Chatrapati Shivaji Maharaj Sahakari Bank Niyamitha Vs Director of Income Tax (ITAT Bangalore)
Summary: The Bangalore Bench of the Income Tax Appellate Tribunal allowed the appeals filed by Shri Chatrapati Shivaji Maharaj Sahakari Bank Niyamitha against penalties imposed under Section 271FA of the Income-tax Act, 1961 for failure to furnish Annual Information Returns (AIR) in respect of Assessment Years 2006-07 to 2015-16.
The assessee was a co-operative bank carrying on banking business under the Banking Regulation Act and the Karnataka Co-operative Societies Act, 1959, with a Reserve Bank of India licence. Revenue inspection found that the bank had not filed AIRs for Financial Years 2005-06 to 2014-15. In the appeal concerning AY 2006-07, the Assessing Officer found three transactions which were required to be reported and noted that the assessee ultimately furnished the information on 11.03.2016. The assessee’s explanations for the delay and a sworn statement were considered, but the Assessing Officer was not satisfied that reasonable cause existed. Penalty under Section 271FA was consequently levied by order dated 26.04.2017. The CIT(A) upheld the penalty.
Before the Tribunal, the assessee principally contended that the relevant amendment to Rule 114E expressly brought co-operative banks within the reporting framework with effect from 01.04.2016. According to the assessee, the years involved were prior to that amendment and there was therefore a bona fide belief that the reporting requirement did not apply. The assessee also relied on its small scale of operations and limited staff strength. The Departmental Representative supported the CIT(A)’s order.
The Tribunal examined the statutory position and found that co-operative banks were not included under Rule 114E before the amendment effective from 01.04.2016. The Tribunal reproduced the amended provision identifying a banking company or co-operative bank to which the Banking Regulation Act, 1949 applies as a reporting person in relation to specified cash deposits.
The Tribunal also considered the assessee’s financial statements and staff details for AYs 2006-07 to 2015-16. The assessee had only one branch and limited operational activity. The staff strength was eight persons in the relevant financial year and increased to eleven from FY 2011-12. The Tribunal accepted that these circumstances supported the assessee’s contention that it was under a bona fide belief that the statement was not required to be filed before the law became applicable from 01.04.2016.
The Tribunal then applied Section 273B, which provides that no penalty is imposable for specified failures, including failure under Section 271FA, where the person proves that there was reasonable cause for the failure.
On the facts, the Tribunal noted that the amendment to Rule 114E was effective from 01.04.2016, whereas the Assessing Officer had levied the penalty for FY 2005-06 in 2017, and there was no provision under Rule 114E covering co-operative banks for the relevant period. The Tribunal regarded the assessee’s bona fide belief, small scale of activity and limited staff as constituting reasonable cause. It accordingly set aside the CIT(A)’s order and directed the Assessing Officer to delete the penalty for AY 2006-07.
For AYs 2007-08 to 2015-16, the Tribunal held that the issues were similar and identical and applied the same reasoning. The corresponding CIT(A) orders were set aside and the Assessing Officer was directed to delete the penalties. Thus, all appeals for AYs 2006-07 to 2015-16 were allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT BANGALORE
These are the appeals filed by the assessee against the different orders of Commissioner of Income Tax (Appeals), Gulbarga under Section 271FA and 250 of the Income Tax Act, 1961 (in short ‘the Act’). Since the issues are common and identical in all these appeals, they are clubbed and heard together and consolidated order is passed. For the sake of convenience, we shall take up ITA No.1332/Bang/2019 and the facts narrated therein.
2. The assessee has raised the following grounds of appeal :
1.The Order of the learned Commissioner of Income-tax (Appeals), passed under section 250 of the Act in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The learned CIT(A) is not justified in confirming the levy of penalty on the facts and circumstances of the case.
3. The learned CIT(A) failed to appreciate that the provisions invoked do not apply to the Appellant and consequently the levy of penalty also fails on the facts and circumstances of the case.
4. The learned CIT(A) failed to appreciate that the Appellant was prevented by reasonable cause and therefore in view of the provisions of section 273B of the Act the penalty in question ought not to have been levied on the facts and circumstances of the case.
5. The learned CIT(A) failed to appreciate that the essential conditions necessary to be satisfied for levying penalty under section 271FA are not met in the Appellant’s case and consequently the levy is without jurisdiction on the facts and circumstances of the case.
6. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
7. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
3. The Brief facts of the case are that the assessee is a co-operative Bank carrying on business of banking as per the Banking Regulation Act and the Karnataka Co-operative Societies Act, 1959 with license from Reserve Bank of India (RBI). There was inspection conducted on the assessee’s bank premises by the Revenue, as the assessee has not filed the Annual Information Return (AIR) for the Financial Years 2005-06 to 2014-15.And show cause notice was issued for levying penalty under Section 271FA of the Act as the assessee has not filed the Annual Information Return (AIR) under the Section 285BA(2) of the Act r.w. Rule 114E of the I.T. Rules1962. Whereas the AIR return for the F.Y. 2005-06 has to be filed on or before 31.3.2006.The Assessing Officer found that there are three transactions which were to be reported in AIR, and the assessee has filed the information on 11.3.2016.Further the assessee has filed explanations for not filing the information and sworn statement was recorded.The Assessing Officer was not satisfied with the explanations as the assessee has not explained reasonable cause for non-filing of AIR. Since the assessee has not filed reportable transaction within the due date, hence Ao levied penalty under Section 271FA of the Act by order dt.26.4.2017. Aggrieved by the order, the assessee has filed an appeal with the CIT (Appeals).But the CIT (Appeals) has concurred with the action of the Assessing Officer in levying the penalty and dismissed the appeal of assessee. Aggrieved by the order of CIT (Appeals), the assessee has filed an appeal before the Tribunal.
4. At the time of hearing, the learned Authorized Representative submitted that the CIT (Appeals) has erred in confirming the levy of penalty under Section 271FA of the Act irrespective of the fact that the Amendment to Rule 114E of I T Rules 1962, that submitting the information by the Co-operative Bank was included from 1.4.2016 and whereas,the period in the present case is prior to the amendment.The learned Authorized Representative substantiated the arguements with the financial statements and the list of staff during the F.Y. 2005-06 to demonstrate that the assessee bank branch works with limited staff, Further there was a Bona Fide belief that the provisions under Section 285BA(2) of the Act shall not apply.The Assessing Officer has not considered the genuine explanations in the penalty proceedings for not submitting the information within the due date and there exists a reasonable cause under Section 273B of the Act and relied on judicial decisions and prayed for deletion of penalty. Contra, the learned Departmental Representative supported the orders of the CIT (Appeals).
5. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue as envisaged by the learned Authorized Representative on the levy of penalty under Section 271FA of the Act on the co-operative bank for non-filing information of transactions in the Annual Information Return (AIR),under the provisions of Section 285BA(2) of the Act r.w Rule114E of I T Rules 1962. We found as per Rule 114E of I T Rules 1962, the co-operative bank was not included prior to amendment effective from 1.4.2016. We found the amendment to Rule 114E of IT Rules1962, is as under:
| Sl.No. | Nature and value of transaction | Class of person (reporting person) |
|---|---|---|
| (1) | (2) | (3) |
| 1. | A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act). | Cash deposits aggregating to ten lakh rupees or more in a year in any savings account of a person maintained in that bank. |
6. We, on perusal of the provisions found that the co-operative bank has been included in the amendment w.e.f 1.4.2016 and is not disputed. The learned Authorized Representative supported the claim relying on judicial decisions and provisions of Banking Regulation Act read as under :
Section 51 in BANKING REGULATION ACT, 1949
1[51. Application of certain provisions to the State Bank of India and other notified banks.—2[
(1)] Without prejudice to the provisions of the State Bank of India Act, 1955 (23 of 1955) or any other enactment, the provisions of sections 10, 13 to 15, 17, 3[19 to 21A, 23 to 28, 29] excluding sub-section (3) 4[sub-section (1B), (1C) and (2) of section 30, 31, 35, 36 excluding clause (a) of sub-section (1)] 45ZF, 46 to 48] 50, 52 and 53 shall also apply, so far as may be, to, and in relation to the State Bank of India 5[or any corresponding new bank or a Regional Rural Bank or any subsidiary bank] as they apply to and in relation to banking companies: 6[Provided that—
(a) nothing contained in clause (c) of sub-section (1) of section 10 shall apply to the chairman of the State Bank of India or to a 7[managing director] of any subsidiary bank insofar as the said clause precludes him from being a director of, or holding an office in, any institution approved by the Reserve Bank; 8[(b)] nothing contained in sub-clause (iii) of clause (b) of sub-section (1) of section 20 shall apply to any bank referred to in sub-section (1), in so far as the said sub-clause (iii) of clause (b) precludes that bank from entering into any commitment for granting any loan or advance to or on behalf of a company (not being a Government company) in which not less than forty per cent. of the paid-up capital is held (whether singly or taken together) by the Central Government or the Reserve Bank or a corporation owned by that bank; and
(c) nothing contained in section 46 or in section 47A shall apply to,—
(i) an officer of the Central Government or the Reserve Bank, nominated or appointed as director of the State Bank of India or any corresponding new bank or a Regional Rural Bank or any subsidiary bank or a banking company; or
(ii) an officer of the State Bank of India or a corresponding new bank or a Regional Rural Bank or a subsidiary bank nominated or appointed as director of any of the said banks (not being the bank of which he is an officer) or a banking company.]] 9[*] 10[(2) References to a banking company in any rule or direction relating to any provision of this Act referred to in sub-section (1) shall, except where such rule or direction provides otherwise, be construed as referring also to the State Bank of India, a corresponding new bank, a Regional Rural Bank and a subsidiary bank.]
Further on perusal of the Paper Book in respect of the financial statements filed for Asst. Years 2006-07 to 2015-16, the learned Authorized Representative submissions are that the assessee has only one Branch and small operational activities and filed list of staff in the bank at pages 45 to 55, where in the present financial year there are only 8 persons and was increased to 11 from F.Y. 2011-12. We found strength in the submission of learned Authorized Representative that the assessee bank was in Bona Fide belief that there is no requirement to file this statement as the law is application from 1.4.2016. We found under the provisions of Section 273B of the Act where penalty need not be imposed, if there exists a
“ 273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271H, section 271I, section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”
We, on perusal of the facts of the case and the explanations and the grounds of appeal duly supported by the Paper Book and judicial decisions are of the view that the amendment to Rule 114E of IT Rules has been effective from 1.4.2016 and, further the Assessing Officer has levied penalty for the F.Y. 2005-06 in the year 2017 and there was no provision under Rule 114E to include co-operative banks. We found the submissions of the learned Authorized Representative are realistic considering small activity of the Bank and limited staff which cannot be overlooked. Accordingly considering the principles of natural justice and the facts, we found there is a reasonable cause in not submitting the information as the assessee was under Bona Fide belief. Accordingly we set aside the order of CIT (Appeals) and direct the Assessing Officer to delete the penalty and allow the grounds of appeal of the assessee. In the result, the assessee appeal is allowed.
7. Similarly, for the Asst. Years 2007-08 to 2015-16, the issues are similar and identical, the decision taken in ITA No.1332/Bang/2019 as discussed in the above paragraphs are equally applicable. Accordingly, for these appeals also, the order of CIT (Appeals) is set aside and direct the Assessing Officer to delete the penalty and allow the grounds of appeal of assessee.
8. In the result, the assessee’s appeals for the Assessment Years 2006-7 to 2015- 16 are allowed.
Pronounced in the open court on the date mentioned on the caption page.
