Commissioner of Income Tax vs Preeti Fuels and Flames P. Ltd.

I.M. Quddusi, J.—This is an income tax appeal filed u/s 260A of the income tax Act, 1961, against the order of the income tax Appellate Tribunal, Jabalpur dismissing the appeal of the Revenue, vide order dated November 25, 1999 passed in I.T.A. No. 93/Jab/97 for the assessment year 1993-94. The income tax Appellate Tribunal decided the aforesaid appeal along with cross-objection No. 12/Jab/99 filed by the Assessee-company which were directed against the order of the Commissioner of income tax, Raipur, reducing the penalty u/s 271D of the income tax Act from Rs. 13,15,540 to Rs. 67,540 for the said assessment year. The Tribunal dismissed both the appeal as well as cross-objections.

The brief facts of the case are as under:

(a) The Assessee-company has set up the factory in Cirgitti Industrial Area, District Bilaspur for manufacturing special smokeless fuel and soft coal, which is being used for domestic purpose. The production of the company started from November 1, 1992. The company filed return on December 27, 1993 declaring the total income nil. The search and seizure operation u/s 132(1) of the income tax Act were conducted in the residential premises of Shri Pramod Jain on March 25, 1994. During the course of investigation proceedings, the Assessing Officer (AO) observed that the company received loan/deposits amounting to Rs. 13,27,000 from four persons. This was brought to the notice of the then Deputy CIT, Range-II, Raipur, for imposing penalty u/s 271D of the income tax Act. During the course of penalty proceedings, the Deputy Commissioner of income tax, Range II, Raipur observed that all the persons from whom the Assessee-company accepted the loans/deposits are directors/ promoters of the said company and they are closely related to each other. The Deputy Commissioner of income tax passed an order u/s 271D on September 30, 1996 (annexure A) imposing penalty of Rs. 13,15,540 on the Assessee-company.

(b) Being aggrieved, the Assessee preferred an appeal before the Commissioner of income tax (Appeals) and the appellate authority partly allowed the appeal with respect to part amount said to be received by the company through its directors and promoters. The Commissioner of income tax (Appeals) held that the part of the amount received through banking channels from the directors and promoters of the company cannot be said to have been received by the company in cash from the lenders and therefore, it cannot be said that the aforesaid amount has been received in violation of the provisions of Section 269SS of the income tax Act. However, the appellate authority categorically affirmed the finding of the Deputy Commissioner of income tax in respect of the remaining amount received in cash by the company and reduced the penalty to Rs. 67,540 vide order dated December 30, 1996 (annexure C). Against the reduction part of this order, the Revenue preferred an appeal before the Tribunal, by which the penalty was reduced to Rs. 67,540 holding that the part of the amount was received through banking channel and not cash payment. The Assessee also filed cross-objection aggrieved by part rejection of his appeal to the extent indicated above. The Tribunal has held that the order reducing the amount of penalty has rightly been passed by the appellate authority and thus it dismissed the Revenue''s appeal as also the cross-objection of the Assessee.

Learned Counsel for the Revenue has submitted that the Tribunal has erred in law in dismissing the appeal without interpreting the provisions of Section 269SS of the Act and while reducing the penalty u/s 271D of the Act from Rs. 13,15,540 to Rs. 67,540, no finding was recorded as to whether or not the receipt of the amount of the company from its directors/promoters was in accordance with the requirement of, Section 271D of the Act.

It is an admitted fact that the money was deposited by the directors in the bank account of the Assessee, therefore, the transaction was genuine.

The Tribunal was of the opinion that the default, if any, was unintentional and therefore, it constitutes reasonable cause within the meaning of Section 273B of the income tax Act.

Section 269SS of the income tax Act provides for mode of taking or accepting certain loans and deposits. It reads as under:

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 Clause (a) together with 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 that 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 v. of the Banking Regulation Act, 1949 (10 of 1949);

(iii) ''loan or deposit'' means loan or deposit of money.

A perusal of the above quoted provisions would show that Section 269SS shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by any banking company, post office savings bank or co-operative bank.

Further, Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, exempts any amounts received from a person who at the time of the receipt of the amount was a director of the company, or any amount received from its shareholders, by a private company, or by a private company which has become a public company. Rule 2(b)(ix) of the Rules, 1975, is relevant here and quoted below:

Definitions.-- ... (a) ''Act'' means the Companies Act, 1956 (1 of 1956);

(b) ''deposit'' means any deposit of money with, and includes any amount borrowed by, a company, but does not include-- . . .

(ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from its shareholders, by a private company, or by a private company which has become a public company u/s 51 of the Act and continues to include in its articles of association provisions relating to the matters specified in Clause (iii) of Sub-section (1) of Section 3 of the Act:

Provided that the director or shareholder, as the case may be, from whom the money is received furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others;

Explanation.--For the removal of doubts, it is hereby declared that any deposit received or renewed by a company before the commencement of the Companies (Acceptance of Deposits) (Amendment) Rules, 1978, shall continue to be governed by the rules applicable at the time of such deposit or renewal, as the case may be.

Here, in the instant case, the transactions in question were through bank and were deposited by some of the directors/promoters of the asses-see-company. Therefore, we see no illegality or impropriety in the impugned order dated November 25, 1999 passed by the Tribunal. Thus, no substantial question of law is involved in this appeal. The appeal is therefore dismissed.