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4. Subsequently, another show cause notice dated 8.10.2003 was issued to the assessee requiring him to show cause as to why penalty Under Section 271D may not be imposed as there is contravention of Section 269SS. This show cause notice was issued by Addl. CIT, Saharanpur. The assessee submitted that notice dated 8.10.2003 is time barred as per provisions of Section 275(1)(c) of the Income-tax Act. Reliance was placed on the decision of ITAT, Jodhpur Bench in the case of Hissaria Bros. v. CIT 73 TTJ 1 and in the case of Dillu Cine Enterprises (P) Ltd. 80 ITD 484. It was also submitted that the genuineness of amount has been accepted in the assessment order and, therefore, default, if any, is only technical in nature and no penalty be levied under such circumstances. The Addl. CIT levying the penalty held that the decision of the Tribunal has no force because penalty Under Section 271D cannot be imposed by ITO. The same can be imposed only by JCIT/ACIT. Thereafter, the ITO referred this case for imposition of penalty and a show cause notice has been issued only on 8.10.2003. Therefore, the penalty will be time barred only on 30.4.2004. The AO, being Additional CIT levying the penalty held that the assessee has deposited Rs. 1,50,000/- in the books of firm by raising a loan from his grandfather through a bearer cheque in his own name and after withdrawing cash himself therefrom. Thus, the provisions of Section 269SS is violated as the loan is otherwise than by account payee cheque. Since the provisions of Section 269SS is violated, penalty Under Section 271D is attracted.

6. Learned CIT(A) held that the time limit for penalty would start from the show cause notice issued by the competent authority who has authority to levy penalty. Reliance was placed on the decision of Hon'ble Karnataka High Court in the case of Shan Bagh Restaurant, 266 ITR 393. He also held that provisions of Section 269SS read with Section 271D have been specifically put in Statute over and above the provisions of Section 68. Therefore, even if the genuineness of amount has been accepted, penalty can still be levied if attracted Under Section 271D of the Act. The assessee has not demonstrated why they were in urgent need of fund. Thus, mere statement regarding urgency without any evidence to the effect would not have any authenticity. The assessee herein have income other than agricultural income in the form of salary and interest income so the condition of second proviso to Section 269SS is not fulfilled. He accordingly confirmed levy of penalty. The assesses are now in further appeal before us.

10. We have carefully considered relevant facts, arguments advanced and the various decisions cited. Section 269SS provides that no person shall after 30th day of June, 1984 take or accept from any other person any loan or deposit otherwise than by account payee cheque or account payee bank draft if the amount of such loan on the date of taking or accepting such loan is Rs. 20,000/- or more. First proviso to Section 269SS prescribes that Section 269SS shall not apply to any loan or deposit taken or accepted by certain class of persons. Second proviso to Section 269SS which is relevant for our discussion is extracted herein:

Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Reading the aforesaid proviso, it is clear that if the person from whom the loan is taken or accepted and the person by whom the loan is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act, Section 269SS do not apply to them. Section 269SS is a transaction specific and not related to any assessment year. Thus, the provision is attracted if say only on the date of taking or accepting the loan, the subsequent events do not govern the applicability of Section 269SS. Thus, on the date of acceptance of loan, if both the persons, namely, lender and borrower are having agricultural income and do not have income chargeable to tax under the Income-tax Act, Section 269SS is not applicable. There is logic behind this. Penalty Under Section 271D is attracted under Income-tax Act for alleged violation of certain provision contained in Income-tax Act. However, if a person is not an assessee at all under the Income-tax Act, merely because certain other provisions are contained in the Income-tax Act, as in the case in hand i.e. Section 269SS, 271D etc., the assessee cannot be penalized if he is not subject to the provisions of the Income-tax Act or the person is not an assessee in true sense. The word 'assessee' is defined in Section 2(7) of the Act. According to Section 2(7), assessee means a person by whom any tax or any other sum of money is payable under this Act. Thus, if no tax is payable by a person, he cannot be treated as an assessee so as to subject him to the rigors of Section 269SS and 271D. Admittedly, in the present case, the lender, namely, Shri Rodhu Singh, grandfather of appellants herein have only income from agricultural operations. All the three assesses prior to taking up of the loan did not have any income chargeable to tax under this Act. Only after the loan was received and invested in a partnership firm, income in the form of remuneration and interest accrued to them. However, before setting up of said business and on date of taking the loan, they did not have any other income. We accordingly hold that as per Second proviso to Section 269SS, the provisions of Section 269SS shall not apply. In that view of the situation, Section 271D cannot be invoked to levy penalty for alleged default of Section 269SS.