1993-VIL-180-ITAT-AHM

Income Tax Appellate Tribunal AHMEDABAD

ITA No. 463/Ahd/1993 ITA No. 464/Ahd/1993

Date: 19.08.1993

VIR SALES CORPORATION

Vs

ASSISTANT COMMISSIONER OF INCOME TAX

S. N. Soparkar , for the Appellant
A. K. Hajela , for the Respondent

BENCH

B. M. Kothari A. M. And K. P. T. Thangal J. M.

JUDGMENT

These two appeals by the assessee are directed against the orders passed by the learned CIT(A), Surat, confirming the levy of penalty of Rs. 14,70,000 under s. 271D and Rs. 11,25,000 under s. 271E of the IT Act, 1961.

2. The appellant is a wholeseller of Nirma Products for Surat city and Surat district. In the statement of facts annexed with the assessee's appeal submitted before the CIT(A) it was, inter alia, stated that the normal practice is that the appellant and its sister concerns have sent advance moneys to Nirma group for getting the goods. Whenever goods are required to be obtained, drafts have to be sent to the supplier concerns of Nirma group. When sufficient money was not available with the assessee, sister concerns accommodated each other by paying cash. In these circumstances, whenever assessee needed funds for remitting the money to Nirma group for getting the supply of goods, the sister concerns, namely, M/s Meena Agencies and M/s Shiv Sakti Enterprises (hereinafter referred to as `M/s M.A. and M/s SSE') gave the required funds in cash to the assessee. Whenever those sister concerns required such amount the appellant gives moneys to them. The assessee had thus received in cash amounts from these two sister concerns and had also refunded those amounts as well as gave advances to these two sister concerns from time to time as per details appearing in the respective accounts of these two sister concerns.

3. The previous year relating to asst. yr. 1989-90 (the year under consideration) covered the period from 23rd Oct., 1987 to 31st March, 1989. The assessment order under s. 143(3) was made on 25th Nov., 1991 by the Asstt. CIT, Surat. While passing the said order, the Assessing Officer (AO) observed that the deposits taken from and repaid to the two sister concerns, namely, M/s M.A. and M/s SSE, were mainly in cash. These were in excess of the limits prescribed under ss. 269SS and 269T. Therefore, he forwarded a proposal for penalties under s. 271D and 271E to the Dy. CIT.

4. The Dy. CIT, Surat Range-I, Surat, vide order under s. 271D dt. 23rd July, 1992, observed that the assessee had taken or accepted loans or deposits each exceeding Rs. 20,000 in cash, i.e., otherwise than by an account payee cheque or account payee bank draft from M/s M.A. on different dates aggregating to Rs. 10,95,000 and from M/s SSE Rs. 3,75,000. The aggregate amount of such loans or deposits consisting of items exceedings Rs. 20,000 each, accepted otherwise than by account payee cheque or bank draft, thus came to Rs. 14,70,000. The Dy. CIT levied penalty under s. 271D of a sum equal to the amount of loans or deposits so taken or accepted in violation of the requirement of s. 269SS and thus levied penalty of Rs. 14,70,000 under s. 271D. By a separate order dt. 23rd July, 1992, he observed that the assessee has repaid deposits exceeding Rs. 20,000 otherwise than by an account payee cheque or bank draft to M/s M.A. and M/s SSE on different dates in the previous year in question. The aggregate amount of such repayments made in violation of s. 269T was determined by him at Rs. 11,25,000. Penalty equivalent to the sum repaid in violation of s. 269T, i.e., Rs. 11,25,000 was levied under s. 271E.

5. The assessee preferred appeals against these orders under ss. 271D and 271E before the CIT(A). The CIT(A), after considering the various submissions made by the assessee's representative and after going through the order of the learned Dy. CIT, dismissed both the appeals and confirmed the said penalties. The present appeals are directed against the aforesaid orders passed by the CIT(A).

6. The assessee has raised several grounds in the grounds of appeal. The sum and substance of all the grounds is that the said penalties levied under ss. 271D and 271E are contrary to the provisions of law. The same have been confirmed by the CIT(A) without properly dealing with the submissions made by the assessee. On the facts and circumstances of the assessee's case, the transactions in the current accounts with these two sister concerns cannot be regarded as loan or deposit, contemplated in ss. 269SS and 269T. The penalties so confirmed are contrary to the provisions of law and are also contrary to the facts, material and evidence existing on records. An application for entertaining an additional ground dt. 27th July, 1993 has been submitted in both these appeals in which the additional ground raised is that the lower authorities have erred in not appreciating that as all the impugned transactions had taken place before the provisions of s. 271D or s. 271E were introduced, the same cannot be invoked.

7. The learned counsel for the assessee submitted that the additional ground submitted by the assessee is already covered in the grounds annexed with the appeals wherein it has been submitted that the CIT(A) has erred in confirming the aforesaid penalties. Even otherwise, since the ground raised by way of additional ground goes to the root of the matter and involves consideration of a pure question of law, the same deserves to be entertained and considered.

7.1 The learned counsel submitted that a perusal of the accounts of these two sister concerns, placed in the paper book at page 1 to 4, clearly reveals that these are transactions representing transactions in current accounts which represent flow of funds from these two sister concerns to the assessee as and when the assessee needed the funds for remitting the amount to the suppliers by way of a bank draft for obtaining supply of goods. Likewise, the assessee also gave funds to these sister concerns whenever they needed funds for sending the draft to the supplier of goods. Such entries in the current accounts has resulted in shifting balances in the accounts of these two sister concerns. On some dates there are debit balances in these two accounts and on some other dates there are credit balances. Such transactions cannot be regarded as "loans" or "deposits" as contemplated in ss. 269SS and 269T. He invited our attention towards the copies of accounts of these two sister concerns, which were recast indicating the balances on different dates when the transactions had taken place with them, to support his contention that there were shifting balances in these two accounts. He submitted that under the Taxation Laws as well as under three types of transaction, namely, loan transactions, deposit transactions and transactions in a current account based on reciprocity and mutuality depending on the urgent exigencies of the business. It was pointed out by him that the provisions of Limitation Act clearly explains the distinguishing features of these three types of transactions. Art. 1 of Schedule to the Limitation Act provides that the time limit of three years in respect of open mutual current account will commence from the date of last transaction in the relevant accounting year. Art. 21 provides that limitation in respect of loan transactions will commence from the date when loan was given Art. 22 provides limitation for deposit from the date when the demand for repayment is made in accordance with the terms of the deposit. He also placed reliance on the judgments of the Hon'ble Calcutta High Court reported in AIR 1960 Cal 285 and AIR 1971 Cal 374 to corroborate this contention that the test for determining the nature of current account is the shifting balance in the respective accounts. He, thereafter invited our attention towards the reply dt. 18th March, 1992 submitted to the Dy. CIT, in reply to the show cause notice for default under s. 269SS and penalty under s. 271D as well as towards the reply of even date in response to show cause for default under s. 269T and penalty under s. 271E. He emphasized that it was submitted before the learned Dy. CIT that on account of financial crisis due to huge amounts outstanding from the sundry debtors for goods and in order to (sic) the suppliers, the assessee had to take amounts from M/s M.A. and M/s SSE. The partners of these two firms are related to the partners of the assessee. Thus the partners of all the three concerns are closely related socially. The amounts in question were taken or refunded in the financial year 1988-89. There was no mala fide intention. The amounts taken were utilized for obtaining the bank draft or pay order for the purposes of obtaining supply of goods. Both these firms are assessed to income-tax and sizable account of tax is being paid regularly. The assessee has not borrowed any loan or accepted deposits from any other parties. If the assessee would not have taken the money at the time of need from these sister concerns, it would have suffered great loss and would have ultimately resulted in closure of the business. The assessee was under a bona fide belief that such type of deposits can be taken in order to solve the financial problems. The mistake, if any, has occurred due to such a bona fide belief and on account of ignorance of the relevant provisions of law which can be excused in cases of such bona fide and genuine transactions. On the basis of such facts stated in these replies a prayer was made for dropping the penalty proceedings. These facts have not been properly considered by the Departmental authorities. The learned counsel also placed reliance on the judgment of Hon'ble M.P. High Court in the case of CIT vs. Kalani Asbestos (P) Ltd. (1989) 180 ITR 55 (MP) wherein it was held that the interest paid on current account of the directors cannot be taken into consideration for working out the disallowance out of interest at the rate of 15% under s. 40A(8). This decision also clearly supports the assessee's case that entries in the current accounts of the nature described herein before cannot be treated as "loan" or "deposit" as defined in the provisions of ss. 269SS and 269T. He also submitted that this point has been accepted under similar facts by the Cochin Bench of the Tribunal in the case of Muthoot M. George Bankers vs. Asstt. CIT (1993) 47 TTJ (Coch) 434 : (1993) 46 ITD 40 (Coch) On the strength of the aforesaid arguments, the first point made out by the learned counsel was that entries in the current account of these two sister concerns cannot be regarded as "loans" or "deposits" as contemplated in ss. 269SS and 269T. Therefore, the levy of penalty under ss. 271D and 271E are invalid.

7.2 The second submission made by the learned counsel was that the penal provisions of ss. 271D and 271E, which came into force from 1st April, 1989 can be applied only in relation to transactions carried out on or after 1st April, 1989 and, therefore, these penal provisions would not be applicable in relation to the transactions in questions, which, obviously, were made prior to 31st March, 1989. He submitted that the Amending Bill by which these provisions were introduced was moved on 11th Dec., 1987, the same became an Act when the President gave his assent on 24th Jan., 1988 and the same was made effective w.e.f. 1st April, 1989. All the transactions in question have been made before 31st March, 1989. The said penalty provisions cannot be applied with retrospective effect in relation to the transactions carried out prior to 1st April, 1989. In order to corroborate this contention, the learned counsel invited our attention towards Circular No. 522, dt. 18th Aug., 1988 [(1988 72 CTR (St) 38] reproduced at page 1747 of the book on `Income-tax Law' by Chaturvedi & Pithisaria, Vol. 2. In this circular, the amendment made in the provisions of ss. 269SS and 269T raising the monetary ceiling from Rs. 10,000 to Rs. 20,000 was explained. It was clarified that the amended provisions of ss. 269SS and 269T raising such monetary ceiling prescribed in the said sections will apply to payments or repayments made on or after 1st April, 1989. This amendment was also made effective from 1st April, 1989. He also invited our attention towards another Board Circular No. 551, dt. 23rd Jan., 1990 explaining that the default of ss. 269SS and 269T requiring taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or drafts if the amount of the deposit or loan is Rs. 20,000 or more will instead of attracting the old provisions relating to prosecution under ss. 276DD and 276E will now be made liable to penalties under ss. 271D and 271E, w.e.f. 1st April, 1989, this was clarified in para 16.6 of the said circular. In para 15.5 of the same circular dealing with raising of monetary limits from Rs. 10,000 to Rs. 20,000 in s. 269T, the Board has clarified that the amendments come into force w.e.f. 1st April, 1989 and will, accordingly, apply in relation to the transactions entered into after this date. On the strength of these circulars, the learned counsel argued that penalties levied under ss. 271D and 271E in relation to cash transactions of Rs. 20,000 or more, which have been made effective from 1st April, 1989, should also be made applicable only in respect of transactions made after that date. The learned counsel submitted that such a contention has been accepted by the Tribunal in the case reported in (1992) 40 ITD 10. He urged that penalties levied upon the assessee under both the aforesaid sections, therefore, deserves to be cancelled on this ground also.

7.3 The third point argued by the learned counsel was that the provisions of s. 269SS has been held to be ultra vires the Constitution by the Hon'ble Madras High Court in the case of Kum. A.B. Shanti vs. ADI (1992) 197 ITR 330 (Mad). This decision should be followed by the Tribunal and the penalties should be cancelled in view of the aforesaid judgment of the Hon'ble Madras High Court. He further submitted that it may be argued on behalf of the Department that the Tribunal, being a creature of the statute, cannot entertain the question of ultra vires of the provisions of an Act as it is beyond the scope of its jurisdiction but that does not mean that the Tribunal should not follow the decision of a High Court declaring a particular provision as being ultra vires. In fact the Tribunal is bound to follow such a decision in view of the judgments reported in CIT vs. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom), CIT vs. Smt. Nirmalabai K. Darekar (1986) 186 ITR 242 (Bom) and CIT vs. Vrajlal Manilal & Co. (1980) 19 CTR (MP) 182 : (1981) 127 ITR 512 (MP). He further submitted that the Cochin Bench of the Tribunal in the case of Muthoot M. George Bankers (supra) has accepted a similar contention and has cancelled the penalties levied under ss. 271D and 271E on the aforesaid ground.

7.4 The fourth submission made by the learned counsel was that even on merits no penalty under ss. 271D and 271E could be levied validly because the assessee was prevented by reasonable cause as explained in the letters submitted before the Dy. CIT in response to the respective show cause notices issued under ss. 271D and 271E. Our attention was also invited towards various charts placed in the paper book to show that the funds received by the assessee from the aforesaid two sister concerns were urgently required for meeting urgent necessity of remitting the same by way of a bank draft to the supplier of goods. The charts submitted in the compilation clearly reveal that amount only to the extent of such a need was taken from the sister concerns which raised the balance just adequate to obtain the bank draft on that very day for sending the same to the supplier of the goods. Likewise the funds given by the assessee to the sister concerns as and when they needed the same for sending the same to the suppliers. This was submitted with a view to convince us that the funds were given to the sister concerns or were received from them to meet the urgent business need. The assessee was also under a bona fide belief that such accommodation transactions between the sister concerns, which were controlled by the same group of persons belonging to related families, do not violate any provisions of law particularly when the genuineness of the transactions in questions has not been disputed or doubted. The ignorance of the persons concerned about the relevant provisions of law, coupled with their bona fide belief that transactions with sister concerns in their respective current accounts constitute reasonable cause and no penalty would, therefore, be validly leviable in view of the provisions of s. 273B. He also invited our attention towards Circular No. 387, dt. 6th July, 1984 [(1984) 43 CTR (TLT) 3] explaining the object of introducing the provisions of ss. 269SS and 269T. He pointed out that these provisions were introduced with a view to countering the device which enabled the taxpayers to explain away the unaccounted cash found in the course of searches carried out by the IT Department or to explain in the unaccounted deposits introduced in the books of account. It was thus meant for checking the dubious or fictitious entries and was not meant in relation to genuine flow of funds from one sister concern to another or vice-versa for meeting the urgent business necessities. In the present case it is an admitted fact that the transactions in question are genuine, all the parties are genuine and they are existing IT assessees. The transactions were made on the basis of commercial decision taken by the parties. Such genuine transactions, coupled with the aforesaid bona fide belief, as well as the ignorance about the relevant provisions of law in relation to entries in such current accounts, would constitute reasonable cause for the technical or venial breach, if any, and that would save the assessee from the levy of penalty in view of s. 273B. On this ground also the penalties levied upon the assessee deserve to be cancelled.

7.5 Without prejudice to the aforesaid submissions, the learned counsel also submitted that the penalties have been levied by the learned Dy. CIT and confirmed by the CIT(A) without properly looking to the relevant facts and entries and without ascertaining the date wise balances in the respective accounts of the two sister concerns on the dates of alleged deposits or repayments. He invited our attention towards the details submitted in letter dt. 14th Dec., 1992 to the CIT(A) in the penalty proceedings under s. 271D. It has been pointed out at page 5 of the said letter that various amounts received from M/s M.A. on different dates aggregating to Rs. 7,95,000 as per the details mentioned in para 16(i) of the said letter, cannot be regarded as acceptance of deposits, as on all those respective dates there was already a debit balance in the account of M/s M.A. and by receiving the amount on those respective dates it has merely reduced the existing debit balance. In similar manner Rs. 50,000 received from M/s SSE on 11th May, 1988 cannot be treated as acceptance of deposits as immediately prior to receiving the said amount there was already a debit balance in the account of that part to the extent of Rs. 4,125. He submitted that the transactions aggregating to Rs. 7,95,000 of M/s M.A. and Rs. 50,000 of M/s SSE cannot, therefore, be treated as acceptance of deposits. Likewise the learned counsel submitted that the penalty levied under s. 271E for alleged violation of s. 269T is also apparently invalid in respect of the alleged repayments of Rs. 3,20,000 paid to M/s M.A., the details of which has been given in para 12.1 of a separate letter dt. 4th Dec., 1992 submitted before the CIT(A) in the proceedings under s. 271E. On the dates on which those amounts have been paid and debited in the account of M/s M.A. there was no credit balance. Hence, question of treating these amounts as repayments does not arise. In fact as a result of payment of these amounts aggregating to Rs. 3,20,000, the credit balance got converted into debit balance and resulted in the increase of existing debit balance in the said account on those respective dates. Similar is the position with regard to Rs. 50,000 paid to M/s SSE on 29th May, 1988. These facts were submitted with a view to show that the penalties have been levied in a mechanical and arbitrary manner without application of mind and in any case the penalties so levied under ss. 271D and 271E will necessarily have to be cancelled as the entries referred to in these two letters dt. 4th Dec., 1992 do not amount to acceptance of loans or deposits or repayment of deposits from or to these sister concerns.

7.6 Another submission made by the learned counsel for the assessee was that the transactions with the two sister concerns have been accepted to be genuine transaction. Even if there is a venial violation or a technical breach of the relevant provisions of ss. 269SS and 269T no penalty should be levied in respect of such genuine business transaction in view of the judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) and the judgment of the Hon'ble Gujarat High Court reported in Addl. CIT vs. I.M. Patel & Co. 1977 CTR (Guj) (FB) 320 : (1977) 107 ITR 214 (Guj) (FB).

7.7 The last submission made by the learned counsel was that even if the relevant provisions are capable of more than one interpretation, the one which is favourable to the assessee, more so in relation to a penal provision, should be adopted. Such a view is supported by the various judgments of Hon'ble Supreme Court .

7.8 The learned counsel submitted that under the aforesaid facts and the legal position, the penalties levied on the assessee should be cancelled.

8. The learned Departmental Representative submitted that the provisions of ss. 269SS and 269T are clearly applicable in relation to acceptance of loan or deposit in the current accounts as well as in relation to repayment of deposits debited in such current accounts. Acceptance of deposits or loans or repayment of deposits in the current accounts with sister concerns is one of the types of loans or deposits and it cannot be excluded from the applicability of ss. 269SS and 269T. The IT Act is a self contained code and the breach of the relevant statutory provisions of that Act has to be decided on the basis of the language of the relevant sections. The provisions contained in Limitation Act relied upon by the learned counsel are not at all relevant for deciding the issue in question. The Limitation Act merely prescribes the period of limitation within which proceedings for recovery thereof in accordance with the provisions of law can be initiated. They have classified the loans and deposits into various categories for the purpose of determining the separate method of computing the limitation period prescribed for each type of deposits and loans. The contention of the assessee based on the provisions of Limitation Act does not in any manner support the assessee's prayer for cancellation of the penalty in question. The provisions of s. 269SS, which provides the mode of taking or accepting certain loans and deposits and the provisions of s. 269T providing the mode of repayment of certain deposits contain the definition of the relevant terms. In Expln. (iii) of s. 269SS "loan" or deposit" means loan or deposit of money. Such enlarged definition of loan or deposit would normally cover any type of deposits received from any person including the sister concerns. In similar manner the provisions of s. 269T have also defined the deposits in Expln. (ii) saying that `deposit' means any deposit of money which is repayable after notice or repayable after a period and in the case of a person other than a company, includes deposit of any nature. The assessee is a partnership firm and, therefore, for the purpose of s. 269T deposit has been defined to include `deposit of any nature'. Such wide definition of the expression `deposit' and `loan' used in the aforesaid two sections clearly cover the cash transactions of Rs. 20,000 and more with the sister concerns. The amounts in question have, therefore, rightly been treated as loan or deposit within the meaning of s. 269SS for the purpose of levy of penalty under s. 271D and the repayment of deposits have also been rightly considered as covered by s. 269T for the purpose of levy of penalty under s. 271E. The reliance placed by the learned counsel on the judgment of M.P. High Court in the case of Kalani Asbestos (P) Ltd. (supra) also does not support the assessee's contention as the language of s. 40A(8) is different. The words "deposits of any nature" is missing in the said section. The definition of `deposit' and `loan' given in ss. 269SS and 269T is much wider than the expression used in s. 40A(8). He, therefore, submitted that the amounts in question are clearly covered by the expression `loan' and `deposit' within the meaning of s. 269SS and the repayment of deposits are also clearly covered by s. 269T. The violation of these provisions are obviously there as each transaction of Rs. 20,000 and above in cash has only been taken into consideration by the Dy. CIT for the purposes of levy of penalty under the aforesaid provisions.

8.1 As regards the second contention advanced by the learned counsel for the assessee, the learned Departmental Representative submitted that the provisions of ss. 271D and 271E have been introduced w.e.f. 1st April, 1989. It is true that the decision of the Tribunal, Cochin Bench relied upon by the learned counsel for the assessee supports the assessee's case. But the same does not lay down the correct law. A plain reading of the relevant provisions of ss. 269SS and 269T read with the relevant penal provisions of ss. 271D and 271E clearly supports the orders of the Departmental authorities. He further submitted that the provisions of ss. 271D and 271E were inserted in substitution for more harsh provisions containing provision for prosecution in respect of defaults of not complying with the requirements of ss. 269SS and 269T. These lighter and liberal provisions of law as inserted w.e.f. 1st April, 1989. It is well settled law that the provisions which are in force as on the 1st day of April, at the commencement of the assessment year would govern the proceedings relating to that assessment year. In the present case the assessment year in question is asst. yr. 1989-90, therefore, the provisions inserted w.e.f. 1st day of April 1989 will be applicable to all the transactions carried out in the previous year relating to asst. yr. 1989-90. He placed reliance on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha Peraj Chand Nowpaji vs. CGT (1988) 73 CTR (AP) 25 : (1988) 173 ITR 439 (AP). He further submitted that the provisions of Direct Taxes (Amendment) Act, 1987 contain various significant amendments. Some amendments were made effective from 1st April, 1988 while other amendments introduced by the said amending Act were made effective from 1st April, 1989. The legislature in its wisdom thought it proper to make the provisions of ss. 271D and 271E applicable w.e.f. 1st April, 1989 and would, therefore, be clearly applicable for asst. yr. 1989-90. The circulars of the Board relied upon by the learned counsel nowhere states that the provisions of ss. 271D and 271E will apply in relation to transactions carried out after that date. Such a clarification has been given only with regard to the applicability of the amendment relating to raising of the monetary limits from Rs. 10,000 to Rs. 20,000, in the aforesaid sections. However, in relation to ss. 271D and 271E the amending Act only says that these provisions would be effective from 1st April, 1989, in substitution of the old provisions relating to prosecution for similar defaults. He thus strongly supported that the penal provisions in question would be clearly applicable in relation to asst. yr. 1989-90.

8.2 As regards the third submission made by the learned counsel that in view of the judgment of Hon'ble Madras High Court in the case of Kum. A.B. Shanti (supra) wherein the provisions of s. 269SS have been held to be ultra vires of the Constitution, the Tribunal should follow that decision for holding that the penalties levied are invalid, the learned Departmental Representative submitted that the Tribunal being a creature of the statute cannot decide the ultra vires of any provisions of the Act as it is beyond the scope of the authority of the Tribunal . He placed reliance on the judgment of Hon'ble Supreme Court in the case of K.S. Venkataram & Co. (P) Ltd. vs. CIT (1966) 60 ITR 112 (SC).

8.3 As regards the fourth contention advanced by the learned counsel for the assessee that no penalty is leviable on merits also, the learned Departmental Representative submitted that such a contention is clearly incorrect and unsustainable. The assessee's business of the two sister concerns from whom deposits and loans were accepted and to whom deposits were repaid are located at the same place, Udhana which is a small place. The assessee could very well have taken the loan or accepted the deposit from these two sister concerns by account payee cheques or bank drafts and could as well as obtain the bank draft for sending the same to the suppliers on the same day. He submitted that the Bench in the course of arguments made by the learned counsel required him to state as to whether the bank account of the assessee as well as of the two sister concerns are in the same branch of the same bank. If that is found to be in the same branch, then it would further more have been possible for the assessee to have complied with the provisions of ss. 269SS and 269T by taking the deposits/loans by account payee cheques/drafts and also in repaying the deposits by account payee cheques/drafts. Since the assessee has clearly violated these provisions, the penalty has rightly been levied and has validly been confirmed by the CIT(A). The plea of the assessee that they were ignorant about relevant provisions of law or were under a bona fide belief that such provisions did not apply in relation to transactions in the current account or that the funds were needed for meeting the urgent business necessity do not in any manner constitute any reasonable cause as the assessee could very well have carried out these transactions by account payee cheques/drafts in view of the circumstances explained above.

8.4 The contention of the learned counsel that the object of introducing the provisions of ss. 269SS and 269T, as explained in the Board's circular was to check the device of explaining the cash found during the course of search or for explaining the fictitious cash credits, etc., cannot in any manner help the assessee in view of the plain and clear language of the relevant sections. The sections no where prescribe that the provisions of these sections would be applicable only in case of doubtful nature of deposit and loans nor it has been prescribed that it would not apply in case of genuine cash deposits or loans or genuine repayment of cash deposits. If such an interpretation as suggested by the learned counsel is accepted, the provisions of ss. 269SS and 269T and the relevant penal provisions of ss. 271D and 271E would become redundant as unexplained cash credits treated as income under s. 68 would no more remain as loan or deposit and that amount will represent the income of the assessee and the provisions of ss. 269SS and 269T would no more be applicable in relation to an amount which has been added as income in the hands of the assessee. He, therefore, submitted that the said circular of the Board does not in any manner support the assessee's contention for cancellation of the penalties.

8.5 The learned Departmental Representative then submitted that the assessee's contention that certain items, the details of which have been given in letters dt. 4th Dec., 1992 before the CIT(A), should be excluded as those amounts did not represent acceptance of deposits and did not account to repayment of deposit to the extent of figures mentioned in these letters, is a matter for verification from the books of account. He submitted that no such plea was taken before the Dy. CIT. Relying on the reasons given in the orders of the Dy. CIT and the CIT(A), he submitted that the entire amount of penalty should be confirmed.

8.6 The learned Departmental Representative further submitted that the breach of the provisions of ss. 269SS and 269T by the assessee is obvious from the perusal of the books of account and from the copies of accounts of two sister concerns submitted in the paper book. It cannot be regarded as a technical breach or a venial violation as contended by the learned counsel. Levy of penalty is mandatory under the provisions of ss. 271D and 271E unless the assessee proves that there was a reasonable cause for such a default. The reasonable cause explained by the assessee in the letter submitted before the Dy. CIT cannot be regarded as reasonable cause justifying the defaults in question. The assessee also cannot plead ignorance about the relevant provisions of law as they are existing IT assessees and are being assessed for last so many years. They are assisted by competent Chartered Accountants or representatives. The provisions of ss. 269SS and 269T came into force from this year 1984 and these are not recent provisions introduced in the IT Act. The judgment of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC) does not in any manner support the assessee's contention. He relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of Daljit Singh vs. CWT (1981) 21 CTR (P&H) 113 : (1981) 130 ITR 236 (P&H) to support his contention that ignorance of law cannot be accepted as a valid argument or as a reasonable cause for cancellation of the penalty.

8.7 Before concluding his arguments, the learned Departmental Representative also stated that in case the appeal is being decided on the basis of various alternative grounds argued on behalf of the assessee and as a result of decision on those grounds, the decision on the question whether transaction in current account with sister concerns are covered by the expression `loans and deposits' in s. 269SS and `deposit' in s. 269T, may not be found to be necessary, a decision on this point may not be given because it may affect the rights of the parties one way or the other in relation to applicability of other relevant provisions contained in the law in the relevant year under consideration.

8.8 The learned Departmental Representative thus strongly relied on the elaborate reasons mentioned in the orders of the Departmental authorities and urged that the same should be confirmed.

9. We have carefully considered the rival submissions made by the learned representatives. We have also gone through the various decisions relied upon by both of them. We have also gone through the orders of the Departmental authorities and all other documents to which our attention was drawn during the course of hearing.

9.1 We will first deal with the additional ground raised by the assessee. The additional ground is that the provisions of ss. 271D and 271E cannot be invoked in relation to the impugned transactions which had taken place before 1st April, 1989 and, hence, the penalty is invalid. The additional ground raises a pure question of law and goes to the root of the matter. Such a ground is also impliedly covered in the various grounds of appeal submitted alongwith the original appeals wherein the levy of such penalties had been challenged. In view of the judgment of the Supreme Court in the case of Jute Corporation of India vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC), the same is entertained.

9.2 We will first of all deal with the assessee's contention that the provisions of ss. 271D and 271E introduced w.e.f. 1st April, 1989 cannot be applied in relation to the impugned transactions which admittedly took place prior to 1st April, 1989. The Direct Taxes Laws (Amendment) Bill, 1987 was introduced in the Lok Sabha on 11th Dec., 1987, as published in (1987) 168 ITR (St) 177 by which the aforesaid sections were proposed to be inserted w.e.f. 1st April, 1989. The amending Act, namely, Direct Taxes Laws (Amendment) Act, 1987 received the assent of the President on 24th Jan., 1988. The said amending Act also provides that save as otherwise provided in that Act, it shall come into force on the 1st day of April, 1989. A perusal of s. 269SS or 269T does not provide that the amount of deposits or loans accepted or the amount of deposits repaid otherwise than by an account payee cheque/bank draft are to be treated as income of the assessee. There is another provision, namely, s. 269D which deals with the amount of hundi loans accepted or repaid otherwise than through account payee cheque to be treated as income of the assessee. The provisions of ss. 269SS and 269T are prohibitive in nature and these provisions prescribe the manner or the mode by which certain transactions of loans and deposits are not to be done by persons mentioned therein regardless of the fact whether such person is an assessee or not. These provisions may apply regardless of the fact whether the person derives assessable income or not. The scope of ss. 269SS and 269T are very wide and they need not be confined to the case of an assessee or to the assessment of his income. Therefore, the normal concept that the law as in force as on the first day of the assessment year would be the law applicable to that assessment year cannot be applied in relation to interpretation of s. 269SS or 269T. The reliance placed by the learned Departmental Representative on the judgment of Hon'ble Andhra Pradesh High Court in the case of Shaha Peraj Chand Nowpaji vs. CGT (supra) does not in any manner support his contention as the said decision related to the interpretation of the provisions of s. 4(2) of the GT Act, 1958 dealing with assessment of gift. It was held in that case that the general principle of law is that the law in force on the first day of the assessment year is applicable in relation to the assessment proceedings of that assessment year. The said decision cannot be applied in relation to interpretation of ss. 269SS and 269T, more so in relation to penal provisions contained in ss. 271D and 271E.

9.3 It is well settled law that penalty provision is to be applied as it stands at the date when the default which attracts penalty is committed. Where an act of omission is an offence or violation of a statutory provision of law, it must be determined with reference to the law as it stands at the time the act is done or the omission is made. However, the provision which is purely procedural and affects the machinery merely for levying and collecting penalty and which has no bearing on the ingredients of the default or the quantum of penalty, can be applied in relation to a default committed prior to such a procedural amendment. But the insertion of ss. 271D and 271E, providing for levy of penalty equivalent to the deposits or loans accepted in violation of s. 269SS and repayment of deposits in violation of s. 269T are substantive in nature and provides for levy of penalty in the event of violation of the provisions of ss. 269SS and 269T and they cannot be applied in relation to transactions carried out before 1st April, 1989.

9.4 It was held by the Hon'ble Supreme Court in the case of CIT vs. Onkar Saran & Sons (1992) 103 CTR (SC) 293 : (1992) 195 ITR 1 (SC), in relation to s. 271(1)(c) that the law applicable would be the law as it stood at the time when the original return was filed for the assessment year in question and not the law as it stood on the date on which the return was filed in response to the notice under s. 148. The Hon'ble Supreme Court in the case of Brij Mohan vs. CIT (1979) 12 CTR (SC) 198 : (1979) 120 ITR 1 (SC), in relation to interpretation of s. 271(1)(c) also held that the penalty was imposed on account of the commission of a wrongful act and it was the law operating on the day on which the wrongful act was committed which determine the penalty. On a parity of the same reasoning we have arrived at the conclusion that the penal provisions contained in ss. 271D and 271E can be involved only in relation to transactions carried out after the relevant provisions came in force, namely, the transactions done after 1st April, 1989 would alone be covered by the said penal provisions.

9.5 This matter can be examined from one more angle. The Board vide Circular No. 522, dt. 18th Aug., 1988 [printed at (1988) 72 CTR (St) 38] published at page 1747 of Vol. 2.4th Edn. of `Income-tax Law' by Chaturvedi & Pithisaria clarified the amendments made to s. 40A(3), 269SS and 269T in relation to the date of applicability of the amended provisions raising the monetary limits prescribed in the aforesaid provisions. The relevant parts of the said circular issued by the Board is reproduced hereunder :

"Amendments to ss. 40A(3), 269SS and 269T by the Direct Tax Laws (Amendments) Act, 1987'Date of applicability'Clarification regarding'Provisions of ss. 40A(3), 269SS and 269T of the IT Act, 1961, have been amended by the Direct Tax Law (Amendment) Act, 1987 (Act No. 4 of 1988), and consequently, the monetary ceilings prescribed under the aforesaid sections have been raised from Rs. 2,500 to Rs. 10,000, Rs. 10,000 to Rs. 20,000 and Rs. 10,000 to Rs. 20,000 respectively. As per provisions of s. 1(2) of the Direct Tax Laws (Amendment) Act, 1987, these changes have been made effective from 1st April, 1989.

2. Board has received a number of representations regarding the date of applicability of the above mentioned amended sections of the IT Act. It is hereby clarified that the amended provisions of ss. 269SS and 269T will apply to payments or repayments made on or after 1st April, 1989. In respect of disallowance of payments made under s. 40A(3), the amendment will apply to payments made in the previous year relevant to the asst. yr. 1989-90 and subsequent years."

The Board also, vide Circular No. 551, dt. 23rd Jan., 1990 [printed at (1990) 82 CTR (ST) 325 ] explaining the provision of the IT Amendment Act of 1987 raising the monetary limit from Rs. 10,000 to Rs. 20,000 categorically stated at para 15.5 that these amendments raising the limit from Rs. 10,000 to Rs. 20,000, which came into force w.e.f. 1st April, 1989 will accordingly apply in relation to the transactions entered into after this date. Para 15.4 and 15.5 of the aforesaid Circular No. 551 as appearing at page 5734-35 of Vol. 5 of Income-tax Law by Chaturvedi & Pithisaria is also reproduced hereunder :

"15.4 To remove the hardship pointed out above and also to prevent the circumvention of the provisions of the section, the Amending Act, 1987, has made the following amendments to sub-s. (2) of s. 269T :

(i) The monetary limit for the application of the provisions of the said sub-s. (2) has been increased from Rs. 10,000 to Rs. 20,000.

(ii) The scope of the sub-section is extended by inserting the words "or other person" after the word "firm", so that the provisions of the sub-section are now applicable to all persons.

(iii) The definition of the term `deposit' has been amended. For the purpose of the section, the term `deposit' now means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company includes deposit of any nature.

15.5. These amendments come into force w.e.f. 1st April, 1989, and will, accordingly, apply in relation to the transactions entered into after this date."

The Board has also explained the scope of the provisions of ss. 271D and 271E in para 16.6 which is also reproduced hereunder from page 5817 of the said book :

"16.6. Insertion of the new ss. 271D and 271E to provide for levy of penalties for failure to comply with the provisions of ss. 269SS and 269T.'Under the old provisions of Chapter XXI of the IT Act, no penalties were prescribed for failure to comply with the provisions of ss. 269SS and 269T, which require the taking or accepting of certain loans or deposits or repayment of certain deposits by account payee cheques or account payee bank drafts if the amount of the deposit or loan is Rs. 20,000 or more. These defaults, however, attracted prosecution under the provisions of ss. 276DD and 276E. It was decided that such defaults should, instead of attracting prosecution, be made liable to penalties. The Amending Act, 1987, has, therefore, omitted the said ss. 276DD and 276E from the IT Act and has inserted two new ss. 271D and 271E to provide for penalties for these defaults. The amount of penalty is a sum of equal to the amount of loan or deposit taken or deposit repaid in contravention of s. 269SS or 269T."

In the instant case, the assessing authority has levied penalty with reference to the transactions of loans and deposits of Rs. 20,000 and above. It is clear from the aforesaid circulars that the monetary limit of Rs. 10,000 earlier provided in ss. 269SS and 269T were raised to Rs. 20,000 w.e.f. 1st April, 1989 and the Board in the above referred circular has categorically clarified that the higher monetary limit will cover the transactions on and after 1st April, 1989. It would, therefore, necessarily follow that the penal provisions of ss. 271D and 271E were also intended to be operative prospectively from 1st April, 1989 in respect of transactions done on or after 1st April, 1989 exceeding the monetary ceiling of Rs. 20,000 prescribed in the provisions of ss. 269SS and 269T. It is an admitted fact that all the impugned transactions, for which penalties in question have been levied were done before 1st April, 1989, which falls in asst. yr. 1989-90. In view of the aforesaid clarifications issued by the Board also, the said penal provisions contained in ss. 271D and 271E cannot be invoked in the case of the assessee in relation to the impugned transactions pertaining to asst. yr. 1989-90.

9.6 Such a view is clearly supported by the decision of the Tribunal, Cochin Bench in the case reported in (1993) 47 TTJ (Coch) 434 : (1993) 46 ITD 40 (Coch). We concur with the reasonings and conclusions derived by the Tribunal in that case and respectfully following the same, we hold that the provisions of ss. 271D and 271E cannot be invoked in relation to transactions done prior to 1st April, 1989.

9.7 Even if it is considered that the point relating to date of application of the provisions of ss. 271D and 271E are capable of more than one interpretation, the one which is favourable to the assessee will have to be adopted in view of the various judgments such as the judgment of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1972 CTR (SC) 177 : (1973) 88 ITR 192 (SC) in which the Hon'ble Supreme Court held that if a taxing provision is capable of more than one meaning or is ambiguous then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provisions relates to imposition of a penalty. On this ground also, the contention of the assessee in relation to the aforesaid legal point deserves to be accepted.

10. We will now consider another legal objection taken by the learned counsel for the assessee. It has been argued that the provisions of s. 269SS has been held to be ultra vires by the Hon'ble High Court in the case of Kum. A.B. Shanti (supra). On the strength of the said judgment, the learned counsel for the assessee submitted that the Tribunal should follow the said judgment regardless of the fact that the Tribunal is a creature of the statute and cannot themselves decide the ultra vires of the provisions of the Act. The learned Departmental Representative had relied on the judgment of Hon'ble Supreme Court in the case of K.S. Venkataraman & Co. (supra) in which it was held that the taxing authority is undoubtedly a creature of the Act and function thereunder. They cannot ignore any source of income on the ground that relevant provisions offend the fundamental right or are bad for want of legislative competence. The Act does not confer any such right on them. Their jurisdiction is confined to the assessment of the income and the tax under the provisions of the Act. The question of ultra vires is foreign to the scope of the jurisdiction of the Tribunal. If an assessee raises such a question, the Tribunal can only reject it on the ground that it is has no jurisdiction to entertain such objection or decide on it. On the other hand, the learned counsel submitted that the ultra vires of the relevant provisions in question is not the subject-matter of decision by the Tribunal. However since a High Court has already declared the provision of s. 269SS to be ultra vires, the Tribunal in law, is bound to follow the said decision in the absence of any contrary decision of any other High Court. The learned counsel had placed reliance on several decisions to support such a contention. Let us examine those decisions relied upon by the learned counsel.

10.1 In the case of CIT vs. Smt. Godavaridevi Saraf (supra), the Hon'ble Bombay High Court relied upon the judgment of Hon'ble Madras High Court wherein that High Court had struck down s. 140A(3) as unconstitutional as being violative of the provisions of Art. 19(1)(f) of the Constitution. The Hon'ble Bombay High Court held that "what the Tribunal did was that in view of the law pronounced by the Madras High Court, it proceeded on the footing that s. 140A(3) was non-existent and held that the order of penalty passed thereunder cannot be sustained".

10.2 In another case of CIT vs. Smt. Nirmalabai K. Darekar (supra), the Bombay High Court reaffirmed the same view and held that "the Tribunal was justified in following the judgment of the Madras High Court in A.M. Sail Maricar vs. ITO (1973) 90 ITR 116 (Mad)" dealing with the invalidity of the provisions of s. 140A(3).

10.3 The Hon'ble M.P. High Court in the case of CIT vs. Vrajlal Manilal & Co. (supra) held that "the Tribunal has no jurisdiction to enquire into the validity of any provision of the Act. The position is, however, different when a provision of the Act is declared unconstitutional by the High Court in its writ jurisdiction under Art. 226 before an appeal is heard by the Tribunal. In such a case, the Tribunal, being bound by the ruling of the High Court, has to give effect to it. In so doing the Tribunal does not itself declare a provision unconstitutional but only ignores the provision which has already been declared to be unconstitutional by a superior authority".

10.4 The Cochin Bench of the Tribunal in the case of M. George Bankers (supra) also considered a similar point and came to the conclusion that there is no doubt that the Tribunal is a creature of the statute and cannot entertain the question of ultra vires of the provisions of the Act. But that does not mean that if an Act has been declared ultra vires the constitution by a High Court, the Tribunal should not take cognizance of such a decision in deciding the dispute between the Revenue and the assessee. The Tribunal in the aforesaid case has followed the judgment of the Hon'ble Madras High Court declaring the provisions of s. 269SS to be ultra vires and on that basis it has held that penalty levied under ss. 271D and 271E cannot be sustained. Respectfully following the said decision of the Tribunal this point is also decided in favour of the assessee.

11. Before dealing with the various other contentions raised on behalf of the assessee and the Revenue on the merits of the case, it would be worthwhile to reproduce the relevant provisions for convenience of ready perusal :

Mode of taking or accepting certain loans and deposits.'`Rs. 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if,

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or

(b) 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), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in cl. (a) together with the amount or the aggregate amount referred to in cl. (b),

is twenty thousand rupees or more : ...........

Explanation.'For the purposes of this section,

(iii) "Loan or deposit" means loan or substituted for "ten" deposit of money" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989.

Mode of repayment of certain deposits.'`Rs. 269T. (1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more : ..........

Explanation : For the purposes of this section,

(ii) "deposit" means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes deposit of any nature."

Substituted for following by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989:

"(ii) "deposit" means any deposit of money which is repayable after notice or repayable after a period."

Penalty for failure to comply with the provisions of s. 269SS.'`Rs. 271D (1) If a person takes or accepts any loan or deposit in contravention of the provisions of s. 269SS he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.

(2) Any penalty imposable under sub-s. (1) shall be imposed by the Dy. CIT."

Penalty for failure to comply with the provisions of s. 269T.'`Rs. 271E. (1) If a person repays any deposit referred to in s. 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the deposit so repaid.

(2) Any penalty imposable under sub-s. (1) shall be imposed by the Dy. CIT."

Penalty not to be imposed in certain cases.'`Rs. 273B. Notwithstanding anything contained in the provisions of cl. (b) of sub-s. (1) of s. 271, s. 271A, s. 271B, s. 271BB, s. 271C, s. 271D, s. 271E, cl. (c) or cl. (d) of sub-s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or sub-s. (1) of s. 272BB or cl. (b) of sub-s. (1) or cl. (b) or cl. (c) of sub-cl. (2) of s. 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure."

11.1 Now we will consider the remaining submissions made by the learned representatives. One of the contentions which was raised before us that the transactions in the current accounts of the sister concern made with a view to meet the urgent business necessities and which have shifted in debit or credit balances on different dates are not covered by the term `loan and deposit' mentioned in s. 269SS nor it is covered by the term `repayment of deposit' under s. 269T, such transactions are distinct in nature than the loan or deposit transactions contemplated in s. 269SS or 269T. The learned representatives of both the parties had submitted that in case these penalties are decided on other alternative grounds, a finding on this ground need not be given as it may adversely affect the rights of the parties or may affect the decision in other similar matters one way of the other. Considering such a submission made on behalf of both the parties and considering our decision in relation to the earlier points, we do not consider it proper to decide this point as to whether such transactions in current accounts of sister concerns are covered by the term `loan and deposit' in s. 269SS or `repayment of deposit' under s. 269T and this issue is left open. However, for the purpose of deciding the various other submissions made on behalf of the parties, we will assume that such transactions are in the nature of loan and deposit or repayment of deposit contemplated in ss. 269SS and 269T respectively.

11.2 The only remaining points required to be considered and decided by us are as to whether the assessee was prevented by reasonable cause and the assessee's case is covered by the provisions of s. 273B, whether the assessee has discharged the burden of proving that the default, if any, under s. 269SS or 269T is fully explained by the material existing on records which constitute reasonable cause explaining the defaults in question. The connected points which were argued are that such transactions in current accounts were made on account of business necessity. Various charts and copies of letters submitted before the Departmental authorities were shown to corroborate the explanations given before them and it was also argued that the breach, if any, was merely a venial violation or technical breach which do not warrant or justify the levy of penalty. All these submissions can be dealt with together as a consideration of the point as to whether there was a reasonable cause or not will cover all these aspects and different facets of the arguments made on behalf of the parties.

11.3 The provisions of s. 273B were inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 10th Sept., 1986. The various sections originally enumerated in s. 273B were substituted by the Direct Tax Laws (Amendment) Act, w.e.f. 1st April, 1989. The provisions of ss. 271D and 271E were accordingly incorporated in s. 273B w.e.f. 1st April, 1989 simultaneously when these penal provisions were introduced. It provides that no penalty shall be imposable on the person for failure referred to in the said provisions (ss. 271D or 271E) if he proves that there was a reasonable cause for the said failure.

11.4 In order to properly consider the existence or absence of a reasonable cause it will be worthwhile to make a useful reference to certain decisions whereby the expression "reasonable cause" has been considered :

(a) The Hon'ble A.P. High Court in the case of Addl. CIT vs. Dargapandarinath Tuljayya & Co. (1977) 107 ITR 850 (AP) (FB) at page 875 (of ITR) has observed as under :

"What is sufficient cause is always a reasonable cause. As stated in Stroud's Judicial Dictionary "the word `reasonable' has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know". If a cause is reasonable having regard to the circumstances in which it has occurred and with reference to the person who has conducted himself in the course of the act which is under examination and if that act or cause is found to be reasonable in the light of the circumstances by a reasonable mind, it is accepted as sufficient cause."

(b) The Hon'ble Gujarat High Court, while considering the question of condonation of delay on account of sufficient cause in the case of Saurashtra Cement & Chemical Industries Ltd. vs. CIT 1978 CTR (Guj) 443 : (1978) 115 ITR 27 (Guj) at page 32 (of ITR) has observed as under :

"It is clear from the observations of the Supreme Court in Lonand Grampanchayat's case AIR 1968 SC 222, that wherever there are cognate statutory provisions providing for limitation and also providing for condonation of delay in adopting appropriate proceedings within the period of limitation if sufficient cause is made out, the principles to be applied are the same as laid down by the Supreme Court and culled out in the passage set out herein. The main question in the light of the decision of the Madras High Court in Krishan V. Chathappan (1889) ILR 13 Mad 269 is whether negligence or inaction or want of bona fides is imputable to the party concerned and whether substantial justice would be advanced by condoning the delay and again in exercising the judicial discretion in condoning the delay, this discretion like the other judicial discretions must be exercised with vigilance and circumspection according to justice, common sense and sound judgment."

(c) Following the principles laid down by the Hon'ble Gujarat High Court in the aforesaid matter, the Hon'ble Kerala High Court in the case of Kerala Urban Development Finance Corpn. Ltd. vs. CIT (1987) 65 CTR (Ker) 282 : (1987) 167 ITR 289 (Ker), at page 290-91 (of ITR) has observed as under :

"It is true that the word "sufficient cause" occurring in the proviso to s. 264(3) of the Act should receive a liberal construction so as to advance substantial justice. It is further true that the discretion vested in the CIT is a judicial one to be exercised in accordance with law'vide Kanga and Palkhiwala, The Law and Practice of Income-tax, 7th Edition, page 1178, the nature and content of the said power and the manner of its exercise have been elaborately discussed in Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1978) CTR (Guj) 443 : 1978 115 ITR 27 (Guj)".

11.5 In order to examine the question relating to existence or absence of reasonable cause for the purpose of s. 271E for violation of ss. 269SS and 269T it will be necessary to examine the legislative intention of the object for which the provisions of ss. 269SS and 269T were inserted by the Finance Act, 1984. The Board, vide Circular No. 387 dt. 6th July, 1984 [printed at (1984) 43 CTR (TLT) 3], have elaborately explained the scope and intention of inserting the provisions of ss. 269SS and 269T in the following words in para 32.1 and 32.2 and published in Income-tax Law, 5th Vol. at page 5732, so far as s. 269SS is concerned :

"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 person 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 page 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 Income-tax (Second Amendment) Act, 1981 (hereinafter referred to 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 Income-tax (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.

11.6 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, 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 material existing on records. The Hon'ble A.P. 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.

11.7 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.

11.8 It is an undisputed fact that the genuineness of all the transactions have been accepted by the Department. Both the sister concerns, namely, M/s. M.A. and M/s SSE, are existing assessees. It is also not in dispute that whenever the assessee needed funds for sending draft to their suppliers, it received funds from these two sister concerns and whenever these two sister concerns needed funds for similar purpose, the assessee also gave funds to them for enabling them to send draft to their suppliers of goods. The bone fide of the transactions in question has not been disputed at any stage of the proceedings, there is no material whatsoever on records giving any inkling of the transactions being of a dubious nature. There is no allegation against the assessee that any attempt has been made for introducing the unaccounted income in the form of such loans or deposits. The only objection of the Department is that the assessee could carry out these transactions by accepting the loans or deposits in question by an account payee cheque as well as it could repay these deposits in similar manner by account payee cheque as the businesses of all the three concerns are located at the same place and the business necessity so claimed by the assessee could have been conveniently met even by carrying out such transactions by an account payee cheque. The urgency about the business necessity or the commercial exigencies are solely within the domain of the trader's own decision. The assessee has produced various charts with reference to each transaction of acceptance of loan or deposit or in respect of repayment of deposit which support the assessee's contention that the amount was taken from the sister concern on the same day when the money as required to be remitted to Nirma group of concerns for supply of goods by them to the assessee. It is also corroborated from the said charts that money was received only to that extent to which it was barely necessary for obtaining those bank drafts on that very day. The receipt of amount from the sister concerns, the quantum of amount received from them and the remittance of bank draft on that very day to Nirma group proves the contention of the assessee that the money was needed for meeting the urgent business needs. Similar is the position with regard to repayment of funds made by the assessee to these two sister concerns. The assessee submitted before the Departmental authorities that these transactions represent bona fide transactions and were carried out in cash to meet such urgent business necessity. It was further submitted that the assessee remained under a bona fide belief that by carrying to meet the urgent business necessity did not violate any provisions of law and even if it was a mistake and amounted to a venial breach of the provisions of ss. 269SS and 269T, it was a bona fide and innocent mistake without any intention to defraud the Revenue. Such innocent mistake and ignorance of the relevant provisions of law, according to the assessee, constitute reasonable cause within the meaning of s. 273B. Ordinarily a plea as to 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, coupled with the fact that the transactions in question are genuine and bona fide transactions and had to be made for meeting the urgent business necessity will, in our opinion, constitute a reasonable cause.

11.9 It will be worth while to state that the Hon'ble Supreme Court in the case of M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. AIR 1979 SC 621 : (1979) 118 ITR 326 (SC) at page 339 (of ITR) observed as under :

"Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law but that is not a correct statement. There is no such maxim known to the law. Over a hundred and thirty years age, Maula J. pointed out in Matindale vs. Falkner (1946) 2 CB 706 : "there is no presumption in this country that every person knows the law : it would be contrary to common sense and reason if it were so." Scrutton L.J. also once said "It is impossible to know all the common law". But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans V. Bartlam (1937) AC 474 : "....the fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse, a maxim of very different scope and applications."

Following the aforesaid observations of the Hon'ble Supreme Court, the Hon'ble Rajasthan High Court in the case of Bhanwarilal & Anr. vs. Late Madanlal, in S.B. Civil Second Appeal No. 744 of 1974 dt. 2nd March, 1988, reported in (1988) 23 IJR (Raj) 150 has also held that now settled law is that there is no presumption that every person knows the law. There is no such maxim known to law.

11.10 In the light of aforesaid facts and the legal position, we are of the considered opinion that the transactions inter se between the sister concerns made with a view to meet the urgent business necessity and made under the bona fide belief and under ignorance of the relevant provisions of law is a valid excuse and constitute a reasonable cause within the meaning of s. 273B. In our view the material existing on records adequately prove that there was a reasonable cause on the part of the assessee in relation to the aforesaid transactions of receiving the funds from the sister concerns at the time of need and at the time when the deposits in questions were repaid to them. On this ground also the penalty is not imposable on the assessee in view of the clear provisions of s. 273B.

11.11 One more argument which was made during the course of hearing is that the penalty has been levied in a mechanical manner without application of mind by the Departmental authorities. It was pointed out that penalty levied under s. 271D in relation to acceptance of deposits on various dates did not in fact amount to acceptance of deposits as on those respective dates when the amounts in question were received there was already a debit balance in the accounts of these two sister concerns thus at the time when these amounts were received, it was realisation of the existing debit balance rather than acceptance of deposits from them on those dates. The details of such transactions have been given in the letter dt. 4th Dec., 1992 submitted before the CIT(A) (pp. 9 to 13 of the paper book). In this letter the details of various amounts received from M/s. M.A. and M/s. SSE, aggregating to Rs. 7,95,000 and Rs. 5,000 respectively have been given which, according to the assessee, did not constitute acceptance of any deposit or loan but it is a realisation of the existing debit balance outstanding against these two sister concerns on the respective dates. In similar manner it has been pointed out in a separate letter on 4th Feb., 1992, submitted to the CIT(A) that penalty levied under s. 271E for alleged violation of s. 269T is incorrect as the payments made to these two sister concerns on different dates did not amount to repayment of deposit but it is a payment given to these two sister concerns at a time when there was already a debit balance on those dates against the. This factual position could not be disputed by the learned Departmental Representative after going through the datewise accounts of the two sister concerns submitted in the compilation at pp. 3-4 of the paper book. On the basis of such details submitted in the above referred two letters dt. 4th Dec., 1992 before the CIT(A), it was pointed before him that penalty levied with reference to alleged acceptance of deposit aggregating to Rs. 79,500 received from M/s M.A. and Rs. 5,000 received from M/s SSE is invalid. Likewise the penalty levied under s. 271E in relation to payments made to M/s M.A. aggregating to Rs. 3,20,000 and Rs. 50,000 to M/s SSE is also invalid as the payments so made to them do not constitute any repayment of deposits as there were already existing debit balance on those respective dates in their accounts.

11.12 We have carefully examined the relevant entries from the copies of accounts submitted in the compilation and find that the assessee's contention is substantially correct. We are reproducing hereunder the datewise copy of account of M/s M.A. and M/s SSE :

M/s MEENA AGENCY

23.10.1987 to 31.3.1989

Date	Particulars	Credit	Debit	Balance	.
.	.	Rs.	Rs.	Rs.	.
23.10.87	Opening Balance C.B.P. No.	.	4,90,492	4,90,492	.
16.11.87	25	3,860	-	4,86,632	DR
20.11.87	29	8,085	-	4,78,547	DR
22.11.87	32	3,018	-	4,75,529	DR
22.11.87	21	.	1,00,000	5,75,529	DR
4.12.87	43	1,00,000	-	4,75,529	DR
7.12.87	46		25,000	4,50,529	DR
15.12.87	54	25,000	-	4,25,529	DR
9.1.88	75	1,00,000	-	3,25,529	DR
15.1.88	81	1,00,000	-	2,25,529	DR
18.1.88	88	1,00,000	-	1,25,529	DR
21.1.88	91	1,00,000	-	25,529	DR
25.1.88	95	1,00,000	-	74,471	DR
29.1.88	99	1,00,000?	-	1,74,471	DR
2.2.88	103	1,00,000	-	2,74,471	DR
8.2.88	109	1,00,000	-	3,74,471	DR
15.3.88	145	-	1,470	3,73,001	DR
25.3.88	155	-	1,00,000	2,73,001	DR
21.4.88	182	-	1,00,000	1,73,001	DR
29.4.88	186	-	1,00,000	73,001	DR
2.5.88	192	-	1,00,000	26,999	DR
4.5.88	195	-	7,400	34,399	DR
5.5.88	196	-	14,700	49,099	DR
6.5.88	97	-	1,00,000	1,49,099	DR
7.5.88	198	-	16,464	1,65,563	DR
29.5.88	220	-	25,000	1,90,563	DR
31.5.88	221	5,000	-	1,75,563	DR
5.6.88	227	-	25,000	2,00,563	DR
17.6.88	229	25,000	-	1,75,563	DR
14.7.88	266	-	14,700	1,90,263	DR
18.7.88	270	-	20,000	2,10,263	DR
2.8.88	285	-	5,772	2,16,035	DR
6.8.88	289	50,000	-	1,66,035	DR
9.8.88	292	-	755	1,66,790	DR
30.11.88	21	-	11,865	1,78,655	DR
7.3.89	118	-	16,460	1,62,195	DR
8.3.89	119	40,000	-	1,22,195	DR
10.3.89	121	32,000	-	92,195	DR
27.3.89	138	-	70,000	1,62,195	DR
.	.	11,41,423	13,03,618		.

M/s SHIV SHAKTI ENTERPRISES

23.10.1987 to 31.3.1989

7.12.87	46	-	4,400	1,400	DR
22.12.87	21	3,600	-	800	DR
26.12.87	65	-	1,080	1,880	DR
19.2.88	120	-	4,760	6,640	DR
23.2.88	201	1,000	-	5640	DR
5.4.88	166	1515	-	4,125	DR
11.5.88	202	50,000?	-	45,875	DR
29.5.88	220	-	50,000?	4,125	DR
2.6.88	224	25,000	-	20,875	DR
4.6.88	226	40,000	-	60,875	DR
22.6.88	244	30,000	-	90,875	DR
1.7.88	253	-	25,000	65,875	DR
2.7.88	254	-	30,000	35,875	DR
3.8.88	286	50,000	-	85,875	DR
8.8.88	291	80,000	-	1,65,875	DR
13.8.88	296	1,00,000	-	2,65,875	DR
15.9.88	329	-	40,000	2,25,875	DR
28.9.88	342	-	40,000	1,85,875	DR
30.9.88	344	-	2,352	1,83,523	DR
30.9.99	348	-	40,000	1,43,523	DR
8.10.88	342	-	1,00,000	43,523	DR
21.10.88	365	-	50,000	6,477	DR
.	.	3,81,115	3,87,592	.	.

 

11.13 A parusal of the aforesaid copy of the account of M/s M.A., as appearing in the books of account, shows that various amounts were received from M/s M.A. on different dates which bear the asterik () mark on the credit side of that account. These amounts have been treated by the Assessing Officer as acceptance of loans and deposits in violation of s. 269SS and penalty of an equivalent amount has been levied in respect of these amount also under s. 271D. It is clear from the aforesaid account that these different amounts appearing on the credit side with mark by no stretch of imagination, can be treated as loan on deposit accepted by the assessee from M/s M.A. as there was already an existing debit balance and these amounts received on different dates are realisation towards existing debit balance already lying in the account of M/s M.A. prior to the dates on which the impugned sums were received from them. The levy of penalty under s. 271D in respect of these amounts is, therefore, patently wrong. Some debate can be possible only in respect of the entry on 25th Jan., 1988 which bears the mark as well as ? mark when the existing debit balance of Rs. 25,529 has been converted into a credit balance of Rs. 74,471. Similarly the items appearing on the debit side of the account of M/s M.A. bearing mark have been treated as repayments of deposits in violation of s. 269T. A perusal of the balance column of the said account reveals that these amounts paid to M/s M.A. cannot be treated as repayment of deposit as there was already an existing debit balance in their account. In order to establish repayment of any deposit, there ought to have been a credit balance on the preceding date and only then the payment to the said party could be treated as repayment of deposit. In fact when these payments bearing mark have been made, the existing debit balance lying in the account of M/s M.A. has increased and, therefore, such payments cannot be regarded as repayment of deposits. There could be a debate only in respect of payment made on 2nd May, 1988 which has resulted in shifting of the existing credit balance of Rs. 73,001 to a debit balance of Rs. 26,999. Penalty levied under s. 271E in respect of these payments made to M/s M.A. which has resulted in increasing the debit balance existing in their account on the respective dates is, therefore, apparently invalid and wholly unjustified. Since we have already cancelled the total amount of penalties levied under ss. 271D and 271E, this alternative submission made on behalf on the assessee does not require any elaborate discussion on but we have chosen to make these observations with a view to point out that such huge and drastic penalties have been levied by the Assessing Officer without even verifying the basic fact as to whether the receipt and payments in question can be treated as acceptance of deposits and loan or repayment of deposits and in relation to the items bearing mark within the meaning of ss. 269SS and 269T. These are glaring instances indicating the arbitrary manner in which such severe penalties have been levied in a light heared manner without even verifying the basis facts. The assessee submitted datewise details of such amounts before the CIT(A) in the two separate written submissions dt. 4th Dec., 1992. The order passed by the CIT(A), confirming the said penalties, do not even contain any discussion in relation to these items of amounts received from the sister concerns and paid to the sister concerns which bear mark. Confirmation of penalty in such a manner, even without considering this important aspect, is most unjustified.

12. On one more contention was raised on behalf of the assessee that no penalty should be levied in respect of a technical breach of a statutory provision under such facts and circumstances involving bona fide and genuine business transaction. We have already held that ss. 271D and 271E r/w ss. 269SS and 269T, as clarified in the various circulars issued by the Board from time to time, makes such provision for imposition of a penalty in respect of assessees who are trying to introduce their unaccounted money in the forms of loans or deposits or who are making attempts to explain away the unexplained money found during the course of search, etc. The penal provisions of ss. 271D and 271E r/w s. 273B confers 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 prescribes levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within ss. 269SS or 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 bone fide belief like in the present case. Such a view is fully fortified by 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 genuine transactions and were made on account of urgent business necessity 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 on the assessee also deserves to be cancelled in view of the aforesaid judgment of the Hon'ble Supreme Court.

13. In the result the appealls are allowed.

 

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