The Commissioner of Income Tax vs Idhayam Publications Limited

P.P.S. Janarthana Raja, J.—The present appeal is filed u/s 260-A of the Income Tax Act, 1961 by the Revenue, in I.T.A. Nos.

1187/Mds/1998 dated 13.07.2004, passed by the Income Tax Appellate Tribunal, Madras ""B"" Bench raising the following formulated substantial

question of law.

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the penalty levied u/s 271D of the Income Tax

Act, even though the Supreme Court held that Section 269SS is constitutionally valid in law?

The assessee is running a company in the name of M/s. Idhayam Publications Private Limited for publication of books. The relevant assessment

year is 1992-93. In the assessment proceeding, the Assessing Officer noted that the assessee had accepted a cash loan of Rs. 2,94,000/- from

M/s. Manian Creations, a sister concern, in violation of the provisions of Section 269SS of the Act. With the above information, the Deputy

Commissioner of Income Tax initiated penal proceedings u/s 271D and issued a show cause notice dated 19.09.1997 to the assessee. In

response, the assessee filed a letter dated 27.09.1997 stating that the transaction between the assessee and Mr. S.V.S. Manian, Proprietor of

Manian Creation, was current account in nature and was not a loan or deposit. The Deputy Commissioner of Income Tax rejected the contention

and was of the view that there was a clear violation of provisions of Section 271D and levied a penalty of Rs. 2,94,000/- u/s 271D of the Act.

Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax

(Appeals) held that even though there was a reasonable cause to hold that there was a violation of the provision u/s 269SS which attracted penalty

u/s 271D, it has referred the Madras High Court Judgment in the case of Kumari A.B. Shanthi (alias) Vennira Adai Nirmala Vs. Assistant Director

of Inspection, Investigation, , which declared that Section 269SS is unconstitutional. Aggrieved by that order, the Revenue filed an appeal before

the Income Tax Appellate Tribunal and contended that the Supreme Court has reversed the decision of the Madras High Court Judgment in

Kumari A.B. Shanthi (alias) Vennira Adai Nirmala Vs. Assistant Director of Inspection, Investigation, and held that Section 269SS is

constitutionally valid and therefore the penalty levied by the Assessing Officer ought to be considered. The Tribunal, on hearing the arguments, held

that, on merits, the transaction does not fall within the meaning of loan or advance and hence there is no violation of Section 269SS.

We heard the arguments of the learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr. S.V.S.

Manian was one of the Directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of

account of the assessee in the name of Mr. S.V.S. Manian. Mr. S.V.S. Manian used to pay the money in the current account and used to

withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit

within the meaning of Section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or

advance. Further it was also found that the assessee filed a letter dated 29.09.97 and in that letter he explained that the amount received from Mr.

S.V.S. Manian had been shown as ""unsecured loan from directors"" in the Balance Sheet. As per the Companies Act, under Companies

(Acceptance of Deposit) Rules 1975, under Rule 2(b)(ix), deposit does not include any amount received from a Director or a share holder of a

Private Limited Company. Therefore the transaction between the appellant and the Director cum Share holder is not a loan or deposit and it is only

current account in nature and no interest being charged for the above transaction.

In the foregoing conclusions, we are of the view that, since the said transaction does not fall within the meaning of loan or advance, there is no

violation of Section 269SS of the Income Tax Act. We find no error in the order of the Tribunal and the same requires no interference. Hence, no

substantial question of law arises for consideration of this Court. Accordingly, we dismiss the above tax case. No costs.