Income Tax Appellate Tribunal - Bangalore
G.D. Subraya Sheregar vs Ito on 7 April, 2006
ORDER
P. Mohanarajan, J.M.
1. This present appeal is directed against the order of the Commissioner (Appeals), Mangalore dated 1-10-2003 wherein he has partially confirmed the penalty under Section 271D levied by the Additional Commissioner.
2. We have heard both sides and perused the records. The assessee is aged more than 75 years. He carries on civil contract business from a place called Gangolli. He has bank account with Syndicate Bank, Vederahalli. Besides, he has also bank accounts at Udupi and Mangalore. He is being assessed to income-tax by the Income Tax Officer, (Ward-II), Udupi. In the course of the assessment for the assessment year 2000-01, the assessing officer noticed that the son of the assessee had directly deposited cash in various bank accounts of the assessee totalling to Rs. 14,33,000. He referred the matter to the Additional Commissioner who levied the penalty after hearing the assessee. The assessee carried the matter in appeal and Commissioner (Appeals) gave partial relief to the extent of Rs. 3.3 lakhs and confirmed the balance.
3. The learned A.R. appearing for the assessee submitted that the son of the assessee has made cash deposits in the various bank accounts of the assessee on his own, i.e., without the knowledge of the assessee. Hence, in the absence of any contract, it cannot be said that assessee has "accepted" any loan or deposit within the meaning of Section 269SS of the Act. The transaction is between two closely related persons viz. father and son. Section 269SS is applicable only where the assessee accepts the loan from "any other person". In the context of Section 269SS, "any other person" does not include closely related persons. For this proposition reliance is placed on Dillu Cine Enterprises (P) Ltd. v. Addl. CIT (2002) 80 ITD 484 (Hyd.). Two important features of a loan transaction, viz., the rate of interest and the time of repayment, are absent in the instant case. Hence the transactions cannot be construes as loan or deposit. For this proposition reliance is placed on Karnataka Ginning & Pressing Factory v. Jt. CIT (2001) 77 ITD 478 (Mum.). The transaction did not involve any tax avoidance or tax evasion. Both the parties have disclosed the transactions to the same assessing authority. Genuineness of the transaction is not in dispute. Therefore Section 269SS is not applicable. This proposition is supported by the decision of the Tribunal in Industrial Enterprises v. Dy. CIT (2000) 73 ITD 252 (Hyd.). The assessee has explained each and every circumstance under which the son has come to the rescue of the father. Whenever there was insufficient bank balance to meet the immediate financial commitment, the son has deposited the money. The Commissioner (Appeals) has examined the books of account and the bank statement of the assessee and has come to this conclusion. Such circumstances amount to reasonable cause. (Refer Industrial Enterprises v. Dy. CIT (2000) 73 ITD 252 (Hyd.), Mrs. Rupali R. Desai v. Addl. CIT (2004) 88 ITD 76 (Mum.)(TM)).
4. On the other hand, the D.R. has submitted that even though the assessee has not accepted the cash deposit, the same has been accepted by the banks in cash as the agent of the assessee. It is well-settled that the action of the agent is binding on the principal as if the principal has himself acted. The expression "any other person" appearing in Section 269SS does not exclude close relatives of the assessee (Refer Karnataka Ginning & Pressing Factory v. Jt. CIT (2001) 77 ITD 478 (Mum). There is nothing in Section 269SS to hold that a deposit or loan must carry interest or the time of repayment should be agreed upon by the parties. The assessee did not explain the transactions to the assessing officer. For the first time, the explanation has been offered before C(A) which is nothing but an afterthought. Both the parties had their bank accounts with the same bank and at the same place. Therefore, nothing prevented the son from depositing the money in his own account and transferring the money to the account of the father through an account payee cheque.
5. We have heard the rival submissions and perused the record. The first issue to be decided is whether the assessee has accepted any deposit or loan in cash. The claim of the assessee that the cash was directly deposited by the son without the volition of the assessee is not disputed by the department. Besides, this claim is supported by the certificate issued by the respective banks. The claim of the D.R. is that the receipt of cash deposit by the bank is as good as the receipt of deposit by the assessee. This is because the bank was acting only as the agent of the assessee. It was submitted that the claim of the department is not legally tenable. It is well settled that when a bank accepts a deposit from its constituents, it is acting in its own right and not as an agent. The money deposited with a bank belongs to it and it can deploy the money in whatever manner it wants. Any profit or loss on such deployment belongs to the bank and not to the customer. The bank is not required to render any accounts to the customers in this regard. The customer is entitled only to the balance standing to the credit of his account. The fundamental principle of banking law is that the relationship between the bank and its customer is like a debtor and creditor. The bank may act as the agent of the customer under a special contract. In the case on hand no such special contract is shown to exist. It follows that the bank has accepted the deposits in question as a banker and not as the agent of the assessee. If this be so, the conclusion is that the assessee has not accepted any deposit or loan in cash in contravention of Section 269SS.
6. The expression "any other person" appearing in Section 269SS has been interpreted by the two Benches of the Tribunal in two different ways. One view is that the said expression excludes all those persons who are closely connected with the assessee and the other view is to the opposite effect. Both views are possible views. It is well-settled that there are two possible views, the view favourable to the assessee will have to be accepted (Refer CIT v. Madho Pd. Jatia (1976) 105 ITR, 179 (SC)). Therefore, the transactions between closely related persons such as father and son must be held to fall outside the scope of Section 269SS.
7. The temporary borrowals by the assessee, to tide over the immediate financial commitments, have been held to be reasonable cause for accepting cash deposit. The department accepts this position. However, the department objects to the explanation for two reasons. Firstly, the objection was that the reasons were not furnished before the Additional Commission and hence an afterthought. Reference may be made to the notice issued by the Additional Commissioner. In the said notice he did not specify the individual instances of accepting cash by the assessee. On the other hand, he sought for a global explanation which has been furnished. Further, the explanation furnished by the assessee is based on the evidences produced before the assessing authority viz., cash book, ledger, bank passbook and before the Additional Commissioner in the form of Certificates issued by the respective banks. Therefore, the explanation cannot be rejected as an afterthought. The next objection of the department is that since both the parties had bank account with the same bank, the son should have routed the transactions through his bank account. The question is whether the assessee can be held responsible for the actions of a person whom the department claims to be "any other person" ? The department is blowing hot and cold in this regard. Even otherwise, this is only a technical breach of law and not a contumacious conduct requiring levy of penalty of more than Rs. 11 lakhs. The purpose of Section 269SS is to track the movement of cash and restrict the loan operations only through the banking channels. In the instant case, this purpose is substantially complied with for, the banks, on the basis of their records, are in a position to certify the movement of funds and the transactions have been carried through the bank. Hence, even for this reason, no penalty is leviable.
In the result the appeal by the assessee is allowed.