Karnataka H.C : These appeals are directed against the consolidated order of the Single Judge in W.P. Nos. 30318/1994 and 33115/1995 [reported as Chamundi Granites (P) Ltd. vs. Dy. CIT & Anr. (1999) 157 CTR (Kar) 128] dismissing the writ petitions thereby upholding the vires of s. 269SS of the IT Act, 1961 (for short, ‘the Act’). On merits the appellant has been permitted to file the appeal provided under the statute within four weeks from the date of the judgment without objection to the limitation.

High Court Of Karnataka

Chamundi Granites (P) Ltd. vs. Deputy Commissioner Of Income Tax & Anr.

Section 269SS

Asst. Year 1991-92

Ashok Bhan & V.G. Sabhahit, JJ.

Writ Appeal Nos. 5447 & 5448 of 1999

25th March, 2000

Counsel Appeared

K.R. Prasad, for the Appellant : M.V. Seshachala & Ashok Haranahalli, for the Respondents

JUDGMENT

ASHOK BHAN, J. :

These appeals are directed against the consolidated order of the Single Judge in W.P. Nos. 30318/1994 and 33115/1995 [reported as Chamundi Granites (P) Ltd. vs. Dy. CIT & Anr. (1999) 157 CTR (Kar) 128] dismissing the writ petitions thereby upholding the vires of s. 269SS of the IT Act, 1961 (for short, ‘the Act’). On merits the appellant has been permitted to file the appeal provided under the statute within four weeks from the date of the judgment without objection to the limitation.

2. Facts : Appellant company is regularly assessed to tax under the relevant provisions of the Act. For the asst. yr. 1991-92, the appellant was assessed at nil income vide order of assessment dt. 21st Feb., 1994. While concluding the assessment the AO, initiated proceedings under s. 271D which provides for levy of penalty for infraction of s. 269SS. Sec. 269SS penalises the borrower for obtaining cash loan of Rs. 20,000 or more.

3. Appellant had borrowed the following sums of money from its directors during the accounting year ending 31st March, 1991. The amounts were taken in cash. According to the appellant, the sums were borrowed to meet urgent needs of business. As the sums were borrowed in cash the first respondent initiated proceedings under s. 271D r/w s. 269SS and levied penalty in the sum of Rs. 12,50,000 equal to the amount borrowed over-ruling the detailed explanation filed by the appellant.

4. Aggrieved by the levy, the appellant filed the writ petition under Art. 226 of the Constitution of India challenging the vires of s. 271D and s. 269SS and also contested that on the facts and in the circumstances of the case no penalty was leviable. Even if the penalty was leviable the amount specified was only the maximum amount and depending upon the facts of a case penalty in a smaller sum could be levied. In the circumstances of the present case a token penalty would meet the ends of justice. Regarding the constitutional validity it was contended that s. 269SS creates a hostile discrimination against the borrower vis-a-vis the lender and, therefore, it is violative of Art. 14 of the Constitution. That s. 269SS is ultra vires the IT Act. Entry 82 in the Union list of VII Schedule provides for taxing the income only. Even though matters incidental to the taxing of income would be within the purview of the IT Act; subjects which have nothing to do with the computation of income as such cannot be dealt with under the Act. For this purpose relying upon the various decisions of the Supreme Court it was submitted that the expression ‘income’ though wide in its amplitude cannot take into account items which no rational person could consider as income. The AO had not disputed that the amounts were genuine. The IT Department did not question the genuineness of the loan while framing the assessment of the lenders. Where the sums in question do not represent the black money and are fully explained, then such sums cannot be treated as income under the relevant provisions of the IT Act as well as under the general law. Penalty for the purpose of evasion of tax undoubtedly is incidental to the levy of tax. When a certain receipt could by no stretch of imagination be called as income and has not been or cannot be treated as such, penalising a person for having borrowed money was beyond the purview of the Act. It was pointed out that even persons who otherwise would not fall under the purview of the Act at all would become punishable under s. 271D merely by reason of the borrowings of sums in cash which was not permissible. Without treating the sums in question as income, it is impermissible to levy penalty in respect of the sum, as purported by s. 271D. Another ground taken is that the provisions of s. 271D were perverse and arbitrary. Even if the same sum were to be lent, returned or relevant, over and again the penalty is not confined to the sum brought in but to the aggregate of the borrowings made from time to time. If the intention was to arrest the proliferation of black money such amount should be related to the amount of black money. Where the penalty can be as large a multiple, as could be conceived of such money the provisions could not stand the scrutiny of Art. 14 of the Constitution of India.

On merits it was contended that even if the penalty was leviable the amount specified was only the maximum amount. It was not obligatory to levy the maximum amount of penalty prescribed under the Act. It was permissible to levy a smaller amount of penalty also depending upon the circumstances of the case. As in the present case the genuineness of the loans was not questioned, the assessing authority erred in levying the maximum amount of penalty. A token levy of penalty would have satisfied the majesty of law.

Learned Single Judge did not accept either of the submissions. It was held that s. 269SS was neither arbitrary nor unreasonable. There was no hostile discrimination between the borrower and the lender. The lender and the borrower constituted different classes. It was held that s. 269SS was not beyond the legislative competence of the Parliament or being in excess of the authority given to it to enact laws under entry 82 of the Union List in VII Schedule. After upholding the vires of s. 269SS. Single Judge did not go into the merits of the dispute and instead relegated the appellant to file the appeal provided under the statute. The period of limitation was extended for 4 weeks from the date of the passing of the order.

As the vires of a Central Act had been challenged we had issued notice to the Attorney General of India who was duly served and represented. Arguments raised before us are the same/on similar lines as were raised before the Single Judge. Counsel for the parties were heard at length. To substantiate the submission that s. 269SS creates a hostile discrimination between the lender and the borrower and therefore violative of Art. 14 of the Constitution of India, counsel for the appellant relied upon the Single Bench judgment of the Madras High Court in Kumari A.B. Shanthi @ Vennira Adai Nirmala vs. Asstt. Director of Income-tax (Investigation) (1992) 197 ITR 330 (Mad) : TC 70R.386. It has been held in the said judgment that when a lender is left out and only the borrower is punished, then the provisions are per se discriminatory. When lender and borrower stand on the same footing in a transaction of loan then they should be treated similarly. The further observation is that to some extent the lender stands on a worse footing.

11. In our opinion the findings recorded by the Single Judge are not justified. Decision of the Single Bench is dt. 21st April, 1992. A Division Bench of the same High Court in KRMV Ponnuswamy Nadar Sons vs. Union of India & Ors. (1992) 196 ITR 431 (Mad) : TC 70R.395 decided on 11th Sept., 1989 considered the same question and upheld the constitutional validity of s. 269SS. The validity of s. 269SS having been upheld already by a Division Bench, it was not open to the Single Judge of the same Court to consider the question afresh on the ground that the arguments raised before him had not been raised before the Division Bench. Judicial discipline requires this. Otherwise law of precedent would lose all its meaning, intent and content. Once an authoritative law is laid down by a Bench of the High Court, then it is no longer open to recanvass the same on new grounds or reasons that may be put forth in its support unless the Court deems it appropriate to refer it to a larger Bench. As observed by the Supreme Court in D.K. Yadav vs. J.M.A. Industries Ltd. 1993 (3) SCC 259 every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. It does not lose its authority merely because it was badly, argued, inadequately considered and fallaciously reasoned. It was observed : “The contention of Dr. Anand Prakash that since this appeal was deleted from the Constitution Bench to be dealt with separately, the finding of the Constitution Bench deprived the respondent of putting from the contention based on cl. 13 of the Certified Standing Order to support impugned action and the respondent is entitled to canvass afresh the correctness of the view of the Constitution Bench is devoid of force. It is settled law that an authoritative law laid after considering all the relevant provisions and the previous precedents, it is no longer open to be recanvassed the same on new grounds or reasons that may be put forth in its support unless the Court deemed appropriate to refer to a larger Bench in the larger public interest to advance the cause of justice. The Constitution Bench in fact went into the selfsame question vis-a-vis the right of the employer to fall back upon the relevant provision of the certified standing orders to terminate the service of the work man/employee. By operation of s. 2(oo) the right of the employer under cl. 13(2)(iv), and the contract of employment has been affected. Moreover in Ambika Prasad Mishra vs. State of U.P. a Constitution Bench held that every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. It does not lose its authority ‘merely’ because it was badly argued, inadequately considered and fallaciously reasoned. In that case the ratio of this Court on Art. 31-A decided by a thirteen-Judge Bench in Kesavananda Bharati vs. Union of India was sought to be reopened but this Court negatived the same.”

12. Apart from the Division Bench judgment of the High Court of Madras, three other High Courts in Sukhdev Rathi vs. Union of India & Anr. (1994) 116 CTR (Guj) 620 : (1995) 211 ITR 157 (Guj) : TC S70.4644, Narasingh Ram Ashok Kumar vs. Union of India & Ors. (1999) 153 CTR (Pat) 502 : (1998) 234 ITR 414 (Pat) : TC S70.4640 and Mehta Vegetables (P) Ltd. vs. Union of India & Anr. (1999) 154 CTR (Raj) 124 : (1998) 234 ITR 425 (Raj) : TC S70.4641 have also upheld the constitutional validity of s. 269SS. All of them have differed with the view taken by the Single Judge of the High Court of Madras in A.B. Shanthi’s case (supra), High Court of Gujarat in its judgment in Sukhdev Rathi’s case (supra), while differing with the view taken by the Single Judge and upholding the vires of s. 269SS observed: “With due respect to the Madras High Court it is not possible to agree with the view taken by it. A borrower by adopting the device of giving a false explanation or making false entries or by obtaining confirmatory letters is found evading payment of tax. Thus, the borrower as a class is found to be indulging in such practices. By making such false entries or by giving false explanations or by creating false evidence, it is the borrower who was found to be evading payment of tax. In the case of a lender, we fail to appreciate how while lending money by not making payment by a cheque or a draft, he would evade payment of income-tax. Therefore though the transaction of loan can be regarded as a single transaction, and the borrower and the lender can be said to be equal integral parts, when we view them from the angle of tax evasion, we find that they cannot be regarded as equals or similarly situated. Compared to the class consisting of lenders, the class consisting of borrowers can be said to be in a position to evade tax by adopting the devices, for curbing which provisions have been made in Chapter XX-B by inserting s. 269SS and other sections. In our opinion, the classification made by the legislature is based on intelligible differentia and for that reason cannot be said to be discriminatory or in any manner violative of Art. 14 of the Constitution. This classification has obviously a rational nexus sought to be achieved by the provisions. Even learned counsel for the petitioner could not seriously challenge that the prohibition contained in s. 269SS, if it is otherwise valid, is not likely to achieve the object for which the said provision is made. If the mode of taking or extracting loans or deposits is checked in this manner, it would certainly, to some extent, achieve the object of evasion of tax because the transactions of loans and deposits which are not genuine and which formerly could be passed off as genuine would now be less as a result of the prohibition contained in the section.

The restriction which has been imposed by s. 269SS cannot be said to be unreasonable and it has been held like that by the Madras High Court in KRMV Ponnuswamy Nadar Sons & Ors. vs. Union of India & Ors. (1992) 196 ITR 431 (Mad) : TC 70R.395. In that case, s. 269SS was challenged as ‘draconian in nature or arbitrary in character’. This challenge was negatived by the Madras High Court on the ground that if reasonable cause was shown by the assessee, then he could not be punished and that the prosecution could be at the instance of the Chief CIT or CIT, who were the highest functionaries in the IT Department. Now, there is no provision for prosecution but we have the provision for penalty only. But the same reason would be available for holding that there is sufficient safeguard against any arbitrary action and, therefore, in that sense the provision is reasonable. Merely because this provision may cause hardships to some persons that can hardly be regarded as sufficient for the purpose of invalidating the section, particularly, when we find that it is preventive in nature, although penal in character, and that it has been enacted in the interest of public revenue.”

13. We respectfully endorse, adopt and follow the view expressed in this judgment. Sec. 269SS does not say that loans cannot be taken. It puts restriction on taking loans or deposits otherwise than by way of account payee cheques. It does not take away the rights of the person. It only prescribes the mode in which the loan can be taken. It is a reasonable restriction. Restriction has been put to ensure prevention of evasion of tax by making fictitious entry in the books of accounts without there being actual transaction. No doubt transaction of loan or deposit involves two persons in the same transaction. The lender and the borrower are integral parts of the transaction. The borrower or lender both are similarly situated, so far as the borrowing and deposit is concerned. But when it comes to evasion of tax they cannot be regarded as equals or similarly situated. When a lender gives the money he comes out in open and declares the cash. Borrower can be said to be in a better position to evade the tax by adopting the device of introducing fictitious entries in the books of accounts. Legislature keeping in view its experience gathered in the course of searches conducted by the IT Department that unaccounted cash found was explained by the taxpayers as representing the loans taken from or deposit made by various persons which was being explained by getting confirmatory letters from such persons in support of such explanation thought it necessary to provide the machinery prescribing a mode in which a loan can be taken. The classification made by the legislature is based on intelligible differentia and for that reason cannot be said to be discriminatory or in any manner violative of Art. 14 of the Constitution of India. Accordingly it is held that s. 269SS does not further from the vice of hostile discrimination.

14. Counsel for the appellant argued that under entry 82 of the Union list which reads : ‘Taxes on income other than agricultural income’ the Parliament can pass the laws relating to taxing of income only and as the sums borrowed were not the income of the borrowed, the Parliament did not have the jurisdiction to provide for levying of penalty on a sum which was not treated to be income.

15. Reliance was placed on the decision of the Supreme Court in Navinchandra Mafatlal vs. CIT (1954) 26 ITR 758 (SC) : TC 20R.121 wherein it was held that natural meaning of income embraces any profit or gain which is actually received. Reliance was also placed on the judgment of the Supreme Court in CIT vs. Khatau Makanji Spg. & Wvg. Co. Ltd. (1960) 40 ITR 189 (SC) : TC 38R.494 where the additional income-tax charged in respect of dividends distributed in excess of the specified limit under cl. (ii) of the proviso to para B of Part I of the First Schedule to the Finance Act, 1951, as applied to the asst. yr. 1953-54 by the Finance Act, 1953, was held not a valid charge, on the ground that the Finance Act, 1951 did not lay down that it should be treated as a part of the total income.

16. Argument though alternative is devoid of any force. Entries in the three lists in VII Schedule provide the legislative fields in which the respective legislatures can legislate. It would include all subsidiary or ancillary matters. The entries in the list have to be given the widest possible interpretation. While taxing the income, the legislature would have the legislative competence to provide a machinery for recovery of tax and prevent the evasion of tax. In Baldeo Singh vs. CIT AIR 1961 SC 736 the Constitution Bench of the Supreme Court while interpreting entry 54 of 1935 Act (which is equivalent to entry 82 of list I of the Constitution) held : “In spite of all this it seems to us that the legislation was not incompetent. Under entry 54 a law could of course be passed imposing a tax on a person on his own income. It is not disputed that under that entry a law could also be passed to prevent a person from evading the tax payable on his own income. As is well known the legislative entries have to be read in a very wide manner and so as to include all subsidiary and ancillary matters. So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances. Experience has shown that attempts to evade the tax are often made.”

17. Similarly in Khyerbari Tea Co. Ltd. vs. State of Assam & Ors. AIR 1964 SC 925 it was held : “This argument of legislative incompetence seems to assume that Entry 56 requires that the tax must be levied by the State legislature on goods which are carried only against the owner of the goods that are carried, or against the persons who carry them. We do not see any justification for introducing such limitations in the said Entry. It is hardly necessary to emphasise that entries in three lists in the Seventh Schedule which confer legislative competence on the respective legislatures do deal with the topics covered by them must receive the widest possible interpretation; and so it would be unreasonable to read in the entry any limitation of the kind which Mr. Pathak’s argument seems to postulate. Besides, it is well settled that when a power is conferred on the legislature to levy a tax, that power itself must be widely construed; it must include the power to impose a tax and select the articles or commodities for the exercise of such power; it must likewise include the power to fix the rate and prescribe the machinery for the recovery of the tax. This power also gives jurisdiction to the legislature to make such provisions as, in its opinion, would be necessary to prevent the evasion of the tax. In imposing taxes, the legislature can also appoint authorities for collecting taxes and may prescribe the procedure for determining the amount of taxes payable by any individual; all these provisions are subsidiary to the main power to levy a tax and, therefore, once it is shown that the tax in question has been levied on goods carried, it would be open to the legislature to prescribe the machinery for recovering the said tax. As was observed by Chief Justice Marshall in McCulloch vs. Maryland (1819) 4 Law Ed 579 at p. 607 ‘the power of taxing the people and their property is essential to the very existence of Government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it’. The statement of law must, however, be read subject to the condition that even tax statutes have to satisfy the test of reasonableness prescribed by cl. (6) of Art. 19, and the fundamental right of equality before law guaranteed by Art. 14 as well as the test prescribed by Art. 301.” In Attar Singh Gurmukh Singh etc. vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC) : TC 18R.444 Supreme Court considered the constitutional validity of s. 40A(3) of the Act which provided that expenditure in excess of Rs. 2,500 (Rs. 10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft except in specified cases. It was held s. 40A(3) was not arbitrary and does not amount to a restriction on the fundamental right to carry on business. The payment by crossed cheque crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The vires of s. 40A(3) were upheld. The point in issue in the present case is analogous to the point involved in the said case. There also the Parliament provided a machinery section to curb the evasion of tax. Though the assessee may have incurred expenditure but the same could be allowed as a deduction only, if it was made by way of cross cheque or a cross bank draft. In the present case as well there is no restriction in taking the loan. But the loan has to be taken in prescribed mode and this has been done to curb the evasion of tax. The law laid down by the Supreme Court in Attar Singh’s case (supra) should be applicable to the present case as well. Again in Union of India & Anr. vs. A. Sanyasi Rao & Ors. (1996) 132 CTR (SC) 81 : (1996) 219 ITR 330 (SC) : TC S5.562 Supreme Court considered the constitutional validity of ss. 44AC and 206C. There also the arguments raised was that it was beyond the legislative competence of the Parliament under entry 82 of the Union list to enact ss. 44AC and 206C. The object in enacting ss. 44AC and 206C of the Act is to enable the Revenue to collect the legitimate dues from the persons carrying on particular trades in view of the peculiar difficulties experienced in the past. In order to prevent evasion of tax due on such income ss. 44AC and 206C were enacted so as to facilitate the collection of tax on the income which is bound to arise or accrue at the very inception itself or at an anterior stage. Supreme Court upheld the constitutional validity of s. 44AC r/w s. 206C. It was held that the basis of the charge relating to income-tax is laid down in ss. 4 to 9 and s. 44AC and s. 206C were only machinery provisions and not charging sections. Authority to impose tax under entry 82 would also include the authorisation to enact a provision which prevents the evasion of tax. To appreciate the background under which s. 269SS was enacted it would be useful to refer to the speech made by the Finance Minister on Finance Bill of 1984. The Finance Minister in his speech said : “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, land taxpayers are also able to get confirmatory letters from such persons in support of their explanation.

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 provisions 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.

The proposed prohibition will, however, not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by, the following, namely : (a) Government; (b) any banking company, post office savings bank or any 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; (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.

For the purposes of the proposed provisions, the expression ‘banking company’ shall have the meaning assigned to it in cl. (a) of the Expln. to s. 40A(8) of the IT Act and the expression ‘cooperative bank’ shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. The expression ‘loan or deposit’ for the purposes of proposed provision, would mean loan or deposit of money.”

From the perusal of the speech of the Finance Minister it is clear that object of s. 269SS is to curb the evasion of tax. On the experience gained in the course of searches carried on by the IT Department that unaccounted cash in the books of accounts was sought to be explained by taxpayers as loan taken or deposit made by some persons. They were also able to take confirmatory letters from them. With a view to circumventing this device, which enables taxpayers to explain their unaccounted cash or unaccounted deposits, the provision was added 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 deposit or aggregate amount of loan is Rs. 10,000 or more (which was later increased to Rs. 20,000). Contravention of s. 269SS would lead to levy of penalty under s. 271D or imprisonment for a term which could extend to 2 years. The provision regarding imprisonment has now been deleted. Sec. 269SS r/w s. 271D would be a machinery section to curb the evasion of tax. Levy of penalty on the unaccounted cash which has escaped tax would be incidental and ancillary to taxing the income under entry 82 of Union list. On a liberal construction put to the word ‘income’ occurring in entry 82 of list I, the power to legislate will take in all incidental and ancillary matters including the authorisation to make provision to prevent evasion of tax, in any suitable manner. Sec. 269SS provides the mode to ensure the prevention of evasion of tax and to avoid fictitious entries to be made in the books of accounts without there being any actual transaction. The provision carries the object of the legislation. It covers the loopholes to evade tax. There is no infirmity in the enactment of such provision. It would not be beyond the legislative competence of the Parliament to enact such provision.

Another argument raised before us was s. 269SS places undue hardship on the borrower and therefore unreasonable. Sec. 269SS r/w s. 271D regulate the taking of loan or deposit to prevent the use of unaccounted money and to use black money by making fictitious entry. Undue hardship may be caused to a few while implementing the law, but that by itself would not be a ground to strike down the provision. In the present case we find the legislature has enacted s. 273B which provides that notwithstanding anything contained in the provisions of s. 271D, 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 such failure. It shows that if an assessee proves that there was reasonable cause for failure to take loan otherwise than by way of cheque or draft then the penalty may not be levied. Undue hardship, if any, stands reduced or mitigated to the minimum because of this provision in the Act. Genuine and bona fide transactions are saved by s. 273B. Sec. 269SS and 271D cannot be read in isolation, but have to be read along with s. 273B which provides that genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the assessing authority the circumstances under which the payment in the manner prescribed in s. 269SS was not practicable or would have caused genuine difficulty in taking loan/deposit. If he is able to show that, then the penalty may not be levied. Supreme Court while dealing with similar arguments in Attar Singh Gurmukh Singh’s case (supra) held : “In our opinion, there is little merit in this contention. Sec. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the AO to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of s. 40A(3) are not absolute. Considerations of business expenditure and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of s. 40A(3) and r. 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See Mudiam Oil Company vs. ITO (1973) 92 ITR 519 (AP)]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft, then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute, the Court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.”

Lastly it was contended that if the loan is taken again, repaid, taken again and repaid, it may result in levy of penalty more than the loan once taken and therefore confiscatory. There is no substance in this submission as well. Legislature intended to check the transactions which are beyond the prescribed limits. Argument that loan of Rs. 10,000 taken; returned, and again taken and returned, would result in levy of penalty to the tune of Rs. 20,000, whereas the money remains the same, is not acceptable. The legislature intended to check the transaction. It is difficult to identify that it is the same money which has been given, taken and retaken over a number of times. Every time the transaction invites a fresh cause to levy the penalty. Submission made is without any substance.

Learned Single Judge has rightly relegated the appellant to file the appeal on merits of the dispute regarding the extent of penalty leviable. In case appeal has not been filed, we extend the time by another two weeks from today. If the appeals are filed within two weeks from today, they be entertained without objection to limitation.

Dismissed with no order as to costs.

[Citation : 245 ITR 661]

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