Gujarat High Court
Principal Commissioner Income Tax ... vs Shree Madhi Surali Vibhag Nagarik ... on 7 July, 2022
Author: Bhargav D. Karia
Bench: N.V.Anjaria, Bhargav D. Karia
C/TAXAP/268/2022 ORDER DATED: 07/07/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 268 of 2022
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PRINCIPAL COMMISSIONER INCOME TAX SURAT 2
Versus
SHREE MADHI SURALI VIBHAG NAGARIK SAHAKARI DHIRAN MANDLI
LTD.
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Appearance:
MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the
Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 07/07/2022
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Learned advocate Mr. Nikunt Raval has tendered draft amendment. The same is allowed in terms of the draft. To be carried out forthwith.
2. By this appeal under section 260A of the Income Tax Act, 1961 [for short 'the Act,1961'], the Revenue has challenged the order dated 12.02.2022 passed by the Income Tax Appellate Tribunal, Surat ['Tribunal' for short] in Tax Appeal No. 612/Ahd/2016 for A.Y. 2010-11.
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3. Following questions of law are proposed as substantial questions of law:
"I. Whether in the facts of the case the Hon'ble ITAT has erred in deleting penalties imposed u/s. 271D and 271E of the Act?
II. Whether in the facts of the case the Hon'ble ITAT is justified in considering the assessee to be covered under the proviso to Section 269SS and Section 269ST of the Income Tax Act, 1961?
III. Whether in the facts of the case the Hon'ble ITAT was correct in finding that action u/s. 68 was a prerequisite to levying penalty for contravention u/s. 269SS and 269ST of the Income Tax Act, 1961?"
4. The assessee is a registered Co-operative Credit Society and it has been carrying on activities which are, in many ways, similar to the banking activities by opening different types of accounts similar to saving bank account for its members where amount can be withdrawn immediately on demand. There was no acceptance of either loan or deposit by the assessee as the control and ownership of the amount remain with the person whose credit money remains in his account as member of the society. The assessee was a society functioning in the village Page 2 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 of farmers or ill-literate persons as an alternative to bank. The income of the assessee is also exempt under section 80P of the Act,1961 being income from co-operative societies.
5. The assessee filed return of income declaring total income of Rs. Nil on 15.10.2010. The assessment was completed on 01.03.2003 under section 143(3) of the Act, 1961. The Assessing Officer determined the total income of Rs.
5,13,290/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had accepted and repaid loan/deposit in cash of Rs. 20,000/- or more otherwise than by account payee cheque or bank draft in contravention of the provision of section 269SS and 269T of the Act,1961 and therefore, the assessee was liable for penalty under section 271D and 271E of the Act,1961 respectively.
6. The Assessing Officer thereafter passed an order dated 31.07.2014 levying the penalty of Rs. 28,66,93,898/- under section 271D of the Act, 1961 and penalty of Rs. 27,12,01,825/- under section 271E of the Act,1961.
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7. Being aggrieved by the penalty order passed by the Assessing Officer, the assessee preferred appeal before the CIT (Appeals). The CIT (Appeals) allowed the appeal and the ordered to delete the penalty levied under section 271D and 271E of the Act, 1961 holding as under:
"8. I have carefully gone through the impugned penalty orders, the submissions of the appellant, the case law on the issues covered and the facts of the case. It is observed that the appellant is a Registered Society and has been functioning as co-operative credit society for its members and in the process, the appellant society has been carrying on the activities which are in many ways similar to the bank activities. It opens different types of accounts including accounts similar to savings bank account for its members, where amounts can be withdrawn immediately on demand. The appellant is subject to rules laid down by Cooperative Societies Act and the assesses has been carrying out operations with its members In nature of taking money a5 deposits and providing money on credit to those members who need ft. Its nature of activity is such and there is no doubt that its acceptance of money is not linked to a situation where it may need to explain with mala fide attentions possession of cash/ money. It is observed that the intention of the legislature in enacting the provisions of sec. 269SS and 269 T of the Act; were envisaged to apply to the loan / deposit accepted by a person for his own purposes and not keeping in mind cases like that of appellant's where the control' and ownership remains with the person to whose credit money stand as a member of the Society, The assesses Page 4 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 like present is not obliged to question the source of deposit made toy it's members. Also, the member can keep the deposit for a period which' is according to their convenience. The amount has sometimes to be repaid by the assessee to its member immediately on demand. These features distinguish the case of the assessee from other ordinary assessees. Therefore, the provisions of s, 27ID/27IE ore to be viewed in the background of these aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities, the deposits received by the assessee, which was carrying on the activities of Proving credits, were not in the nature-of taking of any loans or deposits for the purpose of funding its project as a source of investment, rather, it was in the business of accepting deposits that in view of the nature of such business, the scrutiny deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc to be used for its owt investment The authority vested with the power to Impose penalty has a discretionary power not to levy the penalty. It is also noted that there is no addition on account of these impugned deposits in the return of income: it means that deposits are considered genuine. Veracity of creditors is not" doubted by the Revenue. AO did accept the deposits as genuine. The breach of provisions of's. 269SS/269T (if any,), occurred from a bona fide belief. Ex facie, it is a venial breach. The law takes no notice of trivialities.
8.1 Cash payments and receipts were mode because of business exigencies. In fact these credit societies function in Villages/Talukas etc. for farmers or illiterate people etc. as an alternative to banks and if deposits are taken/repaid only in cheques, they may loose all relevance, The income of the assessee is exempt under s. 8OP of the Act and the circumstances show that, there was in all probability a Page 5 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 bonafide belief of the assessee (that such cash deposits accepted in the Savings accounts from the respective account holders do not contravene the provisions of sec. 269SS of the Act) which could easily be reinforced by the fact that the I T department in so Many years has not objected to it. Not only this, but even the Chartered Accountant who audited the books of account of the society was not showing these as being 1 contravention of the Act, in the relevant columns of the Audit reports for years.
8.2 The imposition of penalty for failure to perform statutory obligation is only a discretionary power of the authority exercising judicial functions on consideration of all 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 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 other contention of the assessec's counsel is that the words any other person in 269SS and s. 269T do not denote the directors of the assessee or members of the assessee society, when read with the legislative iment as reproduced in Board Circular No. 387, dt. 6th Sept., 1934 (1984 43 CTR (TLT) 3}. 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 to the members; according to the bye-laws of the assessce society. In view of the transactions which took Place between the assessee and its members, the strict provisions of the s. 2695S/269Tmay not de applicable, and is a Very plausible opinion of the provision. In view of the above the appellant was in all probability Page 6 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 functioning under bona fide. In this regard, reliance 18 placed on the fallowing judgments:
1) Dillu Cine Enterprises (P) Limited V/s Additional Of (2002) SOITD
2) Citizen Co-operative Society Limited V/s Additional OT (2010) 41 DTR 0305.
8.3 One has to keep in view the intent of the legislature behind enacting s. 269SS/269T, where it is clear that the loan or deposit brought in by the assessee was not to explain its unaccounted cash and a plausible opinion that members of the assessee society are not covered by the expression any other person' occurring in s. 2A9SS. The transaction can also be attributed to various exigencies of business carried on by the assessee and thus constitutes a 'reasonable cause as contemplated by s, 2738., Reliance Is placed on: following; case low:
I) CIT V4 Maa Khodiyar Constructions (2014 J 365 ITR 474 (Guj).
2) CIT V/s Sahara India Mutual Benefit Company Limited (2013) 257CTR (Del) 225.
8.4 More so, the assessee has been carrying on the business activities of taking deposits and giving credits and it is having bona fide belief that provision of s. 269SS/269T is not applicable to the assessed 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 Page 7 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 merely of a technical or venial nature and no penalty be levied. Reliance is placed on following case low:
1) CIT V/s Bombay Conductor Electricals (2008) 301 ITR 238 Gyj.
2) Omec Engineers V/s CIT (2007) 294 ITR 599, Jharkhand
3) Farrukhbad Investment (1) Itd. V/s JCIT (2003) 80 TTI 82.ITAT Delhi
4) DIT (Exemption) V/s All India Deaf and Dumb Society 2005 198 CTR Del 376.
5) CIT V/s Maheshwari Nirrnan Udhyog 2007 211 CTR (Raj) 8.5. To sum up, a harmonious construction of the relevant provisions of s:s, 27 ID; 27IE and 273B clearly reveals the use of expression 'shall be liable to pay' and the provisions of s. 273.6 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 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 Page 8 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 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. 27ID and 27IE. In view of the above discussion, the undersigned is inclined to delete the penalty levied under ss. 27ID and 27IE of the IT Act for the asst. yrs. 2010-11.
8.6. The appellant has also challenged (ground 2 in both the appeals) the working of the quantum of penalty saying the amounts considered were including amounts received in earlier years and transferred in books in the year with no fresh deposits and repayments. As the basis of imposition itself is decided against the revenue, the grounds in both appeals have become redundant."
8. Being aggrieved, the Revenue challenged the aforesaid order of CIT (Appeals) before the Tribunal contending inter alia that in view of the clear provisions of sections 269SS and 269T of the Act, 1961, there is no distinction between the bona fide belief and mala fide belief of the assessee to accept or deposit or loan in cash of Rs. 20,000/- or more. It was contended that the genuineness of the transaction is not to be seen for breach of the provisions of sections 269SS and 269T of the Act,1961 and therefore, the penalty would be attracted for breach of the Page 9 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 said provisions as provided under sections 271D and 271E of the Act, 1961.
9. It was further pointed out before the Tribunal that the penalty has been levied as the assessee had submitted that the amount accepted by the assessee in cash was a loan/deposit amount and assessee could not prove the reasonable cause for accepting and repaying the same from/to its members otherwise than by an account payee cheque or account payee or bank draft.
10. It was contended that the assessee-Mandali is situated at Surali which is not a village but a town having banking facilities and therefore, the reasons given by the CIT(Appeals) that the assessee functions for farmers or ill-literate people as an alternative to bank is not true and correct.
11. It was pointed out that the assessee-Society has total deposit of Rs. 3000 lacs and earned interest over Rs. 200 lacs Page 10 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 for A.Y. 2010-11 and was professionally managed and the books of accounts are regularly audited.
12. It was submitted that the assessee is not having any license from Reserve Bank of India to do banking business under section 22 of the Banking Regulation Act,1949 and hence, there is a breach of the provisions of sections 269SS and 269T of the Act, 1961 for which, the penalty as provided under section 271D and 271E of the Act, 1961 are liable to be levied.
13. The Tribunal after considering the reasons assigned by the CIT (Appeals) as well as the ground raised by the Revenue and after perusal of the material placed before it as well as the settled legal position with regard to levy of penalty for breach of sections 269SS and 269T of the Act, 1961, arrived at a finding of fact that the assessee accepted cash and re-paid deposit of loan of above Rs. 20,000/- otherwise than by the account payee cheque or account payee draft on a bona fide Page 11 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 belief that provisions of sections 269SS and 269T of the Act, 1961 are not applicable in its case.
14. The Tribunal also arrived at a finding of fact that the Assessing Officer also accepted deposits made by the assessee as genuine and the breach of sections 269SS and 269T occurred due to the bona fide belief of the assessee as the Assessing Officer has also not made any addition on account of the impugned deposits in the assessment order as the veracity of the creditors was not doubted. The Tribunal, therefore, arrived at the conclusion that if the veracity of deposit was doubted, then addition would have been made under section 68 of the Act, 1961 but there is an undisputed fact that the assessee-Credit Society functions in village. for farmers and illiterate persons as alternative to banks and if the deposits were taken/repaid only in cheques, than it may lose all relevance. The Tribunal also found that the Chartered Accountant, who audited the books of accounts, was not showing the amount accepted or repaid by the assessee-society Page 12 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 in cash as being in contravention of section 269SS and 269T of the Act in relevant column of audit report. The Tribunal, therefore, held that under bona fide belief, assessee accepted and repaid the loan or deposit in cash as is done by the co-
operative bank and therefore, provisions of sections 269SS and 269T of the Act, 1961 are not applicable in the facts of the present case and consequently, penalty u/s. 271D and 271E of the Act cannot be levied.
15. The Tribunal therefore dismissed the appeal filed by the Revenue confirming the order passed by the CIT(Appeals) in view of the above findings of facts arrived at by the Tribunal.
16. We have considered the order passed by the CIT (Appeals) as well as the Tribunal vis-a-vis the penalty order passed by the Assessing Officer. The CIT(Appeals) and the Tribunal have rightly held that there is no intention/mens rea on the part of the assessee-Co-operative society to accept the cash deposit from its members in their accounts maintained by it similar to savings account maintained by the banks in view Page 13 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 of the provision of section 273B of the Act, 1961 which reads as under:
"Section - 273B : Penalty not to be imposed in certain cases 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, 99[section 271FAB,] section 271FB, section 271G, 1[section 271GA,] 2[section 271GB,] section 271H, 3[section 271-I], 4[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 sub-section (1) of 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."
17. On perusal of the above provisions it is clear htat no penalty would be leviable if the person concerned proves that there is reasonable cause for the alleged failure. Thus, the Tribunal as well as the CIT (Appeals) have rightly held that the provision of section 273B of the Act, 1961 gives the discretion to the authority to impose the penalty or not which Page 14 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022 C/TAXAP/268/2022 ORDER DATED: 07/07/2022 has to be exercised in a just and fair manner having regard to the facts and material existing on record. When the CIT (Appeals) and the Tribunal on the basis of the facts and material on record have come to the conclusion that the assessee-Co-operative Society on bona fide belief coupled with the nature of transaction in question being genuine and bona fide undertaken during the regular course of business would not result in levy of penalty under sections 271D and E of the Act, 1961, we are of the opinion that there is no legal infirmity in the impugned orders of the CIT (Appeals) and the Tribunal requiring any interference by this Court.
18. In view of the foregoing reasons, no question of law much less any substantial question of law proposed or otherwise arises from the impugned orders of the Tribunal.
The Appeal accordingly stands dismissed.
(N.V.ANJARIA, J) (BHARGAV D. KARIA, J) JYOTI V. JANI Page 15 of 15 Downloaded on : Sat Dec 24 20:34:04 IST 2022