Income Tax Appellate Tribunal - Hyderabad
Industrial Enterprises vs Deputy Commissioner Of Income Tax. (Ito ... on 13 May, 1999
Equivalent citations: [2000]73ITD252(HYD)
ORDER
O. K. Narayanan, A.M.
1. This is a bunch of four appeals, consisting two sets of cross-appeals. The first set of two appeals, ITA Nos. 1270 and 1271/Hyd/1997 are filed by the Revenue. The other set of two appeals, ITA Nos. 1298-1299/ Hyd/1997 are filed by the assessee. The assessee in this case has been visited with two penalty orders passed by the Dy. CIT, Range-3, Hyderabad, for the asst. yr. 1992-93. The penalties have been imposed under ss. 271D and 271E of the IT Act, 1961, for the violation of the provisions of the Act contained in ss. 269SS and 269T respectively. In first appeals, the learned CIT(A-IV), Hyderabad, has modified the qualifying amount to be considered as the basis for computing the quantum of penalties. According to the Revenue, the modification is not just and proper. As far as the assessee is concerned, sustenance of the penalties, though modified by the CIT(A) in quantum, is quite arbitrary and unjust. Both sides are aggrieved. Therefore, the Revenue filed its two appeals in the context of penalties under s. 271D and s. 271E respectively. So also, the assessee has filed its two appeals on the very same issues. It is how these four appeals have come up for hearing before this Tribunal.
2. The facts of the cases are briefly stated below. The assessee is a firm consisting of three partners. The firm is engaged in the manufacture and sale of bricks. It carries on its activities at the Industrial Development Area, Ramagundam. The assessee is a small scale industrial unit. It commenced its business activities w.e.f. 16th September, 1991. The assessee filed its first return of income for the asst. yr. 1992-93 on 28th August, 1992. It declared an income of Rs. 7,470. The AO made an agreed addition of Rs. 20,000 towards inadmissible and unvouched expenditure and determined the total income at Rs. 27,470. The assessment was completed under s. 143(3) vide the proceedings of the ITO Ward-1, Karimnagar, dated 8th December, 1993.
3. Later on, it was seen from the assessment records pertaining to the asst. yr. 1992-93 that the assessee had taken certain loans from different persons by way of cash, totalling of Rs. 2,21,000. It was also found that the assessee had repaid some of the above loans, again in cash for a sum of Rs. 1,35,000. These details of loan transactions are as follows :
Loan taken Loan repaid (Rs.) (Rs.)
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1. Shri Venkoba Rao 20-4-1991 By cash 10,000 25-9-1991 By cash 10,000 30-9-1991 By cash 10,000 31-10-1991 By cash 5,000
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35,000
2-10-1991 To cash 8,000
16-11-1991 To cash 10,000
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18,000
2. Shri Ch. Rajaiah
22-3-1991 By cash 10,000
26-3-1991 By cash 10,000
30-3-1991 By cash 10,000
18-5-1991 By cash 10,000
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40,000
29-11-1991 To cash 1,000
7-12-1991 To cash 8,000
11-12-1991 To cash 9,000
21-12-1991 To cash 5,000
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23,000
3. Shri S. Maruthi
21-2-1991 By cash 10,000
22-3-1991 By cash 10,000
18-5-1991 By cash 10,000
2-6-1991 By cash 10,000
4-3-1992 By cash 4,000
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54,000
4-7-1991 To cash 10,000
6-7-1991 To cash 10,000
16-11-1991 To cash 10,000
21-12-1991 To cash 10,000
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40,000
4. Shri Syamsunder Lahoti
7-3-1991 By cash 10,000
6-4-1991 By cash 10,000
24-4-1991 By cash 10,000
30-4-1991 By cash 10,000
18-5-1991 By cash 10,000
29-6-1991 By cash 10,000
31-7-1991 By cash 10,000
1-9-1991 By cash 2,000
14-3-1992 By cash 10,000
20-3-1992 By cash 10,000
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92,000
6-7-1991 To cash 10,000
10-11-1991 To cash 10,000
16-11-1991 To cash 10,000
3-2-1992 To cash 8,000
23-3-1992 To cash 8,000
31-3-1992 To cash 8,000
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54,000
Total loans taken by cash 2,21,000
Total loans repaid by way of cash 1,35,000
4. As per the loan details, the assessee had taken loans by way of cash from four persons, for an amount more than Rs. 20,000 in each case and likewise the assessee had repaid loans to those four persons in cash for an amount more than Rs. 10,000 in each case. It was therefore, found that the assessee has violated the provisions of the Act contained in s. 269SS and s. 269T respectively. Accordingly, show-cause notices were issued to the assessee-firm asking it to show cause why penalties should not be imposed under ss. 271D and 271E for failure in complying with the provisions of ss. 269SS and 269T respectively.
5. The assessee-firm submitted before the Dy. CIT that during the relevant time, assessee's project was under construction, that the loans sanctioned by financial institutions and banks were not released at that time, that the assessee was hardpressed for funds to complete the project, that therefore, the assessee had to approach their friends and well-wishers for hand loans whenever emergency arises; that those persons are not business people having regular bank dealings so as to transact through cheques and drafts; that after the commencement of commercial activities and the release of approved loans by banks and financial institutions, the assessee has made part payments and that therefore, the assessee was constrained to take and repay loans by cash. The assessee also submitted before the AO that, they were new to business and not aware of the provisions of the Act in this regard.
6. But, the Dy. CIT held that ignorance of law is no excuse and as the assessee has contravened the provisions of ss. 269SS and 269T, penalty is attracted under s. 271D and s. 271E of the Act. Accordingly, he levied a penalty of Rs. 2,21,000 under s. 271D, which is equivalent to the total source of loans accepted by the assessee in cash. He also levied a penalty of Rs. 1,35,000 under s. 271E which is equal to total of the loan repaid by the assessee in cash. Both the penalties have been imposed be separate orders, but dated 28th July, 1993.
7. The penalty orders were taken in first appeal before the CIT(A)-IV, Hyderabad. The assessee-firm had raised a number of contentions before the CIT(A) both on questions of law as well as on facts. The first objection raised by the assessee-firm was that as the penalty proceedings were not initiated during the assessment proceedings, the same have become invalid. But the learned CIT(A) held that this contention was not acceptable as unlike s. 271 of the IT Act, there is no such compulsion to initiate the penalty proceedings in the course of assessment proceedings itself. The second contention of the assessee was that at the time of the alleged violation of the provisions of ss. 269SS and 269T, the business of the assessee-firm was not commenced, and as such it was not an assessee to income-tax and therefore, it was not liable to any proceedings under s. 271D and s. 271E. On this point also, the learned CIT(A) held that that for the purposes of the ss. 269SS and 269T, there is no such contemplation in the Act, and therefore, even if a person is not an assessee to income-tax, still for violation of provisions of ss. 269SS and 269T, penal provisions under ss. 271D and 271E could be invoked. Another legal objection raised by the assessee was on the basis of Madras High Court decision in the case of Kumari A. B. Shanthi Nirmala vs. Asstt. Director of Inspection (1992) 197 ITR 330 (Mad) where the Court had held that s. 269SS was violative of Art. 14 of the Constitution of India. The learned CIT(A) noted that this decision of the Madras High Court has been stayed by the Supreme Court and further, the Hon'ble Gujarat High Court has held in Sukhdev Rathi vs. Union of India (1995) 211 ITR 157 (Guj) that the qualification made in s. 269SS is based on intelligible differentia and, therefore, it cannot be said to be violative of the Constitution of India.
8. On the merits of the case, the learned CIT(A) held that assessee-firm has violated the legal provisions contained in ss. 269SS and 269T not because of any ignorance of law, but for 'intentional' negligence. Therefore, the CIT(A) held that the assessee-firm was answerable to the violations of provisions contained in ss. 269SS and 269T.
9. But the learned CIT(A) found that as far as the initial amount of loans taken by the assessee from the aforesaid four different persons are concerned, there was no violation of s. 269SS, because on those occasions, the loans taken by the assessee were for amounts less than Rs. 20,000 each prescribed under s. 269SS. The learned CIT found that Rs. 10,000 each taken from the four persons totalling to Rs. 40,000 as loans have not violated the provisions of s. 269SS. Therefore, he found that this amount of Rs. 40,000 did not come under the purview of violation. Likewise, he found that the assessee had received Rs. 10,000 as loan from Shri S. Maruthy on 2nd June, 1991, and another amount of Rs. 2,000 from Shri Shyamsunder Lahoti on 1st January, 1991, and they were Sundays. Therefore, he found that even if these amounts were accepted by cheques, the assessee could not have realised those cheques into cash on those days, and therefore, those two amounts also did not come under the purview of s. 269SS. On these two grounds, the CIT(A) has reduced an amount of Rs. 52,000 from the total sum of loan of Rs. 2,21,000 and held the balance of Rs. 1,69,000 alone was covered by the provisions of s. 269SS. The penalty for violation of s. 269SS imposable under s. 271D is an amount equal to the amount of such loans taken by the assessee. Therefore, the CIT(A) modified the quantum of penalty levied under s. 271D to Rs. 1,69,000 as against Rs. 2,21,000 levied by the Dy. CIT.
10. In the matter of penalty under s. 271E, the learned CIT found that the assessee had returned an amount of Rs. 10,000 to Shyamsunder Lahoti on 10th November, 1991, which was a Sunday. Therefore, he found that the repayment of that amount would not be hit by the provisions of s. 269T. Accordingly, he reduced the penalty imposed under s. 271E by Rs. 10,000 and refixed the same at Rs. 1,25,000 as against Rs. 1,35,000 originally imposed by the Dy. CIT.
11. It is against the above order of the CIT(A) that both the Revenue as well as the assessee have come up in second appeals before us.
12. The contentions of the Revenue are that the CIT(A) has erred in holding that the assessee is eligible for relief of Rs. 40,000 as the provisions of s. 269SS are not applicable to loan amounts received on first occasions, if it is less than Rs. 10,000; that the CIT(A) has erred in granting relief for those amounts of loan taken and repaid on Sundays, since there is no such exception provided in ss. 269SS and 269T.
13. With reference to the penalty under s. 271D, the contention of the assessee is that the CIT(A) has erred in holding that the assessee was not prevented by sufficient reason in not complying with the provisions of s. 269SS of the Act. In addition to this contention, for penalty under s. 271E, the assessee has raised one more legal contention that the lower authorities have erred in observing that the transactions were in the nature of deposits and they are covered by the provisions of s. 269T.
14. We heard Shri Sai Prasad Sastry, the learned Departmental Representative for the Revenue and Shri S. Rama Rao, the learned counsel for the assessee. We heard both sides in detail and considered the elaborate arguments advanced before us.
15. First of all, we will consider the penalty imposed under s. 271D for the violation of s. 269SS of the IT Act, 1961. On a reading of the facts of the case, it is evident that the assessee-firm had taken loans from four different persons in violation of the provisions contained in s. 269SS. Like any other penalty, the operation of s. 271D with reference to the violation of the provisions contained in s. 269SS also is not automatic. Sec. 273B has provided a statutory fetter to the automatic application of s. 271D. It provides that no penalty shall be imposable on a person under these provisions for any violation, if the person could establish the existence of any reasonable cause. It is only where a person could not explain any reasonable cause for the failure in complying with the provisions of s. 269SS, that the penalty under s. 271D would follow.
16. The assessee in this case is a small scale industrial unit, which has set up its factory in a backward region of Andhra Pradesh. Almost all the loans were taken by the assessee-firm during the construction period. Though the assessee-firm had succeeded in securing certain loans sanctioned by banks and financial institutions, those finances had not come in time to meet the financial needs of the assessee during the construction stage of the factory, and as such the assessee was put under much pressure for money. In such circumstances the assessee-firm had to approach its friends and well-wishers to extract as much cash as possible from them to meet the day-to-day exigencies of the business for money, so that it could complete the project within time. Therefore, there is no doubt that the assessee was very much constrained to accept the hand loans as and when emergencies arose. In such exigencies and emergencies for money which compelled the assessee to borrow monies from friends and well-wishers from time to time to meet the day-to-day business demands in the construction of factory, receipt of such loans by way of cheques or drafts would not be conductive to meet the exigent demands on hand, as clearance of such instruments equally takes some time, more particularly when the lenders are from a different station. As a matter of fact, the AO who completed the assessment as well as the Dy. CIT who imposed the penalty have no whatsoever about the genuineness of the loans and the identity of those lenders and their creditworthiness. Therefore, it is clear that the assessee-firm had no intention to conceal any particulars of those transactions.
17. 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 XXB of the IT Act, 1991, which read "Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax". Legislative intention in bringing s. 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.
18. All these simple facts of this case bring out a formidable finding that even if the assessee-firm has violated the provisions of s. 269SS by accepting loans for an amount of more than Rs. 20,000 by way of other than crossed cheque or draft, that violation is only a technical violation. The assessee was prevented by reasonable cause from complying with the provisions of s. 269SS. The genuine hardships, faced by the assessee in meeting the financial needs in the construction of the factory might not have been mitigated by taking the loans in question only through the modes permitted in s. 269SS. The compelling circumstances in which the assessee was constrained to violate the provisions of s. 269SS, which cannot be termed as intentional, have not in anyway defeated or tend to defeat the objectives of incorporation of s. 269SS in the statute book prevention of tax evasion as there is no element of tax evasion in the instant case. Thus, in this case, it is only a technical violation of the provisions of s. 269SS. The assessee has sufficiently explained the circumstances under which it was constrained to go in for cash loans. These explanations in our opinion constituted reasonable cause as construed in s. 273B.
19. In the circumstances, we find that it is not a fit case for imposition of penalty under s. 271D for violation of provisions of s. 269SS. Therefore, we do not agree with the view taken by the lower authorities on this issue. We accordingly set aside the order of the CIT(A) in relation to penalty under s. 271D and cancel the impugned penalty levied by the Dy. CIT.
20. Now, we may examine the question of penalty imposed on the assessee-firm under s. 271E of the Act.
21. We would like to consider first the legal contentions advanced by the assessee that repayment of loans are not covered by s. 269T; that the repayment of deposits alone are covered by that section; that inasmuch as in the case of this assessee, the assessee has repaid loans and not deposits, s. 269T is not applicable as far as repayment of loans by the assessee was concerned. The learned counsel for the assessee argued that loans and deposits described in s. 269SS and s. 269T are understood differently. Taking note of the distinct features of loans and deposits, the provisions of s. 269SS and s. 271D have separately spelt out both loans and deposits. Omission of the term 'loans' in the provisions of s. 269T and s. 271E, according to the learned counsel for the assessee, cannot be attributed to any omission in the drafting of the statute and the term 'deposits' mentioned therein cannot be said to include 'loans' as well. When the distinct nature of deposits and loans have been recognised by the statute and spelt out both the terms in the provisions of s. 269SS and 271D if the legislature intended to bring in 'loans' also into the clutches of ss. 269T and 271E, it could have spelt both the terms specifically in those sections. Since the provisions of ss. 269T and 271E specified the term 'deposits' only, those provisions are not at all applicable to the repayments of loans in cash made by the assessee in this case and consequently the impugned penalty under s. 271E cannot be sustained.
22. The learned Departmental Representative on the other hand argued that the terms 'loans' and 'deposits' are used synonymously or interchangeably and even though the provisions of ss. 269T and 271E have specified the term 'deposits' only, those provisions apply even to the repayment of loans, and the assessee was obliged to comply with the provisions of s. 269T while repaying loans as well.
23. We considered this matter in detail. Sec. 269SS stipulates that no person shall take or accept any 'loan or deposit' ..... for an amount of Rs. 20,000 or more otherwise than by way of account payee cheque or draft ..... and s. 271D, which is the penalty provision for the violation of s. 269SS also speaks of a person taking or accepting 'loan or deposit' in contravention of s. 269SS; whereas the provisions of s. 269T speak only about the repayment of 'deposit' and nothing is mentioned therein about the repayment of 'loan'. The penal provisions of s. 271E for violation of provisions of s. 269T also speak of repayment of 'deposit' alone and have omitted the word 'loan'. A plain reading of the concerned provisions of Chapter XX-B makes it clear that s. 269SS takes care of both 'loan or deposit', when they are accepted, whereas at the point of repayment the case of deposit alone is mentioned in s. 269T and s. 271E. The omission of the word 'loan' in s. 269T as well as in s. 271E is conspicuous. That omission cannot be simplified as accidental.
24. A 'loan' is a contract by which property is transferred by a lender to a borrower on the promise of the borrower to return the property or its exact equivalent at a stated time or on demand. Whereas deposit is something entrusted to another's care, especially money put in a bank. The relationship between a lender and a borrower of money in the context of loan is the relationship of a creditor and a debtor. In the case of deposit, the person who accepts the deposit is acting as a trustee and he is not standing in the position of a debtor. He is standing in a higher pedestal than a debtor, inasmuch as he, as an acceptor of the deposit, has the discretion to accept or not to accept a particular deposit. The legal features of debt and a deposit are different. As far as a loan is concerned, the provisions of law of limitation are applicable. If a loan is not repaid or renewed within the limitation period, then the repayment of loan is not enforceable in law. As against this, in the case of a deposit, unless otherwise specified, there is no such question of limitation, and the deposit is always liable to be repaid to the depositor. One common feature of loan and deposit is that in both the cases, the consideration is the promise of the person taking or accepting it to repay the loan or deposit as the case may be. If we apply the common parlance text also, the term 'loan' and the term 'deposit' are understood differently. A deposit need not necessarily be a deposit of money in a bank. It can be a security deposit, or a caution deposit with reference to a job or execution of a contractor for good performance. The person accepting deposit stands on an entirely different footing when compared to a borrower of money, who stands always in the shoes of a debtor. Therefore, by general principles of law as well as by common understanding, the term 'loan' and the term 'deposit' cannot be understood synonymously. The terms 'loan or deposit' present in section 269SS cannot be stretched to extend to the scheme of section 269T as well, ignoring the conspicuous absence of the term 'loan' in the provisions of s. 269T. The difference between the provisions, of these two sections is not confined to the missing term of 'loan' alone. While s. 269SS begins with "No person shall, after the 30th day of June, 1984 take or accept from any other person ......", s. 269T begins with "No company (including a banking company) cooperative society or firm shall repay to any person ....." The amounts prescribed for the coverage of these two sections are also different. Therefore, we accept the contention of the assessee that the provisions of s. 269T are not applicable to the repayment of loans.
25. In the instant case what the assessee has done was the repayment of loans and not deposits. Therefore, the repayment of these loans by way of cash is not hit by the provisions of s. 269T. Accordingly, we find that there is no case to invoke the penal provisions of s. 271E. On this legal ground, we find that the imposition of penalty under s. 271E will not stand.
26. Even otherwise, assessee has explained the circumstances in which it was constrained to make the repayment of the loans in question in cash. We are satisfied that the assessee was prevented by a reasonable cause from making repayment of these loans by cheque or demand draft. Our finding with regard to existence of a reasonable cause taking away an assessee from the liability to penalty under s. 271D holds good even in the context of the impugned penalty under s. 271E. In the circumstances, even on facts, we are of the view that this is not a fit case for the levy of penalty under s. 271E.
27. Therefore, both on the question of law as well as on facts, we find that imposition of penalty under s. 271E is not in order. It is, therefore, cancelled.
28. Having considered all the contentions raised in these appeals, we cancel the penalties levied under s. 271D and under s. 271E.
29. In the result, while the appeals of the assessee are allowed, the appeals of the Revenue are dismissed.