Income Tax Appellate Tribunal - Ahmedabad
Shreenath Builders vs Deputy Commissioner Of Income-Tax on 11 December, 1998
ORDER
R.K. Bali, A.M.
1. These two appeals by the assessee relating to asst. yr. 1992-93 are directed against two separate orders passed by the learned CIT(A)-II, Ahmedabad.
2. The only point of dispute in these two appeals is with regard to the action of the Departmental authorities in levying/confirming the penalty of Rs. 13,16,000 under s. 271D and Rs. 1,75,000 under s. 271E of the Act. The penalties have been imposed by the AO and confirmed by the CIT(A) for the alleged violation of provisions of ss. 269SS and 269T for accepting the loans/deposits in cash from two shroffs M/s Ajay Bharatkumar & Co. and M/s Punamchand Devchand Shroff on various dates and also for making repayments of loans/deposits in cash to these very persons by the assessee.
3. Briefly the facts are that assessee is a partnership firm carrying on the business as building contractor for the State Government Undertakings like ONGC, Gujarat Pollution Control Board and the Gujarat State PWD. During the course of assessment proceedings for the asst. yr. 1992-93, the ITO, Modasa holding jurisdiction over the case of the assessee found that it had accepted the loans/deposits of Rs. 9,60,500 in aggregate from M/s Ajay Bharatkumar & Co. and Rs. 3,55,500 in aggregate from M/s Punamchand Devchand Shroff in cash on various dates which were considered by the AO as contravention of provisions of s. 269SS. Similarly, the AO also found that the assessee had made repayments of loans/deposits in cash to M/s Ajay Bharatkumar & Co. of an amount of Rs. 90,000 and to M/s Punamchand Devchand Shroff and amount of Rs. 85,000 and this was also considered as a violation of provisions of s. 269T. The AO accordingly vide letter dt. 28th March, 1994, referred the case to the Dy. CIT for initiation and imposition of penalty under ss. 271D and 271E of the Act. Accordingly, the Dy. CIT issued show-cause notice dt. 16th September, 1994, to the assessee and after considering the submissions of the assessee levied penalty of Rs. 13,16,000 under s. 271D and Rs. 1,75,000 under s. 271E. Before the Dy. CIT the assessee submitted that no penalty under ss. 271D and 271E are leviable in the case of the assessee because :
(i) The transactions between the aforesaid two parties were in the nature of current account which cannot be considered as loans/deposits within the meaning of ss. 269SS and 269T.
(ii) There was a bona fide belief that such type of amount could be taken for urgent business needs and to solve the problem of financial contingencies.
(iii) That violation of provisions, if any, was only a technical and venial breach for which penalty under ss. 271D and 271E should not be levied on the basis of the decision of the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC).
The Dy. CIT did not accept the submissions made on behalf of the assessee and levied the disputed penalties.
4. On appeal, the CIT(A), for the reasons given in detail in the impugned order upheld the penalties levied by the AO holding that since there was a clear breach of statutory provisions of ss. 269SS and 269T, the AO was justified in levying the impugned penalties.
5. The assessee is in second appeal before us and Shri S. N. Soparkar, the learned counsel for the assessee submitted that the penalties levied by the Dy. CIT and confirmed by the CIT(A) were not at all justified in the facts and circumstances of the case. It was submitted that the penalties levied were time-barred because the ITO initiated penalty proceedings vide letter dt. 28th March, 1994, when the case was referred to the Dy. CIT and since the penalty was imposed by the Dy. CIT on 28th March, 1995, the same was time-barred. Reliance was placed on the decisions of the Tribunal in the cases of Bushan Chemicals vs. Dy. CIT (1995) 54 ITD 5 (Pune) and Manoharlal vs. Dy. CIT (1995) 53 TTJ (Jp) 105. It was submitted that the assessee was competent to raise this legal plea in view of the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC).
On merit, it was submitted that no penalty ought to have been levied by the Dy. CIT and confirmed by the CIT(A) because :
(i) The transactions are genuine :
(ii) The case of the assessee is not a case of loan/deposit taken simplicitor. It is a case of discounting of cheques from Shroffs. The modus operandi of the assessee was that it would give cheque in favour of the respective party. The said party would thereupon against the said cheque give money in cash to the assessee after deducting from the cheque amount, the amount of commission/discounting to which it is entitled;
(iii) Considering the objects of the provisions of ss. 269SS and 269T as explained by the Board in Circular No. 387, dt. 8th July, 1984, and Circular No. 345, dt. 28th June, 1982, and the transactions being otherwise genuine in nature, no penalty ought to have been levied in the case of the assessee;
(iv) In view of the decision of the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (supra) penalty for a technical breach or venial violation of the provision of law should not have been levied by the Departmental authorities.
It was submitted that assuming though not admitting that the assessee has in fact committed breach of the provisions of ss. 269SS and 269T, the assessee was prevented by a reasonable/sufficient cause from accepting money by cheques or repaying the same by cheques because the assessee required money urgently in cash for meeting its day-to-day working as a building contractor. It was submitted that the assessee was substantially doing the work of Government of Gujarat and in the relevant period the Government of Gujarat was in financial difficulties as a result of which funds were not being released by the Government and as such the assessee was forced to accept the money in cash from the Shroffs by cheque discounting as it has to make the payments to labourers for carrying out its day-to-day operations and also for depositing the money in bank so that the cheques issued by the assessee are honoured. Reliance was placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Vir Sales Corporation vs. Asstt. CIT (1994) 50 TTJ (Ahd) 130. It was submitted that with regard to penalty under s. 271E, some of the cheques issued by the assessee to the parties were dishonoured and as such they refused to accept further payments by cheques and for that reason the assessee has to make them payments in cash for which the assessee borrowed from the Shroffs by discounting of cheques and as such this itself constituted a reasonable cause. Reliance was also placed on the decision of the Delhi High Court in the case of CIT vs. Meghdoot Sales (1993) 200 ITR 490 (Del).
6. The learned Departmental Representative supported the order of the CIT(A) and with regard to the legal objection of the assessee about the penalty having become time-barred, it was submitted that the period of limitation does not run with the issue of notice by the AO because the provision of ss. 271D and 271E are not exactly similar to the provisions of ss. 271D and 273. It was submitted that the period of limitation will start by the issue of notice by the Dy. CIT who is authorised to initiate and levy penalty and since the Dy. CIT issued notice on 16th September, 1994, and the penalty was levied on 28th March, 1995, they are very much in time.
As regards the merits of the case, it was submitted that the provisions of ss. 269SS and 269T are complete code in itself and the authorities relied upon by the assessee's counsel on the decisions in the cases of CIT vs. Maghdoot Sales (supra) are of no help to the assessee because they related to the violation of provisions of s. 40A(3).
With regard to the merits of the penalties, it was submitted that the provisions of ss. 269SS and 269T are quite clear and any violation of the statutory provisions was required to be penalized in accordance with the law contained in ss. 271D and 271E. It was submitted that the argument of the assessee's counsel that the loans/deposits were genuine, cannot save the assessee from default committed under the provisions of ss. 269SS and 269T because had the deposits been non-genuine then there could have been further addition to the assessed income under s. 68. It was further submitted that breach of the provisions of ss. 269SS and 269T by the assessee is quite obvious from the perusal of the copies of the accounts of the two parties i.e. M/s Bharatkumar & Co. and M/s Poonachand Devchand Shroff and it cannot be regarded as a technical breach or venial violation as contended by the learned counsel for the assessee. It was submitted that ss. 271D and 271E r/w ss. 269SS and 269T are complete code in themselves and the levy of penalty is mandatory which is clear from the use of the word "shall" in ss. 271D and 271E. It was submitted that the assessee cannot plead ignorance about the provisions of law as it is an existing assessee and is being assisted by the competent chartered accountants. It was submitted that the ignorance of law cannot be accepted as a valid or reasonable cause for cancellation of penalties.
7. We have considered the rival submissions and have also perused the orders passed by the AO as well as the CIT(A). Admittedly there have been violation of the provisions of ss. 269SS, 269T for which penalties are provided under s. 271D and 271E unless the assessee proves that he/it was prevented by a reasonable cause and its case is covered by the provisions of s. 273B. In order to examine the question relating to existence or absence of reasonable cause for the purpose of ss. 271D and 271E for violation of the provisions of ss. 269SS and 269T, it will be necessary to examine the legislative intention of the objects for which the provisions of ss. 269SS and 269T were inserted by the Finance Act, 1984. The CBDT vide Circular No. 387, dt. 6th July, 1984, have elaborately explained the scope and intention of inserting the provisions of ss. 269SS and 269T in paras 32.1 and 32.2 as under :
"32.1 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.
"32.2 With a view to counter in this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act, 1984, has inserted a new s. 269SS in the IT Act debaring 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 deposit 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 prohibition will also apply in 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 "(raised to Rs. 20,000 w.e.f. 1st April, 1989)."
The object and scope of inserting s. 269T have been explained by the Board by Departmental Circular No. 345, dt. 28th June, 1982. Paras 2.1 and 2.2 of the said Circular are reproduced hereunder, which is published at p. 5735 of the said volume of Income-tax law by Chaturvedi & Pithisaria.
"2.1 The proliferation of black money poses a serious threat to the national economy and it was considered necessary to take effective steps to contain and counter this major economic evil. The Government have, in recent past, taken several legislative and administrative measures to unearth black money. The IT (Second Amendment) Act, 1981 (hereinafter referred as the Amending Act), represents another step in the same direction.
2.2 It came to Government's notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative societies and partnership firms either in their own names or in benami names, the IT (Second Amendment) Act, 1981, seeks to counter attempts to circulate black money in this manner."
It is clear from the aforesaid circulars issued by the Board that these provisions were introduced with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering the major economic evil of proliferation of black money, etc.
8. It will also be worthwhile to mention that a harmonious construction of the relevant provisions of ss. 271D, 271E and 273B clearly reveals that the use of the expression "shall be liable to pay" in ss. 271D and 271E and the provisions of s. 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire relevant facts and materials existing on records. The Hon'ble Andhra Pradesh High Court in the case of ITO vs. Lakshmi Enterprises & Ors. (1990) 185 ITR 595 (AP) had held that the provisions of the old ss. 276DD and 276E, prior to their omission w.e.f. 1st April, 1989, containing similar expression "shall be liable to pay" gives discretion to the Court with regard to the imposition of fine.
9. In the background of the aforesaid objects of inserting the provisions of ss. 269SS and 269T, its object and scope explained by the circulars issued by the Board and the fact that these provisions provide discretion to the authorities, the facts relating to the present case will have to be examined for the purpose of deciding whether it is covered by s. 273B.
10. It is an undisputed fact that the genuineness of the transactions in relation to which penalties have been imposed had not been doubted by the Departmental authorities. It is also true that the loans/deposits as well as repayments of loans was a result of discounting of cheques/dishonouring of cheques issued by the assessee. Both the Shroffs from whom the cheques were discounted by the assessee or to whom the payments in cash were made on account of dishonouring of cheques issued by the assessee, are regular income-tax assessees. The discounting of cheques was made by the assessee to meet urgent business needs of making the payments to the labourers for enabling the assessee to carry on its business of working as a building contractor as the payments from the State Government which were due to the assessee were not forthcoming. In this background the contention of the assessee that violation of the provisions of ss. 269SS and 269T was an innocent mistake on its part on account of ignorance of the relevant provisions of law and it constituted a reasonable cause within the meaning of s. 273B, could not be just brushed aside. Ordinarily a plea as to the ignorance of law cannot support the breach of a statutory provision. But the fact of such an innocent mistake due to ignorance of the relevant provisions of law, computed with the fact that the transactions in question are genuine and bona fide transactions and were undertaken during the regular course of its business, will in our opinion constitute a reasonable cause. The Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC) at p 339 has observed as under :
"Moreover, it must be remembered that there is no presumption that every person knowns the law. It is often said that everyone is presumed to know the law but that is not a correct statement. There is no such maxim known to the law."
The penal provisions of ss. 271D and 271E r/w s. 273B confer a discretion on the authorities to levy or not to levy penalty. Such discretion needs to be exercised with wisdom and in a fair and just manner. Even if the relevant provisions of law prescribe levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within ss. 269SS and 269T. Even if the minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breach flows from a bona fide belief like in the present case. Such a view finds ample support from the judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (supra). Since we have held that the transactions in question were bona fide and were genuine transactions and were made during the course of the business of the assessee and there was no guilty intention or guilty mind on the part of the assessee at the time when these transactions were made, the penalties levied deserve to be cancelled. We do so.
Since we are deleting the penalties on account of reasonable cause and bona fide belief, we do not think it proper to deal with the issue relating to the contention of the assessee that the penalties levied by the AO were time-barred.
11. In the result, the appeals are allowed.