Dhanji R. Zalte vs Assistant Commissioner Of ...
2003 Latest Caselaw 450 Bom

JUDGMENT

B.H. Marlapalle J.

1. These six appeals arise out of a common decision dated September 13, 2002, in Income-tax Appeals Nos. 366, 419 to 423 of 1998, by the Income-tax Appellate Tribunal at Pune. As per the office circular dated December 9, 2002, issued by the honourable the Chief Justice, these appeals are being decided at the admission stage itself, after they were certified by the Registry as being ready.

2. The appellant, an advocate enrolled and commenced his practice in 1968 at Chalisgaon in Jalgaon district, claims to have specialised in land acquisition cases under the Land Acquisition Act, 1894 ("the Acquisition Act," for short), from 1984 onwards. He claims that his exclusive practice network is spread over in different districts like Jalgaon, Buldhana, Nasik, Dhule, Aurangabad and Thane, etc., with his associates/colleagues being present at each district headquarters. He was an income-tax payer of fifteen years standing. One Shri Vishnu Laxman Patil, who was purportedly one of his associates (advocate's clerk most likely) provided information to the income-tax authorities and consequently a raid and search operation was carried out at his residential and other premises by the Income-tax Department from August 21, 1995, to August 22, 1995, in which various incriminating documents, records were seized. His statement was recorded along with the statement of Shri Vishnu Laxman Patil and others during the course of search.

3. On August 24, 1996, the Assistant Commissioner, Income-tax Circle at Jalgaon, passed a block assessment order for the block period from April 1, 1985, to August 21, 1995, under Section 158BC read with Section 143(3) of the Income-tax Act, 1961 (for short, "the Income-tax Act"), holding, inter alia, that the assessee had earned professional income at the rate of 12 per cent, of the amount of compensation disbursed in the cases conducted by him and assessed the taxable income to Rs. 2,00,20,520 (rupees two crores twenty thousand five hundred twenty only) by giving set off of Rs. 79,00,000 to the tax already paid. In the said order, the Assistant Commissioner had noted that the asses-see was guilty of violating the provisions of Sections 269SS and 269T of the Income-tax Act inasmuch as loans as well as deposits in excess of Rs. 20,000 were accepted and repaid in cash as per the statement in annexure A to the said order. From this order three different proceedings emanated.

4. The first being the assessee preferred an appeal before the Income-tax Appellate Tribunal at Pune. The said appeal was decided on March 31, 1999. The appeal was partly allowed and the Deputy Commissioner was directed to issue fresh assessment orders. On June 4, 1999, the Deputy Commissioner, Jalgaon, issued an order giving effect to the Income-tax Appellate Tribunal's order and accordingly the issue of payment of tax on the excess undisclosed income has been settled.

5. On the basis of the observations made in para. 41 of the order dated August 24, 1996, by the Assistant Commissioner of Income-tax, Jalgaon, regarding deposits, advances and loans by cash transactions, two separate notices came to be issued against the assessee on or about August 28, 1996, and he was called upon to show cause as to why penalty under Sections 271D and 271E should not be imposed. The assessee submitted his reply to the said show cause notice on November 15, 1996, and contested it on various grounds. So far as the proceedings under Section 269T read with Section 271E of the Income-tax Act are concerned, the Tribunal allowed Appeals Nos. 956 to 961 of 1998 by its order dated June 9, 2000, by holding that penalty under Section 271E of the Income-tax Act was not leviable on the ground that repayment of the loan was in respect of the loans and not in the respect of the deposits and the said provisions were applicable only to deposits.

6. Now coming to the show cause notice issued under Section 269SS for imposing penalty under Section 271D of the Income-tax Act, the Deputy Commissioner of Income-tax, Jalgaon, by his order dated March 24, 1997, confirmed the show cause notice for six assessment years, i.e., yearwise 1990-91 to 1995-96. These six orders passed separately were challenged in an appeal before the Commissioner of Income-tax (Appeals) at Nashik and by common order dated March 11, 1998, these appeals came to be decided. The Commissioner observed that the assessee had contravened the provisions of Section 269SS by obtaining loans otherwise than by account payee cheques or by demand drafts for the assessment years 1990-91 to 1995-96 and, therefore, was liable for penalty under Section 271D of the Income-tax Act. However, it was noticed during the course of the appellate proceedings that in the assessment years 1993-94 to 1995-96 even deposits, which were below the ceiling limits of Rs. 20,000 were also taken into consideration. In view of the amendment effected to the provisions of Section 269SS with effect from April 1, 1989, the Commissioner (Appeals) directed the Assessing Officer to exclude the amount for these years which were below the ceiling limit of Rs. 20,000 for levying penalty under Section 271D, after verification. In short, the order passed by the Assessing Officer, i.e., the Deputy Commissioner, was confirmed for the accounting years 1990-91 to 1992-93 whereas for the subsequent three accounting years, i.e., 1993-94 to 1995-96 the appeals were partly allowed by deletion of amounts below Rs. 20,000 in each year for the purpose of levying penalty under Section 271D of the Income-tax Act. This order was also carried in appeal by the assessee before the. Income-tax Appellate Tribunal, i.e., Income-tax Appeals Nos. 366, 419 to 423 of 1998 and have been dismissed by the impugned decision dated September 13, 2002.

7. Thus, the matter of challenge before us is only the penalty levied against the assessee under Section 271D for violating the provisions of Section 269SS of the Income-tax Act and the said penalty amount for the respective years is as under:

 Assessment year       Amount (Rs.)
1990-91                   50,000
1991-92                   70,000
1992-93                   5,31,400
1993-94                  14,51,449
1994-95                  13,09,800
1995-96                  8,06,000

 

The show cause notice dated August 28, 1996, was confirmed by the Deputy Commissioner of Income-tax, by his order dated March 24, 1997, after hearing the assessee at length and taking into consideration the objections that he had raised. The Commissioner (Appeals) considered the said grounds afresh and confirmed the order of penalty for the first three years and modified the penalty orders for the subsequent three assessment years by directing that the amount below Rs. 20,000 ought to be deleted for the purpose of levying penalty under Section 271D of the Income-tax Act. All the points of facts as well as law, as were raised by the assessee, were considered by the Commissioner (Appeals) while passing the order dated March 11, 1998. Before the Income-tax Appellate Tribunal the very same grounds were again reiterated and the Tribunal turned down all the objections and confirmed the order passed by the Commissioner (Appeals).

8. In this third round of appeal before us, Shri Joshi, learned counsel appearing for the appellant-assessee, has reiterated the very same issues, by and large. In addition a grievance was raised that the documents on the basis of which show cause notice dated August 14, 1996, was issued were not made available to the appellant-assessee for a long time and after the copies of the same were served on him he was apprehending that the Assessing Officer, while passing his order dated March 24, 1997, did not verify these documents and the assessment was confirmed mechanically. He further submitted that even when the Commissioner (Appeals) decided these claims on 11th documents. These submissions are required to be considered only for being rejected. The orders of both the authorities below very clearly refer to the documents at serial No. 10 (file containing loose documents loan transactions), 14 (diary styled as inward/outward diary), 15 (file containing various cheques and other loose papers indicating receipts, etc.), 21 (file containing loose documents), 22 (file containing loose papers/cheques/promissory notes, etc.), 42 (register showing money transactions), 44 (register showing money transactions), 45 (register showing money transactions), 46 (register showing money transactions) and 26 (receipt book) of the inventory attached to the panchanama dated August 22, 1995, drawn at the time of search and seizure operation. The said documents have been produced before us, as was demanded by the assessee. We have perused the same and we have noted from the statement given by the assessee, during the course of search operation to the raiding party, that he had unequivocally accepted the veracity of these documents along with their contents. There is an admission to the effect that these documents were collected during the course of search and seizure operation and the statement of Shri Vishnu Laxman Patil was also recorded during the same operation. On a perusal of these documents we have no hesitation in our mind to hold that the authorities below have not committed any error in appreciating these documents, as the basis for a show cause notice under Section 269SS read with Section 271D of the Income-tax Act. The transactions of disbursement of the respective amounts as reflected in these documents are clear and they have not been disputed by the assessee when his statement was recorded. The assessee is not a layman and he was fully aware of the implications of the replies he gave to all the questions.

9. 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 August 22, 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 Income-tax 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 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 Explanation 5 to Section 271(1)(c) of the Income-tax Act, a Division Bench of this court in the case of Sheraton Apparels v. Asst. CIT [2002] 256 ITR 20 held that the said term means those books of account whose main object was to provide credible data 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 up to date information of assets and liabilities so as to provide a profit and loss account and to have a balance-sheet to determine income and the source thereof.

10. Now coming to the scheme of Section 269SS its constitutional validity has been upheld by the apex court in the case of Assistant Director of Inspection (Investigation) v. Kumari A.B. Shanti [2002] 255 ITR 258. Sections 269SS and 271D of the Income-tax Act read thus :

"269SS. 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 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 V of the Banking Regulation Act, 1949 (10 of 1949) ;

(iii) 'loan or deposit' means loan or deposit of money. Sec. 271D. (1) If a person takes or accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.

(2) Any penalty imposable under Sub-section (1) shall be imposed by the Joint Commissioner."

Section 269SS was inserted in the Income-tax Act by the Finance Act of 1984 with effect from April 1, 1984, and was made operative from July 1, 1984. The Income-tax 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 with effect from April 1,1989. 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 with effect from April 1, 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.

11. 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 Income-tax Act were without any material force and it was only a defence for name sake.

The documents produced before us, and as referred to hereinabove, did indicate cash transactions between the assessee and other parties who are mainly the claimants of compensation. The modus operandi of the appellant seems to be unique in its own style. Some of these documents make us believe that out of the enhanced compensation granted, amount up to fifty per cent was deducted at source under various heads like professional fees, advances, expenditure and so on and so forth. Some documents indicate the bank deposit slips and it appears that in some cases the assessee went to the extent of opening bank accounts for individual enhancement claims. As and when the claims were satisfied he has encashed the treasury cheques. He claims to have dealt with about six thousand such claimants spread over in 300 villages but with the same modus operandi. The income-tax authorities assessed his professional fees at 12 per cent. We have our own strong doubts on this issue as well. However, as the orders passed by the lower authorities imposing the additional tax liability have reached their finality, we do not wish to say anything further.

12. So far as Shri Vishnu Laxman Patil is concerned, there is no doubt that the same person was the assessee's clerk and from amongst the incriminating documents seized and produced before us, it is evident that he was maintaining records of the receipts as well as disbursements. Some computerised statements from the seized documents also indicate that annual interest has been charged by the assessee on purported advances given by him to the higher compensation claimants and almost all these transactions are cash transactions. The said Shri Patil is not a third party. The answers to questions Nos. 3, 4, 5, 6, 7, 8, 9 and 10 given by the assessee during the course of recording his statement by the Enforcement Officer on August 22, 1995, are self-speaking and did not leave any scope for the assessee who is a legally trained mind to take any substantial or material defence.

13. Having given our anxious consideration to all the issues raised before us by the assessee and the concurrent findings recorded by the authorities below we do not find any merit in these appeals and no case is made out to take a view different than that of the Commissioner (Appeals).

14. In the result, these appeals fail and they are hereby dismissed by confirming the orders passed by both the appellate authorities below. No costs.

15. In view of final disposal of these appeals, the notices of motion/civil applications in all these appeals, if any, stand disposed of.