Case: Assistant Director of Inspection Investigation Vs. Kum. A.B. Shanthi

3. S.269SS was inserted in the Income Tax Act by Finance Act, 1984 with effect from 1-4-1984, but the same was made operative from 1-7-1984. The Income Tax Department, in course of searches carried out by them from time to time recovered large amounts of unaccounted cash from certain tax payers and often the tax payers gave explanation for their unaccounted cash to the effect that they had borrowed loans or received deposits made by other persons. Sometimes, it was noticed, that the unaccounted income was also brought into the books of accounts in the form of loans and deposits and later they would obtain confirmatory letters from other persons in support of their explanation. The Department was not able to unearth the source of such unaccounted cash. Therefore, in order to plug the loopholes and to put an end to the practice of giving false and spurious explanation by tax payers, a new provision was inserted in the Income Tax Act debarring persons from taking or accepting from any other person any loan or deposit otherwise than by account payee cheque or account payee bank draft, if the amount of such loan or deposit or the aggregate amount of such loan or deposit is Rs. 10,000/- or more. The amount of Rs. 10,000/- was later revised as Rs. 20,000/- with effect from 1-4-1989.

Reasoning:
7. The contention of the appellants counsel has no force. The object of introducing S.269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the tax payer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so called lender also to manipulate his records later to suit the plea of the tax payer. The main object of S.269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for the Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutionalis settled law that the heads of legislation given in the list should not be constructed in a narrow or pedantic way. If any Legislature makes any ancillary or subsidiary provision which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them. It is only when a legislature which has no power to legislate, or the legislation is camouflaged in such a way as to appear to be within its competence when it knows it is not, then alone it can be said that the legislation so enacted is a colourable legislation and that there is no legislative competence. The law relating to taxation can very well be enacted under Entry 82 in List I of the 7th Schedule. If any legislation which intended to achieve the collection of Income Tax and to make it easier and systematic is enacted, such legislation would certainly be within the competence of the Legislature.It is important to note that another provision, namely S.273B was also incorporated 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 provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of S.273B in the Act. If there was a genuine and bona fide transaction and if for any reason the tax payer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.22. In that view of the matter, we do not think that S.269SS or 271D or the earlier S.276DD is unconstitutional on the ground that it was draconian or expropriatory in nature.