COMMISSIONER OF INCOME TAX Vs. BALAJI TRADERS

JUDGEMENT

(1.) 1347/Mad/1995, raising the following substantial questions of law :

(2.) WHETHER on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no penalty is leviable under s. 271D, on the ground that taking a loan in cash for depositing into the assessee's bank to make necessary arrangements for honouring cheques is a reasonable cause for violating the provisions of s. 269SS of the IT Act - 2.1 The respondent assessee filed its return for the asst. yr. 1993 -94 showing a total income of Rs. 11,710 which was initially taken up for assessment under s. 143(1)(a) of the IT Act, 1961 (in short 'the Act'). When the assessment was taken up for scrutiny, it was found that the assessee had availed cash borrowings exceeding Rs. 20,000 for about 36 times in the course of the year attracting s. 269SS of the Act which contemplates that all borrowings exceeding Rs. 20,000 should only be in the form of cheque or demand draft. 2.2 Accordingly, notice under s. 271D of the Act was issued to the assessee for imposing penalty. In response to the necessity to pay to master weavers most of whom were living in rural and sub -urban areas where banking facility was very much less and that most of the loans had been utilised for making payments to bank accounts to honour its cheque commitment to financial corporations who were also income -tax assessees and interest income was admitted by them in their accounts. It is contended that all the transactions were made out of business exigency and therefore, they are bona fide and reasonable. However, the AO refused to accept the above explanation and levied penalty to the tune of 2.3 Aggrieved by the order of AO imposing penalty, the assessee filed appeal before the CIT(A), who, by order dt. 8th favour and deposited the same in current account, rendered a finding that loans were taken mostly to make payments to master weavers living in village and suburban areas where banking facility was very much less and that loans were taken to meet the immediate business need and hence, there existed reasonable cause. However, the CIT(A) directed the AO to levy penalty on certain transactions to the tune of Rs. 4,30,000. rendered a finding that obtaining loans and making repayments into bank account are not denied by the Revenue and the genuineness of the transactions are not doubted either by the AO or by the CIT(A). The Tribunal also found that the identity of the debtors is not disputed and all the credits were from established parties and the loans were genuine as agreed by the CIT(A). In the said order, the Tribunal held as under :

(3.) ASSAILING the said order of the Tribunal, Mr. Naresh Kumar, learned counsel appearing for the Revenue contends that s. 269SS is intended to prevent evasion of tax by cash transactions involving more than Rs. 20,000. According to him, since there are 36 transactions attracting s. 269SS, the same cannot be construed as bona fide and reasonable. It is further contended that the business exigency for cash transactions would arise in one or two transactions subject to the provisos to s. 269SS of the Act which read as follows : 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, - -