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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Assessee by : Ms. Rachna Singh, CIT DR Revenue by: Sh. Dinesh Verma, Adv Date of Hearing 09/11/2016 Date of pronouncement 06/01/2017 O R D E R PER BENCH. These are the appeals filed by the revenue against the order of CIT (A)-I, New 1. Delhi dated 14.10.2010 wherein penalty u/s 271D, 271E levied on the assessee for AY 2003-04 and 2004-05 are deleted. The assessee has filed the cross objection in these appeals. The status of the above appeal is tabulated as under:- 2.
In Section Amount of Year under which penalty the Penalty is levied 2003-04 271D 2,59,35,89,621/- ITA No. 3139/Del/2011 2003-04 271E 64,84,11,381/- ITA No. 3141/Del/2011 2004-05 271E 1,06,67,41,937/- ITA No. 3142/Del/2011 2004-05 271D 3,10,66,04,632/-
The only ground of appeal raised by the revenue is that on the facts and circumstances of the case the ld CIT(A) has erred in cancelling the penalty levied u/s 271D/ section 271E of the Income Tax Act. The brief facts of the case are that the appellant is a partnership firm 4. consisting of three partners namely Shri Subrato Roy Sahara, Sh. JB Roy and Sh. OP Srivastava. The assessee is engaged in the business of mobilization of deposits for and on behalf of its various principles. As the case of the assessee was referred to special audits u/s 142(2A) of the Income Tax Act and it was observed in the audit report that appellant has accepted deposits more than Rs. 20000/- and above on behalf of its principles in violation of provisions of section 269SS and also repaid in violation of provisions of section 269T of the Income Tax Act. On completion of the assessment, the Assessing Officer made a reference to the Additional commissioner of Income Tax for levy of penalty u/s 271D and 271E of the Income Tax Act. it was contended by the assessee that it has accepted the deposits on behalf of its principle and on similar circumstances penalty levied on the appellant in AY 1994-95 has been deleted by the coordinate bench vide order dated 21.12.2005 in ITA No. 640/Alld/1999. Based on the above facts the Addll. Commissioner levied penalty on substantive basis on the principle and to protect the interest of revenue-levied penalty on protective basis on appellant. Aggrieved by the order of adjudicating authority assessee preferred appeal before ld CIT (A), who deleted the penalty. Therefore, the revenue aggrieved by the order of the ld CIT (A) has preferred appeal before us. The ld DR submitted that the assessee has violated the provisions of section 5. 269T of the Act and there is no reasonable cause and therefore, penalty has been rightly levied by the adjudicating authority. It was submitted that the Page 3 of 8 reasons stated by the ld CIT (A) to hold reasonable cause are not falling into the provisions of section 273B of the Income Tax Act.
6. The ld AR submitted that identically in the earlier years, the penalty u/s 271D and section 271E were levied which were deleted by the coordinate bench and the matter is pending before the Hon’ble Allahabad High Court and therefore the issue is squarely covered in favour of the assessee. It was further submitted that the penalty is levied in the hands of the appellant on protective basis and substantive penalty has already been deleted by Hon’ble High Court in the case of the principal.
7. We have carefully considered the rival contention. On reading of the order of penalty by adjudicating authority in para No. 7 it was mentioned as under:- “7 Earlier, in assessee’s own case penalty of Rs. 4157300/- was imposed for AY 1994-95 u/s 271D of the Income Tax Act. In this case, the ld CIT(A) has deleted the said penalty and Hon’ble ITAT has also confirmed the deletion of penalty passed by AO u/s 271D of the Act,, at Rs. 414287300/-. Aggrieved by this order, the revenue has preferred appeal u/s 260A of the Income Tax Act against the ITAT order (No. and CO No. 30/Alld/99 dated 21.12.2005 for the AY 1994-95) and the same is pending for adjudication before the Hon’ble Allahabad High Court.”
The ld CIT(A) has deleted the penalty while deciding ground Nos. 5, 6,7, 9, 10 and 13 of the appeal of the assessee deleting the penalty of Rs. 2593524621/- as under:- “Ground Nos. 5, 6, 7, 9 10 and 13 : These grounds of appeal are being taken together for the sake of convenience as in these grounds of appeal the appellant has referred to various aspects on account of which the levy of penalty in the case of the appellant is bad in law and void ab-initio. In Ground No. 5 he has referred to the legislative intent and introduction of provisions of section 269SS of the Income Tax Act. In Ground No. 6 the appellant has objected to levy of penalty on a protective basis. In Ground No. 7 the appellant has objected to the levy of penalty for the reason that the appellant has only serviced the deposit in the capacity of an agent and not accepted any amount of deposit or taken any loan in its own account. In Ground No. 9 again the appellant has challenged to the levy of penalty on protective basis. In Ground No. 10 the appellant has objected to the rejection of the submissions of the appellant in a cursory manner by the Addl. Commissioner and non appreciation of the nature of the appellant's business. In Ground No. 13 the appellant has objected to levy of penalty in respect of deposit belonging to its principal the same being contrary to language of section 269SS. The appellant is a partnership firm and its main business is that of agency. It acts as an agent for and on behalf of its various principals. In doing so it managers and administers deposit schemes of its principals. It collects deposits under various deposit schemes for Page 4 of 8 and on behalf of the principals, returns deposit schemes for and on behalf of the principals, returns deposit on maturity, makes pre maturity payments, grants loan etc. in accordance with the various terms and conditions of the deposit schemes. The counsel of the appellant placed before me a copy of memorandum of understanding between the appellant and M/s. Sahara India Financial Corporation Limited. The relevant clauses of the said memorandum which is approved by the Central Government reads as follows :- "Now therefore this agreement covenants as under :
1. 1. Sahara India shall continue to work as agent to Sahara India Financial Corporation Limited to conduct, promote, introduce, induce and secure business on behalf of Sahara India Financial Corporation Limited under all its schemes which may be changed, varied, suspended and modified from time to time as per instructions of Sahara India Financial Corporation Limited.
2. Sahara India shall collect the requisite amount from the participating members of savings scheme and shall remit it to Sahara India Financial Corporation Limited the amount so collected through its branches alongwith statement of accounts. Further, the receipt shall be issued to the members in the name of Sahara India Financial corporation Limited, Sahara India shall also arrange on behalf of Sahara India Financial corporation Limited for payment of maturity/ pre- maturity/secured loan to depositors against deposit made by depositors under various savings schemes run by Sahara India Financial Corporation Limited.........." Thus, the Memorandum of understanding between Sahara India Financial Corporation limited and the appellant firm provides that the appellant firm shall act as agent of the company. There is no dispute with the department with reference to the fact that the appellant firm is acting as agent of the company which position stands accepted from the past also. The penalty levied under section 27ID on the appellant firm is, besides the sum of Rs. 65,000/- only, in relation to the deposits which have been collected by the appellant firm for and on behalf of its principal Sahara India Financial Corporation Limited. The firm itself on its own account does not run any scheme of deposit nor has it accepted any deposit or taken a loan in its own account. This fact is also reflected from the annual statements of the firm which were produced before me to show that the firm is not treating the deposits mobilized for and on behalf of the principals as a loan or deposit in its Balance Sheet. Section 269SS of the Income Tax Act reads as follows: "No person shall, after the 30th of June, 1984, take or accept from any other person (herein after 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,......." Section it self lays down that the deposit or loan which is accepted or taken from any other person will be treated as a deposit. If it is being treated as a deposit there must be enforceable contract in law within the meaning of Indian Contract Act, 1872 between the person who has accepted the deposit and the person who has given the deposit. Here in the case the deposit has only been collected by the appellant firm for and on behalf of its principal M/s. Sahara India Financial Corporation limited and the receipt which has been issued by the appellant firm in respect of such Page 5 of 8 deposit also is in the name of Sahara India Financial corporation Limited meaning thereby that the deposit has been received by the appellant firm only in a fiduciary capacity and, therefore, the collection of deposit for and on behalf of the principal cannot be equated with taking or accepting of deposit by the appellant firm in its own account and, therefore, the provisions of section 269SS should not apply to acceptance of such deposit in fiduciary capacity. The contractual relationship which arises by collection of the deposit by the appellant firm is between the company M/s. Sahara India Financial Corporation Limited, i.e. principal and the depositor and the agent is only representing the principal and acting on his behalf for the purpose of carrying on the acts of acceptance of deposit. In view of the provisions of section 182 and 129 of the Contract Act the agent is authorised to do certain acts on behalf of its principal but the liability of the agent is limited. As per section 226 of the Indian Contract Act obligation arising from the acts of the agent are discharged from the principal. This provision is as under:- "Contracts entered into through an agent obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person." It may be pointed out that the issue relating to the role of the assessee in the context of agreement between the assessee and M/s. Sahara India financial Corporation Limited stands examined by the Hon'ble I.T.A.T. in and 374 (Alld.) of 1996 vide order dated 30.06.1998 wherein the hon'ble I.T.A.T., Allahabad Bench has held that on examination of the terms of the agreements it is clearly held that the assesse was carrying out its responsibility assigned by the company as an agent. The relevant observations of the Hon'ble l.T.A.T. are being reproduced as under:- " It does not perhaps need any special stress to say that wherein there is relationship of a principal and agent, the agent being extended hand of the principal, does everything on behalf of the principal and nothing in his own right. This fundamental principle about the law of agency is unexceptional. There is no gainsaying that the firm, M/s. Sahara India, was appointed and acting as an agent of the appellant before us for the collection and carrying out other duties/responsibilities assigned by the company to them. There can be no or little doubt, therefore, that the firm was acting only as an agent of the company which is even otherwise not in dispute before us. In this connection a reference to the MOU at pages 15 to 19 could firstly be made even at the cost of repetition. Clauses 2 and 5 that have been reproduced by us above, more than once, for the sake of convenience and looking to their importance, if read in a layman's language would suggest that the firm was studded with the responsibility of collecting the deposits from various schemes ran by the company with liability to send to the company the so collected amount along with statement of accounts. Receipts, we would say importantly, were to be issued to the members (depositors) in the name of the company. Clause 5 clearly says that a MOU had been entered whereby the firm had to render services to the company as an 'Agent' ".
Page 6 of 8 This distinction between the role of an agent and principal has also been recognized by the several judgemments. In this connection reliance is placed on the judgement of Innosearch Ltd. Vs. A.C.I.T. 60 TTJ(Ahd.) 203; J. Mukesh Kumar Petro Chemicals Pvt. Ltd. Vs. D.C.I.T. 37 ITR 235(Bom.); Ellenbarrie Industrial Gases Ltd. Vs. A.C.I.T. 37 ITR 370(Cal.); Sunil Silk Mills Ltd. Vs. D.C.I.T. 46ITR4(Bom.); C.I.T. Vs. Sita Ram Shrikrishan Das 141 ITR685(Alld.) and C.I.T. Vs. D. Shankeraiah & others 247 ITR 798(Sc). Here it is also important to mention that identical penalty has been levied in the hands of the principal M/s, Sahara India Financial Corporation Limited for the same default on a substantial basis. In view of the above facts and circumstances of the present case no penalty is sustainable in the hands of the appellant firm which is simply collecting the deposits for and on behalf of its principal and, violations if any, of the provisions of section 269SS have already been considered in the hands of the principal who are operating the scheme of receiving the deposit. As far as the arguments of the Counsel of the appellant with reference to the consistency factor is concerned it is observed that it is only in the assessment year 2004- 05 that the penalty was levied under section 27ID in the case of the appellant firm and neither prior to that year nor after that year any penalty has been levied under section 27ID or any show cause notice or penal action has been taken against the assessee although the assessee was doing the same business on behalf of its principals in earlier years and subsequent years also. On this basis also the action of the Assessing officer in levying penalty against the appellant who undisputedly worked as an agent cannot be justified. Further penalty proceedings are quasi-criminal proceedings as has been held by the Hon'ble Supreme court in plethora of judgment and these provisions are penal in character and are of quasi judicial nature and there is no scope also to levy any penalty on a protective basis. In this case it is observed that the addl. C.I.T. has levied penalty only « because the department has filed an appeal before the Hon'ble High Court for the A.Y. 1994-95 in which penalty levied was cancelled by the CIT(A) and the cancellation was confirmed by the Hon'ble I.T.A.T. on the same set of facts and circumstances and, therefore also the levy of penalty cannot be said to be justified. I place reliance on the decision of the Calcutta High Court in the case of CIT Vs. Super Steel (Sales) Ltd. 178 ITR 451 wherein the Hon'ble High Court has categorically held that there can be a protective assessment but there cannot be any protective penalty. Similar is the view taken in the case of Metal Store Vs. CIT 186 ITR 612(Gau.). In light of the above the penalty levied u/s 27ID on the appellant firm who is acting as an agent for and on behalf of its principal M/s. Sahara India Financial Corporation Limited with reference to the amount relatable to the principal, i.e. a sum of Rs.259,35,24,621/- is cancelled.”
The ld CIT(A) has deleted the penalty wherein he has followed the decision of the coordinate bench in 373 and 374/Alld/1996 dated 30th