Income Tax Appellate Tribunal - Amritsar
Skyline Silk Mills vs Assistant Commissioner Of Income Tax on 24 March, 2006
Equivalent citations: (2006)101TTJ(ASR)798
ORDER
Joginder Pall, A.M.
1. These two appeals have been filed by the assessee against two orders (both dt. 22nd Jan., 2004) of CIT(A), Jammu with Hqrs. at Amritsar, for the asst. yr. 1991-92. In ITA No. 161 of 2004, the assessee has challenged the levy of penalty of Rs. 3,500 under Section 271D of the IT Act, 1961 (in short 'the Act') and in ITA No. 162 of 2004, the assessee has challenged levy of penalty of Rs. 81,048 imposed under Section 271E of the Act. Since the issues raised in both the appeals are identical, these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. At the outset, the learned Counsel for the assessee sought to withdraw ground No. 2 common in both the appeals, where the assessee has challenged the order for imposing penalty on the ground that the same had become time-barred. He submitted that in view of decision of Tribunal, Chandigarh (Special Bench) in the case of Diwan Chand Amtit Lal v. Dy. CIT (2005) 98 TTJ (Chd)(SB) 947 : (2006) 98 ITD 200 (Chd)(SB), there is no merit in this ground of appeal. Request of the learned Counsel to withdraw ground No. 2 is allowed and the same is dismissed as withdrawn for both the appeals.
3. As mentioned earlier, the issue raised in ITA No. 162 of 2004 relate to penalty of Rs. 81,048 imposed under Section 271E for violation of the provisions of IT Act. The facts of the case are that the assessee is a partnership firm constituted by a partnership deed dt. 4th Aug., 1986. The firm consisted of four partners, namely, Sh. Ashok Kumar Khanna, Sh. Sat Pal Seth, Smt. Anjula Khanna and Smt. Sunita Seth. Subsequently, two partners, namely, Sh. Ashok Kumar Khanna and Shri Sat Pal Seth retired from the firm on 31st March, 1990 and the remaining two partners continued the business with the partnership firm. A fresh partnership deed dt. 1st April, 1990 was executed. The balance in the capital account of the outgoing partners remained with the partnership firm. A closing balance in the capital account of Sh. Ashok Kumar Khanna was at Rs. 95,148 (p. 70 of the paper book) as on 31st March, 1990. This amount was accepted by the firm as its liability. Subsequently, Shri Ashok Kumar Khanna was paid amounts of Rs. 1,250, Rs. 3,500, Rs. 10,000, Rs. 7000, Rs. 30,000 and Rs. 10,000, all aggregating to Rs. 61,750 (p. 32 of the paper book) in cash out of the outstanding capital balance of Rs. 95,148 in the accounting year relevant to assessment year under reference. The remaining amount of Rs. 28,139 was carried forward to the subsequent assessment year. Similarly, the other partner, Sh. Sat Pal Seth, retired from the firm and had closing balance in his capital account amounting to Rs. 45,182 (p. 71 of the paper book). This amount also became the liability of the firm. Subsequently Sh. Sat Pal Seth was paid in cash amounting to Rs. 68, Rs. 227, Rs. 36, Rs. 200. Rs. 200, Rs. 1,000, Rs. 162 and Rs. 1250, all aggregating to Rs. 3143 (p. 30 of the paper book) in the accounting year relevant to the asst. yr. 1991-92. Some of the entries mentioned that the amount was paid for payment of income-tax, house-tax, electricity bills, etc. In addition Smt. Usha Seth w/o of Sh. Sat Pal Seth, outgoing partner had balance of Rs. 69,622 as on 31st March, 1990 in the books of account of the assessee-firm in the current account. In the accounting year under reference Smt. Usha Seth was paid in cash, amounts of Rs. 2,000, Rs. 1,000, Rs. 7,000, Rs. 1,000, Rs. 675, Rs. 500, Rs. 980 and Rs. 3,500, aggregating to Rs. 16,755 on various dates. The AO observed that such payments had been made in violation of provisions of Section 269T of the Act. Therefore, the case was referred to Dy. CIT, who was the competent authority for levy of penalty under Section 271E. Accordingly, the Dy. CIT issued a show-cause notice on 6th June, 1994 for the charge that the assessee had made repayment of loans to the above parties in violation of provisions of Section 269T of the Act. Since there was a change in the incumbent, his successor also issued another show-cause notice dt. 22nd Aug., 1994 for the same charge. In reply, the assessee contended that the payments were made to ex-partners of the firm out of capital balance standing in the books of account of the firm on the date of their retirement and therefore, such repayment did not fall within the definition of deposits. As regards Smt. Usha Seth wife of ex-partner, it was submitted that she was an independent and regular assessee and no interest had been paid to her right from the date when amount was accepted in the current account and the payments of small amounts were made to her for meeting some urgent requirements. It was submitted that the penalty was not exigible in respect of such payments. The Dy. CIT considered the reply and rejected the same and levied penalty of Rs. 81,048 for default under Section 271E of the IT Act, 1961. The assessee impugned the levy of penalty in appeal before the CIT(A), who deleted the same. However, the Revenue filed an appeal before the Tribunal. The Tribunal set aside the order of the CIT(A) on the ground that the CIT(A) had not passed a speaking order and had not given any cogent reasons for deleting the said penalty. The matter was restored to the file of the CIT(A) for deciding the same on merits.
4. Thereafter, the learned CIT(A) took up the set-aside proceedings and the assessee filed written submissions stating therein that the amounts in question were withdrawn by two partners from the capital accounts and, therefore, the provisions of Section 269T were not attracted. It was also argued that a partnership firm under the Indian Partnership Act, 1932 was not a distinct legal entity apart from the partners constituting it and the firm as such had no separate rights of its own. The property owned by the firm is basically a property belonging to the partners. On dissolution, the assets are distributed among the partners and the same did not constitute a transfer. It was, therefore, argued that payments in cash made to ex-partners as a consequence of adjustment of mutual rights of the partners did not amount to payments for attracting the provisions of Section 269T of the Act. It was also argued that the provisions of Section 269T were attracted only for payment of deposits at the relevant time, but in the present case the assessee had repaid only the amount standing to the credit of capital account of the partners which did not constitute deposit with the firm. Therefore, it was argued that penalty under Section 271E was not attracted. It was also argued that Dy. CIT in the show-cause notices had mentioned repayment of loans in violation of provisions of Section 269T. It was argued that since the provisions of Section 269T, as stood in the statute at the relevant time were not attracted for repayment of loans. Therefore, it was contended that the Dy. CIT had wrongly levied the penalty under Section 271E. It was further argued that the provisions of Sections 269SS and 269T were inserted in the statute only with the intention of curbing tax evasion. But in the present case, it was not the case of the Revenue that by making cash payments, the assessee had indulged in tax evasion or taken some benefit of explaining the source of certain investments or expenses. Therefore, penalty under Section 271E was not attracted in this case. Reliance was also placed on the decision of Tribunal, Delhi Bench in the. case of Farrukhabad Investment (I) Ltd. v. Jt. CIT (2003) 80 TTJ (Del) 82 : (2003) 85 ITD 230 (Del). Thus, it was pleaded that penalty under Section 271E was not leviable. However, these submissions did not find favour with the CIT(A). The learned CIT(A) observed that the impugned payments were not covered under the exceptions mentioned in Section 269T. He further observed that it was for the assessee to explain whether the repayments were for loans or for deposits. In the absence of any such clarification, the learned CIT(A) observed that it would be presumed that these payments were for loans given by the partners to the firm. He also observed that the repayment to partners out of capital account partakes the character of deposits because such repayments were made after the two partners ceased to be partners. Similarly, the learned CIT(A) observed that the fact that repayment in one case was made to the wife of one partner would not make any material difference in regard to the applicability of provisions of Section 269T. He further observed that both the partners and firm are two separate entities for the purpose of the Act and, therefore, repayments made by the firm to two ex-partners were covered under Section 269T. Thus, the learned CIT(A) upheld the penalty imposed by the AO under Section 271E of the Act. The assessee has now brought this matter in appeal before us.
5. The learned Counsel for the assessee reiterated the submissions which were made before the authorities below. He submitted that this was a case of partnership firm which was constituted on 4th Aug., 1986 and consisted of four partners. Subsequently, there was a change in the constitution of the firm as two partners, namely, S/Sh. Ashok Kumar Khanna and Sat Pal Seth retired w.e.f. 1st April, 1990 and the business of the firm was continued by the remaining two partners. He submitted that a fresh partnership deed dt. 1st April, 1990 was executed (a copy placed at pp. 5 to 7 of the paper book). He then drew our attention to pp. 70 and 71 which are copies of capital accounts of two outgoing partners, namely S/Sh. Ashok Kumar Khanna and Sat Pal Seth as on 31st March, 1990 where the credit balance to the capital account of Rs. 95,148 and Rs. 45,182, respectively was carried forward to the subsequent assessment year. He further drew our attention to pp. 31 and 32 of the paper book which are copies of capital account of the outgoing partners from where payments were made to both the parties in cash. He submitted that payments made to the partners were not in the nature of repayments of deposits. These were repayments of capital balance and, therefore, the provisions of Section 269T were not attracted to the present case. He further drew our attention to pp. 1 and 3 of the paper book which are copies of show-cause notices issued by the Dy CIT, where he had mentioned that the assessee had repaid the loans in violation of provisions of Section 269T. He submitted that the provisions of Section 269T as these stood for the assessment year under consideration covered only deposits and not loans. He submitted that there is a difference between 'loans' and 'deposits' and both are not the same thing. In this connection, he relied on the judgment of Hon'ble Madras High Court in the case of A.M. Shamsudeen v. Union of India . Thus, he stated that the provisions of Section 269T were not violated in the present case. He further stated that in any case, the assessee was under the impression that the repayment of capital amount standing in the capital account of the partners did not attract the provisions of Section 269T. He further stated that repayment of the amounts to the partners was not with an object of evading or avoiding tax. Therefore, such bona fide transactions could not attract penalty. He relied on the decision of Tribunal Amritsar Bench (TM) in the case of Navin Kumar v. Jt. CIT (2006) 99 TTJ (Asr)(TM) 267 : (2006) 98 ITD 242 (Asr)(TM), the decision of Punjab & Haryana High Court in the case of CIT v. Saini Medical Store and the decision of Tribunal, Delhi Bench in the case of Farrukhabad Investment Ltd. v. Jt. CIT (supra). He further stated that amount standing in the current account of Suit. Usha Seth was also not a loan or deposit as the assessee did not pay any interest on the amounts kept with the assessee. The repayments were made only for petty amounts on different dates for meeting such urgent requirement and did not show any mala fide intent on the part of assessee. Relying on the decision of Tribunal, Jodhpur Bench, in the case of Asstt. CIT v. Alfa Hydromec (P) Ltd (2006) 99 TTJ (Jd) 405, the learned Counsel submitted that no penalty under Section 271E can be imposed.
6. The learned Departmental Representative, on the other hand, heavily relied on the findings of the CIT(A).
7. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. We have also referred to relevant pages of the paper book to which our attention has been drawn and also gone through the orders of the authorities below. The provisions of Section 269T were inserted in the IT Act by Income-tax (Second Amendment) Act, 1981 The aim and object of inserting the provisions in the statute was explained by the CBDT vide their Circular No. 345, dt. 28th Jan., 1982 as per which the object was to counter attempts to circulate black money. As per the proposed amendment introduced by insertion of Section 269T, the banks, companies, cooperative societies and firms were prohibited from making repayments of deposits made with them otherwise than by an account payee cheque or account payee bank draft in the name of the person who had made the deposit if the amount at the relevant time stood at Rs. 10,000.
7.1 We consider it appropriate to reproduce herein relevant provisions of Sub-section (2) of Section 269T as these stood at the relevant time applicable to assessment year under reference :
269T. Mode of repayment of certain deposits.--(2) No Branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit if--
(a) the amount of the deposit together with interest, if any, payable thereon, or
(b) the aggregate amount of the deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is twenty thousand rupees or more.
A bare reading of the aforesaid section shows that it is applicable for repayments made by a banking company, co-operative bank, co-operative society and firm or other person, provided the repayment of the amount of deposit along with interest, if any, was Rs. 20,000 or more. Subsequently the repayment of loans was also included in the section by the Finance Act, 2002 w.e.f. 1st June, 2002. Thus, prior to 1st June, 2002 the provisions of Section 269T were attracted only if the assessee had made the repayments of deposits exceeding the prescribed limit in cash. The term 'deposit' is not the same thing as the term 'loan'. The difference in the two was considered and recognized by the Madras High Court in the case of A.M. Shamsudeen v. Union of India (supra) where it was observed that in the case of loan, it is the duty of the debtor to seek the creditor and repay the money to him or to repay the money according to the agreement. But in the case of the 'deposit', it is generally the duty of the depositor to go to the banker or person with whom money has been deposited as the case may be and make a demand for the repayment of the same. Thus, the Hon'ble Madras High Court held that the contention of the party that term 'deposit' in Section 269T was wide enough to include loan could not be accepted and, therefore, it was observed that the provisions of Section 269T would not be applicable for repayment of loans.
7.2. Now in order to attract the provisions of Section 269T and for levy of penalty under Section 271E, it was incumbent upon the Department to prove that the impugned repayments made by the assessee were for deposits. We find from copies of show-cause notices issued under Section 271E placed at pp. 1 and 3 of the paper book, where it is clearly mentioned that the assessee has made repayment of loans exceeding certain monetary limits for violation of provisions of Section 269T. The default of the assessee has to be seen in the light of charge made by the Dy. CIT in the show-cause notice issued for initiating penalty proceedings. No doubt in the impugned penalty order dt. 19th Sept., 1994, the Dy. CIT has mentioned that the assessee has made the payment of loans/deposits in cash otherwise than (by) account payee cheque and, therefore, he has levied the penalty. He has used the word deposit only because in reply to show-cause notice, the assessee had mentioned that the repayment was not for the deposits. He has not recorded any clear findings that repayments were from the deposits. The AO has treated both the 'loans' and 'deposits' as one and the same thing which is not correct. If it were so, there was no need for introducing subsequent amendment where the term loan was also brought under the ambit of Section 269T. Even the CIT(A) in the impugned order has not clearly mentioned that the impugned repayments were for the deposits alone and not for the loans. He has tried to shift the onus on the assessee that the assessee had not clarified whether the amount was in the nature of loans or deposits. Thus, the learned CIT(A) has observed that the repayments made could be presumed in respect of loans given by the partners of the firm to the firm. He has also observed that repayments in respect, of capital of the partners could also be considered as deposit by the partners with the firm. However, he does not seem to be sure whether the repayments were towards deposits or loans. As already observed, the provisions of Section 271E are penal in nature. Therefore, the onus is on the Revenue to establish that the assessee has violated the provisions of the Act while making repayments of the amounts which were in the nature of deposits. The same could not be a matter of guesswork or presumption. The charge has to be definite and specific. It is not in doubt that two persons to whom repayments were made were partners in the firm. Copies of capital accounts placed on the file show that the amounts out of which repayments were made, were the closing balance in the capital account and the same included initial contribution and profit earned by the firm during the period when they were partners. Now the question is that how such amounts standing in the capital account could be regarded as deposits for the purpose of Section 269T. It is no doubt true that at the time of retirement of the two partners the firm was required to repay the amounts standing to their capital account and, therefore, the same represented as liability of the firm towards partners. But said liability does not automatically take the shape of deposits. It could be in the nature of loans. There is no material placed by the Revenue to establish that repayments were made for the deposits. As already mentioned in the case of A.M. Shamsudeen v. Union of India (supra), the Hon'ble Madras High Court observed the difference between the term 'deposit' and the term 'loan'. The High Court observed that in the case of a deposit, it is generally the duty of the depositor to go to the person with whom the money was deposited and to make demand for the repayment of the same and in case of a loan, it is the duty of the debtor to seek the creditor and repay the money to him according to the agreement. But in this case, the amount was already standing in the books of account of the firm as capital of the outgoing partners. Therefore, the Revenue has failed to establish that repayments were made in respect of deposits. As such the preliminary condition of attracting the provisions of Section 269T to prove that the repayment was towards deposits by two partners has not been fulfilled. Therefore, penalty levied for repayments made to two partners is liable to be struck down on this ground itself.
7.3 As regards the repayments made to Smt. Usha Seth amounting to Rs. 16,155, it is not in doubt that she was the wife of one of the outgoing partners. The amount was shown in the current account of Smt. Usha Seth. Again payments of small amounts were made on different dates for meeting some urgent requirements. Here also, the authorities below have not recorded any specific findings that impugned repayments were towards deposits and not towards loans. In any case the submission of the assessee that repayment of small amounts were made for meeting urgent requirement of Smt. Usha Seth has not been rebutted/controverted by the Revenue. As mentioned earlier, the provisions of Section 269T have been inserted in the Act with a view to curb tax evasion. In the present case, the source of repayments made by the assessee is not in doubt. No material has been brought on record by the Revenue to show that such repayments were claimed by the creditors for explaining the source of certain unexplained investments or expenditure. Therefore, in no way such repayments could be considered for the purpose of evading tax. The levy of penalty under Section 271E is not automatic. While upholding the validity of the provisions of Sections 269SS and 271D, the Hon'ble Supreme Court in the case of Asstt. Director of Inspection (Inv.) v. Kum. A.B. Shanthi , observed that undue hardship of the provisions of Section 271D, which replaced Section 276DD providing for penalty, is substantially mitigated by the inclusion of Section 273B providing that if there was a genuine and bona fide transaction and the taxpayer could not obtain loan or deposit by account payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty. Thus, the levy of penalty under Sections 271D and 271E is not automatic. The assessee can still explain the default due to a reasonable and bona fide belief. In the case of ITO v. Lakshmi Enterprises and Ors. , the Hon'ble Andhra Pradesh High Court by referring to the provisions of Section 269SS observed that the expression used in Section 269SS is "person is liable for penalty" means that the word liable' used in the section gives discretion to the Court with regard to the imposition of fine or penalty. The Court may either choose to impose fine or may 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 fine to be imposed. Thus, the mere fact that the Revenue authorities have found certain repayments in violation of provisions of Section 269T would not itself justify imposition of penalty. In the case of CIT v. Saini Medical Store (supra) the Hon'ble Punjab & Haryana High Court held that in a case where assessee explains the default due to a sufficient cause, penalty shall not be imposed. Same view was held by Tribunal, Delhi Bench in the case of Farrukhabad Investments (I) Ltd. v. Jt. CIT (supra). Now in the present case, we find that the assessee has explained that the repayment of balance in the capital account of the outgoing partners did not attract the provisions of Section 269T. This in our view appears to be a genuine and reasonable explanation, more so when the Department has failed to establish that the assessee had made .repayment of deposits so as to attract penalty under Section 271E. The bona fides of the transactions is not in doubt either in the case of payer or recipient, as the source of repayment is not in doubt. Therefore, even in regard to the merits of the case, penalty under Section 271E is not leviable.
7.4 Assuming for a while that the impugned repayments were for deposits and there was a default on the part of the assessee, such default would only be of a technical nature. There is no mala fide intention on the part of the assessee, in making such repayments in cash. Penalty under Section 27 IE would not be leviable only for technical default. Reliance in this regard is placed on the judgment of Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa , where it was held as under :
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
Therefore, at the most default in the present case would fall in the nature of technical for which no penalty would be leviable.
8. In the light of detailed discussions in the preceding paragraphs and legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in sustaining the impugned penalty. Accordingly, we set aside the order of the CIT(A) and delete the impugned penalty.
9. We now take up appeal in ITA No. 161 of 2004 which relates to levy of penalty of Rs. 3,500 under Section 271D, i.e., accepting of certain amounts in violation of provisions of Section 269SS. Briefly stated, the facts of the case are that in the accounting year under reference, the assessee accepted cash loans of Rs. 1500 from Smt. Usha Seth w/o of Shri Sat Pal Seth. ex-partner, on 12th May, 1990 and an amount of Rs. 2,000 from Shri Sat Pal Seth on 17th May, 1990. The AO levied penalty of Rs. 3,500 on the ground that the assessee had accepted loan exceeding prescribed limit in violation of provisions of Section 269SS. On appeal, the learned CIT(A) upheld the penalty on the ground that the assessee committed default in accepting loans of Rs. 3,500 in violation of provisions of Section 269SS. The assessee is aggrieved with the order of the CIT(A). Hence, this appeal before us.
10. The learned Counsel for the assessee reiterated the submissions which were made before the authorities below and also for penalty imposed under Section 271E of the Act.
11. The learned Departmental Representative also relied on the order of the CIT (A).
12. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. The facts of the case and the submissions of both the parties are the same as noted in the appeal relating to levy of penalty under Section 271E except that the provisions of Section 269SS covered both deposits and loans. There is no doubt about the fact that Sh. Sat Pal Seth was a partner in the firm who retired on 1st April, 1990 and had balance in the capital account lying with the firm. From such account, the assessee (sic-partner) withdrew petty sums for meeting some urgent requirements like payment of electricity bills, house-tax, income-tax, etc. and also deposited a small amount of Rs, 2,000. His wife had also a current account with the firm where a sum of Rs. 1,500 was deposited and withdrawals for meeting some urgent requirements were made on different dates. We have already held that penalty under Section 271E was not leviable in respect of repayment of amounts to the partners and Smt. Usha Seth on merits. Mere also the assessee accepted loans of small amounts under a bona fide belief that provisions of Section 269SS were not attracted. Such explanation of the assessee appears to be bona fide and there is nothing on record to suggest any mala fide on the part of assessee to evade tax. Therefore, the reasoning given for deleting the penalty under Section 271E would equally hold good for the purpose of levy of penalty under Section 271D because the amounts have been accepted from the same two parties. Accordingly, we set aside the order of the CIT(A) arid delete the impugned penalty. Accordingly, the ground of appeal of the assessee is allowed.
13. In the result, both the appeals filed by the assessee are allowed.