HIGH COURT OF DELHI
Commissioner of Income-tax
Versus
Sahara India Financial Corpn. Ltd.
IT APPEAL NOS. 637, 638, 640 & 646 OF 2011
SEPTEMBER 20, 2012
JUDGMENT
R.V. Easwar, J.
These are four appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’, for short). They are directed against the common order passed by the Income Tax Appellate Tribunal, New Delhi Bench-G ON 17.09.2010 in ITA No.3222-3225/Del/2009 confirming the orders passed by the CIT (Appeals) cancelling the penalty imposed on the assessee under Section 271D of the Act. The following common questions of law are sought to be raised in the appeals by the Revenue: –
“(a) Whether ITAT was correct in law in deleting the penalty imposed by the AO u/s 271D of the Act?
(b) Whether ITAT was correct in law in holding that there was a reasonable cause due to which, assessee failed to comply with the provisions of Section 269SS and therefore, no penalty u/s 271D could be levied?
(c) Whether ITAT was correct in law in holding that the assessee had failed to comply with the provisions of Section 269SS to a very small extent of total deposits in the range of 1.1% to 6.14% and therefore, no penalty could be levied?
(d) Whether a reasonable cause within the meaning of Section 273B existed in the present case so as to delete the penalty imposed by the AO u/s 271D of the Act?
(e) Whether general averment on the part of assessee e.g. existence of inadequate banking facilities and reluctance of the customers to utilize banking facilities due to illiteracy and non-cooperation in the bank constituted a reasonable cause so as to delete the penalty imposed by the AO u/s 271D, by the ITAT?
(f) Whether violation of provisions of Section 269SS to a small extent ranging from 1.1% to 6.14% would exonerate the assessee from the penal provisions of Section 271D of the Act?
(g) Whether order passed by ITAT is perverse in law and on facts when ITAT deleted the penalty ignoring the object and purpose of the provision for which, it was brought into the statute book?”
2. The brief facts giving rise to the filing of the present appeals may now be noticed. The assessee, which is the respondent in all the appeals is engaged in the business of accepting deposits and is a “Residuary Non- Banking Finance Company” (RNBFC). Its principal business is the mobilisation of deposits through its sister concern and agent M/s. Sahara India Firm. We may take up the assessment year 2000-01 as the lead matter (ITA 637/2011). In the course of the proceedings the Assessing Officer noticed that the assessee had collected huge amounts of deposits through its network of more than 1300 branches all over the country with more than 3 crores depositors and that these deposits were collected in cash in violation of Section 269SS of the Act. Under this section, a person is prohibited from taking a loan or deposit in cash if it exceeds the amount of Rs. 20,000/-. In case of violation of this provision, Section 271D empowers the Assessing Officer to impose a penalty equivalent to the amount collected as loan or deposit in cash. However, Section 273B provides for reasonable cause to be proved by an assessee against whom action for penalty is taken. If reasonable cause is established, no penalty is attracted. In the background of these provisions the Assessing Officer referred the matter to the Additional Commissioner of Income Tax, Central Range, Lucknow to deal with the penalty proceedings as contemplated by Section 271D.
3. Before the Additional Commissioner of Income Tax the assessee submitted a detailed reply in an attempt to show the existence of reasonable cause for collection of deposits in cash. The gist of the reply is this: –
(a) The assessee basically runs different savings schemes of recurring nature such as daily deposits scheme, monthly deposit scheme, etc. The aim of such schemes is to tap savings from rural areas which are not served by banks, despite the existence of huge potential. The assessee has, therefore, registered itself with the RBI as RNBFC. The role of RNBFC in the economic development of the country has been commended by various study groups and committees appointed by the government.
(b) The deposits were collected through the agent M/s. Sahara India which has a large network of field workers who are in direct touch with the depositors. The field workers help the depositors in filling up the forms for opening the accounts, getting them witnessed and generally motivating the depositors in the rural areas.
(c) There is a tremendous reception in the rural areas for the schemes floated by the assessee since it dispenses with the cumbersome procedure the depositors in the rural areas are required to follow if they want to open accounts in banks. Very often, the banks are at a distance from their areas and there are logistic and other problems in freely accessing the banking facilities. The assessee stepped in to supply the needs of the rural/ remote areas.
(d) The agents and field-workers who collect the deposits in cash did make attempts to open accounts in the banks in their names so that the carrying of the cash to distant places can be avoided; but they faced difficulties in opening the bank accounts, presumably because the banks thought that they were competing with their business. Some correspondence to this effect between the agents and the banks was led as evidence.
(e) In some cases it is not as if the amount collected, even though it exceeds Rs. 20,000/- is in cash; in many cases the amount represents conversion of the deposit from one scheme to another. Details of such converted accounts, duly certified by Chartered Accountant were filed in the annexure to the assessee’s submissions.
(f) 35% of the deposits received by the assessee have been added back in the assessment under Section 68 of the Act. The levy of penalty equivalent to the amount of the deposit would thus amount to double jeopardy.
3.1 The Additional CIT acknowledged the effective role played by RNBFCs in mobilising the deposits from small investors in rural areas. He was, however, not prepared to accept the assessee’s explanation and the facts pointed as constituting reasonable cause within the meaning of Section 273B. He observed as follows: –
“It is a separate code distinct from the RBI Act, Banking Act & any other Act by the time being in force. The compliance of provisions of I.T. Act is mandatory. However as far as mobilization of deposit in the rural sector without proper banking facilities is concerned it is really difficult to give the benefit of reasonable causes to the assessee in the absence of a case by case study and particularly in absence of exact details of the Bank branches at various places in the relevant financial year. Therefore though the contention of the assessee in this respect has some reasonable grounds yet cannot be accepted because of the reason mentioned above.”
4. The Additional CIT thereafter examined the assessee’s explanation that the public sector banks were refusing to open accounts in the name of the agents on the ground that the agents were affecting their banking activities. In paragraph 4.4 of his order he actually acknowledged that this explanation of the assessee was supported by documentary evidence; nevertheless since such documentary evidence was not available in every case, he refused to accept the same as one of the factors constituting reasonable cause. He observed as under: –
“4.4 The next argument of the assessee is really strange & incredible though copies of documentary proof in some of the (sic) has been submitted by the assessee. It is strange to note that the public sector banks are refusing to open bank accounts of the agent firm, on the pretext that the agent firm is affecting their banking activities. However it cannot be proved whether in all the cases of default u/s 269SS the same arguments of the assessee are applicable or not. There are stated to be more than 1300 branches of the assessee speared all over the country of the each area may be having branches of different public sector/ co-operative sector or Private Banks. The argument of the assessee therefore is not accepted.”
The Additional CIT also rejected the submission of the assessee that there were several cases of conversion of the deposits from one scheme to another which did not involve the receipt of cash. He however rejected the same and observed that the accounts were subjected to special audit under Section 142(2A) of the Act and, therefore, at that stage he was not willing to accept the claim. The other claim that there was double jeopardy in the sense that the deposits were treated as income under Section 68 to the extent of 35% and were also subjected to an equivalent amount of penalty was not accepted on the ground that the addition was the subject matter of appeal in different proceedings.
5. For the above reasons the Additional CIT held that the assessee, without reasonable cause, committed a violation of Section 269SS of the Act and has, therefore, rendered itself liable for penalty under Section 271D. He accordingly imposed a penalty of Rs. 109,98,41,899/- by order dated 28.05.2004. The penalty amount is equivalent to the amount of deposits collected in violation of Section 269SS.
6. Similar orders were passed by the Additional CIT imposing similar penalties on the assessee, for the same reasons. The following chart gives the details of the penalties imposed: –
