Penalty : Deposits in cash in excess of prescribed limits : S. 269SS, S. 269T, S. 271D and S. 271E : Firm accepting cash from partners in belief that it was not different from them : Reasonable ground : Penalty could not be imposed.

[CIT v. Lokhpat Film Exchange (Cinema), 304 ITR 172 (Raj.)]

In the A.Y. 1990-91 the Assessing Officer had levied
penalties u/s.271D and u/s.271E of the Income-tax Act, 1961 in respect of
transactions between the assessee-firm and its partners described as deposits
from the partners. The assessee had claimed that in view of the fact that the
partners and the firm are not independent of each other and the firm is not a
juristic person, these transactions cannot be considered as intra-person, but
were only for the purpose of carrying on partner’s own business. The fact that
under the Income-tax Act, the firm and the partners of the firm are recognised
as independent units, the same cannot be treated for all purposes to be separate
and independent. The assessee had contended that in that view of the matter,
they had not violated the requirement of S. 269SS and S. 269T while conducting
these transactions. However, the Assessing Officer did not accept this
explanation and imposed penalties u/s.271D and u/s.271E. The Tribunal relying on
a decision in CIT v. R. M. Chidambaram Pillai, (1977) 106 ITR 292 wherein
the Supreme Court had said that there cannot be a contract of service, in strict
law, between a firm and one of its partners, so as to consider the salary paid
to the partner as income from salary held that for the purpose of S. 269SS and
S. 269T also the firm and partners cannot be considered to be separate entities
and deleted the penalty.

The Rajasthan High Court dismissed the appeal filed by the
Revenue and held as under :