2020 (4) TMI 737 - AT - Income Tax

Penalty u/s. 271D and u/s. 271E - default u/s 269SS and 269T - acceptance and repayment of loans or deposits in cash - Co-operative Societies to be treated as credit societies as alternative to Bank - bonafide belief - HELD THAT - Assessee has accepted and repaid deposit of loans above ₹ 20,000/- otherwise then by the account payee cheque or account payee draft on a bonafide belief that provisions of section 269SS and 269T are not applicable in its case. AO had also accepted that deposits made by the assessee are genuine and the breach of provisions of section 269SS and 269T was occurred due to bonafide belief. Even no addition was made on account of these impugned deposits in the Return of Income and thus the veracity of the creditors was not doubted by the Revenue. In case, if the veracity was doubted, then the additions would have been made u/s.68 of the Act. It is an undisputed facts that these credit societies function in villages/taluks etc., for farmers or related persons, as an alternative to banks and if the deposits were taken/repaid only in cheques, then it may loose all relevance. Even the Chartered Accountant who audited the books of accounts was not showing these as being in contravention of the Act in the relevant columns of Audit Report. Under bonafide belief assessee could accept and repaid loan or deposits in cash as is done by the Co-operative Banks, the assessee had accepted and repaid loans or deposits in cash. Provision of section 269SS are not applicable in the present case. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of penalties under Sections 271D and 271E of the Income Tax Act.
2. Applicability of Sections 269SS and 269T to the assessee's transactions.
3. Revenue's challenge to the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Deletion of Penalties under Sections 271D and 271E of the Income Tax Act:
The Revenue appealed against the CIT(A)'s order which deleted the penalties levied under Sections 271D and 271E amounting to ?28,66,93,898 and ?27,12,01,825, respectively. The penalties were initially imposed because the assessee, a Co-operative Society, accepted and repaid deposits of ?20,000 or more in cash, violating Sections 269SS and 269T of the Income Tax Act. The CIT(A) deleted the penalties, reasoning that the assessee operated under a bona fide belief that these provisions were not applicable to its transactions. The CIT(A) noted that the society functioned similarly to a bank for its members, and the transactions were genuine and conducted in the regular course of business.

2. Applicability of Sections 269SS and 269T to the Assessee's Transactions:
The CIT(A) observed that the assessee's activities were akin to banking, providing various types of accounts to its members, and the deposits were genuine and not intended to evade taxes. The CIT(A) emphasized that the legislative intent behind Sections 269SS and 269T was to prevent tax evasion through unaccounted cash, which was not the case here. The society's operations were subject to periodic inspections and audits, and the transactions were not questioned by the Revenue in previous assessments. The CIT(A) also highlighted that the society's members were closely connected, and the transactions were conducted under the society's bye-laws, distinguishing it from ordinary assessees.

3. Revenue's Challenge to the CIT(A)'s Order:
The Revenue contended that the CIT(A) erred in accepting the assessee's bona fide belief and argued that the provisions of Sections 269SS and 269T were clear and did not distinguish between bona fide and mala fide beliefs. The Revenue also pointed out that the society was professionally managed and had adequate banking facilities, implying that it should have complied with the provisions. However, the Tribunal upheld the CIT(A)'s order, agreeing that the assessee operated under a bona fide belief and that the transactions were genuine and conducted in the regular course of business. The Tribunal noted that the assessee's belief was reinforced by the absence of objections from the Income Tax Department and the Chartered Accountant's audit reports.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the penalties. The Tribunal found no infirmity in the CIT(A)'s order and concluded that the provisions of Sections 269SS and 269T were not applicable to the assessee's transactions, given the bona fide belief and the genuine nature of the transactions. The Tribunal emphasized that the penalties under Sections 271D and 271E were discretionary and should not be imposed in cases of technical or venial breaches. The appeal filed by the Revenue was thus dismissed.