This is an appeal by the assessee and is directed against the order of the CIT(A), Kolhapur, dated 28-11-2002 in confirming the penalty of Rs. 74,08,545 imposed by the Jt. CIT, Sangli Range, Sangli, under section 271E of the Income Tax Act, 1961, for the assessment year 1998-99.
In this appeal, the assessee has raised as many as 21 grounds of appeal, but the main challenge of the assessee is that in the facts and circumstances of the present case, the CIT(A) was not justified in confirming the penalty of Rs. 74,08,545 imposed by the Jt. CIT, Sangli Range, Sangli. The relevant facts of the present case are that the assessee-society is a Credit Co-operative Society incorporated on 12-5-1993. During the course of assessment proceedings for the assessment year under consideration, the assessing officer noticed that the assessee had repaid deposits in cash to various persons which were in violation of provisions of section 269T of the Act. It was further noticed that the assessee had repaid deposits to the tune of Rs. 74,08,545 during the previous year relevant to the assessment year under consideration. Therefore, the assessing officer, i.e., the Income Tax Officer, Wd. 3(5), Sangli referred the matter to the JCIT, Sangli Range, Sangli, for initiating penalty proceedings under section 271E of the Act against the assessee. The JCIT issued as how-cause notice under section 274 read with section 271E of the Act to the assessee on 7-2-2002. In response to the above notice, it was submitted on behalf of the assessee that the society caters to the need of rural classes, i.e., agricultural, small businessmen, having no taxable income. It was further submitted that the assessee-society has repaid these deposits to Members only, provisions of section 269T could not be invoked, which are applicable only when such deposits were repaid to 'any other persons'. It was also stated that the assessee-society was functioning like a Bank. The assessing officer did not find any merit in the above explanation of the assessee and, consequently, he levied a penalty of Rs. 74,08,545 under section 271 E of the Act.
Aggrieved by the order of the JCIT, Sangli Range, Sangli, the assessee carried the matter in appeal to the learned CIT(A), Kolhapur. Before him, it was submitted on behalf of the assessee that, in similar set of facts in the case of Sangli Traders Co-op. Credit Society Ltd. for the assessment year 1995-96, the predecessor of the present CIT(A) cancelled the penalty under section 271 Evide order dated 1-1-2001. The CIT(A) in the case of Sangli Traders Co-op. Credit Society Ltd. for the assessment year 1995-96 held that genuine and bona fide transactions of deposits are taken out of sweep of section 269SS/269T of the Act.
Further, it was held that imposition of penalty is discretionary. It was also held by the CIT(A) in that case that ignorance of law can be held a valid reasonable cause for explaining the default. It was also held by the CIT(A) in the case of Sangli Traders Co-op. Credit Society Ltd. that provisions of section 269SS/269T were incorporated in the Income Tax Act as a measure to evasion of tax. It was also submitted before the CIT(A) by the assessee that the society was formed by different persons who were basically agriculturists and small businessmen, whose income was not taxable, many of them were not having bank account. It was also claimed that when such members come to the society for depositing money, it will be inconvenient to ask them to go to other banks to open an account, who could issue them cheque.
Accordingly, it was explained that in the above circumstances, the assessee-society was accepting cash and making repayment to them. There was no intention to contravene the provisions of section 269T of the Act and the default was only accidental and unintentional and due to ignorance of legal position. It was also submitted before the CIT(A) that there was total identity between the assessee-society and its members and, therefore, no deposit can be accepted by the assessee-society or the deposits so received were not to be covered under the provisions of section 269T of the Act. It was also contended before the CIT(A) that provisions of section 269T were applicable only where a case of evasion of tax is made out by the assessing officer. It was also brought to the notice of the CIT(A) that section 269T was introduced to check the attempts made by various persons to explain away unaccounted cash found during the course of search.
After considering the above submissions of the assessee, the learned CIT(A) held that provisions of section 269T are applicable to the facts of the present case. He further held that even general transactions cannot be taken out of the ambit of this section. He further noted that the JCIT has pointed out in his order a number of deposits in cash accepted from persons who were not regular Members and even nominal Members of the society. He further held that levying of penalty by the Officer is discretionary, if reasonable cause with in the meaning of section 273B of the Act can be advanced by the assessee. According to him, in the present case no such satisfactory explanation was advanced either before the assessing officer or before him. He, therefore, confirmed the penalty levied by the JCIT.Before us, Shri M.K Kulkarni, the learned Counsel for the assessee, reiterated the submissions made before the authorities below. He further submitted that in similar set of facts in the case of Sangli Traders Co-op. Credit Society Ltd. for assessment year 1995-96 the learned predecessor of the present CIT(A) deleted the penalty for violation of provisions of section 269SS/ 269T of the Act. Accordingly, it was submitted that the learned CIT(A) has committed an error of law while not following the order of the predecessor. He also drew our attention to a decision of this Bench of the Tribunal dated 22-4-2003 in the case of Youth Development Co-op. Credit Society Ltd. v. Joint CIT (IT Appeal No. 1530 (Pune) of 2002) relating to assessment year 1998-99 where in similar set of facts and circumstances of the case, the Tribunal cancelled penalty of Rs. 1,67,80,179 imposed by the Jt.
CIT, Sangli Range, Sangli, under section 271 E-of the Act. He has also referred to a decision of the Amritsar Bench of the Tribunal in the case of Faridkot Bathindas Kshetriya Gramin bank v. Jt. CIT (2003) 81 TTJ (Asr.) 706 to which one of us: JM was a party, Shri M.K. Kulkarni, the learned Counsel for the assessee also referred to the judgment of the Hon'ble Supreme Court of India in the case of ADI v. Kum A.B Shanti (2002) 122 Taxman 574.
In view of the above submissions, it was submitted that the penalty levied by the JCIT and confirmed by the CIT(A) is liable to be cancelled.
Shri M.M. Srivastava, the learned DR, strongly supported the orders of the authorities below. He further submitted that the reasons given by the CIT(A) in confirming the penalty are self-speaking and are also supported by the decision of this Bench of the Tribunal in the case of Balaji Traders v. Dy. CIT(2001) 78 ITD 368. The learned DR submitted that in the said case the Tribunal has rejected this contention of the assessee that violation of section 269SS can be taken to be a technical or venial default only by saying that "if such a contention is accepted, then provisions of section 269SS, read with section 271E would become redundant." He further submitted that it is well-settled that the interpretation, which makes the section workable, should be preferred rather than the interpretation, which makes the section redundant. The learned DR vehemently argued that ignorance of law cannot be taken as an excuse by the assessee-society, particularly when it was assisted by qualified auditors, tax advisors. Such plea was also considered by this Bench of the Tribunal in Balaji Traders' case (supra) in favour of the department. Shri M.M. Srivastava, the Id. DR, submitted that in the case of Balaji Traders (supra), this Bench of the Tribunal has given findings against such claim made in that case. In view of the above, it was submitted that the assessee has failed to show reasonable cause and, therefore, penalty levied by the JCIT and confirmed by the CIT(A) may not be disturbed.
We have given our anxious thoughts to the submissions of the either counsel for the parties and have also carefully perused the orders of the authorities below. The decisions cited by the representatives of the parties were also duly considered. At the very outset, we may point out here that recently this Bench of the Tribunal, In similar set of facts of the case and circumstances in case of Youth Development Co-op.
Credit Society Ltd (supra), cancelled the penalty under section 271E amounting to Rs. 1,67,80,179 by observing as under: 'As such, if the facts of the present case are examined in the context of misconception of law pleaded by the assessee as reasonable cause, we find that the assessee-society had entertained bona fide belief that the deposits repaid by it to its members were not covered by the provisions of section 269T and this bona fide belief coupled with the fact that the deposits were genuine and were also accepted and repaid in the regular course of business, in our opinion, constitute a reasonable cause for its failure in complying with the requirements of section 269T. In that view of the matter, we find no justification in the action of the learned CIT(A) confirming the penalty imposed under section 271E. His impugned order is, therefore, reversed and the penalty so imposed is Cancelled.
In our view, the facts of the present case are similar to the facts of the case of Youth Development Co-op. Credit Society, Ltd (supra). The arguments raised in the said case were similar to the arguments advanced by the learned counsel for the assessee in the present case.
We, therefore, do not see any reason to reject the plea of the learned Counsel for the assessee. The provisions of section 271E confer a discretion on the competent authority to levy or not to levy penalty.
In our view, ~such discretion needs to be exercised with wisdom and in a fair and just manner. The Hon'ble Supreme Court in the case of Kum A.B. Shanthi (supra) held as under: "It is important to note that another provision, namely, section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of -section 273B. If there is a genuine and bona fide transaction and if for any reason the taxpayer cannot get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power." In our view, the above ratio is fully applicable in case of repayment of deposit also. In the instant case, the assessee has taken the plea that there was a reasonable cause as provided under section 273B of the Act. The repayments were genuine transactions and there was no mens rea on the part of the assessee at the time when the repayments were made.
In the case of Faridkot Bathindas Kshetriya Gramin bank (supra), the competent authority imposed the penalty under section 271E for contravening the provisions of section 269T of the Act. In the said case, it was one of the contentions of the assessee-bank that the officer of the assessee-bank, who had made repayments to the depositors, was not well conversant with the provisions of the Income Tax Act. Furthermore, there was no finding by the lower authorities that the transactions were not genuine or the transactions were benami.
There was no finding that the assessee-bank intended to defraud the Income-tax department when the repayments were made. The Tribunal held (Head Note) as under: "The staff of the assessee-bank was working in the area where their exposure to the banking and other laws, like income-tax was very limited. The assessee-bank had no training college of its own as in the case of other Nationalized Banks. In the above background, the plea of the assessee cannot be rejected that the relevant time, the payment passing officer in bank was new and had no knowledge about the income-tax law, particularly, the provisions of section 269T, read with section 271E. However, the departmental authorities have also not rejected this contention of the assessee. On this count, it can be held that due to ignorance of law, the concerned officer was under the bona fide belief that repayments exceeding Rs. 20,000 can be made in cash also. Section 271E, read with section 273B provides that if the assessee proves that it was prevented by reasonable cause from complying with the provisions of above sections, no penalty can be imposed. The Courts of the country have held that ignorance of law can be taken as a valid plea for non-compliance of provisions of Income tax law and rules. At the same time, it has also been held by the various Benches of the Tribunal that ordinarily a plea as to the ignorance of law cannot support the breach of a statutory provision, but the fact of such an innocent mistake due to ignorance of the relevant provisions of law coupled with the fact that the transactions in question were genuine and bona fide transactions and were undertaken during the regular course of the business, will constitute a reasonable cause. In the instant case, it was the contention of the assessee that the staff of the assessee bank were acting on a bona fide belief that no offence is being made while making the payments of various deposits in cash.
During the course of penalty proceedings, the assessee filed the affidavits and produced evidence regarding identity of the depositors.
It is noticed that the department has not impeached the transaction as non-genuine. At the same time, it is also not the case of the department that the depositors were benami. In that view of the matter, it can be safely held that the bona fide belief coupled with the genuineness of the transactions constitute all reasonable cause, as provided under section 273B. The repayments were genuine transactions and there was no mens rea on the part of the assessee at the time when the repayments were made. In view of the above, the penalty levied by the Jt. CIT and sustained by the CIT(A) is cancelled." From the above observations of the Tribunal, it would be clear that the officer of the above bank, who had made the repayments to the depositors, was not well conversant with the provisions of the Income Tax Act and, at the same time, the authorities below have not given any findings to this effect that the transactions were not genuine. In these circumstances and also keeping in view the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co.
Ltd, v. State of UP (1979) 118 ITR 326 (SC), it was held that there was a reasonable cause within the meaning of section 273B and, therefore, penalty under section 271E cannot be levied. In the instant case also, the facts and circumstances clearly indicate that there was a reasonable cause and, therefore, no penalty is leviable. It is well settled law that "reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fides. "In the present case, it is noticed that the department has not impeached the transactions as non-genuine.
Similarly, no transaction was noticed outside the books of account. The repayments of the deposits were made to the Members of the Society and it is obvious that the assessee-society entertained a bona fide belief that no contravention of any provisions of Income Tax Act is being made while making the repayments of loans/deposits in cash.
In view of the above discussion, we are of the view that in the facts and circumstances of the present case, no penalty under section 269T, read with section 271E, can be imposed and, therefore, we cancel the impugned penalty.