2012 (9) TMI 845 - HC - Income Tax

Penalty u/s 271D - non comply with the provisions of Section 269SS - ITAT deleted the levy - Held that - The Revenue is not correct in his contention that the basis of the decision of the Tribunal is untenable. The Tribunal has not rested its decision on the only circumstance that it is the business of the assessee to collect deposits and, therefore, it was entitled to collect them in cash even if it involves violation of Section 269SS, that is not the substratum of the decision. The circumstances which were taken note of were that the depositors came predominantly from rural areas where there was either no proper banking facilities or such facilities were inadequate, that the deposits were basically saving schemes involving small amounts of daily or weekly savings, that there were logistical problems and fear of cumbersome procedure involved in the opening of the bank accounts and that contribution of small amounts were made as savings, that there was evidence in the shape of correspondence to show that some banks were reluctant to allow the agents of the assessee to open bank accounts for various reasons and so on and so forth - As the violation of Section 269SS ranged from just 1.1% to 6.14% for the years under appeal which was very low considering the total amounts of deposits collected. As no penalty proceedings were initiated for the intervening assessment years namely 1994-95 to 1998-99 and for the assessment years subsequent to the assessment year 2001-02.Thus it was not correct to state that the Tribunal based its decision on the only ground that Section 269SS cannot be applied to the assessee whose business itself was the collection of deposits - in favour of assessee.

Issues Involved:

1. Deletion of penalty imposed under Section 271D of the Income Tax Act.
2. Existence of reasonable cause for non-compliance with Section 269SS.
3. Extent of violation of Section 269SS and its impact on penalty.
4. Interpretation of reasonable cause under Section 273B.
5. Adequacy of banking facilities and their impact on compliance.
6. Impact of minimal violation of Section 269SS on penalty.
7. Alleged perversity in the order passed by ITAT.

Detailed Analysis:

Issue 1: Deletion of Penalty Imposed Under Section 271D

The Revenue challenged the deletion of the penalty imposed by the Assessing Officer (AO) under Section 271D of the Income Tax Act by the ITAT. The ITAT confirmed the orders passed by the CIT (Appeals) which cancelled the penalty. The penalty was initially imposed due to the assessee accepting deposits in cash exceeding Rs. 20,000, violating Section 269SS.

Issue 2: Existence of Reasonable Cause for Non-Compliance with Section 269SS

The ITAT held that there was a reasonable cause for the assessee's failure to comply with Section 269SS, which prohibits accepting cash deposits exceeding Rs. 20,000. The assessee argued that it operated in rural areas with inadequate banking facilities, and the reluctance of customers to use banks due to illiteracy and non-cooperation constituted reasonable cause. The CIT (Appeals) and ITAT accepted this explanation, noting that the assessee's business model involved mobilizing deposits from rural areas, which lacked proper banking infrastructure.

Issue 3: Extent of Violation of Section 269SS and Its Impact on Penalty

The ITAT noted that the violation of Section 269SS was minimal, ranging from 1.1% to 6.14% of total deposits for the relevant assessment years. The ITAT considered this minimal violation an important factor, especially since the assessee's principal business was collecting deposits.

Issue 4: Interpretation of Reasonable Cause Under Section 273B

Section 273B provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The CIT (Appeals) and ITAT found that the assessee had established reasonable cause, considering the operational challenges in rural areas, the lack of banking facilities, and the reluctance of depositors to use banks. The Additional CIT's rejection of the assessee's explanation was deemed arbitrary by the ITAT.

Issue 5: Adequacy of Banking Facilities and Their Impact on Compliance

The ITAT considered the assessee's argument that banking facilities were inadequate in rural areas. Evidence showed that some banks refused to open accounts for the assessee's agents, citing competition and workload. The ITAT found this explanation credible and supported by documentary evidence.

Issue 6: Impact of Minimal Violation of Section 269SS on Penalty

The ITAT emphasized that the minimal violation of Section 269SS, ranging from 1.1% to 6.14%, did not warrant the imposition of penalties. The ITAT noted that the assessee's business involved small savings schemes, and insisting on cheque payments could have adversely affected its operations.

Issue 7: Alleged Perversity in the Order Passed by ITAT

The Revenue argued that the ITAT's order was perverse and ignored the object and purpose of Section 269SS. However, the ITAT's findings were based on a detailed examination of facts and circumstances, including the operational challenges faced by the assessee. The High Court held that the findings of the CIT (Appeals) and ITAT were not perverse or irrational, and no substantial question of law arose for consideration.

Conclusion:

The High Court dismissed the appeals, upholding the ITAT's decision to delete the penalty imposed under Section 271D. The Court found that the assessee had established reasonable cause for non-compliance with Section 269SS, considering the minimal violation, lack of banking facilities in rural areas, and the nature of the assessee's business. The findings of the CIT (Appeals) and ITAT were based on facts and did not warrant interference.

← Previous Next →