Income Tax Appellate Tribunal - Amritsar
The Faridkot Bathinda Kshetriya Gramin ... vs Joint Commissioner Of Income Tax on 30 January, 2002
ORDER
H.L. Karwa, J.M.
1. This is an appeal by the assessee and is directed against the order of the CIT(A), Bhatinda dt. 17th Jan., 2001 confirming the penalty of Rs. 24,80,037 imposed by the Jt. CIT, Bhatinda under Section 271E of the IT Act, 1961.
2. Briefly stated, the facts of the case are that the assessee is a Regional Rural Bank established under the Regional Rural Banks Act, 1976. During the course of assessment proceedings, the AO required the assessee to furnish the details where the repayment of fixed deposits of Rs. 20,000 or above have been made other than by an account payee cheque or bank draft in violation of the provisions of Section 269T of the IT Act, 1961. In response to the above, the assessee furnished the details of 52 entries of its Faridkot Branch where the repayment was not made either by an account payee cheque or bank draft but keeping in view the details of 52 entries where the repayments were made in violation of the provisions of Section 269T of the Act, the AO referred the matter to the Jt. CIT, Bhatinda Range, Bhatinda, who initiated the penalty proceedings under Section 271E of the Act. The officer issued a notice under Section 274 r/w Section 271E of the Act and asked the assessee to show cause as to why penalty should not be imposed for the default committed by it. In response to the above, the assessee, inter alia, stated that at Faridkot branch it had paid some fixed deposits in cash exceeding Rs. 20,000 during the financial year 1997-98. It was also stated that at that time the payments passing officer was new and have no knowledge of provisions of Section 269T of the Act. There was no evasion of income-tax, stated in the reply. The payments were made to agriculturists and other non-income-tax assessees. But due to ignorance of law, the staff made the payments directly in cash. Subsequently, it was also brought to the notice of the Jt. CIT, Bhatinda that out of 52 entries in three, cases, FDRs were renewed but the branch has shown "wrongly cash payment in the statement given to the AO. It was also stated that in some cases repayments were made to the Government Department and also on the request of the depositors. After considering the assessee's contention, the Jt. CIT held that the assessee itself had admitted that their branch at Faridkot had paid some fixed deposits in cash exceeding Rs. 20,000 during the year, relevant to the asst. yr. 1998-99. The other contentions raised by the assessee were also rejected. The learned Jt. CIT held that the ignorance of law is no excuse and he, therefore, took the view that the assessee has violated the provisions of Section 269T of the Act." He also rejected the plea of the assessee that the repayments were made to the Government Departments and on the request of the depositors, respectively. According to him, Section 269T provides that no branch of a banking company or a co-operative bank shall repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft in the name of the person, who has made the deposit.
2.1. In view of the above, the Jt. CIT imposed a penalty of Rs. 26,31,659 only under Section 271E of the IT Act, 1961, for violating the provisions of Section 269T of the Act.
3. When the matter was taken to the CIT(A), in appeal, the following line of argument was taken :
(1) That the learned Jt. CIT was not correct while observing that "the plea regarding new passing officer and having no knowledge about Section 269T of the Act to that officer is not tenable as non-compliance of the provisions of law, which is duly on the statute, cannot be expected from the bank which is established one and is supported and manned by qualified and highly educated persons."
(2) That there is no presumption that every person knows the law. It is often said that every one is presumed to know the law but this is not a correct statement, there is no such maxim known to law. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mitts Co. Ltd. v. State of U.P. (1979) 118 ITR 326 (SC).
(3) That the provisions of Section 269T were wrongly invoked in the instant case.
(4) That the purpose of bringing Section 269 of the Act on the statute book was entirely different than the attitude adopted by the IT authorities in the present case.
(5) That the legislature introduced Section 271E to curb black money involved in Benami transactions and not to impose penalty in case of genuine transactions. Reliance was placed on the decision of the Tribunal, Hyderabad Bench in the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd).
(6) That the employee of the assessee-bank were acting under a bona fide belief, while repaying the fixed deposits in cash instead of transferring the same to the saving fund/current account, that the bank could repay the fixed deposits in cash and they were not making any contravention of the law in doing so as they were not aware of the provisions of Section 269SS of the IT Act.
(7) That in number of cases, the different Benches of the Tribunal had held that the bona fide belief coupled with the genuineness of the transactions will constitute a reasonable cause for not invoking the provisions of Section 271E of the IT Act, 1961.
Alternatively, it was submitted that the alleged violation of the provisions of Section 269T of the Act was only a technical and venial breach of law. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC). Alternatively, it was also submitted before the CIT(A) that in the following cases, the penalty proceedings of Section 271E for violation of the Section 269T were not applicable :
L/Folio No. Name and address Date of payment Maturity amount(Rs.) Amount reinvested(Rs.) 266/5 18 Ashok Kumar S/o Sh. Kottu Ram 19-5-97 29,739 10,000 69/8 22 Mohinder Singh S/o Sh. Datshan Singh. Zerman Colony, Faridkot 21-6-97 20,000 18,500 102/8 23 Jaspal Kaur W/o S. Jagir Singh Balbir Basti, Faridkot 2-7-97 50,000 10,000 107/8 27 Kashmir Pal Singh S/o S. Tejindet Pal Singh, H. No. 132, Harinder Nagar 27-8-97 55,624 30,000 4/8 38 Balaur Singh S/o Ujaggar Singh, Vill. Moran Wali 28-11-97 32,379 29,604 4/8 48
-do-
2-3-98 29,604 28,347 In the above cases, the fixed deposits were paid in cash and the same were reinvested and, therefore, the assessee had not violated the provisions of Section 269T of the Act.
3.1. The learned CIT(A) sustained the penalty of Rs. 24,80,037, observing as under :
"I have given careful consideration to the views expressed by both the sides. It is a factual position that the appellant has made the payment of fixed deposits exceeding Rs. 20,000 otherwise than crossed cheque/demand draft or transferring the same into saving bank accounts in 48 cases. It is also a fact that in the following cases the appellant has not violated that provisions of Section 269T of the IT Act as the amount was reinvested in fixed deposits and the balance amount paid in cash remained less than Rs. 20,000 as under :
L/Folio No. Name & address Date of payment Maturity amount (Rs) Amount reinvested (Rs.) Contravention of s. 269T 266/5 18 Ashok Kumar s/o Sh. Kottu Ram 19-5-97 29,739 10,000 Nill as payment in cash does not exceed Rs. 20,000 69/8 22 Mohinder Singh S/o S. Darshan Singh Zerman Colony, Faridkot 21-6-97 20,000 18,500
-do-102/8 23
Jaspal Kaur w/o S. Jagjit Singh Balbir Basti. Faridkot 2-7-97 50,000 10,000 40,000 107/8 27 Kashir Singh S/o Tejinder Pal Singh, Harinder Nagar 27-8-97 55,624 30,000 25,624 4/8 38 Balaur Singh S/o Ujaggar Singh, Vill. Moran Wall 28-11-97 32,379 29,604 Nil as payment does not exceed Rs. 20,000.4/8 48
-do-
2-3-98 29,604 28,347
-do-
2,17,246 (-) 65,624=1.51,622 It is also a factual position that the provisions of Section 269T are having no ambiguity as no branch of banking company or co-operative bank shall repay any deposit made with it otherwise than account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit. It is also crystal clear that repayment in cash was made by the appellant on fixed deposits as defined in Explanation to Section 269T of the IT Act, 1961. It is immaterial that the deposits were made by Government Department, agriculturists or repayment was made on the request of the depositors. These reasons and for the reasons given by the AO in his penalty order I hold that the appellant has violated the provisions of Section 269T of the IT Act, 1961, and the penalty levied under Section 271E amounting to Rs. 24,80,037 (26,31,659 - 1,51,622) is in order and the same stands confirmed. It is more so because the appellant unknowingly tried to shield the depositors for not disclosing their income as the appellant has neither deducted the TDS nor furnished (with CIT) Forms No. 15H in respect of interest paid of Rs. 10,000 or more on fixed deposits as has been mentioned by the auditor of the bank in column 11 of Form No. 3CD. I, therefore, hold that the penalty is imposable under Section 271E of the IT Act, 1961, on the appellant even when there is only a technical breach of the provisions of Section 269T of the IT Act, 1961. The facts of the case laws reported by the authorised representative of the appellant are thus fairly and widely distinguishable from the facts of the case under appeal. The penalty, therefore, levied under Section 271E at Rs. 24,80,037 stands confirmed and the appellant gets a relief of Rs. 1,51,622."
4. Against the order of the CIT(A), the assessee is in further appeal before the Tribunal. Before us, Shri Sudhir Sehgal, advocate, the learned counsel for the assessee, reiterated the submissions made before the authorities below. In addition to that, the assessee also relied on the following decisions :
(1) Shreenath Builders v. Dy. CIT (2000) 66 TTJ (Ahd) 113;
(2) ITO v. Rattan Singh Maan Singh (1995) 127 Taxation 97 (Trib);
(3) ITO v. Harpal Singh Jaswant Singh (1995) 51 TTJ (ASR) 471;
(4) Asstt. CIT v. Gillard Electronics (P) Ltd. (ITA Nos. 1543 & 1544/Chd/1993, asst. yr. 1989-90, dt. 3rd May, 2001);
(5) The Manager, State Bank of India v. CIT (ITA No. 620/Asr/1999, orders for the asst. yr. 1999-2000, dt. 31st Aug., 2000);
(6) Arjan Dass Amrit Lal v. AO (ITA No. 124/Asr/1998, asst. yr. 1989-90, dt. 9th Aug., 2000) and (7) The Manager, Indian Overseas Bank v. ITO (ITA No. 745/Chandi/2000, asst. yr. 1997-98, dt. 8th June, 2001).
Shri B.M. Verma, the learned Departmental Representative supported the orders of the authorities below.
5. We have carefully considered the rival submissions and have also gone through the orders of the authorities below. The decisions cited at the time of hearing of the appeal were duly considered by us. In this case, the Jt. CIT, Bhatinda, imposed a penalty of Rs. 26,31,659 under Section 271E of the Act. In further appeal, the CIT(A) deleted the penalty of Rs. 1,51,622 and sustained the penalty of Rs. 24,80,037. The assessee is a regional rural bank established under the Regional Rural Banks Act, 1976. Section 18 of the said Act provides that the main important operation of the bank is to provide loans and advances, particularly, to the weaker sections of the society by mobilising deposits from the same section. It is stated that the bank pays 1/2 per cent higher rate of interest as compared to the other nationalised banks to encourage savings in the weaker sections of the society. The officers and staff of the bank primarily deal with illiterate agriculturists, farm labourers and other weaker section of the society. It was also brought to our notice that in 1995-96, at the time of banking reforms, 148 regional rural banks out of 196 in India were loss making and on the verge of closure. Keeping in view this fact, the Government of India instructed these banks and trade unions to generate more deposits and to make different type of advances to survive, It is stated that after 1989, the pay scales of the nationalised banks have been revised twice but no revision of the pay scales has been made in the case of regional rural banks. The assessee-bank was the last regional rural bank established in 1986, under the Regional Rural Bank Act and no new regional rural bank has been established due to the fact that the regional rural banks were loss making units. That in context to the above stated facts/conditions, the staff and officers of the bank worked hard to mobilise deposits from the various sections of the society, Furthermore, it is stated that the staff of the assessee-bank was working in the area where their exposure to the banking and other laws, like income-tax was very limited. The assessee-bank had no training college of its own as in the case of other nationalised banks. In the above background, this plea of the assessee cannot be rejected that at the relevant time, the payment passing officer in bank was new and had no knowledge about the Income-tax law, particularly, the provisions of Section 269T r/w Section 271E of the IT Act, 1961. However, the Departmental authorities have also not rejected this contention of the assessee. On this count, it can be held that due to ignorance of law, the concerned officer was under the bona fide belief that repayments exceeding Rs 20,000 can be made in cash also. It is true that the staff of the assessee-bank were working within the area of operation of the bank only and their exposure to the bank and other laws like income-tax was very limited and this plea of the assessee has definite weightage in the present context. Furthermore, it is an admitted fact that the assessee-bank had no training college of its own as in the case of other nationalised banks. Section 271E r/w Section 273B of the IT Act, 1961, provides that if the assessee proves that it was prevented by reasonable cause from complying with the provisions of above sections, no penalty can be imposed. The Courts of the country have held that ignorance of law can be taken as a valid plea for non-compliance of provisions of Income-tax law and rules. At the same time, it has also been held by the various Benches of the Tribunal that ordinarily a plea as to the ignorance of law cannot support the breach of a statutory provision, but the fact of such an innocent mistake due to ignorance of the relevant provisions of law coupled with the fact that the transactions in question were genuine and bona fide transactions and were undertaken during the regular course of the business, will constitute a reasonable cause. At this stage, we may also take support from the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (1979) 118 ITR 326 (SC), wherein it has been held that "there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law but that is not a correct statement. There is no such maxim known to law." In the instant case, it was the contention of the assessee that the staff of the assessee-bank were acting in a bona fide belief that no offence is being made while making the payments of various deposits in cash. During the course of penalty proceedings, the assessee filed the affidavits and produced evidence regarding identity of the depositors. It is noticed that the Department has not impeached the transaction as non-genuine. At the same time, it is also not the case of the Department that the depositors were Benami. In that view of the matter, it can be safely held that the bona fide belief coupled with the genuineness of the transactions constitute a reasonable cause, as provided under Section 273B of the Act.
5.1. In the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373 : (2000) 73 ITD 252 (Hyd), the Hyderabad Bench of the Tribunal has said as under :
"Provisions of Section 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B which reads 'requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. Legislative intention in bringing Section 269SS was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand was concerned, there was no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed by the CIT(A) himself, it could be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with strongest punishment of heavy penalty."
In the instant case also, it is not the case of the Revenue that the assessee-bank had anything to do with the evasion of tax or concealment of income. In this background, it can be said that the assessee had no intention to purposely violate any provision of law and, therefore, there was no justification for levying the penalty in lacs.
5.2. In the case of Shreenath Builders v. Dy. CIT (supra) it has been held reveals that the use of the expression "shall be liable to pay" in Sections 271D and 271E and the provisions of Section 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authorities 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 relevant facts and materials existing on records." While taking such a view, the Tribunal (Ahmedabad Bench) had applied the ratio of the decision of the Andhra Pradesh High Court in the case of ITO v. Lakshmi Enterprises and Ors. (1990) 185 ITR 595 (AP).
5.3 As we have already observed hereinabove, that at a time a plea of ignorance of law for not-complying with the provisions of Income-tax law can be taken. In other words, ignorance of law is a well established excuse. We may. refer to the decision of this Bench of the Tribunal in the case of The Manager, State Bank of India and Ors. v. CIT and Ors. (ITA No. 620/Asr/1999, asst. yr. 1999-2000, dt. 31st Aug., 2000), wherein the Tribunal vide para. 5 of its order made the following relevant observations ;
"5. We have heard both the parties and have gone through the material available on records. The appellant is a banking company and the banking company goes by issue of circular from head office. TDS procedure and law is that "a harmonious construction of the relevant provisions of Sections 271D, 271E and 273B clearly generally misunderstood at times and it is the duty of the Department to draw education programme for DDOs and should be given proper publicity. We do not find that the bank was consciously trying to avoid compliance of the law. This misunderstanding was prevailing with the officials working in the branch that all the information is to be filed at the time of the annual return to be filed in Form 27A of the IT Act. In fact suo motu, the appellant did file all these declarations. Even after filing the declarations, none of the declaration was processed and found to be incorrect. We are of the opinion that this was a bona fide belief that the branch officials who have complied with all the provisions of TDS system have deducted tax at source and as such there is no default regarding non-deduction of tax at source We are of the opinion that this procedural aspect was not known at that given time because in Form 27A, the similar information is required to be field before the CIT/Chief CIT. We are of the opinion that this misunderstanding is bona fide genuine and therefore, penalty is not envisaged. Consequently, the penalty imposed in all the four appeals is deleted."
In the above decision, the Tribunal has clearly observed that the banking company goes by issue of circular from head office and TDS procedure and provisions of Income-tax law is generally misunderstood at times and it is the duty of the Department to draw education programme for DDOs and should be given proper publicity. It is true that the provisions of Income-tax law are generally misunderstood and on this count also, the plea taken by the assessee deserves to be accepted. In our view, there was no justification for levying the penalty under Section 271E of the Act. It is noticed that the CIT(A) vide para 5 of his order has stated that even if there was a technical breach of law, the assessee was liable for penalty. In our view, this observation of the CIT(A) is not sustainable in the eyes of law.
5.4. At this juncture, we may refer to the decision of the Ahmedabad Bench of the Tribunal in the case of Shreenath Builders v. Dy. CIT (supra), wherein it has been held that it is always not lawful to impose the penalty, if there is any technical or minor breach of provisions of law. The relevant observations of the Tribunal are reproduced hereunder :
"The penal provisions of Sections 271D and 271E, r/w Section 273B confer a discretion on the authorities to levy or not to levy penalty. Such discretion needs to be exercised with wisdom and in a fair and just manner. Even if the relevant provisions of law prescribe levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within Sections 269SS and 269T. Even if the minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breanch flows from a bona fide belief like in the present case. Such a view finds ample support from the judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC). Since we have held that the transactions in question were bona fide and were genuine transactions and were made during the course of the business of the assessee and there was no guilty intention of guilty mind on the part of the assessee at the time when these transactions were made, the penalties levied deserves to be cancelled. We do so."
It is true that while making the above observations, the Tribunal relied on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (supra) wherein it has been held that "Even if the minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breach flows from a bona fide belief like in the present case."
5.5. The net result of the above discussion is that we have held that the repayments were genuine transactions and there was no mens rea on the part of the assessee at the time when the repayments were made. It is also observed hereinabove that the officer who had made the repayments to the depositors was not well conversant with the provisions of IT Act. There is no finding from the Jt. CIT or the CIT(A) that the transactions were not genuine or the transactions were Benami.
5.6. In view of the above, we cancel the penalty levied by the Jt. CIT and sustained by the CIT(A).
6. In the result, the appeal is allowed.