ORDER
Mahavir Singh, J.M.
1. This appeal by the assessee is directed against the order of the CIT(A)-III, Chennai, dt. 23rd Aug., 1995. The relevant assessment year involved in this appeal is 1992-93.
2. The only issue in this appeal is that the CIT(A) has wrongly confirmed the penalty order passed under Section 271D of the IT Act, 1961.
3. Briefly stated facts are that the assessee firm filed its return of income for the asst. yr. 1992-93 which was assessed under Section 143(3) of the Act, dt. 24th Dec., 1993 and penalty proceedings under Section 271D of the Act was initiated for violation of the provisions of Section 269SS of the Act for accepting the loans in cash exceeding Rs. 20,000 or more. The Dy. CIT, issued show-cause notice to the assessee-firm that as to why the penalty under Section 271D of the IT Act should not be levied amounting to Rs. 5,19,917 in view of violation of provisions of Section 269SS of the IT Act for accepting the deposits in cash. During the course of assessment proceedings, the AO noticed from the tax audit report filed under Section 44AB of the IT Act that the assessee has violated the provisions of Section 269SS of the Act. In the tax audit report, it was mentioned that the assessee has accepted the deposits of Rs. 20,000 or more in cash and complete list was provided with the audit report in Annex. J to Form No. 3CD. The assessee could not adduce the reasons or the reasons adduced were not acceptable and in view of this, he levied the penalty on the following transactions:
15-4-1991 20,000 cash
14-5-1991 45,000 cash
27-8-1991 75,000 cash
11-9-1991 44,917 Compulsory deposit
19-10-1991 75,000 cash
18-12-1991 1,00,000 cash
8-2-1992 35,000 cash
1,25,000 cash
Before the Dy. CIT, Special Range-Ill, Madras, the reasons stated were as under:
1. The receipts are mostly from rental income and refund of compulsory deposit. A Mohsma Begum possesses properties at Bangalore and Ranipet and she has appointed an agent to collect the rent and has instructed to give the rents collected to the firm to be credited to her account.
2. Smt. Mohsina Begum was a partner in the firm till 31st May, 1985 and the practice of keeping the funds with the firm continued as per the original instruction given when she was a partner. This method has been adopted only for convenience sake. As such the method followed in the earlier years when she was a partner have been consistently followed.
3. The instruction was given to safeguard her funds and for proper accountability by the agents. As the credits pertain to only rental collections and Compulsory Deposit refund and the agent was appointed for collection she had no other alternative except to give the same in cash.
4. There were no ulterior motive to violate the provisions of Section 269SS. The amount given by the agent on behalf of Mohsina Begum neither be called as a loan nor can be called as deposit in the strict sense and no interest also has been charged. The firm has not sought any money as loan from Mrs. A Mohsina Begum nor has she given as deposit, as both presumes a fixed term, which is not so in this case.
The Dy. CIT was not convinced with the reasons so stated and levied the penalty as regards to the loan transactions totalling to Rs. 5,19,917. Aggrieved by this, the assessee preferred an appeal before the CIT(A).
4. Before the CIT(A), it was pleaded that the depositor was a relative of the partners of the firm and even the depositor Smt. Mohsina Begum was also partner in the firm till 31st May, 1985. The CIT(A) by giving a reasoned order confirmed the penalty imposed by the Dy. CIT, Range-Ill, Madras. Aggrieved, the assessee preferred this appeal before the Tribunal.
5. Before us, the learned Counsel for the assessee filed paper book containing (pages) 1 to 16 which mostly contains the computation of income of the assessee-firm for asst. yr. 1992-93, assessment order of the firm and computation of income of Smt. Mohsina Begum for asst. yrs. 1990-91 to 1994-95. The learned Counsel for the assessee first of all stated that the firm consists of the sons of the depositor Smt. Mohsina Begum as partners. He further argued that no interest has been charged on this loan amount and this is practically neither a loan nor deposit. He further argued that the depositor Smt. Mohsina Begum (is) having rental income from Bangalore properties and refund of Compulsory Deposits and out of that she has deposited the money for the safe custody with the firm. He further argued that where the loans or deposits are genuine, the provisions of Section 269SS of the Act will not apply. Further, he argued that Smt. Mohsina Begum was partner in the firm till 31st May, 1985 and she continued the practice of keeping funds with the firm. The learned Counsel for the assessee relied on the decision of the Gauhati High Court in the case of CIT v. Bhagwati Prasad Bajoiia (HUF) (2003) 263 ITR 487 (Gau) and the decision of the Hon’ble Madhya Pradesh High Court in the case of CIT v. Indore Plastics (P) Ltd. as well as the case laws cited before the CIT(A).
6. On the other hand, the learned Departmental Representative argued that the money was deposited in cash in spite of that, the assessee was not in need of money and therefore, there is no reasonable cause. He further argued that the depositor, Smt. Mohsina Begum, is having bank accounts and after withdrawing the money from the bank at Bangalore, she has deposited the money in cash with the assessee-firm. In view of this, the Dy. CIT has rightly levied the penalty as there was no reasonable cause to accept the deposits in cash. He further argued that the deposits are in cash and that also on various dates after withdrawing the money from the account at Bangalore. He also relied on the case laws which are not relevant to the facts of the present case.
7. We have heard the rival submissions and gone through the case records. We have seen from the penalty order that the assessee has received a sum of Rs. 5,19,917 from the loan transactions in cash in excess of Rs. 20,000 in violation of the provisions of Section 269SS of the IT Act from one Smt. Mohsina Begum who was the partner in the firm till 31st May, 1985 and now, the assessee-firm is run by her sons. However, the assessee has adduced the reasons for accepting the deposits in cash that the depositor wanted to deposit the money and she has selected the assessee, even though the assessee was not in need of money. We have seen that the Dy. CIT has not accepted this as reasonable cause and not believed the reasons given by the assessee and imposed the penalty. The CIT(A) after considering the assessee’s argument has found the following facts which are as under :
(i) There are deposits/loans in the name of Smt. Mohsina Begum in the assessee-firm on various dates.
(ii) These deposits are out of money drawn from the bank at Bangalore and other places, which are deposited out of rental income and withdrawn out of Compulsory Deposits.
(iii) In the balance sheet as certified by the auditors, the loan transactions have been shown as unsecured loans.
(iv) The deposits/loans are in cash.
(v) The assessee firm was not in need of any loan or deposit.
In view of these, the CIT(A) found that this transaction is a loan and deposit as governed by the provisions of Section 269SS of the Act and the assessee is unable to prove otherwise. The assessee could not prove that this transaction is a trading receipt, gift, family arrangement or any other transaction. The CIT(A) further found that Smt. Mohsina Begum was a partner in the firm till 1985 but in the asst. yr. 1992-93 when she deposited the money with the assessee-firm, this cannot be stated as capital contribution or cannot be given any other nature to these transactions. The CIT(A) more importantly found that the money was lying with the bank account at Bangalore and other places and the depositor was receiving interest on the deposits from the bank and there was no occasion to keep the money as deposits with the assessee-firm. Even this firm did not pay any interest on the deposits. The CIT(A) has given the complete details of the cash receipts drawn from the bank which is again being reproduced as it is :
Particulars of cash receipts of Mrs. A Mohsina Begum :
——————————————————————————-
Cash received in account Drawn from bank Date Amount Account No. Date Amount ------------------------------------------------------------------------------- 15-4-1991 20,000 (SB) CAP 49014 15-4-1991 20,000 14-5-1991 45,000 Canara Bank 6551 9-5-1991 35,000 27-8-1991 75,000 Canara Bank 27-8-1991 75,000 19-10-1991 75,000 (SBI) CAP 49014 19-9-1991 75,000 18-12-1991 1,00,000 Canara Bank 16-12-1991 1,00,000 8-2-1992 35,000 (SB) CAP 49014 8-2-1992 35,000 11-2-1992 1,25,000 Canara Bank 6551 10-2-1992 1,25,000 -------------------------------------------------------------------------------
The CIT(A) has simply given a finding that it is not at all difficult for the assessee or the depositor to obtain the money through account payee cheque or account payee draft as the firm was in no need of any money and the deposit was not losing any interest in these transactions.
8. The next point raised by both the sides is that as to whether there exists a reasonable cause or not ? And as to whether the onus is on the Department or on the assessee to prove that there exists a reasonable cause. Even though, the assessee was not in need of money, all these loan transactions were made for deposit of money with the assessee and it has accepted the money in cash from the depositor in excess of Rs. 20,000. For this, the simple reason stated by the assessee is that the depositor was a partner earlier and she wanted to deposit the money with the assessee-firm for safe custody as the firm consists of her sons. This is not a reasonable cause for violation of the provisions of Section 269SS of the Act. If there is reasonable cause as enumerated in Section 273B of the Act, the assessee has to prove that there was reasonable cause which was not done by the assessee. The assessee’s plea that the assessee was having sufficient funds and there was no need of money and it has accepted the cash from the person who was a partner earlier in the firm, that is, upto 31st May, 1985 and now, the mother of the partners, does not constitute a reasonable cause. Further, the fact that the transaction is genuine, is also not a reasonable cause.
9. Now, we will go through the provisions of Section 269SS of the Act. The relevant provision of Section 269SS is reproduced as under:
269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereinafter 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 Clause (b), is twenty thousand rupees or more:
Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,–
(a) Government;
(b) Any banking company, post office savings bank or co-operative bank;
(c) Any corporation established by a Central, State or Provincial Act;
(d) Any Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956);
(e) Such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
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.
Explanation :–For the purposes of this section,–
(i) “banking company” means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in Section 51 of that Act;
(ii) “co-operative bank” shall have the meaning assigned to it in Part IV of the Banking Regulation Act, 1949 (10 of 1949);
(iii) “loan or deposit” means loan or deposit of money.
10. Further, we will go through the memorandum explaining the provisions in Finance Bill, 1984, while introducing this section by the Finance Act, 1984, w.e.f. 1st April, 1984. The relevant memorandum explaining the provisions in the Finance Bill, 1984, is being reproduced as it is which is reported in (1984) 146 TTR (St) 162 :
22. 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 persons in support of their explanation.
23. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the IT Act debarring 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 proposed prohibition would 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.
11. It is seen from the provision of Section 269SS of the Act that there is no such word occurring in this section that this will not apply to genuine transactions. Here, the provision is very strict and the provision will apply strictly where the loans or deposits taken or accepted from any other person otherwise by an account payee cheque or account payee draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 20,000 or more. The only saving clause is provided in Section 273B of the Act wherein it was mentioned that the penalty (is) not to be imposed on the person or the assessee for any failure referred to in that provision (that section covers the provisions of Section 271D) if he proves that there was reasonable cause for the said failure. Even the memorandum explaining in Finance Bill, 1984, during the introduction of this particular provision, it was explained that unaccounted cash found during 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. It was further explained that unaccounted income is brought into the books of account in the form of such loans and deposits and it was particularly mentioned that the taxpayers are also able to get confirmatory letters from such cash creditors/persons in support of their explanation. The only saving clause for reasonable cause is provided in Section 273B of the Act for violation of Section 269SS of the Act and in view of that section, no penalty under Section 271D of the Act will be imposed if there is any reasonable cause.
11.1 As regards to the onus/burden it is clear that first the Department has to prove that the particular transaction was entered into and in this case, the assessee has accepted the loan in cash in excess of Rs. 20,000 or more. This fact has not been disputed by the assessee and after this, the burden shifts on the assessee to prove that this loan was taken in cash with a reasonable cause and the entire burden to prove that there exists a reasonable cause is on the assessee. The assessee has to prove the existence of reasonable cause by preponderance of probabilities as in a civil case and not necessarily by proof beyond reasonable doubt. In this case, the assessee has not proved any reasonable cause and hence, the Dy. CIT has levied the penalty.
11.2 It is pertinent to note that as to whether there exists a reasonable cause or not. In the present case in hand, the assessee has never explained any reasonable cause for violation of the provisions of Section 269SS of the Act which invokes the provisions of Section 271D of the Act for levy of penalty. In the present case, there is absence of reasonable cause and this fact has been objectively found by the authorities below in the light of explanation offered by the assessee before the Dy. CIT as well as before the CIT(A). The only plea raised by way of the grounds in this appeal is that the transactions are genuine.
11.3 Now, we deal with the decision relied on by the learned Counsel for the assessee. In the case of CIT v. Bhagwati Prasad Bajoria (HUF) (supra) the Hon’ble High Court has held that “keeping in view the object of introducing Section 269SS, the legislature has given discretion to the assessing authority under Section 273B of the IT Act to levy the penalty as provided under Section 271D of the Act or not. Under Section 273B if the Court finds that there was reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied.” The Hon’ble High Court has given a finding that to satisfy the immediate requirement of money, the person normally approaches the money-lender or his friend or relative who could lend money to satisfy his immediate requirement. In those circumstances it was held as under :
In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment or to defraud the Revenue. The element of wens rea is not borne out from the nature and the manner in which the transaction was carried out. In these circumstances we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the CIT for consideration of reasonableness within the meaning of Section 273B of the Act. In the facts and circumstances of the case, we hold that the Tribunal was justified and correct in law in upholding the judgment of the CIT in deleting the penalty of Rs. 45,000 imposed on the assessee under Section 271D of the IT Act, though for different reasons.
11.4 Further, we find that in the case of Patiram Jain and Ors. v. Union of India , the Hon’ble Madhya Pradesh High Court has held as under :
Once the proceedings were dropped and the explanations offered by the petitioners were accepted, the same could not be reopened for prosecution of the petitioners after a lapse of two years that the show-cause notices were given to them for the same offences under Sections 276DD and 276E of the IT Act. Detailed explanations were tendered by the two firms and an opportunity of personal hearing was sought, but the respondents did not hear, the petitioners at all.
In view of the fact that Sections 276DD and 276E of the IT Act were deleted from the Act without any saving clause, prosecution of the petitioners thereafter when already explanations were accepted, was unwarranted and unauthorised by law. The facts of this case are fully covered by the law laid down in the case of Rayala Corporation AIR 1970 SC 494, referred above.
11.5 We also find that in the case of CIT v. Parma Nand , the Hon’ble Delhi High Court has held as follows :
Where the Tribunal held that the assessee was benefited by receiving money in cash in excess of the limit specified in Section 269SS of the IT Act, 1961, since there was a discount of 2 per cent, for payment in time, and the loans were taken only to clear the cheques issued by the assessee and the amounts were prepaid through account payee cheques and the bona fide intention of the assessee had been proved and deleted the penalty levied under Section 271D.
11.6 In the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd), it was held by the Tribunal, Hyderabad Bench ‘A’, that:
The assessee in this case is a small-scale industrial unit, which has set up its factory in a backward region of Andhra Pradesh. Almost all the loans were taken by the assessee-firm during the construction period. Though the assessee-firm had succeeded in securing certain loans sanctioned by banks and financial institutions, those finances had not come in time to meet the financial needs of the assessee during the construction stage of the factory, and as such the assessee was put under much pressure for money. In such circumstances the assessee-firm had to approach its friends and well wishers to extract as much cash as possible from them to meet the day-to-day exigencies of the business for money, so that it could complete the project within time. Therefore, there is no doubt that the assessee was very much constrained to accept the hand as and when emergencies arose. In such exigencies and emergencies for money which compelled the assessee to borrow monies from friends and well wishers from time to time to meet the day-to-day business demands in the construction of factory, receipt of such loans by way of cheques or drafts would not be conducive to meet the exigent demands” on hand, as clearance of such instruments equally takes some time, more particularly when the lenders are from a different station. As a matter of fact, the AO who completed the assessment as well as the Dy. CIT who imposed the penalty have no knowledge whatsoever about the genuineness of the loans and the identity of those lenders and their creditworthiness. Therefore, it is clear that the assessee firm had no intention to conceal any particulars of those transactions.
11.7 It is also seen that in the case of Dhanji R. Zalte v. Asstt. CIT , the Hon’ble Bombay High Court has held as under:
A plea has been taken before us, like it was taken before the appellate forums below, that most of the parties to whom the assessee had advanced money or taken loans from, were agriculturists and they did not have the benefit of banking operations. In addition, these incriminating documents attached in the inventory on 22nd Aug., 1995, could not be termed as “books of account” and, therefore, there was no case for initiating proceedings for the violation of Section 269SS and consequently levying penalty under Section 271D of the IT Act. The assessee contended that all the registers maintained show only outgoings and there was no transaction of receipts. At one point of time it was the case of the assessee that he was handling a specialised area of land acquisition cases and he used to appear before the land acquisition cases and he used to appear before the Land Acquisition Officer for receiving the award amounts pursuant to the award under Section 11 of the Acquisition Act, before the reference Court for enhancement of compensation and also in the appeals before this Court and during all these proceedings the claimants were required to be supported by financial assistance. He was, therefore, advancing them finance and adjusting the said amounts from the final payments and, therefore, he contended that it cannot be termed as an operation of granting loan in the strict sense. While, interpreting the term “books of account” referred to in Sub-clause (1) of Expln. 5 to Section 271(1)(c) of the IT Act, a Division Bench of this Court in the case of Sheraton Apparels v. Asstt. CIT held that the said term means those books of account whose main object was to provide credible date of accounts and information to file a tax return and it must answer all the qualifications for calculating profit or loss, to depict the financial position of the business, to portray liquidity position; to provide upto date information of assets and liabilities so as to provide a P&L a/c and to have a balance sheet to determine income and the source thereof.
Further, it was held by the Hon’ble High Court that:
Section 269SS was inserted in the IT Act by the Finance Act of 1984 w.e.f. 1st April, 1984, and was made operative from 1st July, 1984. The IT Department, in the course of searches carried out from time to time, recovered large amounts of unaccounted cash from the taxpayers who often give explanation to the effect that they had borrowed loans or received deposits from or by other persons. Sometimes it was noticed that unaccounted income was brought into the books of account in the forms of loans and deposits. The Department was not able to unearth such unaccounted cash. In order to plug the loopholes and to put an end to the practice of giving false and spurious explanations by the taxpayers, Parliament sought to introduce a new provision debarring parties from taking or accepting from any other person any loan or deposit. Originally the ceiling amount of cash transaction was at Rs. 10,000 and the same was subsequently increased to Rs. 20,000 w.e.f. 1st April, 1989. Section 276DD stated that if a party-person takes or accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine to the extent of equal amount of such loan or deposit. Subsequently Section 271D, which is a penal clause in the Act, which provides for imposition of penalty for failure to comply with the provisions of Section 269SS was introduced w.e.f. 1st April, 1989, omitting Section 276DD from the said date. Thus, the original Section 276DD was replaced by Section 271D and the punishment of imprisonment was taken away. The failure to comply with the provisions of Section 269SS could only be visited with a penalty of fine equal to the amount of loan or deposit to be taken or accepted.
The objections raised by the assessee against the penalty imposed under Section 271D have been considered by the authorities below in keeping with the provisions of Section 269SS and it has been rightly held that the said objections raised by the assessee against invoking the provisions of Section 269SS and thus levying penalty under Section 271D of the IT Act were without any material force and it was only a defence for name sake.
11.8 In the case of Asstt. Director of Inspection (Inv.) v. Kumari A.B. Shanthi , the Hon’ble Supreme Court has held that :
The contention of the appellant’s counsel has no force. The object of introducing Section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of Section 269SS was to curb this menace. As regards the tax legislations it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity.
Finally, the Hon’ble apex Court upheld the constitutional validity of the provisions of Section 269SS of the IT Act.
11.9 In another case law, in the case of Balaji Traders v. Dy. CIT (2001) 73 TTJ (Pune) 246 : (2001) 78 ITD 368 (Pune), the Tribunal Pune Bench has held that :
Regarding penalty under Section 271D, the first contention on behalf of the assessee was that the provisions of Section 269SS were brought on statute to counter the tax evasion and, therefore, the genuine transaction do not fall within the ambit of Section 269SS. One cannot accept such proposition as law. It is cardinal rule of interpretation that where the language of a statute is plain and unambiguous, the intention of legislature is to be gathered from the language of the statute itself and aids to the interpretation cannot be resorted to.
The language of Section 269SS is unambiguous and, therefore, the genuine transaction cannot be taken out of the ambit of this section. Accordingly, this contention of the assessee was to be rejected.
12. In view of the above discussions, we are of the view that when the assessee was not in need of money and it accepted the loan in cash without any reasonable cause from the depositor, then the Dy. CIT has rightly imposed the penalty under Section 271D of the Act. In view of this, we confirm the order of the CIT(A) confirming penalty levied by Dy. CIT under Section 271D in accepting cash exceeding Rs. 20,000 or more.
13. In the result, the assessee’s appeal is dismissed.
