2016 (7) TMI 208 - HC - Income Tax

Penalty u/s 271D and 271E - assessee has accepted the deposits from its employee and members in cash, in violation of provisions of Section 269SS and 269T - ITAT deleted the penalty - Held that - All the members are agriculturists and having income from the agricultural activities. It has come on record that the members of the society mostly reside in village, which do not have any banking facility. The specific stand of the assessee before the AO was that amount was received from the employee and members of the society on account of urgent need as amanat rashi and no loan deposit was received by the society from any outsider. Precisely, the stand of the assessee was that it was under bona fide belief that amanat rashi received from its members do not constitute loan or deposit, which is required to be accepted by account payee cheque or draft. It is to be noticed that the AO had not given any finding whatsoever for rejecting the stand taken by the assessee, however, the CIT (A) and ITAT have concurrently found that the assessee, a cooperative society, working in remote area, ignorant about the relevant provisions, accepted the funds received as amanat rashi under the bona fide belief that the same do not constitute deposit or loan. The CIT (A) and ITAT have found the explanation furnished by the assessee in detail, as constituting reasonable cause in terms of provisions of Section 273B of the Act and thus, the finding arrived at by the CIT (A), affirmed by the ITAT, after due consideration of all the relevant aspects of the matter regarding the reasonable cause for failure on the part of assessee in complying with the provisions of Section 269SS and 269T, cannot be said to be capricious or perverse. No substantial question of law arises - Decided against revenue

Summary

Issues:
Appeal against ITAT order cancelling penalty under Section 271D and 271E of the Income Tax Act, 1961 for assessment year 2005-06.

Analysis:
1. The appeal challenged the ITAT order dismissing the Revenue's appeal against the CIT(A) order cancelling the penalty imposed by the AO under Section 271D and 271E of the Income Tax Act, 1961. The assessee, a cooperative society, accepted deposits in cash from employees and members, violating Section 269SS and 269T. The AO imposed a penalty, but the CIT(A) allowed the appeal, finding a reasonable cause for the violation and cancelling the penalty.

2. The Revenue's appeal was dismissed by the ITAT, leading to the current appeal. The Revenue argued that the deposits constituted loans, and the assessee was liable for the penalty. The ITAT confirmed the CIT(A) order, considering the assessee's explanation that the funds were received as "amanat rashi" due to urgent needs, not as loans or deposits. The assessee, a cooperative society in a remote area, believed in good faith that these funds did not fall under the Act's provisions.

3. The AO did not provide any specific finding to reject the assessee's explanation. Both the CIT(A) and ITAT found the assessee's belief to be reasonable, invoking Section 273B of the Act. They concluded that the society's ignorance of the law and the unique circumstances justified the violation. The courts held that no substantial question of law arose for consideration, as the assessee's explanation constituted a reasonable cause for non-compliance with Sections 269SS and 269T.

4. The High Court dismissed the appeal, upholding the lower courts' decisions. The judgment emphasized the assessee's genuine belief, the cooperative nature of the society, and the absence of any finding by the AO against the explanation provided. The courts found the assessee's conduct reasonable given the circumstances, leading to the penalty cancellation.

In conclusion, the High Court upheld the lower courts' decisions, emphasizing the reasonable cause for the assessee's actions and the absence of any finding against their explanation. The judgment highlights the unique circumstances of a cooperative society in a remote area, justifying the cancellation of the penalty imposed under Sections 271D and 271E of the Income Tax Act, 1961.