Income Tax Appellate Tribunal - Hyderabad
The Nalgond District Co-Op Central Bank ... vs Department Of Income Tax on 28 November, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA Nos. 1196, 1197, 1198 & 1199/Hyd/2013
Assessment Years :2006-07, 2007-08, 2008-09 & 2009-10
Income-tax Officer, Ward - 1, vs. The Nalgonda District Co-op
Hyderabad. Central Bank Ltd., Nalgonda.
Hyderabad.
PAN: AAEFT3490M
(Appellant) (Respondent)
Revenue by : Shri Solgy Jose T Kottaram
Assessee by : Shri S. Rama Rao
Date of hearing : 28-11-2013
Date of pronouncement : 29-11-2013
OR D ER
PER B. RAMAKOTAIAH, A.M.:
These four appeals are preferred by Revenue against consolidated order of CIT(A)-VI, Hyderabad dated 21-05-2013 on cancellation of penalties u/s 271E of the IT Act. Revenue has raised only one substantive ground (Ground No. 2), which is common in all the appeals, contesting that the learned CIT(A) ought to have upheld levy of penalty as there is a reasonable cause for the AO to levy penalty.
2. Briefly stated, Assessee herein is a District Cooperative Central Bank of Nalgonda District, A.P. having branches all over the District and it is carrying on the business of banking. In the course of assessment, AO noted that Assessee has repaid fixed deposits in 2 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
cash and accordingly proceedings u/s 271E are invoked on the reason of violating the provisions of section 269T of the Act. Since the issue is common in all the years under consideration, the Additional Commissioner of Income-tax, Range - 9, Hyderabad levied penalty in all the four impugned assessment years. It was contended before the AO that most of the amounts are not cash payments, but, they are renewal of fixed deposits and, therefore, in view of accounting system maintained there are cash payments and cash receipts in day books and actually they are only renewals of fixed deposits. The AO, however, undertook the examination and came to a conclusion that Assessee's contention is not correct and vide page 4 of the order rejected them. However, he has levied penalty on the entire amount of fixed deposits stated to have been paid in cash.
3. Before the learned CIT(A), Assessee contended that part of the amounts stated by the AO are actually renewal of fixed deposits, which does not attract penalty u/s 271E. Detailed information was furnished to the learned CIT(A), on the basis of which, the learned CIT(A) examined the issue and excluded the amounts, which were in fact not violated the provisions of section 269T. The findings of CIT(A) on factual aspect of the issue are as under:
"5.5 The explanation offered with reference to the adjustments, made in repayment of Fixed Deposits appears to be genuine practices and acceptable as per the established accounting norms/practices. Further, such information and explanation are borne out of the facts of the case, which could not have been rejected by the A.Q without undertaking the needed verifications and enquiries, with special reference to the veracity and genuineness of the transactions and the correctness of the procedures/practices, adopted by the appellant, as a co- operative Bank and with special reference to it's business exigency, Based on the facts of the case, the amounts falling in the category of repayments through renewal of deposits by contra-entries in the books, repayment through adjustment against the loans, the repayments routed through the SB accounts and the repayments of cash below 3 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
Rs. 20,000, need to be excluded from the ambit of operation of provisions of Sec. 269T. This is based on the facts alone and such amounts for the AY 2006-07, 07-08, 08-09 and 09- 10 and AY 2009-10, are quantified at Rs. 1,19,05,482/-, (Rs. 85,75,993/-, Rs. 71,97,844/- and Rs. 57,05,647/- , respectively, as indicated in the earlier paragraph (table) of this order and are deserved to be considered for excluding from the ambit of Sec. 269T, based on the facts alone, which appears to have been missed to be examined by the A.O, during the penal and assessment proceedings. Thus the appellant gets relief to the extent of the amounts as quantified, as far as levying of penalty u/s. 271E, is concerned."
4. With reference to the balance amounts, Assessee's arguments are on the reasonable cause. It was submitted that Assessee is engaged in the business of banking and most of the depositors are villagers, who are illiterate and semi-illiterate. Moreover, the bank is also operating within the District of Nalgona and its staff were also not aware about the provisions of section 269T and further even the bank was operating for many years, no such issue was raised in any of the earlier years. It was submitted that there was a reasonable cause and relied on the following decisions in support of the stand of Assessee :
1. Faridkot-Bhatinda Kshetriya Grameena Bank Vs. JCIT, 81 TTJ 706 (ITAT, Amritsar)
2. Muslim Urban Co-op Credit Society Ltd. Vs. JCIT, 96 ITD 83 (ITAT, Pune)
3. Citizen Co-op Society Vs. Addl. CIT, 41 DTR 305 (ITAT, Hyd.)
5. After considering the issue, the learned CIT(A) deleted the penalty by stating as under:
"5.7 Section 269T provides that no company (including banking company), co-operative society or partnership firm shall repay to any person, any deposit made by him with such entity, otherwise than by cheque or an e/c payee bank draft in case where the amount of the deposit, or the aggregate amount and the interest thereon equals or exceeds the stipulated amount. In case of repayment by a 4 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
bank, the repayment may be made by crediting the amount to the account, of the concerned creditor, if any, with such bank vide the first proviso sec. 269T(1) of the IT Act. The word 'deposit' also amended so that in case of all persons other than companies 'deposit', for the purpose of Sec. 269T means deposit of any nature. In view of the extended definition in case of persons other than companies, deposits for the purpose of Sec. 269T include deposit payable on demand also. Further provisions of Sec. 271E stipulate that if a person repays any loan or deposit referred to in Section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the (loan or) deposit so repaid and any penalty imposable under sub section(1) shall be imposed by the Joint Commissioner.
5.8 As could be seen from the language of Sec. 269T, the law is applicable to the appellant under reference. As observed by the Assessing Officer, it is an acknowledged legal position that while constructing the taxing provision, the object is to prevent tax evasion and where legislature uses the word 'capable of comprehensive import, the .Court cannot proceed on an assumption that the words used in a restricted sense, so as to defeat the avowed the object of the legislature. In this context, it is relevant to refer to the case law relied upon by the A.O on interpretation of fiscal statute, in the case of CA. Abraham Vs. ITO (AIR 1961 sc
609), wherein it was held as follows:
"In interpreting a fiscal statute a Court cannot proceed to make good the deficiencies if there being any: the Court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. But, where by the use of words capable of comprehensive import, the provision is made for imposing liability for penalty upon taxpayers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the legislature qua a certain class will not be lightly made."
Similar views were expressed by Hon'ble Apex Court in the case of PadmaSundara Rao and others Vs. State of Tamilnadu (255 ITR 147), wherein it has been held that no one can read anything in to a statutory provision which is plain and ambiguous. Thus, the ratio of the decisions and the plain reading of explanation to Sec. 269T, indicate that provisions of Section 269T are applicable to the facts of this case.
5ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
However, Sec. 273B which was inserted by the Taxation Laws (Amendments and Miscellaneous Provisions) Act, 1986, provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for the said failure, and Sec. 271E is one of such provisions coming 1"ft'flt'Nslr the purview of Sec. 273B of I.T. Act.
In this context, it is relevant to revert to the decision of Hon'ble ITAT, Hyderabad in the case of Citizen Cooperative Society Ltd., wherein the decision related to the penalties u/s. 2710 & E were discussed and decided on similar set of facts. The observations of the Hon'ble ITAT run as under:
5.9.1 "An order imposing the 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 in defiance of law 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 so. 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 blows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute (Part of Para 16.3) "In levying the penalty, u/s. 2710 or 271E, one has to see the existence of reasonable causes. The word 'reasonable cause' has not defined under the Act, but they could receive the same which is given to the expression 'sufficient cause'.
Therefore, in the context of penalty provisions, the words 'reasonable cause' could mean a cause which 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 bonafides. Before imposition of penalty u/s. 271, the Assessing Officer must be satisfied, not arbitrarily but judiciously that the assessee has without reasonable cause, failed to comply with the provisions. "
(Para 16.6) "Further, there should be findings in the assessment order 6 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
that the transactions made by the assessee in breach of provisions of Section 269SS or 269T were not genuine transactions. The assessment order passed u/s. 143(3) of the IT Act, which is after scrutiny of the books of account of the assessee should have findings that the transactions made by the assessee was malafide and with the sole object to disclose the concealed or undisclosed money. If there is a merely technical mistake committed by the assessee, which not resulted loss of revenue, then invoking the provisions of Sec. 2710 or 271E is very harsh, needs to be avoided.
"The transactions not being impeached as not genuine or bogus, cannot lead to be levy of penalty u/s. 2710/ 271E. Even if they were to apply, one should see the provisions of Sec. 2738, if the assessee having bonafide 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 word, bonafide belief coupled with genuineness of the transactions constitutes reasonable cause for not invoking the provisions of Sec. 2710 & 271E."
(part of Para 16.7) "The assessee has been carrying on the banking business and it is having bonafide belief that the provisions of Sec. 269SS and 269T is not applicable to the assessee's case and the same is coupled with genuineness of the transaction, constitute a reasonable cause and in such case, the default on the part of the assessee is merely a technical or venial in nature and no penalty be levied (part of para 17.1).
"To sum up, a harmonious construction of the relevant provisions of Sections 2710, 271E and 2738, clearly reveals the use of expression 'shall be liable to pay' in sections 2710 and 271E and the provisions of Sec. 2738 providing that no penalty would be leviable if the person concerned proves that there are reasonable cause or the said failure clearly indicates 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 be ignorance of law cannot support the breach of a statutory provision but the fact of such an 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 u/s. 271D and 271E." (Para 18) 7 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
5.10 The facts of the case are similar to the facts of the case law under reference, where the appellant is into the business of banking in which the deposits are being accepted and repaid as part of its business exigency and the A.O has never questioned the genuineness of the deposits and no additions were made on such deposits. Further, the bank is operating mostly in rural areas run by the staff who are inadequately equipped with the Income Tax Law that prohibits cash repayments of deposits and the customers/members are mostly from the semi-illiterate or illiterate background. Further, similar activities were carried out by the appellant in earlier years for which no such deficiencies were pointed out. All these reasons as claimed by the assessee before the Assessing Officer constituted reasonable cause in this case and the provisions of Sec. 273B comes into play for the purpose of levying or non- levying of penalty. In this case, the A.O did not exercise the discretion of levying the penalty judiciously, and there is a failure on his/her part to consider the conditions that can constitute reasonable causes, as stipulated by the provisions of Sec. 273B. Under the circumstances, I am of the considered opinion that based on the facts of the case as well as the judicial decision of Hon'ble ITAT, Hyderabad in the case of Citizen Cooperative Society Ltd. that there is reasonable cause for the appellant and there is no reason for the Assessing Officer to levy the penalty u/s. 271E I.T. Act for the AY 2006-07, 07-08, 08-09 and 2009-10. Thus, the penalty of Rs. 2,61,38,861/-, Rs. 1,79,26,175/-, Rs. 1,67,85,042/- and Rs. 98,97,788/- levied for the AYs 2006- 07, 2007-08, 2008-09 and 2009-10 respectively, stand cancelled / deleted. Thus, these grounds of appeal are treated allowed for all the four assessment years."
6. The learned DR relied on the orders of the AO and submitted that reasonable cause as propounded and accepted by the learned CIT(A) is not correct as there is a violation of provisions. Accordingly, it was submitted that penalty should have been confirmed to the extent Assessee paid them in cash.
7. In the rejoinder, learned counsel submitted that reasonable cause as explained to learned CIT(A) is a bonafide reason and Assessee is entitled to claim benefit u/s 273B and relied on the 8 ITA No. 1196 to 1199/Hyd/2013 The Nalgonda Dist. Co-op Central Bank Ltd.
decision of coordinate bench in the Citizen Co-op Society (supra) wherein on similar facts, penalties were discussed and deleted.
8. We have considered rival contentions and examined the facts as based on record. There is no dispute with reference to the fact that part of the amounts were renewal of fixed deposits, some by credit to SB accounts and some below Rs.20,000 and to that extent learned CIT(A) was correct in excluding the amounts on factual aspect, on which there cannot be an penalty. W ith reference to the balance of the amounts, considering Assessee's nature of banking business and the area in which it is operating, mainly in rural areas of backward District of Nalgonda, the reasonable cause propounded by Assessee and accepted by CIT(A) is a bonafide one. In fact the reasonable cause benefit is available to Assessee whereas the ground raised by Revenue is that penalty is levied for reasonable cause. The ground per-se itself is not correct. Therefore, we do not find any reason to interfere with the well-reasoned order of the learned CIT(A), who in turn, followed the decision of coordinate bench in the case of Citizen Coop Society (supra).For the reasons stated above, we uphold the orders of CIT(A) and reject the grounds raised by Revenue in all the four years under consideration.
9. In the result, all the four appeals of Revenue are dismissed.
Pronounced in the open court on 29 t h November, 2013.
Sd/- Sd/-
(SAKTIJIT DEY) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 29 th November, 2013.
kv
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ITA No. 1196 to 1199/Hyd/2013
The Nalgonda Dist. Co-op Central Bank Ltd.
Copy to:-
1) ITO, Ward - 1(1), Near Railway Under Bridge, Hyderabad Road, Marriguda Post, Nalgonda - 508 001.
2) The Nalgonda District Co-op Central Bank Ltd., C/o Sri S. Rama Rao, Advocate, Flat No.102, Shriya's Residency, Road No.9, Himayatnagar, Hyderabad.
3) CIT(A)-VI, Hyderabad
4) CIT-VI, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.