Chhattisgarh H.C : the assessee company which were directed against the order of CIT(A), Raipur, reducing the penalty under s. 271D

High Court Of Chhattisgarh

CIT vs. Preeti Fuels & Flames (P) Ltd.

Section 269SS, 271D, Companies (Acceptance of Deposits) Rules, 1975, r. 2(b)(ix)

Asst. Year 1993-94

I.M. Quddusi & N.K. Agrawal, JJ.

IT Appeal No. 77 of 2000

25th November, 2010

Counsel Appeared :

Rajeev Shrivastava, for the Appellant : M.C. Jain, for the Respondent

JUDGMENT

I.M. QUDDUSI, J. :

This is an income-tax appeal filed under s. 260A of the IT Act against the order of the Tribunal, Jabalpur dismissing the appeal of the Revenue vide order dt. 25th Nov., 1999 passed in ITA No. 93/Jab/1997 for the asst. yr. 1993-94. The Tribunal decided the aforesaid appeal along with C.O. No. 12/Jab/1999 filed by the assessee company which were directed against the order of CIT(A), Raipur, reducing the penalty under s. 271D of the IT 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.

2. 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 1st Nov., 1992. The company filed return on 27th Dec., 1993 declaring the total income nil. The search and seizure operation under s. 132(1) of the IT Act were conducted in the residential premises of Shri Pramod Jain on 25th Aug., 1994. During the course of investigation proceedings, the AO observed that the company received loans/deposits amounting to Rs. 13,27,000 from four persons. This was brought to the notice of the then Dy. CIT Range-II, Raipur, for imposing penalty under s. 271D of the IT Act. During the course of penalty proceedings, the Dy. CIT, 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 Dy. CIT passed an order under s. 271D on 30th Sept., 1996 (Annex. A) imposing penalty of Rs. 13,15,540 on the assessee company. (b) Being aggrieved, the assessee preferred an appeal before the CIT(A) 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 CIT(A) 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 s. 269SS of the IT Act. However, the appellate authority categorically affirmed the findings of Dy. CIT in respect of the remaining amount received in cash by the company and reduced the penalty to Rs. 67,540 vide order dt. 30th Dec., 1996 (Annex. 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-objections of the assessee.

3. Learned counsel for the Revenue has submitted that the Tribunal has erred in law in dismissing the appeal without interpreting the provisions of s. 269SS of the Act and while reducing the penalty under 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 s. 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 s. 273B of the IT Act. Sec. 269SS of the IT 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 cl. (a) together with the amount or the aggregate amount referred to in cl. (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 s. 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 Gazettee : 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 s. 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 abovequoted provisions would show that s. 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, r. 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 exempts 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. Rule 2(b)(ix) of the Rules, 1975 is relevant here and quoted below :

“2. 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 under s. 43A of the Act and continues to include in its articles of association provisions relating to the matters specified in cl. (iii) of sub-s. (1) of s. 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.”

8. Here in the instant case, the transaction in question was through bank and was deposited by some of the directors/promoters of the assessee company. Therefore, we see no illegality or impropriety in the impugned order dt. 25th Nov., 1999 passed by the Tribunal. Thus, no substantial question of law is involved in this appeal.

The appeal is therefore dismissed.

[Citation : 330 ITR 129]