Case Law Details
SulthanBathery Service Cooperative Bank Limited Vs JCIT (ITAT Cochin)
ITAT Cochin held that imposition of penalty u/s. 271D and 271E of the Income Tax Act in consolidated manner is unjustified as AO has to point out each entry where such acceptance or repayment is Rs. 20,000/- or more.
Facts- The assessee is a Co-operative Bank. Issue involved, herein, is that penalty u/s. 271D and 271E of the Income Tax Act was imposed on the assessee.
The amount of cash deposited which was accepted by the assessee in the assessment year under consideration at Rs.1,02,14,54,585/- and levied penalty u/s 271D of the Act equal to the amount of loan or deposit accepted by the assessee at Rs.1,02,14,54,585/- u/s 271D of the Act.
Further, it is alleged the total repayment made in cash in violation of section 269T of the Act at Rs.1,16,57,50,274/- and penalty levied u/s 271E of the Act as equal to the amount of loan or deposit made in violation of section 269T of the Act.
Being aggrieved, the present appeal is filed.
Conclusion- Held that the ld. AO invoked the provisions of section 271D & 271E of the Act in a consolidated manner without specifying amount of each aggregate loan of Rs.20,000/- or more or aggregate repayment of loan of Rs.20,000/- or more in cash, which is not correct. The ld. AO has to bring on record each aggregate loan of Rs.20,000/- or more and repayment of each aggregate loan of Rs.20,000/- or more and he cannot make levy of penalty u/s 271D & 271E of the Act in a consolidated manner. In other words, he has to point out each entry where such acceptance or repayment is Rs.20,000/- or more.
FULL TEXT OF THE ORDER OF ITAT COCHIN
These appeals by assessee are directed against different orders of CIT(A) for the assessment year 2015-16 both are having common date 9.3.2023 with regard to levy of penalty u/s 271D & 271E of the Income Tax Act, 1961 (in short “The Act”). The assessee also filed stay petitions with SP Nos.105 & 106/Coch/2023 requesting for staying demand of Rs.102,14,54,585/- and Rs.116,57,50,274/- respectively.
2. The assessee has raised following grounds of appeal in ITA No.319/Coch/2023 for the AY 2015-16:
1. The order passed by Ld. CIT(Appeals) is bad in law and against the facts of the case. The Ld. CIT (A) erred in sustaining the penalty u/s 27 ID of the Income Tax Act made by the Ld. JCIT amounting to Rs.l,02,14,54,585/-.
2. The Ld. CIT(A) erred in maintaining the penalty order passed u/s 27 ID of the Income TaxAct, when the said order was time barred by limitation of time. The assessment order is passed on 26.12.2017 and the penalty u/s 2711) should have been levied before the end of the year, 31st March 2018 or within 6 months from the month of December 2017, ie on or before 30th June2018, whichever expires later. Since the order of the Joint commissioner of Income Tax is dated 26/07/2018, the order is belated and hence barred by limitation.
3. The CIT(A) has not considered the Remand Report from the Joint Commissioner of Income Tax, during the appeal proceedings, confirming the reasons and circumstances, in which deposits are received, by cash, and refund in cash, on the basis of the particular circumstances of the business area of the appellant.
4. The Commissioner of Income Tax (Appeals) has gone wrong in confirming the penalty u/s.271D in respect of deposits received in cash, without considering the circumstances pertaining in the locality, where the business of the society is carried out.
5. The Ld. CIT(A) erred by confirming penalty in respect of deposit accepted to Govt. The Sec 269SS clearly stated that these section is not applicable in respect of deposits/loan accepted from Govt. and hence penalty is not leviable u/s 2711) of the Act.
6. The appellant carves leave to add, alter, modify or delete any of the ground of appeal.
7. The appellant may submit that the penalty of Rs.1,02,14,54,585/- levied u/s.271D of the Act may be cancelled, in view of the above submission and further submissions, those may be made during the appeal proceedings.
3. The assessee has raised following grounds of appeal in ITA No.320/Coch/2023 for the AY 2015-16:
1. The order passed by Ld. CIT(Appeals) is bad in law and against the facts of the case. The Ld. CIT (A) erred in sustaining the penalty u/s 271 E of the Income Tax Act made by the Ld. JCIT amounting to Rs.1,16,57,50,274/-.
2. The Ld. CIT(A) erred in maintaining the penalty order passed u/s 271 E of the Income Tax Act, when the said order was time barred by limitation of time. The assessment or er is passed on 26.12.2017 and the penalty u/s 271 E should have been levied before the end of the year, 31st March 2018 or within 6 months from the month of December 2017, ie on or before 30th June 2018, whichever period expires later. Since the order of the Joint commissioner of Income Tax is dated 26/07/2018, the order is belated and hence barred by limitation.
3. The CIT(A) has not considered the Remand Report from the Joint Commissioner of Income Tax, during the appeal proceedings, confirming the reasons and circumstances, in which deposits are repaid, by cash, on the basis of the particular circumstances of the business area of the appellant.
4. The Commissioner of Income Tax (Appeals) has gone wrong in confirming the penalty u/s.271E in respect of deposits repaid in cash, without considering the circumstances pertaining in the locality, where the business of the society is carried out.
5. The Ld. CIT(A) erred by confirming penalty in respect of deposits repaid to Govt. The Sec 269T clearly stated that these section is not applicable in respect of deposits/loan repaid to Govt. and hence penalty is not leviable u/s 271E of the Act.
6. The appellant carves leave to add, alter, modify or delete any of the ground of appeal.
7. The appellant may submit that the penalty of Rs.1,16,57,50,274/-levied u/s.271E of the Act may be cancelled, in view of the above submission and further submissions, those may be made during the appeal proceedings.
4. Thus, the crux of above grounds are that penalty order passed by the ld. AO is barred by limitation. The penalty u/s 271D/271E of the Act cannot be levied in view of existence of reasonable cause as stipulated in section 273B of the Act as decided by the Cochin Tribunal in the case of Kannur Service Coop. Bank Ltd. Vs. ITO in ITA Nos.248 & 249/Coch/2020 dated 16.11.2023 and in the case of The Kalpetta Service Co-op. Bank Ltd. Vs. ITO in ITA Nos.851 & 852/Coch/2022 dated 14.5.2024.
4.1 In these cases, while levying penalty u/s 271D & 271E of the Act the ld. AO tabulated the amount borrowed in the assessment year 2015-16 in his penalty order as follows:
4.1 Thereafter, he computed the amount of cash deposited which was accepted by the assessee in the assessment year under consideration at Rs.1,02,14,54,585/- and levied penalty u/s 271D of the Act equal to the amount of loan or deposit accepted by the assessee at Rs.1,02,14,54,585/- u/s 271D of the Act. Similarly, the ld. AO tabulated the total repayment of cash in violation of section 269T of the Act as below:
4.2 Thereafter, he computed the total repayment made in cash in violation of section 269T of the Act at Rs.1,16,57,50,274/- and penalty levied u/s 271E of the Act as equal to the amount of loan or deposit made in violation of section 269T of the Act. Against this assessee is in appeal before us.
5. The assessee raised ground that the penalty orders passed by ld. AO is barred by time in both the cases. However, at the time of hearing, the ld. A.R. not pressed this ground. As such, this ground is dismissed in both the appeals as not pressed.
5.1 With regard to merit of the issues, ld. A.R. & ld. D.R. filed detailed written submissions, which are kept on record. The main crux of the argument of ld. A.R. is that the issue was covered by the following judgements:
1. The Karannur Service Co-op. Bank Ltd. Vs. ITO in ITA Nos.248 & 249/Coch/2020 dated 16.11.2023.
2. The Kalpetta Service Co-op. Bank Ltd. Vs. ITO in ITA Nos.851 & 852/Coch/2022 dated 14.5.2024.
5.2 The ld. A.R.also relied on the decision of Hyderabad Bench in the case of Citizen Co-operative Society Ltd. Vs. Addl. CIT (29 CCH 179) (Hyd.) wherein held as under:
“The settled proposition of law is that the provisions dealing with penalty must be strictly construed. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party either acted deliberately jn defiance of Jaw or was guilty of conduct, contumacious or dishonest or acted in conscious disregard of his obligation. Penalty will also not be imposed merely because it is lawful to do. Rather penalty should be imposed for failure to perform a statutory obligation which is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. One of the cardinal principles of the English criminal law is expressed in the maxim ‘actus non-facitreum, nisi mens sit rea’, that is a person cannot be convicted and punished in a proceeding of a criminal nature unless it can be shown that he had a guilty mind. A penalty imposed for a tax delinquency is a civil obligation, remedial coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal loss. — Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) applied.
(Paras 16.3 & 16.4)
In levying the penalty under s. 271D or s. 271E one has to see the existence of reasonable causes. The words ‘reasonable cause’ have not been defined under the Act, but they could receive the same interpretation which is given to the expression ‘sufficient cause’. Therefore, in the context of penalty provisions, the words ‘reasonable cause’ could mean a cause which was beyond the control of the assessee. “Reasonable cause” means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fides. Further, there should be findings in the assessment order that the transactions made by the assessee in breach of provisions of s. 269SS or 269T were not genuine transactions. The assessment order passed under s. 143(3) which is after scrutiny of the books of accounts of the assessee should have findings that the transaction made by the assessee was mala fide and with the sole object to disclose the concealed or undisclosed money. If there is a merely technical mistake committed by the assessee which has not resulted in any loss of revenue then invoking the provisions of s. 27ID or s. 27IE is very harsh, which is to be avoided. The object of s. 269SS or s. 269T is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money. or if he makes some false entries, he shall not escape by giving false explanation for giving same. A taxpayer shall not be allowed to manipulate his accounts to suit the plea of him. The main object of these sections is to curb this menace of making false entries in the account books and later giving an explanation for the same. The transactions not being impeached as not genuine or bogus, cannot lead to the levy of penalty under s. 271D/271E. Even if they were to apply, one should see the provisions of s. 273B. If the assessee was having bona fide belief that it would not attract the penalty provisions, given the nature of the transactions and circumstances, the penalty need not be levied. In other words, bona fide belief coupled with genuineness of the transactions constitute reasonable cause for not invoking the provisions of ss. 271D and 271E.
(Paras 16.6 & 16.7)
The assessee has been carrying on the banking transactions. Once the assessee is permitted to carry on the banking activities, then the assessee is bound by the relevant provisions of the Banking Regulations Act. The deposits held by the assessee are its stock-in-trade. The deposits and loans are just like buying and selling of good*products. The amounts in account maintained by the assessee bank were not in the control of the assessee in the sense that the bank may be required to pay at any point of time. The acceptance of deposit by this assessee cannot be equated with other kind of assessees. The assessee like present is not obliged to question the source of deposit made by its customers. Also, the customers tan keep the deposit for a period which is according to their convenience. The amount has to be repaid by the assessee to its customers immediately on demand. These features distinguish the case of the assessee from other ordinary assessees. Therefore, the provisions of s. 271D/271E are to be viewed in the background of these aspects. Further, the assessee is subject to periodical inspections and audits by various statutory authorities and in case of any default assessee is liable for penalty besides cancellation of its licence. This is not the case with other assessees. Further, the assessee has to maintain confidentiality in respect of the information collected by it from its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessees. In spite of this, the assessee has furnished the information as available with it. Now, if the addresses of the customers of the assessee are found to be incomplete, this cannot form the basis for levying the penalty. There is no finding by the lower authorities that the assessee violated any guidelines issued by the regulatory authorities. Usually, the bank was net required to go for detailed verification of addresses/whereabouts of its customers. There is no absolute obligation to assessee to make enquiries about the proposed customer so as to examine the genuineness/sources of the deposits. Bank usually rely on the introduction of any o/d customer and that if the bank bona fidely acted on the reference of a customer, it can avail of the protection under s. 131 of the Negotiable Instruments Act. Therefore, it cannot be said that assessee did commit any infringement or it is incorrect to say that there was any deliberate attempt on the part of the assessee to accommodate tax dodgers. The deposits accepted and repaid by the assessee were part of its banking activities and the depositors were its members. The deposits received by the assessee, which was carrying on the banking business, were not in the nature of taking of any loans or deposits for the purpose of funding its project as a source of investment; that rather, it was in the business of accepting deposits; that in view of the nature of such business, the scrutiny of the deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc. There is no addition on account of these impugned deposits in the return of income which means that deposits are genuine. Veracity of creditor is not doubted by the Revenue. The AO did accept the deposits as genuine. The breach of provisions of s. 269SS/269T occurred from a bona fide belief. Ex facie, it is a venial breach. The law takes no notice of trivialities. Cash payments and receipts were made because of business exigencies. The mere violation of a statutory obligation is not liable for any penalty. The income of the assessee is exempt under s. 80P and more so, there is no establishment of deliberate and intentional violation of the provisions by the assessee, that too, in order to hide any income or to evade any payment of tax. Usually penalty will not be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation and that penalty will also not be imposed merely because it is lawful to do so. The imposition of penalty for failure to perform statutory obligation is only a discretionary power of the authority exercising judicial functions on consideration of al/ the relevant circumstances. If the assessee acted on genuine belief that penal provisions have no application to deposits and it applied only to other kind of assessees, then penalty could not be levied. As such, in the present case, there exists reasonable cause in accepting the deposits in cash and paying by cash, assessee may therefore be exonerated from the levy of penalty. The term ‘any other person’ in the context of introduction of s. 269SS appears to mean persons who are not very intimately or very closely connected with the assessee. In the present case the assessee accepted the deposits and repaid the same either’ to the members/directors or to their dependants or children or their associated concerns or their relatives. As seen from the bye-law, the assessee society is working on the concept of mutuality. Trading between people associating together in this way does not give rise to levy of penalty. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of facilities which it offers does not affect the mutuality of the enterprise. The contributors of the fund are entitled to participate in the surplus, thereby creating an identity between the participators and contributors and acceptance of deposits and repayment of the same are incidental to the attainment of the main object of the assessee society. The concept of mutuality is primarily based on the principle that one cannot make profit from himself. Thus, when the facilities are provided only to members of the society, who provide the funds to the society and their identity with the funds and their participation in the surplus arising from the said fund are unmistakably found then the principles of mutuality will apply. The fact of the present case are akin to the above position and al/ the ingredients necessary for holding the application of the concept of mutuality are satisfied because there is complete identity between the contributors and participators and the requirement of the law is that contributors of the common fund and the participators in the surplus must be an identicalbody. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the society for its development and for providing better amenities to the member. In view of the fact that the transaction took place between the assessee and its members, the strict provisions of s. 269SS/269T cannot be applied. Keeping in view the intent of the legislature behind enacting s. 269SS/269T, it is clear that the loan or deposit brought in by the assessee was not to explain its unaccounted cash and, therefore, the question of violating these provisions did not arise. The terms ‘various persons’ and ‘such persons’ are to be understood only in relation to ‘search situation’ as the section itself was introduced to meet such situations only. Thus, the director or member of the assessee society is clearly not covered by the expression ‘any other person’ occurring in s. 269SS. The transaction in question cannot be considered as ‘loan’ or ‘deposit’ so as to attract s. 269SS or s. 269T. The transactions can also be attributed to various exigencies of business carried on by the assessee which constitute a ‘reasonable cause’ as contemplated by s. 273B. The expression ‘reasonable has to be considered pragmatically and as transactions are openly done to meet the exigencies of business, it can be said to constitute ‘reasonable cause’. The bona fide business transaction cannot be considered for levying the penalty under s. 271D or s. 271E. More so, the assessee has been carrying on the banking business and it is having bona fide belief that provisions of ss. 269SS/269T are not applicable to the assessee’s case and same coupled with genuineness of the transaction constituted a reasonable cause and in such case the default on the part of the assessee is merely of a technical or venial nature and no penalty be levied.
(Paras 17 & 17.1)
A harmonious construction of the relevant provisions of ss. 27ID, 27IE and 273B clearly reveals the use of expression ‘shall be liable to pay’ in ss. 271D and 271E and the provisions of s. 273B providing that no penalty would be leviable if the person concerned proves that there is reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authority to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire facts and materials existing on record. Ordinarily, a plea as to ignorance of law cannot support the breach of a statutory provision but the fact of such a technical break due to ignorance of the relevant provisions of law or on account of bona fide belief, coupled with the fact that transactions in question are genuine and bona fide transaction were undertaken during the regular course of its business will not result in levy of penalty under ss. 271D and 271E.
(Para 18)
Conclusion:
Money received by assessee co-operatives society from its members/directors and their relatives by way of deposits and the sums repaid to them as part of its banking activities cannot be considered as ‘loan’ or ‘deposit’ so as to attract s. 269SS or s. 269T as the assessee is working on the concept of mutuality and its director or member is not covered by the expression ‘any other person’ occurring in 269SS and, therefore, penalty under s. 271D or s. 271E is not leviable, more so, when the AO has accepted the genuineness of such deposits and the assessee was under bona fide belief that the provisions of ss. 269SS and 269T are not applicable to it.”
6. The ld. D.R. submitted that the above judgements are pronounced before the judgement of Hon’ble Supreme Court in the case of Kerala State Co-operative Agricultural & Rural Bank Ltd. (458 ITR 384) (14.9.2023). As such, above decisions were not available to the appellate authorities both in the case of Citizen Cooperative Society Ltd. cited (supra) or in the case of Karnnur Service Co-operative Bank Ltd. cited (supra). As such, the penalty matter to be examined in the light of judgement of Hon’ble Supreme Court in the case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd. cited(supra). According to the ld. D.R., having license for banking business from RBI is very significant for treating the co-operative society, as a co-operative bank and he drew our attention to the following observation of Hon’ble Supreme Court:
6.1 The ld. D.R. submitted that it is an admitted position that the assessee society does not have any license issued by the Reserve Bank of India. Hence, in view of the observations of the Kerala State Co-operative Agricultural & Rural Development Bank Ltd. (supra), the assessee society may not be regarded as a cooperative bank, even if the business of the society is, for all intents and purposes, at par with that of a commercial or cooperative bank. Thus, the case of the assessee may not be treated as covered under the ‘reasonable cause’ in terms of section 273B of the Act. Accordingly, he submitted that the issue may be re-examined at the end of ld. AO.
7. We note that the ld. AO invoked the provisions of section 271D & 271E of the Act in a consolidated manner without specifying amount of each aggregate loan of Rs.20,000/- or more oraggregate repayment of loan of Rs.20,000/- or more in cash, which is not correct. The ld. AO has to bring on record each aggregate loan of Rs.20,000/- or more and repayment of each aggregate loan of Rs.20,000/- or more and he cannot make levy of penalty u/s 271D & 271E of the Act in a consolidated manner. In other words, he has to point out each entry where such acceptance or repayment is Rs.20,000/- or more.
7.1 Further, we also make it clear that whether assessee has fulfilled all the KYC norms by collecting Aadhar, PAN and income tax details of those parties who have taken loan from the assessee or repaid the loan to the assessee of Rs.20,000/- or more in the form of cash. The ld. AO could levy penalty u/s 271D or 271E of the Act only by bringing on record entry of each acceptance of loan of Rs.20,000/- or more in cash or repayment of loan of Rs.20,000/-or more in cash. Accordingly, we remit the issue in dispute to the file of ld. AO for reconsideration to decide the issue afresh in the light of above observations after taking note of the judgement of Hon’ble Supreme Court in the case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. cited (supra).
8. In the result, both the appeals in ITA Nos.319 & 320/Coch/2023 filed by the assessee are partly allowed for statistical purposes.
SP Nos.105 & 106/Coch/2023:
9. Since we have remitted the issue raised by the assessee in ITA Nos.319 & 320/Coch/2023 to the file of ld. AO, the stay petitions filed by the assessee become infructuous and accordingly dismissed.
10. In the result, the stay petitions filed by the assessee are dismissed.
Order pronounced in the open court on14thAug, 2024
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