TaxTMI 
TaxTMI 
2014 (12) TMI 6
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing officer finding no reasonable cause of the failure on the part of the assessee as prescribed u/s. 273B of the I.T. Act so as to receive fixed deposits in the form of cash in contravention of section 269SS, he levied penalty to the tune of Rs. 74,56,185/-. On appeal, the CIT(A) confirmed the penalty u/s. 271D levied by the Assessing Officer. Against this, the assessee is in appeal before us. 4. The Ld. AR submitted that the assessee is a co-operative society of the Employees of Hindalco Industries Ltd. The members of the Co-operative Society are only employees of the Co. The amounts are accepted from the members and lent only to the members of the society who are in need of funds, on mutual consideration, the principle of mutuality is applicable. 5. According to the Ld. AR, the income of the society is from interest received on loans given to members and also from the fixed capital made by the society, which are basically exempt as per section 80P(2)(d). The interest received from the members is also not to be included in the gross total income of the assessee as per section 80P(1). The Ld. AR submitted that the assessee had received fixed deposits in cash and the Addl. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii) Provision of section 269SS is a strict liability is in the nature of adoption of procedure and it is immaterial whether the parties are employees or not. (iii) The assessee explained the repayments have been made through account payee cheque/DD and receipts in subsequent years have also been receive in cheque/DD. (iv) Transaction between members who are also employees of M/s. Hindalco Industries Ltd. will not determine reasonable cause or failure. (v) There is not reasonable cause of failure u/s. 273B, provisions of section 269SS has been violated. The assessee filed appeal against the said order. 8. The Ld AR submitted that the in the grounds of appeal the assessee has brought to the notice of the CIT(A) the object of introduction of section 269SS. Introduction of the said provision was only to avoid unaccounted cash being explained by tax payers as representing loan taken. Prevention of unaccounted cash being explained as loans was the main object of insertion of section 269SS of the Income Tax Act. This fact has been stated in Circular 387 dated 6.7.1984. With a view to counter in this device the Finance Act has inserted a new section 269SS in the Income Tax A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deleting penalty u/s. 271D. Findings recorded by the CIT(A) and the Tribunal that the assessee had shown reasonable cause for the failure to comply with the provisions of s. 269SS is a finding of fact based on appreciation of material on record and it does not give rise to substantial question of law and the CIT(A) having accepted that violation of the provisions of s. 269SS was under a bona fide belief of the assessee and the same was not with any intention to avoid or evade the tax while deleting penalty u/s. 271D and the findings of CIT(A) having been confirmed in appeal by the Tribunal, no substantial question of law arises. 14. The Ld. AR relied on the judgment of the Rajasthan High Court in the case of CIT v. Maheshwari Nirman Udyog 302 ITR 201 wherein it was stated that the transaction in question is a genuine transaction. Section 269Ss has to be read with section 273B, authority is to consider whether there was a reasonable cause. 15. The Ld. AR further relied on the judgment of the Rajasthan High Court in the case of CIT v. Lokhpat Film Exchange (Cinema) 304 ITR 172 wherein it was stated that the assessee's firm acting under a bona fide belief that transactions w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....finding given by the appellate authority as well as by the Tribunal that the transaction in question is a genuine transaction and penalty u/s. 271D is not exigible, same cannot be disturbed by the Court. 21. The Ld. AR also relied on the judgment of the Gauhati High Court in the case of CIT vs. Bhagwati Prasad Bajoria (HUF) 263 ITR 487 wherein it was held that where the findings is that loan transaction was genuine and that there was no immediate necessary for money, deletion of penalty was held justified. Penalty u/s. 271D - element of mens rea is not borne out from the nature and the manner in which the transaction was carried out. In the facts and circumstances of the case the Tribunal was justified and correct in law in upholding the judgment of the CIT(A) in deleting the penalty imposed on the assessee u/s. 271D though for the different reasons. 22. The Ld. AR relied on the judgment of the Madras High Court in the case of CIT vs. Ratna Agencies, 284 ITR 609 wherein it was held that there is no reason to interfere with the findings of the Tribunal that there was reasonable cause for the as not strictly complying with the provisions of s. 269SS - Therefore, penalty under s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f introduction of sec. 269SS and corresponding section 269 T is to bring into light unaccounted cash or deposits held by an assessee and avoid it being explained as loans or deposits from others. In this case, there is no unaccountable income or cash or false information. Moreover, in all the cases repayments are made only by way of account payee cheque. 27. The Ld. AR explained that the object of introduction of sec. 269SS has been explained in Circular No. 387 dated 06.07.1984. "However, in the course of search carried out by the Income Tax Department it is often explained by tax payers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought in the books of accounts in the form of such loans and deposits and tax payers are also able to get confirmatory letters from such persons in support of their explanation. With a view to countering this device which enables tax payers to explain away unaccounted cash or unaccounted deposits the Finance Act has inserted a new section 269Ss in the Income Tax Act debarring persons from taking or accepting any loan or deposit otherwise than by account payee cheque or bank draft." Therefore, it i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITAT, Hyderabad Bench in the case of Citizen Co-operative Society Ltd. v. Addl. CIT [2010] 41 DTR 305. 31. The Ld. AR submitted that money received by assessee co-operative society from its members/directors and their relatives by way of deposits and the sums repaid to them as part of its banking activities cannot be considered as 'loan' or 'deposit' so as to attract section 269SS or section 269T as the assessee is working on the concept o mutuality and its director or member is not covered by the expression 'any other person' occurring in section 269SS and therefore, penalty u/s. 271D or section 271E is not leviable. More so, when the Assessing officer has accepted the genuineness of such deposits and the assessee was under bonafide belief that the provisions of section 269Ss and 269T are not applicable to it. 32. The Ld. AR referred to the following case law: 1. Addl. CIT vs. Secunderabad Club, 150 ITR 401 (AP) 2. Assistant Director of Inspection (Investigation) vs. Ku. A.B. Shanthi and Chamundi Granites Pvt. Ltd. vs. DCIT and Another, CIT255 ITR 258(SC) 3. Chamundi Granites P. Ltd. vs. DCIT, 239 ITR 694(Kar) Chandra Cement Ltd. vs. DCIT, 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of section 269SS would not apply since the transactions are between members only. 37. The Ld. AR submitted that the assessee had explained the circumstances under which the deposits are received in cash. The Ld. AR relied on the ratio of various judgments of High Court and Supreme Court to convince that the amount is not unaccounted money. The Courts, according to the Ld. AR, have in various cases cancelled the levy of penalty, particularly when the transaction is a genuine transaction and in this case the genuineness has not been disputed. 38. According to the Ld. AR, penalty u/s. 271D and 271E - Contravention of section 269Ss and 269T - Co-operative Society accepting deposits from members and advancing loans to members. Object of section 269SS or 269T is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money or make some false entries. If the transactions are not impeached as non-genuine or bogus, penalty under section 271D/271E is not leviable. Further, if the assessee had a bona fide belief that the transactions do not attract the provisions of section 269SS and 269 given the nature of transactions and circumstances, penalty need ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal loss. Thus the Ld. AR relied on the judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26. 42. If the assessee is having bona fide belief that it would not attract the penalty provisions, given the nature of transactions and circumstances, the penalty need not be levied. In other words, bona fide coupled with genuineness of the transactions constitute reasonable cause for not invoking provisions of section 271D and 271E. 43. The bona fide transaction cannot be considered for levying penalty u/s. 271D or section 271E. More so, the assessee has been carrying on the banking business and it having bona fide belief that provisions of section 269SS/269T are not applicable to the assessee's case and same coupled with genuineness of the transaction constituted a reasonable caus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....festly clear that after the insertion of the aforesaid, no person should take or accept from any other person any loan or deposit, otherwise than by an account payee cheque or account payee draft if the amount is Rs. 20,000 or more. It was also observed that the term 'any person' in section 269SS appears to mean persons who are not very intimately or closely connected with the assessee". 45. Further, the Ld. AR submitted that the learned Commissioner of Income- tax (Appeals) had not considered the ratios in various judgments cited by the assessee or given any reasoning why the said judgments were not applicable in the assessee's case and had merely confirmed the penalty order of the learned Addl. Commissioner. 45.1 The Ld. AR. therefore, prayed that the Hon'ble Tribunal may be pleased to set aside the orders of the learned authorities and cancel the levy of penalty. 46. The Ld DR relied on the order of the CIT(A). 47. We have heard both the parties and perused the record. The Ld. AR placed much reliance on the order of the ITAT, Hyderabad 'B' Bench in the case of Citizen Co-operative Society Ltd. (supra). According to the Ld. AR, the assessee&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ike present assessee, the customer identity required to be taken with proper introduction, photographs and address etc. This is so because, any person from general public can come and open a deposit account with the bank. The acceptance of deposit by this assessee cannot be equated with other kind of assessees. In other cases, normally, deposits are accepted from the people connected with are known to the depositees. It is in accordance with the terms of Sec.131 of the Negotiable Instruments Act. The customer introduction had to be been taken to avoid any kind of fraud. The assessee like present is not obliged to question the source of deposit made by its customers. Also, the customer can keep the deposit for a period which is according to their convenience. The amount has to be repaid by the assessee to its customer immediately on demand. These features distinguish the case of the assessee from other ordinary assessees. Therefore, the provisions of sec.271D/271E to be viewed in the back ground of these aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities and in case of any default assessee is liable for having penalty besides....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to favour or prejudice, but clear to see which way lies the truth and the less dust there is about the better. We made attempt to examine the truth. We found that there is no addition on account of these impugned deposits in the return of income it means that deposits are genuine. Veracity of creditor not doubted by the Revenue. Assessing officer did accept the deposit as genuine. The breach of provisions of Sections 269SS /269T from a bona fide belief. Ex facie it is a venial breach. The law takes no notice of trivialities. Cash payments and receipts made because of business exigencies. The mere violation of a statutory obligation is not liable for any penalty more so, undisputedly the penal action is quasi criminal nature. The income of the assessee is exempt u/s 80P of the Act and more so, there is no establishment of deliberate and intentional violation of the provisions by the assessee, that too, in order to hide any income or to evade any payment of tax. Usually penalty will not be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation and that penalty w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... states that the provisions contained in this Chapter are to counteract evasion of tax. The case was made by the learned counsel that since the transactions recorded by the assessee were genuine and the income returned was the assessed income and in the absence of any finding contrary to the genuineness of the transaction by the Assessing officer it was not open to the Assessing officer to impose penalty u/s. 271D for violation of s. 2569SS. It is no doubt true that the heading of this chapter provides that the sections in this chapter are to counteract the evasion of tax. At the same time, it is equally true that nowhere in the body of s. 269SS or other sections falling in this chapter has it been provided that if the transactions are found to be genuine then the provisions of these sections would not apply. The marginal note only indicates the intention of the legislature and cannot override the clear language incorporated in the sections. It is well-settled that while interpreting the provisions of section the marginal note is not decisive and cannot run contrary to substantive provisions contained therein. Only in case of doubt, the heading can be considered as aid for construc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m its members, such other distinct person also comes into picture. One person is giving loan and the assessee-company, another person, is accepting loan. It, therefore, boils down that two persons are involved in the transaction of accepting loan. To contend that the assessee and its members are one and the same person, is wholly in contravention of the provisions of the Act. Clearly, the members or the directors or their relatives are different persons. In our considered opinion, it is not legally correct to contend that the assessee and its members are one and the same person and the transactions with the members are outside the scope of s. 269S. We have not come across any stipulation in the body of this section to this effect which provides for the inapplicability of this section on transactions between members. We, therefore, hold that in the present case, loan or deposit was involved in cash in excess of the amount specified in the section, we are of the considered opinion that the CIT(A) was justified in confirming the penalty. We confirm the action of CIT(A) on that count also. 51. On the other hand, the assessee made an alternative plea that the assessee is lending mone....