due and reasonable diligence cannot find the person at the residence or there is no likelihood of his being found in reasonable time and there was no agent to receive the notice. In the instant case, none of the two conditions were fulfilled. While relying on the cases reported in 48 STC 426 (Cal), CIT v. Satya Narain Poddar (1973) 89 ITR 136 (All), Kalpanath Singh Suresh Singh v. CST, the learned counsel stated that there is no evidence on record to suggest that the AO had satisfied himself about the conditions mentioned in Order 5 Rule 17 of CPC before serving the same by affixture. It was also argued that all the notices in the case of the assessee have been issued in the name of the company and not its principal officer. So the notice itself as well as the services thereof was invalid.
16. Learned counsel further argued that Sections 269SS and 269T were brought on the statute by Finance Act (No. 2), 1984. The scope and object of these sections was explained by the Board in its Circular No. 387, dt. 6th July, 1984. The reading of the objectives makes it amply clear that such a provision was brought on the statute to prevent the unaccounted income being brought in the books of account in the form of loans/deposits. In the instant case, even the Department has not made any allegation to this effect. Thus, the imposition of penalty was illegal. It was also stated that the circular of the Board was binding on the IT Authorities and violation of the same by the assessing authority was uncalled for.
17. Learned counsel further stated that the text of Finance Minister's speech clearly indicates that genuine loans/deposits were not covered under Section 269SS/269T of the Act. The text clearly gives a message that no hardship should take place in the genuine cases. In this connection, it was explained that penalty under Section 271(1)(c) of the Act was relatable to the tax up to 31st March, 1968. Subsequently, the penalty under Section 271(1)(c) was relatable to the concealed income. But as the hardships were being faced by the taxpayers, the Wanchoo Committee recommended that in order to remove hardship, the penalty under Section 271(1)(c) should be relatable to the tax payable. The Act was, therefore, amended and subsequently the penalty under Section 271(1)(c) became relatable to the tax payable. It was stated that the penalty was for the purpose of bending the assessee and not for breaking the assessee. Any penalty which tends to break the assessee was draconian in nature which cannot be permitted by the Courts.
18. It was further argued that it can never be the intention of the legislature to impose the penalty on the same amount time and again. If an assessee accepts loans/deposits, he also pays the same. This process is continuous process in the case of the assessee as obtaining loans and deposits and investing the same was its business. This results into a rotation of only a small amount. But because the money gets rotated many a times in an year, the penalty under Section 271D/271E at each time was draconian and was never intended by the section. He stated that if somebody goes by arguments of the CIT(A), if a small sum of Rs. 50,000 is rotated 10 times in an year, the penalty will come to about Rs. 5,00,000 and not Rs. 50,000. Such an interpretation can never be the intention of the legislature. He, therefore, stated that if the Courts have powers to impose the penalty or to dispense with the penalty, they have got powers to fix the quantum of penalties also which was not equal to the sum for which the default was committed. The reliance was placed on the decision of Hon'ble AP High Court in the case of Lakshmi Enterprises (supra). It was stated that there was no contrary decision, so the same was binding authority. The reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom). It was also stated that even the Hon'ble Bombay Bench of the Tribunal in the case of Unique Constructions v. Dy. CIT (1995) 52 TTJ (Bom) 96 has taken the same view.
19. Learned counsel stated that the penalty imposed by the AO was beyond the limitation period. He stated that the penalties under Section 271D/271E were governed by the provisions of Section 275(1)(c) of the Act. The assessment for the asst. yrs. 1992-93, 1993-94, 1994-95 and 1995-96 were completed up to 19th March, 1997. The penalty proceedings were initiated on 1st Nov., 1999. The assessment orders for the asst. yrs. 1997-98 and 1998-99 were made on 26th March, 1998 and 8th March, 1999, respectively. The penalty order was passed on 14th Dec., 1999. It was stated that the penalty proceedings under the above sections are deemed to have been initiated on the date of assessment order. As the penalties have not been imposed within the time prescribed under Section 275(1)(c), the entire penalty sustained by the CIT(A) was barred by limitation. It was stated that Section 275(1)(c) has two parts. The first part provides a time-limit for imposition of penalty within financial year in which the proceedings in the course of which action for imposition of penalty has been initiated or completed and the second part provides for a time-limit up to 6 months from the end of the month in which action for imposition of penalty was initiated whichever is later. It was stated that if the date of the assessment order is taken as the date of initiation of penalty proceedings, the penalties imposed by the AO for all the assessment years were barred by limitation. It was stated that the normal time-limit for imposition of penalties under Section 275(1)(c) was within financial year in which the penalties were initiated. The second time-limit has been provided in special cases. For example, when the assessment order was made in March, a show-cause notice has to be issued before imposition of penalties. A reasonable time has also to be allowed. Certainly, this could not be done within financial year itself. The second time-limit of 6 months from the end of the month in which proceedings are initiated is prescribed in such cases.
20. Learned counsel further stated that the penalties under Sections 271D and 271E were not mandatory. Section 273B provides that no penalty under these sections shall be imposable for any violation referred to in the said provisions if the assessee proves that there was a reasonable cause for the said violation. The learned counsel stated that the accounts of the assessee were audited. The auditors in their reports had mentioned about the cash payments for the purposes of Section 40A(3) of the Act. But they did not point out any violation of Section 269SS or 269T. It was claimed that when the auditors who are the experts and professional in the field were not aware about the (sic-violation) of the provisions of Section 269SS/269T of the Act. The assessee was under a bona fide belief that there was no violation of any provisions of law. It was stated that the assessee a layman cannot know every provision of law. The assessee is supposed to know the business only. There was no requirement of law that the every person knows the law. The reliance was placed on the decision of Hon'ble Supreme Court in the case of Moti Lal Padampat Sugar Mills Co. Ltd. v. State of UP (1979) 118 ITR 326 (SC). He further argued that the assessment orders under Section 143(3) were passed by two different AOs. None of them could catch this point when they issued notices for initiating penalties under Section 271(1)(c) of the Act. It was argued that if two AOs who were senior officers of the IT Department could not know the provisions as to whether there was any violation of the provisions of Section 269SS/269T of the Act and assessee who was a layman in the field could not be supposed to know the law. Learned counsel further stated that even assuming that both the AOs were aware of the violation of the provisions of Section 269SS/269T of the Act, it will be presumed that they were satisfied that no penalties under the above sections were imposable as there was reasonable cause for such violation. Learned counsel also relied on the decision in Kumari A.B. Shanti v. Asstt. Director of Inspection (1992) 197 ITR 330 (Mad) to the effect that the provisions of Section 269SS were declared as ultra vires though subsequently the same was overruled. It was also stated that the offence committed by the assessee was venial in nature and no penalties were imposable. The reliance was placed on the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC). The learned counsel further referred to various cases on the interpretation of the statute. The learned counsel, therefore, argued that the penalties under Section 271D/271E for different years sustained by the CIT(A) were not justified and deserved to be cancelled.
21. On the other hand, the learned counsel for the Revenue argued that the operation of the judgment of the Hon'ble Madras High Court in Kumari A.B. Shanti's case (supra) had been stayed by the Hon'ble Supreme Court as reported in (1993) 204 ITR 1 (SC), and so no assistance could be derived from the said judgment. The following judgments have, on the contrary, upheld the constitutional validity of Section 269SS :--
(1) Sukhdev Rathi v. Union of India (1995) 211 ITR 157 (Guj);
(2) K.RM.V. v. Ponnuswamy Nadar & Sons v. Union of India (1992) 196 ITR 431 (Mad);
(3) Narsingh Ram Ashok Kumar v. Union of India and Ors. (1998) 234 ITR 414 (Pat);
(4) Mehta Vegetables (P) Ltd. v. Union of India (1998) 235 ITR 425 (Raj); and (5) Chamundi Granites (P) Ltd. v. Dy. CIT (1999) 239 ITR 694 (Kai) and Chamundi Granites (P) Ltd. v. Dy. CIT and Anr. (2000) 245 ITR 661 (Kar).
22. Even otherwise, the authorities under the IT Act could not go into the vires of a section of the IT Act. As such, the judgment of Madras High Court in Kumari A.B. Shanti's case (supra) could not provide reasonable basis for a belief on the part of the assessee that it need not comply with the provisions of Section 269SS.
While interpreting a statute, external aid may be resorted to only if the plain language of the section lent itself to one or more meaning. If the language of the statute is clear and unambiguous the plain reading of the words should not be discarded. Reliance was placed on the cases CIT v. Bhandari Machinery Co. (P) Ltd. (1998) 231 ITR 294 (Del) and Shashikant Laxman Kale v. Union of India (1990) 185 ITR 104 (SC). In this regard kind attention of the Hon'ble Bench was drawn to the "Law of Income-tax" by S. Iyengar, 9th Edn., p. 35, where the following observations appear :
"One of the cardinal principles of interpretation of the statutes is that when the language and the grammatical construction of a particular provision in the statute are clear and unambiguous, they should receive their plain and natural meaning and no help can be sought from the marginal note or the aims and objects set out in the statement of objects and reasons. The legislature must be deemed to have expressed its intention through the language of its enactments."
The above observation has been made on the basis of the following authorities :
(1) Tara Prasad Singh v. Union of India AIR 1980 SC 1682.
(2) Inaroo Ltd. v. CIT (1993) 204 ITR 312 (Bom).
(3) Subhash Ganpatrao Buty v. M.K. Dorlikar AIR 1975 Bom 244.
23. It has been held in the case No. (3) above that "Marginal notes to the sections of a statute and the title of its Chapters cannot take away the effect of the provisions contained in the Act...."
Even the latest judgment of the Hon'ble Supreme Court in CIT v. Anjum M.H. Ghaswala (2001) 252 ITR 1 (SC) reiterates the above position of law. The following observations at p. 13 may kindly be noted :
"Nextly, the Commission has elaborately discussed the object of introduction of Chapter XIV-A in the Act, the history behind the introduction and schematic rationalisation of the provisions of Chapter XIX-A brought about through the Finance Act, 1987 to hold that in exercising its power under Chapter XIX-A, it has almost unbridled power to arrive at a settlement. This exercise of purposive interpretation by looking into the object and scheme of the Act and the legislative intendment would arise, in our opinion, if the language of the statute is either ambiguous or conflicting or gives a meaning leading to absurdity."
In the light of the above settled position of law, it was submitted that merely because the deposits received were genuine, operation of Section 269SS could not be excluded. In this regard, kind attention of the Hon'ble Bench was also drawn to similar provisions (on revenue account) contained in Section 40A(3) of the Act and the rejection of similar approach by the Hon'ble Supreme Court in the case of Attar Singh Gurumukh Singh v. CIT (1991) 191 ITR 667 (SC). Under Section 40A(3) genuine expenses in excess of Rs. 10,000, if not paid through crossed cheque are liable to be disallowed, and, therefore, its vires was challenged as restrictive of trading activities. This challenge was rebuffed by the Hon'ble. Supreme Court by pointing out that the provisions are "intended to regulate business transactions and to prevent the use of unaccounted money or to reduce the chances to use black money for business transactions" and that the prohibition was not absolute and that "it is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee". Similar reasoning applies mutatis mutandis to the provisions of Section 269SS.
Kind attention of the Bench was then drawn to the language of Sections 269SS and 269T and it was pointed out that no person of ordinary prudence could ever infer from the plain language of the said sections that they did not apply to the business of a finance or investment company. In view of Section 273B, it was open to the assessee to show a reasonable cause for non-compliance with the provisions of the said two sections but in its reply the assessee had made no attempt whatsoever in this regard, Each deposit gave rise to a separate contract and it was. assessee's duty to explain with reference to each of them as to why it received the said deposit in cash or repaid it in cash. There is not even an iota of evidence with regard to it and unless reasonable causes were shown, the AO/CIT(A) was justified in holding that there was none. The generalised reasons given, viz., that it was normal in the case of the assessee to receive deposits in cash and to repay them in cash, and that Farrukhabad Distt. is rich in agriculture and the agriculturists of that area made deposits in cash do not constitute reasonable cause of not complying with the provisions of Sections 269SS and 269T. Whatever might have been the mode of doing business prior to 1984, but since 1984, that mode had to be brought in conformity with the two sections mentioned above. If the assessee had any reasonable cause not to comply with the said two sections, the assessee should have stated it and proved it. No such attempt was, however, made. The non-compliance with the provisions of the aforesaid two sections has, therefore, to be held as without reasonable cause and no fault can be found with the order of the learned CIT(A) for holding so.
The plea of ignorance of law, based on the judgment of the Hon'ble Supreme Court in Moti Lal Padampat Sugar Mills Co. Ltd.'s case (supra), in fact, is in contradiction of the first plea of the assessee. The assessee was keeping itself abreast of the case law on Section 269SS and took note of Kumari A.B. Shanti's case (supra) and cited that as one of the reasons for not complying with Section 269SS. When this be so, the plea of ignorance of law lacks merit and does not inspire confidence. It is an argument for argument's sake and is not true.
The violation of Section 269SS is not venial or technical. The only requirement of the said section is to receive deposits in excess of Rs. 20,000 by crossed cheque or crossed drafts. Non-compliance with it is the breach of the section. It cannot be termed as venial or technical. An example was given in this regard regarding traffic rules of keeping to the left. If a person violates it and keeps to the right, the breach of law cannot be termed as venial or technical and one cannot get away by explaining the default as venial/technical. When that is the only requirement, it has to be followed and its breach is liable to be visited with the penal consequences provided by the Act.
The learned counsel had given an example to demonstrate how the sections in question could be highly repressive in their operation. He had stated that one deposit of Rs. 50,000 taken and refunded and again taken after sometime, could result in penalty of about Rs. 5,00,000 if the process was repeated five times during the year and it was the implication of the argument that if this be the repressive nature of the law, it ought not to be given effect to. In the context of this example, it was pointed out to the Bench, on behalf of the Revenue, that the choice of repeatedly violating the law was of the assessee and it would be penalised. Rs. 5,00,000 not for one default of receiving Rs. 50,000 but of receiving/repaying of Rs, 50,000 five times. If the assessee was bent on violating the law, he would face the prescribed consequences. The core question to be asked is why should he violate the law in the first instance and persist in doing so sometimes. If there was a reasonable cause for doing so, it ought to be brought on record. If there was no reasonable cause, the assessee must not violate the law for the fun of it.
In support of the pleas and submissions of the Revenue, reliance was placed on the order of the Hon'ble Pune Bench of Tribunal in the case of Balaji Traders v. Dy. CIT (2001) 73 TTJ (Pune) 246 : (2001) 78 ITD 368 (Pune) (copy of the order placed on record) wherein the Hon'ble Pune Bench rejected similar generalised explanation vide paras 6, 6.1, 7 and 8 of the said order.
24. In the light of the above, it was prayed that the order of the learned CIT(A) may kindly be sustained.
25. Regarding additional/preliminary objections of the assessee's counsel, the Revenue's counsel submitted that the language of Sections 271D and 271E did not warrant the presumption made by the learned counsel, namely, that the penalty proceedings ought to be initiated during the course of assessment proceedings. In this connection, the attention of the Hon'ble Bench was drawn to the language of Section 271 and Section 273 and that of Sections 271D and 271E. Whereas in the former, there was reference to "in the course of any proceedings under this Act" and "in the course of any proceedings in connection with the regular assessment for any assessment year", there was no such reference in the language of Section 271D or Section 271E. The said sections merely noted the failure of a person to comply with the provisions of Sections 269SS and 269T as the penal event. That the said failures ought to be noted in the course of assessment proceedings of the respective years is not the requirement. In fact the said penal events are de hors the assessment proceedings and no addition to total income results due to the violations of the said sections. There was, therefore, no warrant to link the initiation of the proceedings under Sections 271D and 271E with assessment or any other proceedings. In support of the above views, the Revenue relied on the order of the Hon'ble Bangalore Bench of the Tribunal in the case of T.D. Rathod v. Dy. CIT (1995) 53 TTD 375 (Bang), wherein the law has been explained by the Hon'ble Bench, inter alia, as follows :
"...neither the said reference to the assessment year was relevant nor even applicable. (The order bore the caption : asst. yr. 1991-92. Reference is to this caption). This was not the case of imposition of penalty arising out of any particular assessment proceedings to which alone the requirement would apply. The assessee had been penalised in the present case under Section 271D for contravention of the provisions of Section 269SS. The nature of the default under s, 271D consists of the act of the assessee in accepting a cash loan beyond a certain limit. The amount taken under cash loan is not required to be added in the assessment of the assessee for any year and in that way the default under Section 271D cannot be considered to be related to any assessment year. Even though the fact of the cash loan having been taken might be recorded in the books of the assessees for a particular year, it cannot be said that the issue is relevant to the proceedings relating to the determination of income of the assessee for the same assessment year .... the default has to be considered independent of any particular assessment year....
11.2 If this be so, the former part of Clause (c) would not and apply to the penalty orders under Sections 271D and 271E, for the said part would be applicable only to those penalty proceedings which have of necessity be initiated in the course of some proceedings. As actions under Sections 271D and 271E are to be initiated de hors any proceedings the first part of Clause (c) of Sub-section (1) of Section 275 does not apply to it. It would be relevant to note the context of Clause (c) also to properly comprehend the use of the words "in any other case" with which the said clause opens. Three situations are visualised by the 3 clauses of Sub-section (1) of Section 275. Clause (a) refers to "a case where the relevant assessment or other order is the subject-matter of appeal....". Clause (b) refers to "a subject-matter of revision under Section 263. . . .", Clause (c) refers to "any other case", namely, the case where there has been neither appeal nor revision under Section 263. The first part of Clause (c) refers to an assessment or any other order, in the course of which initiation of penalty is required. If a penalty is independent of assessment or other proceeding, the earlier part of Clause (c) would not be applicable. To such proceedings only, the latter part of Clause (c) would apply i.e., "six months from the end of the month in which action for imposition of penalty is initiated". In view of this, the entire argument developed by the learned counsel on the logic of concurrent running of the two periods, may be for one day, breaks down. This legal position came to be discussed at length by the Hon'ble Jaipur Bench of the Tribunal in the case of Manohar Lal v. Dy. CIT (1995) 83 Taxman 255 (Jp). (copy of the head note has been placed on record). In that case the AO had initiated penalty proceedings under Sections 271D and 271E on 26th May, 1992; assessment was completed on 26th June, 1992 and the penalty orders were passed on 24th Aug., 1993. The assessment order was appealed against in that case. On these facts, the Hon'ble Bench explained the provisions of Clause (c) of Section 275, inter alia, as follows :
"...an extended period of limitation is available in those cases where the order is subjected to appeal. On the other hand, latter part of Clause (c) commencing from the words "or six months..." envisages and takes care of the limitation period in those cases where penalty proceedings can be initiated independent of the assessment proceedings. The earlier part of Clause (c) is meant for those penalty proceedings which are initiated in the course of assessment or any other proceedings. Under both the situations, it is contemplated that there will not be any need to extend the period of limitation on account of appellate proceedings and hence are clubbed together in the same clause. Penalties under Sections 271D and 271E are quite independent of the assessment proceedings. It is true that defaults under those sections would normally be noticed in the course of assessment proceedings only, but once having noticed the defaults, these penalty proceedings will be independent of the assessment proceedings. Even initiation of those penalty proceedings could be independent of the assessment proceedings. Clause (c) of Section 275(1) takes care of such cases."
26. In view of the above legal position, the initiation of penalty proceedings under Sections 271D and 271E de hois the assessment proceedings cannot be faulted nor did the order passed by the learned AO become time-barred as suggested by the assessee.
27. There was also no delay in the initiation of penalty proceedings. As noted earlier, no assessments were made in respect of asst. yrs. 1993-94, 1995-96, 1997-98 and 1998-99. Returns filed by the assessee for these years were processed under Section 143(1)(a). The defaults committed by the assessee by violating Sections 269SS and 269T did not come to the notice of the AO till he noticed the said faults while examining the books of account in the course of assessment proceedings for asst. yr. 1996-97. As soon as he noticed the violation, he initiated proceedings under Sections 271D and 271E and issued show-cause notice dt. 14th Dec., 1998 to the assessee. There was, thus, no delay as suggested by the learned counsel for the assessee. Initiation of proceedings under Sections 271D and 271E being independent of assessment proceedings, there was no legal flaw in the initiation nor any delay.
28. In respect of asst. yrs. 1992-93 and 1994-95, assessments were, undoubtedly, made under Section 143(3). The AO omitted to initiate proceedings under Sections 271D and 271E even though he had initiated proceedings under Section 271(1)(c). For this omission, however, it is not legally possible to infer that the AO had applied his mind and then he did not initiate the proceedings, It was not optional to him to ignore the violation of Sections 269SS and 269T. In any case, there is nothing on record to suggest any application of mind in this regard. Admittedly, the assessee had not shown any reasonable cause and if that was shown there could be no occasion not to initiate penalty proceedings under Sections 271D and 271E. The plea of the assessee is not tenable, as it is based on bald presumption and assumption.
29. There was no delay either in regard to these years. There is no time-frame for the initiation of the proceedings under Sections 271D and 271E. The issue has to be determined on the facts and circumstances of case. In the present case, the violations of Sections 269SS and 269T came to be noticed in 1998, when the AO called for and examined the assessee's books. He initiated the proceedings soon thereafter vide notice dt. 14th Dec., 1998.
30. It was brought to the kind attention of the Hon'ble Bench that the said notice dt. 14th Dec., 1998 was a combined notice covering the period from 1st April, 1991 to 31st March, 1998 and the penalty order passed on 28th June, 1999 was also a combined order for the above duration, It was passed within the statutory period of six months from the end of the month i.e., December, 1998 when the notice was issued. There is nothing in law prohibiting the passing of such a combined order. The AO had, however, given an erroneous label to the order by mentioning it as order for asst. yr. 1996-97. CIT(A) directed that penalty for the period other than for defaults of financial year 1995-96 should not form part of the order which was labelled as being one for asst. yr. 1996-97.
31. Taking cue from the assessee's plea for asst. yr. 1996-97 before the CIT (A), the AO issued separate notices of hearing under Sections 271D and 271E for asst. yrs. 1992-93, 1993-94, 1994-95, 1995-96, 1997-98 and 1998-99 on 1st Nov., 1999. In the aforesaid factual context, it would not be proper to regard the initiation of proceedings for the aforesaid years on 1st Nov., 1999 as late. The proceedings were in fact initiated on 14th Dec., 1998. The proceedings dt. 1st Nov., 1999, were, in a way, continuation of the original proceedings dt. 14th Dec., 1998, but separately initiated on account of the assessee's plea before the learned CIT(A), which was accepted by her.
32. The last objection of the assessee was that the notices for the above years dt. 1st Nov., 1999, were not served on the assessee. It was brought to the kind attention of Hon'ble Bench that in the present case notices were served by affixture by the order of the AO under Rule 20 of Order 5 of CPC and, therefore, the entire case of the assessee based on Rule 17 of Order 5 was of no avail. Rule 20 of Order 5 reads as under :
"Where the Court is satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service or that for any other reason the summons cannot be served in the ordinary way, the Court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the Court house and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business, or personally worked for gain...... as the Court thinks fit."
33. The factual background in which the AO was satisfied that the assessee was keeping out of the way to avoid service were brought to the kind attention of the Hon'ble Bench and the same are recounted as follows :
(1) Company's licence to carry on finance business was cancelled by RBI in May, 1999 (para 3 of p. 33 of Departmental paper book).
(2) Thereafter, the depositors ransacked the office premises (same as above).
(3) FIRs were filed with the Police (same as above).
(4) The notices of demand and orders under Sections 271D and 271E for asst. yr. 1996-97 had to be served by affixture on 30th June, 1999 as the office was found locked and the assessee had left without giving address (p. 32 of the Departmental paper book).
34. In view of this background, the AO was satisfied that the service of the notice in the normal course might not be possible. He, therefore, made the order to serve by affixture in terms of Rule 20 of Order 5 of CPC. This was entirely in accordance with law and it is not correct to say that the notice was not served on the assessee. Penalty orders under Section 271D and 271E for asst. yr. 1996-97 similarly served had reached the assessee. There is no reason to believe that the present notices were not received by the assessee.
35. In any case, the notice was sent by registered post also, properly addressed and paid for. There is legal presumption of its service under Section 27 of the General Clauses Act.
36. The objection of the learned counsel that the notice was not addressed to the principal officer of the company and was addressed to the company, and hence was invalid, is not tenable in law. Sub-section (2) of Section 282 of the IT Act, 1961 uses the word "may" and not "shall"; and is, therefore, directory and not mandatory. In any case, it is a matter of procedure and does not affect any substantive right of the assessee, and is, therefore, within the sweep of the provisions of Section 292B which stipulates that if a notice is "in substance and effect in conformity with or according to the intent or purpose of this Act," it shall not be deemed to be invalid "merely by reason of any mistake, defect or omission in such notice". This being so, there is no merit in the contention of the assessee.
37. In any case, without prejudice to the submissions made above, if it is held by the Hon'ble Court that the services of the notices under Sections 271D and 271E were not valid, it would amount to an illegality in the procedure followed and as such, the matter ought to be restored to the stage at which illegality intervened. Jurisdiction to initiate penalty proceedings is not dependent on the notice but on the terms of Sections 271D and 271E. As soon as the defaults mentioned therein come to the notice of the AO, he gets vested with the jurisdiction and notice is issued only to give an opportunity of hearing. Kind attention of the Bench was invited in this regard to the judgment of the Hon'ble Supreme Court in DM. Manasvi v. CIT (1972) 86 ITR 557 (SC). The Hon'ble Supreme Court has ruled in Guduthur Bros. v. TTO (1960) 40 ITR 298 (SC) that, when jurisdiction is properly assumed and the proceedings are lawfully initiated, any illegality in procedure which occurs can be cured by restoring the matter to the stage where illegality, if at all, took place because the notices were not served. The matter may, if at all, be restored to this stage so that the defect may be cured.
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 [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 case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 JTD 252 (Hyd) in para 17.2 of its order held as under :
"Provisions 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 '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."
41. The same Bench considered this issue in the case of Dillu Cine Enterprises (P) Ltd. v. Addl. CIT (2002) 80 JTD 484 (Hyd). 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 amounts 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 penalise genuine transactions where no tax evasion is involved. It is well-settled that the headings prefixed to sections or set of sections in some modem statutes are regarded as preambles" to these sections. This view was approved by Farewel L.J. in 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 intention 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 modem 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 and devoid of any concept of purpose will reduce most of the remedial and beneficial legislation to futility. Hon'ble Supreme Court in the case of VO Tractor Export v. Tarapore & Co. AIR 1970 SC 1168 observed as under :
"A statute not 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. (1969) 3 SCC 562, 586 : (1969) 2 SCR 699 : AIR 1970 SC 1168."
43. In the case of Mahadeo Lal Kanodia v. Administrator General, AIR 1960 SC 936, 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 AIR 1964 SC 1230, 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 UP AIR 1986 SC 1099 : 1956 SCR 577, Manmohan Das Shah v. Bishun Das AIR 1967 SC 643, State of Madhya Pradesh v. Azad Bharat Finance Co. AIR 1967 SC 276 and Ajay Hasia v. Khalid Mujib Sehravardi AIR 1981 SC 487.
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.
47. We have also given our thoughtful consideration to the other aspects of the case on which rival submissions have been made :
"On the issue of constitutional validity, there is no merit in the contention of the learned counsel for the assessee that Section 269SS is ultra vires of the Constitution. The Tribunal as a creature of the Statute cannot entertain the question of ultra vires of the Constitution of India. The constitutional validity or otherwise of the section can only be decided by the High Court or the apex Court only. Moreover, the Madras High Court itself has given different judgments in this matter. The Gujarat and Kerala High Courts have upheld the constitutional validity of this provision. Hence, we have no other alternative but to dismiss this ground of the assessee."
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. 496 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 in covers all cases not covered by Category I and Category n. 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 s, 269SS is governed by Section 275(1)(c) of the Act for the purposes of limitation."
49. The same view was also taken by Jaipur Bench of the Tribunal in the case of Manohar Lal v. Dy. CIT (1995) 83 Taxman 255 (JP)(Mag). It may be mentioned that the legislature amended the provisions of Section 275 through Section 50 of Taxation Law (Amendment) Act, 1970 (42 of 1970), newly prescribing a limitation period for imposition of penalty. The change in law has been elaborately explained in the Departmental Circular No. 56, dt. 9th March, 1971. The legislative intent of the above circular has been summarised as follows in Chaturvedi and Pithisaria's Income-tax Law :
"Section 275(1) operative from 1st April, 1989, divides cases into three categories; Category 1 covers the cases where the assessment to which the proceedings for imposition of penalty relate its the subject-matter of an appeal to the DC(A) or the CIT(A) under Section 246 or an appeal to the Tribunal under s, 253. Category II covers the cases where the relevant assessment is the subject-matter of revision under Section 263 Category III covers all other cases not falling within Category I and Category n. (Chaturvedi & Pithisaria's Income-tax Law, Fourth Edition, Vol. 5, 1992).
50. Regarding quantum of penalty, we find that the Hon'ble Andhra Pradesh High Court in the case of Lakshmi Enterprises (supra), had considered the issue in great detail. The Hon'ble Court while dealing with the penalty under Section 276DD held as under:--
"In view of the above discussion, I find that the contention of learned counsel for the appellant that the provisions of Section 276DD of the IT Act, 1961 prescribe that imposition of the fine should always be equal to the amount of deposits is untenable. The word 'liable' used in the section gives discretion to the Court with regard to the imposition of fine. The Court may either choose to impose fine or may dispense with imposition of fine. When such discretion is there with regard to the imposition of the fine itself, it cannot be said that the Court has no discretion with regard to the quantum of fine to be imposed. As the appeal is on ground that the learned Special Judge has failed to award the sentence in accordance with the provisions of Section 276DD of the IT Act on the presumption the fine amount should be equal to the amount of deposit and as I am not prepared to agree with that contention of the learned counsel for the appellant, I hold that the appeals are liable to be dismissed."
51. Though the judgment of Hon'ble Andhra Pradesh High Court was in the context of 276DD, the proposition of law therein was the same which is before us. No contradictory judgment is brought to our notice. Thus, we have no alternative but to hold that once the discretion was with the Court either to impose fine or to dispense with the imposition of fine, when such discretion is there with regard to the imposition of fine itself, it cannot be said that the Court has no discretion with regard to the quantum of penalty.
52. We find that the learned counsel of the assessee has challenged the imposition/sustenance of the penalties on the ground of being barred by limitation. Admittedly, the time-limit for imposition of penalties of this nature is prescribed under Section 275(1)(c) of the Act. Clauses (a) and (b) of Section 275(1) are not applicable in the instant case. Clause (c) provides the following time-limit for imposition of penalties :
(i) Within the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or.
(ii) 6 months from the end of the month in which action for imposition of penalty is initiated whichever is later.
53. We have to, therefore, decide as to when the penalty proceedings were initiated. It is admitted position that during the course of assessment proceedings, for asst. yr. 1996-97, the AO noted that the assessee has accepted/repaid loans/deposits in violation of the provisions of Sections 269SS and 269T during the period 1st April, 1997 to 31st March, 1998. The aggregate of loans/deposits accepted during these periods in violation of the provisions of Section 269SS came to Rs. 1.83 cores. The repayment of deposits in violation of the provisions of Section 269T during these periods amounted to Rs. 57,68,570. The AO, therefore, issued a show-cause notice dt. 14th Dec., 1998, asking the assessee as to why the penalties under Sections 271D and 271E may not be imposed for such violation. The show-cause notice was returnable on 22nd Dec., 1998. Thus, it could be safely said that the penalty proceedings under Section 271D/271E were initiated on 14th Dec., 1998, in respect of even those deposits which fell in different assessment years before us. Though subsequently, the AO has issued fresh notices initiating the penalty proceedings under Section 271D/271E on 1st Nov., 1999, but subsequent show-cause notice cannot change the date of initiation of penalty proceedings. We are not going into the issue as to whether penalties under Section 271D/271E were relatable to a particular assessment year or not but once the Revenue has accepted the stand that the penalties under the above sections were relatable to the amount of loans/deposits accepted repaid in a particular assessment year, we are not making any comments on it. Needless to say that even in respect of those amounts which have been considered by the AO/CIT(A) for imposition of penalties under Section 271D/271E in different assessment years, show-cause notice was first issued on 14th Dec., 1998. Thus, there cannot be any dispute that the penalty proceedings in respect of entire amount accepted/repaid in contravention of the provisions of Section 269SS/269T relatable to all the assessment years were initiated on 14th Dec., 1998. As per Section 275(1)(c), the penalties in respect of the entire amount could be imposed by 31st March, 1999, i.e., end of the financial year in which the penalty proceedings were initiated or by 30th June, 1999, i.e., 6 months from the end of the months in which penalty proceedings were initiated. As the later period expired on 30th June, 1999, the penalty could have been imposed by 30th June, 1999 only.
54. Similar facts were before the Hyderabad Bench of the Tribunal in the case of Dillu Cine Enterprises (P) Ltd. (supra). At p. 496 of the report, the Tribunal observed as under :
"Moreover, initiation of penalty can be done only once and that too during the course of assessment proceedings. We hold that the penalty has been initiated by the AO on 21st March, 1997 when he had issued a notice for levy of penalty. The argument of the learned Departmental Representative that the Addl. CIT had initiated the penalty proceedings on 1st Dec., 1997, is not correct, as the term 'initiation' means "begin" or "set going" and can be done only once. You cannot initiate proceedings again and again and such act can only be termed as re-initiation. We hold that the "initiation" can be done only once and reinitiation is not contemplated anywhere in the Act."
55. Thus, the penalties imposed in those cases which were imposed in Dec., 1999, we have no hesitation in holding that the penalties imposed by the AO and sustained by the CIT(A) were beyond the limitation period.
56. We have also examined the claim of the assessee regarding reasonable cause for failure to adhere to the provisions of Sections 269SS and 269T. As mentioned earlier, the penalties were not mandatory. Section 273B provides that notwithstanding anything contained, inter alia, in the provisions of Sections 271D and 271E, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for the said failure. We find that the accounts of the assessee are audited. The copy of the auditor's report is also on record. Nowhere the auditor pointed out any violation of the provisions of Section 269SS/269T of the Act. Once the professionals who are expert in the field of taxation were not aware of the violation of Section 269SS/269T, the layman who carries on the business was not supposed to know the complications of the law. Similarly, the assessments for different years were completed by two different officers who were senior officers of the IT Department, They passed the orders under Section 143(3) for some years and on the basis of certain additions even initiated penalty proceedings under Section 271(1)(c). Even these officers did not comment about any violation of the provisions of Section 269SS/269T of the Act. Then it will be too much to expect from an assessee that he knows the provisions of Section 269SS/269T of the Act.
Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. (supra), had considered similar issues where it observed as under :
"There is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement. There is no such maxim known to the law."
57. Under these circumstances, the bona fide of the assessee is proved and no penalty under Section 271D/271E was, therefore, imposable in any of the assessment years.
58. We have also gone through the various case laws relied on by the learned counsel for the Revenue. In the case of Balaji Traders (supra), the Pune Bench of the Tribunal has taken the view that language of Section 269SS was unambiguous and, therefore, the genuine transaction cannot be taken out of the ambit of this section. Regarding claim that the assessee was not aware of the provisions of Section 269SS/269T, the Tribunal observed that whether the assessee was aware of the provisions or not was a question of fact which could be decided on the basis of material placed on record. Needless to say that while considering the claim of the assessee to the effect that they had bona fide belief that no violation has taken place, we have held that the assessee was not aware of the provisions of law. These observations were made by us on the basis of record. We also find that the Mumbai Bench of the Tribunal in the case of Karnataka Ginning & Pressing Factory v. Jt. CIT (2001) 72 TTJ (Mum) 307 : (2001) 77 ITD 478 (Mum) at p. 486 as observed as under:
"As regards the genuineness of the borrowing in the present case, there does not appear to be any doubt. The IT authorities have raised no doubt about the genuineness as is clear from the fact that no addition of the amounts received from VE has been made by invoking Section 68 of the Act. Apparently, the AO was satisfied with the assessee's explanation regarding the nature and source of the amount. Thus, the transaction between the assessee and VE did not fall within the mischief sought to be remedied by the section."
59. Thus, once, there are two different observations on the issue--one which favours the assessee and the second which favours the Revenue. But as has been held by the Hon'ble Supreme Court in various cases, the view favourable to the assessee should be given preference. Even on this basis, we do not find any substance in the contention of the learned counsel for the Revenue.
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.