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R.P. Garg, Vice President

1. These 30 appeals are by six assessees arising out of the orders of the Commissioner of Income-tax(Appeals) for assessment years 1995-96 to 1999-2000 confirming the levy of penalty Under Section 201 read with Section 221 of the Income-tax Act for the failure of the assessees in not deducting tax at source as required Under Section 194A of the Act from the interest provided and claimed deduction in its profit & loss account.

2. The facts giving rise to these appeals are that all these assessees negotiated with and took short term loan of Rs. 44,98,25,000/- from Fairgrowth Financial Services Ltd. (hereinafter referred to as FFSL for short) somewhere in March/April, 1992. All these loans were secured and pledged of 3,50,000 shares of United Phosphorous Ltd. As per the terms of the loan, 20% of the amount-was to be repaid within 60 days and the balance within a period of 1 80 days. The security by way of pledging of these shares were not to be redeemed in the market and the shares were not to be transferred unless there was a default in repayment. The assessee repaid loan of a sum of Rs. 6,32,00,000/- within 60 days and this amount was more than the said 20%. The balance was to be paid in September/October, 1992. It transpired that on 10-8-1992 out of the said 3.5. lakhs shares. Syndicate Bank acquired 2.5 lakhs shares from Fairgrowth Investments Ltd. with whom FFSL has made a forward transaction and National Housing Bank came in possession of the balance 1 lakhs shares as sub-pledge against advancing loan to FFSL.

4. The assessees therefore, had to approach the Special Court against the alleged transfer and sub-pledging of these shares. On 15/20th April, 1994, by an interim order the Special Court accepted the assessee's ownership of the shares and directed that by repaying the loan with interest the assessees could get back the shares and until then, the assessees were restrained to transfer these shares in any manner. On 4-9-1994 this interim order dated 15/20th April, 1994 was made a final order. The Special Court held that the asscssees were entitled to redeem these shares on repayment of balance loan along with interest till the date of redemption. The said amount is worked put to be Rs. 31,63,70,843/- (principal amount Rs. 20,28,12,500/- plus Rs. 1 1,35.58,343/- as interest). This was to be bifurcated between the two i.e. (i) Rs. 22,59,79,174/- payable to Syndicate Bank and (ii) Rs. 9,03,91,669/- payable to National Housing Bank. The amount was to be deposited with the Special Court on or before 31st July. 1994 with an interest of 24% for delay thereafter. Both the Syndicate bank and the assessees went to Supreme Court against the Special Court order- Syndicate bank for accepting the assessees' ownership and assessees for not granting unconditional and immediate return of 23.76% on the security and against payment of interest at the rate 24% per annum from due date upto the date of payment. On 12-9-1994 on appeal by Syndicate bank and on 7-10-1994 on appeal by the assessees the Supreme Court directed the parties by two different orders to maintain status quo. Syndicate Bank again filed a suit No. 5/1994 claiming ownership of the said 2,50,000 shares of United Phosphorous Ltd or recovery of amount paid to Fairgrowth Investments Ltd. for transfer of these shares but the suit was adjourned by order dated 29-03-1995 till the appeal by the Supreme Court is finally disposed of. In this decision it was also observed that if the assessees were concerned about their liability for payment of interest on the loan amount, they could reply the loan and get back the shares redeemed or take the permission of the Supreme Court to deposit the money with the custodian. The assessees did neither.