2014 (9) TMI 606 - AT - Income Tax

Tribunal cancels penalty for Cooperative Credit Society exceeding cash deposit limits under Section 271D

Ratnagiri Jilha Gramsevak Sahakari Pat Sanstha Maryadit, Gurukrupa Gramin Bigar Sheti Sahakari Pat Sanstha Maryadit Versus Addl. CIT, Ratnagiri Range, Ratnagiri

The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to cancel the penalty under Section 271D for a Cooperative Credit Society ... Penalty u/s 271D – Sufficient cause as provided u/s 273B – Deposits accepted in contravention to section 269SS/269T or not - Whether the assessee was prevented by sufficient cause within the meaning of S. 273B or not - Held that:- section 273 B comes into play when the assessee has committed a lapse but the assessee can demonstrate that there was reasonable cause for having committed that lapse - The facts relating to the factors leading to a lapse can only be known to the persons committing that lapse are best in the knowledge of person committing the lapse, and, therefore, the onus on him to elaborate the same - the explanation of the assessee deserves to be accepted - It was a widespread, even if erroneous, belief that the provisions of Section 269 SS do not apply to the credit cooperative societies, and it is also evident from the fact that even the CBDT has taken notice of imposition of resultant penalties in large number of cases, and issued a circular highlighting that these penalties should not be imposed indiscriminately and without considering the scheme of Section 273B - Such a widespread belief, by itself, can be viewed as a reasonable cause for assessee's bonafide belief – thus, the AO is directed to delete the penalties of the assessee – Decided in favour of assessee. Issues Involved:1. Whether the assessee, a Cooperative Credit Society, is liable for penalty under Section 271D of the I.T. Act for accepting deposits exceeding Rs. 20,000 in cash, in contravention of Section 269SS.2. Whether the assessee's belief that it is exempt from Section 269SS due to its classification as a Cooperative Bank constitutes a 'reasonable cause' under Section 273B.3. Whether the penalty should be waived due to the assessee's subsequent compliance after being informed of the legal requirements.Detailed Analysis:Issue 1: Liability for Penalty under Section 271DThe assessee, a Cooperative Credit Society, filed its return for the A.Y. 2010-11, declaring NIL income after claiming deductions under Chapter VIA. During assessment, it was found that the assessee accepted deposits exceeding Rs. 20,000 in cash, violating Section 269SS. Consequently, the Addl. CIT issued a show-cause notice and later imposed a penalty of Rs. 13,52,000 under Section 271D, which was upheld by the CIT(A).Issue 2: Reasonable Cause under Section 273BThe assessee argued that it operated under a bonafide belief that it was a Cooperative Bank and thus exempt from Section 269SS. The CIT(A) rejected this argument, stating that accepting deposits and providing credit facilities to members did not constitute banking business. The CIT(A) also noted that ignorance of law could not be a valid excuse, especially several years after the law was enacted.Issue 3: Subsequent Compliance and PrecedentsThe assessee cited various decisions where penalties under Sections 271D and 271E were waived due to ignorance of law and subsequent compliance. The Tribunal noted that in similar cases, penalties were deleted when the assessee stopped accepting cash deposits after being informed of the legal requirements. The Tribunal referred to several decisions, including those of the Hon'ble Supreme Court and other High Courts, which supported the waiver of penalties under similar circumstances.Tribunal's Judgment:The Tribunal found that the assessee had a bonafide belief that it was exempt from Section 269SS and had stopped accepting cash deposits after being informed of the legal requirements. The Tribunal noted that similar penalties had been waived in multiple cases involving Cooperative Credit Societies. The Tribunal also referred to a CBDT circular advising against indiscriminate imposition of penalties on Cooperative Credit Societies.Conclusion:The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to cancel the penalty under Section 271D. The Tribunal's decision was consistent with its earlier judgments and the Hon'ble High Court's rulings, which recognized ignorance of law as a reasonable cause under Section 273B.Stay Application:The Tribunal dismissed the Stay Application as infructuous, given the cancellation of the penalty.Final Outcome:The appeal filed by the assessee was allowed, and the penalty under Section 271D was cancelled. The Stay Application was dismissed as infructuous.