TaxTMI 
TaxTMI 
2010 (2) TMI 708
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....of its members without considering the fact that the assessee is recording each and every receipt and payment and the assessing officer did not find any omission on the part of the assessee herein. The CIT (A) failed to consider that the assessee carried on the business of banking and in the process of its business activity it is necessary to accept the deposits in cash. The CIT (A) also failed to appreciate the fact that the assessee is a Cooperative Bank within the meaning of the provisions of the Multi State Cooperative Societies Act 2002 and also is governed by the provisions of the Banking Regulation Act as applicable to the Cooperative Societies as it is a cooperative society carrying on banking business. 6. The CIT(A) failed to appreciate the fact that in so far as the amounts received by it and paid by it are only to its members and not to any outsiders and accordingly, ought to have held that the provisions of Section 269SS and Section 269T have no application. 7. The CIT(A) erred in confirming levy of penalty u/s 271D of Rs. 6,75,16,398 and u/s 27IE of Rs. 53,84,815 for the assessment years 2006-07 and u/s 271D of Rs. 8,23,03,665 and u/s 271E of Rs....
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....n the state of AP and Maharashtra and Karnataka. ii) To encourage thrift, self help and cooperative among members iii) To accept deposits of money from the members for the purpose of lending to its members of investment, repayable on demand or otherwise iv) To borrow or raise money v) To lend or to advance money to members vi) To receive all kinds of bonds, scripts, valuables of deposits vii) To provide safe deposit vaults viii) To collect and transmit money and securities from constituents. ix) To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents. x) To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents xi) To prepare and to finance schemes for amelioration of the financial condition on constituents xii) To do all such other acts, deeds and things as are incidental and conducive to the promotion or advancement of the members xiii) To acquire, to construct, to maintain and to alter any building or works necessary or convenient for the purpose of the society xiv) To manage to sell and to realize any movable or immovable property those may come into th....
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....bers are not entitled to be the shareholders and are not entitled for the dividends, they are permitted to utilize the services of the society as any other member can. The Nominal member is not entitled to participate in the management of the Society nor he can acquire the voting rights. 5.5. He drew our attention to the funds flow statement for the financial years ending on 31.3.2005 to 31.3.2009 to show that its activity involves receiving the amount from its members and providing the funds to the members: Details Year ended on 31-3-2005 31-3-2006 31-3-2007 31-3-2008 31-3-2009 No. of members including nominal members 19732 25664 32361 38765 50446 Rupees in Lakhs Subscribed capital 117.15 187.21 279.86 398.10 535.59 Reserves and surpluses 232.61 324.59 544.45 863.34 1259.67 Deposits from members 3338.96 5564.77 6660.40 12170.76 16024.49 Borrowings 34.56 Nil Nil 100.00 Nil Cash and bank 199.41 430.62 692.04 1299.77 704.91 Investments 241.09 922.55 1074.55 1764.45 2287.70 Advances to members 3183.90 4604.14 723....
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....us acts governing the society. The entire activity of collecting the amounts from the members, utilization of the said amount, payment of interest to the members, collection of interest from the members, depositing the amounts with others and declaration of dividends were all done in accordance with the bye laws of the society which in turn are in accordance with the provisions of the act. The Authorized Representative, therefore, submitted that the society is running its activity in the direction of fulfilling the objects of the society strictly in accordance with the bye laws of the society. 5.9. The assessee is claming the income to be exempt under the provisions of sec. 80P of the Act and the said claim is being accepted by the assessing officer. The assessee was filing the returns of income upto and including the assessment year 2005-06 and the assessments were completed. There was no occasion for the assessee to receive any such penalty notice. The final accounts were being examined by the Government. None of the authorities pointed out that there is any omission on the part of the assessee herein accepting cash deposits and repayment of such deposits. 5.10 According to....
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....id at it is a cooperative bank. ii) According to part V Banking Regulations Act, the provisions of banking regulation act would apply to the cooperative society as they apply to or in relation to, banking companies with certain modifications. It is also mentioned in clause (a) of the said section 56 with reference to a banking company as under: The provisions of this Act, as in force from the time being, shall apply to, or in relation to cooperative society as they apply to, or in relation to banking companies subject to the following modifications namely: 10 a) Throughout this Act, unless the context otherwise requires i) references to a 'banking company' or 'the company' or 'such company' shall be construed as reference to a Cooperative Bank ii) references to 'commencement of this Act' shall be construed as references to commencement of the banking laws (application to cooperative society ) Act, 1965 (23 of 1965). 5.12. Therefore, according to sec.56 of Banking Regulation Act 1949, a cooperative society is to be termed as a banking company for the purpose of the said act and the provisions of the said act apply to a cooperative society as they apply to a banking....
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....from some of the people. Further he submitted that the said observation is neither correct nor justified for the following reasons: i) even according to the assessing officer, he is able to verify the correctness of the returns of income filed by such persons and is able to bring to tax the income that escaped assessment ii) based on the information by the assessee the assessing officer is able to issue notices to the members and bring to tax the incomes which escaped assessment. This would indicate that the assessee did not help any of its members in avoiding tax. iii) From the details provided by the assessing officer in the order that the persons who have invested did not disclose the income correctly in their returns of income and that some claims for relief made by them were rejected. 5.15. He submitted that the observations of the assessing officer that the assessee is providing shelter to the activities of tax evasion are not correct and the assessing officer is not justified. The assessing officer is of the view that in eleven cases, full addresses of the members could not be provided and in case of five members, notices could not be served. The assessee maintai....
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....bad Club (150 ITR 401) (AP). 5.17. He submitted that in all the cases the Hon'ble High Court observed that where the contributors to the fund are beneficiaries, it is a mutual benefit society. In the case of assessee the members deposit the money, receive interest, the members take loan, pay interest and if there is any balance, the dividend is collected by members. Therefore, the contributors' and the beneficiaries of the fund are the same members. Though the income of the society is taxable in view of the specific provisions contained in the act, it is mutual benefit society. In such circumstances, it is not known how such transactions, which are recorded in the books of account of the assessee, help mutual benefit of tax evasion. It is not correct to make such a comment particularly when the assessee herein is systematically recording the transactions. 5.18. He submitted that the assessing officer mentioned that some of the deposits are in the names of minors, firms and societies who cannot be the members of the society. If any deposit is made by a minor, the name and address of the parent is available and such parent who is the member deposits the amount with the as....
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.... any loan or deposit taken or accepted by: a) Government. b) Any banking company, post office savings bank or cooperative bank c) Any corporation established by central, state or provincial act. d) Any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956). e) Such other institution, association or body or class of institutions, associations or bodies which the central Government may for reasons to be recorded in writing notify in this behalf in the official gazette. According to clause (b) of the proviso, a banking company is exempt from operation of the provisions of sec.269SS of the IT Act. The meaning of the word 'banking company' is explained in explanation 1 to the said section. According to the explanation (1) any company to which the Banking Regulation Act 1949 applies. Sub section (1) of section 5 defines the work 'banking company' to mean 'any company which transacts business of bank in India'. Sec.56 of the Act substitutes the word 'company' by the 'Cooperative society'. Therefore, even a cooperative society for which the provisions of section 56 apply shall be a banking company. Further, section 9 of the Multi State Coopera....
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....ase of the society, it is mutually aided cooperative society and the deposits were made by the members of the society. Therefore, such deposits are not Joan or deposit for the purpose of sec.269SS or Sec.269T of the Act. 3. Farriljanad Investment (I) Ltd. Vs. JCIT (85 ITD 230) held that keeping in view the intent of legislature behind enacting above provisions, loans/deposits brought in by assessee were not to explain its unaccounted cash, and therefore, question of violating provisions of sec.269SS or 269T does not arise. It is observed that Hon'ble ITAT that for the earlier years, the assessments were completed without initiating penalty proceedings though similar acceptance of the deposits were there in the earlier years. The ITAT held that penalty is not leviable. In the case of the assessee also, the amounts were deposited voluntarily by the members of the society and the assessments for the earlier years were completed u/s 143(3) and no such notices were issued. Therefore, there is every reason for the assessee herein to entertain a bona fide belief that there is no violation of the provisions of 269SS or 269T. 4. Hindustan Steels Ltd. Vs. State of Orissa in (83 ITR 26)....
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....t. In so far the Reserve Bank of India is concerned, there is no response in spite of the fact that the said request was received by them and acknowledgement was also submitted. In so far as the Distt. Cooperative Officer is concerned, he informed the society that the said letter dated 22.11.1997 is sent to Registrar of cooperative society. 7.1 He submitted that no importance to be given to the remand report of the assessing officer wherein he mentioned that he wrote to CGM, Urban Banks, Reserve Bank of India, Mum and the said authority mentioned that he did not receive any such application as claimed by the assessee. 7.2 The assessee's counsel in this regard submitted that the claim of the CGM, Reserve Bank of India, Mum is not correct in mentioning that the said communication was not received by them. The DGM did not mention about the acknowledgement sent along with the letter. The postal acknowledgement and the letter clearly indicate that the letter was received by the Reserve Bank of India. 7.3. The assessee's counsel submitted that on receipt of communication from Addl. CIT, it wrote the DGM, Reserve Bank of India, Urban Bank, Mum . vide its letter dated 10.10.....
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....elation to cooperative society they apply to banking companies. The provision categorically mentions that cooperative society are termed as Cooperative Banks for the purpose of sec.56A. Therefore, the provisions of Banking Regulation Act categorically mention that the cooperative societies are governed by the said laws. Every cooperative societies having share capital of more than 1.0 lakh to convert itself into Cooperative Bank. .... 11. The learned Authorized Representative submitted that according to the provisions of S.5(l) (i) and S. 11 of the Banking Regulation Act as modified by Part-V of the Act, the clauses are only prohibitory clauses restricting entry of cooperative societies into the sub clause of cooperative bank and that the criteria of capital and reserves of Rs.l lakh is only an eligibility criteria and it is not an automatic ticket to banking. That when without licence to assessee cannot be permitted as a cooperative bank in view of Part-V of the Banking Regulation Act. The assessee submitted that sec.56 part-V of the Banking Regulation Act mentions as under: The provisions of this Act, as in force for the time being, shall apply to, o....
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....siness. Having applied, the assessee society/bank can carry on banking business until a licence is refused to it. The committee has been given to understand that several weak primary credit societies were indeed registered by state government despite the instructions of Reserve Bank of India to the contrary from time to time. It would appear that the Banking Regulation Act 1949 (as applicable to cooperative societies ) until amended gives recognition to primary credit societies doing banking business irrespective of any administrative instructions to the contrary. The complicated legal and administrative background, the committee felt that a pragmatic solution was necessary. While it was not feasible or desirable to deny licences to all these societies, it was essential to ensure that they conformed to certain norms as worked by the committee for fresh entry. The committee is of the view that all primary credit societies which attain the revised entry point norms prescribed under standards of viability for urban cooperative banks in this respect before 30th June, 1993 will become eligible for being considered for inclusion in the list of primary cooperative banks. In the case....
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.... Reserve Bank of India that the licence cannot be granted to it: 12.2. In the proviso to the sub section to Sec.22, it is mentioned that primary because a primary cooperative societies carrying on the business of banking has not been granted license it shall not be deemed to prohibit the business unless by a notice in writing, notify by Reserve Bank of India that the license cannot be granted to it. From the reading of sec.22, it is clear that the observations by the committee is made a part of the section itself. Therefore, once a cooperative society carrying on the business makes an application unless it is prohibited to carry on the business of banking. Therefore, the assessing officer is not justified in mentioning that without license the assessee can not carry on business of banking. The Addl. CIT referred to the communication received by him from Reserve Bank of India. The assessee that the officer communicated the information to the Addl. CIT without looking into the details of the assessee. According to him no application was filed, whereas there is evidence to the effect that such letter was already served on the Reserve Bank of India. The assessee submits that a....
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.... 13.1. The assessing officer mentioned the assessee suddenly remembers that it made an application to Reserve Bank of India, after about 12 months or so. It is submitted that the application was made long back and all the applications have been sent even to the Registrars of Cooperative Societies . 13.2. According to assessing officer sec.23 of the Banking Regulation Act states that no new place of business can be opened without permission from Reserve Bank of India. It is submitted that according to the provisions of sec. 119 of the multi state cooperative society act, 2002, the assessee is entitled to open new branches in any part of India. With regard to the reasonable cause, the assessee submits that it was under the bona fide impression that (a) it is carrying a Multi State cooperative society within the meaning of the provisions of the said act (c) it made application to the Reserve Bank of India (d) the Reserve Bank of India did not reject the application by the assessee and was kept pending (e) according to provisions of sec.22 as adopted by sec.56(o) of the Banking Regulation Act the society need not stop the activity of banking simply because the Reserve Bank of I....
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....ciety is under the control of Reserve Bank of India or not. Therefore the letter written by Reserve Bank of India on this point is not relevant. 4. The assessee also cites news report in business standard dt. 17.9.2009 stating that Reserve Bank of India requested all the Registrars of Cooperative Societies to restrict the individual share holding in any urban cooperative bank to 5% of the total paid up capital. It also stated that Reserve Bank of India requested the state governments to not to register any new primary credit society with a provision to acceptance of public deposits. Also it is reported that Reserve Bank of India stated that any cooperative society having share capital and reserves exceeding Rs.l lakh would automatically eligible to act as cooperative bank. Therefore the opinion provided by Reserve Bank of India in the present proceedings is contrary to the public view taken by the Reserve Bank of India. 5. The assessee filed a letter on 19.10.1997 Reserve Bank of India requesting for conversion of society into an urban bank. A resolution was also passed by the Board and sent to Reserve Bank of India. The Chief GM, Reserve Bank of India is not correct in stati....
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....ly made deposits and not minors themselves. Even in the case of firms, associations and societies from whom deposits were accepted, were represented by their members or partners. 10. At no earlier point of time, the provisions of sec. 269SS or 269T were put to the notice of the assessee by the department and the transactions were accepted by the deptt. because of returns of income being filed were never questioned. 11. The assessing officer mentioned that the assessee is engaged in large scale activity of providing shelter to activities of tax evasion. The assessing officer's findings is based on information gathered by him from some of the members. The observation is neither correct nor justified because admittedly the assessing officer is able to verify correctness of the returns of income filed by such persons and is liable to bring to tax the income that escaped assessment. The fact that the assessing officer is liable to issue notices to members clearly indicates that the assessee did not help any of its members in avoiding tax. The assessee maintains the application form, the addresses of its members which were provided to assessing officer. However, if there is any cha....
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....see is not a banking company as defined in clause (i) of explanation to sec.269SS. As per the clause (ii) of explanation to section 269SS, a cooperative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act. Reserve Bank of India is the statutory authority administering the Banking Regulation Act and Reserve Bank of India has clearly stated that the assessee vide their letter dt. 6.1.2009 as well as 30.9.2009 that the assessee is neither categorized as a cooperative bank nor covered by Part V of the Banking Regulation Act. Therefore, as per law, the provisions of section 269SS or 269T are applicable. It cannot be stated that the clarification from Reserve Bank of India is not relevant. It is common knowledge that regulates and conducts inspection as per Banking Regulation Act in case of all cooperative urban banks. All such Banks also maintained statutory reserves and furnish periodic reports to the Reserve Bank of India. Such banks are also covered by the provisions of the IT Act. In the present case of the assessee no such activity is noticed. The contention that as per the Multi state cooperative society Act, the assessee is a company is not correct ....
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....statutory provision which is plain and unambiguous. The ratio, in fact, runs contrary to the arguments of assessee because plain reading of the explanation to sec.269SS or 269T are applicable in the case of the assessee. 14.5. With regard to sec.22 of the Banking Regulation Act it may be stated that the issue is not prohibition from carrying banking business but conduct of such business as per the provisions of the Income tax Act, 1961(the Act). 14.6. She submitted that there is no dispute about the fact that the assessee is accepting deposits from and repaying the same to its members including nominal members. This does not mean that the identity of members gets merged into the society. For taxation purpose the status of a person is of a relevance. In the case, the status of the assessee is that of an 'association of persons' whereas that of its members is 'individual'. Therefore, when a deposit is accepted or repaid by a person from/to another person, the provisions of sec. 269SS or 269T are invoked. Any exemption from the operation of the above provisions has to be specifically mentioned in the act or notified by the Central Government. As per first proviso to sec.269SS se....
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....see as seen from the annual report for financial year 2006-07 and in light of this fact it cannot be stated that the activities are unknown to the assessee society. Contrary to the arguments of the assessee, chapter XXB was introduced with an intention to curb the activities of tax evasion and the validity of the applicability of section 269SS or 269T is upheld by the Apex Court in the case Kum. AB Shanti (255 ITR 258). 14.10. Regarding decisions of ITAT cited by the assessee, she submitted that in the case of Chandra Cement Vs. DOT, the ITAT examined the facts and noticed that when the promoter director found company being unable to make the resources available for the project work, he decided to involve and utilize his own money for construction work. There were neither compelling reasons nor a compelling force by the so called artificial person, i.e. company, to bring in the money. It was merely a suo motu decision of the promoter to expose himself to such a huge risk of utilizing his personal money for company's purpose with the hope that he would take it back when the loans were disbursed to the company. It was a case where agent utilized his own money in order to fulfill h....
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....clearly held by the ITAT that 'a partner may be a debtor or a creditor of his copartners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm for a man cannot be his own employer". ITAT also held that 'there cannot be a relationship of a debtor and creditor between the firm and the partners". The same does not hold good in the case of the assessee as the identity of the member is distinct from that of a partner. The assessee can enforce the debts against its members. Also, the rights of members and nominal members are different. Besides, some of the members could be employees of the society. Another important distinction is that in case of a firm, the liability of the partners is unlimited whereas in the case of the assessee, the liability is limited. Also, in the case of Shrepak Enterprises, the issue of tax evasion was snot under consideration and the act was a technical violation of law. 14.12. In the case of Farukhabad Investments (I) Ltd., ITAT clearly held that the provision brought on the statute to prevent unaccounted income being brought into the books of account in the form of loans/deposits and hel....
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....erson even to take the loan from other person in the manner prescribed under law. It is the mode prescribed under the section which is to ensure prevention of evasion tax to avoid fictitious entries to be made in the books of account without there being any actual transaction. There is no infirmity in the enactment of such a provision since it carried lout its object of prevention of evasion of tax and plug possible loopholes'. 14. 14. In the case of Orissa State Warehousing Corporation Vs. CIT (237 ITR 589), the SC cited some decision of House of Lord and the same are reproduced as under. "Lord Halsbury as early as 1901, in Cooke V. Charles A Vogeler Company (1901) AC 102 (HL) stated that the law in the manner following : 'a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may hold it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should elad to absurd or mischievous results. If t....
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....provisions of the statute. It must be, since its language is plain and unambiguous, be enforced, and your Lordships' House sitting judicially is not concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to consequences just or unjust, beneficial or mischievous". 14.16. She submitted that that penalty is a quasi criminal proceeding and based on facts of particular case. To avoid penalty u/s 269SS and 269T the assessee has to prove that there was a reasonable cause for failure to obey law so that sec.273B can be invoked. In the instant case the assessee did not show any such reasonable cause. On the contrary, various depositors whose clear addresses have been furnished were found to evade tax on transactions of cash deposits and repayments. For the assessment years 2006-07 out of 229 persons from who cash deposits of Rs. 20,000 and above were accepted by the assessee, the assessee provided clear addresses in only 30 cases. In the balance cases the assessee did not furnish addresses. In None of the case the assessee produced any members for verification despite adequate opportunity being given as seen from record. Similarly, for the asses....
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....a primary cooperative societies other than a primary agricultural cooperative societies , the primary object of which is transacting banking business and the paid up share capital and reserves of the society are not less than 1 lakh. Also as per sec. 11 of the Banking Regulation Act 'notwithstanding any law relating to cooperative societies for the time being in force, no cooperative bank shall commence or carry on the banking business in India unless the aggregate value of its paid up capital and reserves is not less than Rs.l lakh'. It may be seen that the above clauses are only prohibitory clauses restricting entry of cooperative societies into the sub class cooperative bank. In other words, to be a cooperative bank, the entity has to be a cooperative society with minimum capital but not vice versa. All cooperative bank are cooperative societies but all cooperative societies are not cooperative banks. The criteria of capital and reserves of Rs.l lakh is only an eligibility criteria. It is not an automatic ticket to banking. Once a society is eligible, Reserve Bank of India has to decide to grant a banking licence or not depending on the entry norms and regulations. In the presen....
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....he status of a bank. 7. S.56A of the banking act clearly specified that the the provisions of the act shall override any resolutions passed by any banking company. Therefore, the resolutions passed by the assessee which is not even a banking company cannot override the provisions of Banking Regulation Act. 8. Reserve Bank of India is a statutory regulator and the statement of the assessee that Reserve Bank of India is not correct is without any sanction of law. 9. The assessee is not mentioning itself as The citizen Cooperative Bank' and describes it only as 'Citizen Cooperative Society', when a news paper referred to the society as bank, clarification was also issued that it is not a bank. 10. The news items quoted by the assessee regarding directions of Reserve Bank of India to Registrars of Cooperative Societies and other authorities, if any are not relevant for the present proceedings as such directions are advisory in nature to ensure financial discipline in the country. If such directions were to be mandatory in nature, then Registrars of Cooperative Societies must have debarred the assessee from accepting deposits, which is not the case. The directions were issue....
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....e mode of taking and accepting certain loans and deposits. Sec.269SS reads as under: "269SS Mode of taking or accenting certain ioans and deposits: No person shall after the 30th day of June, 1984 take or accept from any other person (hereinafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or a/c payee bank draft if: a) The amount of such loan or deposit or the aggregate amount of such loan and deposit; or b) On the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid(whether repayment has fallen due or not) c) The amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause(b) Is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by: a) Government b) Any banking company, post office savings bank or cooperative bank c) Any corporation established by a Central, state or provincial act d) Any Govt. ....
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.... of the banking company or cooperative bank or as the case may be the other company or cooperative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest if any payable on such loans or deposits c) is twenty thousand rupees or more Provided that where the repayment is by a branch of a banking company or cooperative bank such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account if any with such branch of the person to whom such loan or deposit has to be repaid. Provided further that nothing contained in this section shall apply to repayment of any loan or deposit taken or accepted from: i) government ii) any banking company, post office savings bank or cooperative bank iii) any government company as defined in sec.617 of the companies Act 1956 (1 of 1956) iv) any corporate established by a central state or provincial Act. v) Such other institution, association or body or class of institutions associations or bodies which the central govt, may for reasons to be recorded in writing notify in the ....
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....llaneous Provisions) Act, 1986, however provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for the said failure. 54 15.7 Section 273B reads as under: Sec. 273B Penalty not be imposed in certain cases: Not withstanding anything contained in the provisions of clause (b) of sub section (1) of sec.271, sec.271A, sec.271AA, sec.271B, sec.271BS, sec.271BB, sec.271C, sec.271CA, Sec.271D, sec.271E, sec.27F, sec.271FA, sec.271FB, sec.271G, clause (c ) or clause (d) of sub section (1) or sub section (2) of sec.272A, sub sec.(l) of sec.272AA, or sec.272B, or sub section (1) or sub section (1A) of sec.272BB or sub section (b) or clause ( c) or sub section (2) of sec.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. 16. Now, it would be useful to consider the purpose and object of the provisions of Sections .269SS, 269T, 271D, 271E and 273B of the IT Act, 1969. 16.1. The Memorandum explaining the provisions in the Finance Bill, 1984 was placed before the Parliament by the Finance....
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....banking company post office savings bank or cooperative bank iii) Any corporation established by a central or state provincial Act. iv) Any govt. Company as defined in the sec.617 of the Companies Act 1956. v) Such other institution association or body or class of the institution association or bodies which the central govt. May for reasons to be recorded in writing notify in this behalf the official gazette. 25. For the purposes of the proposed provision the expression banking company shall have the meaning assigned to be in clause (a) for the explanation to the sec.40A (8) of the IT Act and the expression cooperative bank shall have the meaning assigned to it Part V of the Banking Regulation Act 1949. The expression loan or deposit for the purposes of the proposed provision would mean loan or deposit of money. 26. If a person without reasonable cause or excuse takes or accepts any loan or deposit in contravention of the aforesaid provisions, he shall be punishable with imprisonment for a term which may extent to two years and shall also be liable to a fine equal to the amount of such loan or deposit. 27. The proposed provisions will take effect from April 1 1984....
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.... 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 do. 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 flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Ref. May be made to the decision in Hindustan Steel Ltd. (83 ITR 26 (SC). 16.4. One of the cardinal principles of the English criminal law is expressed in the maxim actus non facit reum, nisi mens sit rea, that is a person cannot be convicted and punished in a proceeding of a criminal nature unless it can be shown that he had a guilty mind. A penalty imposed for a tax delinquency is a civil obligation, remedial coerc....
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....judiciously on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is technical or venial breach of the provisions of the act or where the breach flows from a bona fide belief that the offer is not liable to act in the matter prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out." 16.6. In levying the penalty, u/s 271D or 271E one has to see the existence of reasonable causes. The word "reasonable cause' has not been defined under the Act, but they could receive the same interpretation 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 o....
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....hose accounts and the deposits repayable on expiry of specific period. There is no dispute in these assessment years that the assessee has been carrying on the banking transactions which may be with or without approval of the Reserve Bank of India. If the carrying on the operations of the banking activities is not at all approved by the Reserve Bank of India or the assessee is having no requisite licence from the authorities, the concerned authorities could have stopped the same or taken action against the assessee. Once the assessee is permitted to carry on the banking activities, then the assessee is bound by the relevant provisions of the Banking Regulations Act. The bank, for all its banking activities is strictly governed by the Banking Regulation Act 1949. 'Banking' is described as accepting, for the purpose of lending or investment of money, due from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise. The deposits held by the assessee are its stock in trade. The deposits and loans are just like buying and selling of goods/products. The amounts in account maintained by the assessee bank were not in the control of the assessee. In th....
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.... bank is accepting the deposits and there is no involving of any risk to the bank, even the rule of proper introduction did not operate strictly. It is to be noted that the assessee while doing the business in ordinary course, if it puts various conditions, the expected business may not be able to achieve. Therefore, it cannot be said that assessee did commit any infringement or it is incorrect to say that there was any deliberate attempt on the part of the assessee to accommodate tax dodgers. The deposits accepted and repaid by the assessee were part of its Banking activities and the depositors were its Members. The deposits received by the assessee, which was carrying on the banking business, were not in the nature of taking of any loan or deposits for the purpose of funding its project as a source of investment, that rather, it was in the business of accepting deposits that in view of the nature of such business, the scrutiny of the deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc. The authority vested with the power to impose penalty as a discretionary power not to levy the penalty. It is all very well to paint justice ....
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....ame either to the members/directors or to their dependents children or their associated concerns or their relatives. Further, we have carefully pursued bye-law of the assessee society. As seen from the bye-law, it is working on the concept of mutuality. Where a number of persons coming together and contribute a common fund for financing of some venture or object and will in this respect have no dealing or relation with any outside body, then any transactions with those persons cannot be regarded in any sense as loan. There must be complete identity between the contributors and the participators. If these requirements are fulfilled it is immaterial what particular form the association takes. Trading between people associating together in this way does not give rise levy of penalty. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of facilities which it offers does not affect the mutuality of the enterprise. The contributor of the fund are entitled to participate in the surplus, thereby creating an identity between the participators and contributors and acceptance of deposits and repayment of t....
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....se provisions did not arise. The term Various persons' and 'such persons' is to be understood only in relation to 'search situation' as the section itself was introduced to meet such situations only. Thus, the director or member of the assessee society is clearly not covered by the expression 'any other person' occurring in sec.269SS. The transaction in question cannot be considered as 'loan' or 'deposit' so as to attract sec.269SS or S.269T of the Act. The transactions can also be attributed various exigencies of business carried on by the assessee and thus constitutes a 'reasonable cause' as contemplated by sec.273B. The expression "reasonable cause' has to be considered pragmatically and as it is transactions are openly done, to meet the exigencies of business, it can be said to constitute 'reasonable cause'. The bona fide business of transaction cannot be considered for levying the penalty u/s 271D or 271E. More so, the assessee has been carrying on the banking business and it is having bona fide belief that provision of sec.269SS/269T is not applicable to the assessee case and same is coupled with genuineness of the transaction constitute a reasonable cause and in such case th....