2020 (9) TMI 467 - AT - Income Tax

Penalty u/s 271D and 271E - violation of provision of section 269SS and 269T - Bonafide Belief - as submitted that the assessee is in existence for last many years and filing return of income but no such penalty has been levied in the case of the assessee and it is for the first time violation of the section 269SS/269T has been pointed out in the case of the assessee - HELD THAT - Belief on the part of the assessee in view of the past history of the case that deposit/repayment by its members in cash is bonafide belief. DR has not controverted the factual finding of the Learned Counsel of the assessee that in subsequent years also no penalty has been initiated/levied in the case of the assessee under section 271D/271E. In the case of CIT Vs Lokhpal Film Exchange (Cinema) 2007 (1) TMI 165 - RAJASTHAN HIGH COURT held that the assessee had acted bonafidely and its plea that inter se transaction between the partners and the firm were not governed by the provision of section 269SS/269T, was a reasonable explanation and no penalty could be imposed. Considering the bonafide and genuine transaction, reasonable cause in terms of section 273B of the Act, exist in the case of the assessee for not complying with the provision of section 269SS and 269T and, therefore, we cancel the penalty levied in terms of section 271D and 271E of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty orders under sections 271D and 271E of the Income-tax Act, 1961.
2. Applicability of sections 269SS and 269T to the assessee.
3. Limitation period for passing the penalty orders.
4. Existence of reasonable cause for non-compliance with sections 269SS and 269T.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Orders:
The assessee argued that the penalty orders under sections 271D and 271E were non-est, bad in law, and without jurisdiction due to the absence of any satisfaction recorded by the Assessing Officer (AO) in the assessment order. The assessee cited the Supreme Court's decision in CIT vs. Jai Laxmi Rice Mills (379 ITR 521) and the ITAT Delhi bench's decision in Narsi Iron and Steels P Ltd (ITA No. 2866/Del/2013), which emphasized the necessity of recording satisfaction in the assessment order for initiating penalty proceedings. The Department Representative (DR) countered that the AO had raised queries regarding the violation of sections 269SS and 269T during the assessment proceedings, and the assessee had responded. The DR also provided evidence of a letter from the AO to the Joint Commissioner of Income Tax (JCIT) dated 26/12/2016, indicating the AO's satisfaction regarding the violations. The Tribunal admitted the oral submission of the assessee and provided the DR with an opportunity to respond. Ultimately, the Tribunal found that the AO had indeed recorded satisfaction during the assessment proceedings, and thus, the penalty orders were valid.

2. Applicability of Sections 269SS and 269T:
The assessee contended that sections 269SS and 269T were not applicable as it was a cooperative society engaged in providing credit facilities to its members, and the amounts in question were not loans or deposits but mere credit balances in members' running accounts. The assessee relied on the Supreme Court's decision in CIT vs. Bajpur Co-operative Sugar Factory Ltd. (172 ITR 321) and other judgments to support its claim. The DR argued that the amounts were indeed loans or deposits, citing the Kerala High Court's decision in Grihlakshmi Vision Vs ADDL CIT (379 ITR 100). The Tribunal, however, did not provide a definitive ruling on this issue, as it found reasonable cause for non-compliance, rendering the applicability issue academic.

3. Limitation Period for Passing the Penalty Orders:
The assessee argued that the penalty orders were time-barred, relying on the Rajasthan High Court's decision in CIT Vs Hisaria Bros. (291 ITR 244). The DR countered with the Madhya Pradesh High Court's decision in Nitin Agrawal Vs JCIT (412 ITR 309), which held that the limitation period for penalties under sections 271D and 271E begins from the date the JCIT initiates proceedings. The Tribunal did not adjudicate this issue, as it found reasonable cause for non-compliance, rendering the limitation issue academic.

4. Existence of Reasonable Cause for Non-Compliance:
The assessee claimed reasonable cause for non-compliance with sections 269SS and 269T, citing its bonafide belief based on past practice and the absence of any penalties in previous years. The Tribunal found that the assessee had a bonafide belief that the transactions were not in violation of sections 269SS and 269T, supported by the fact that no penalties were imposed in previous or subsequent years. The Tribunal also noted that the assessee operated in a rural area with illiterate members and that the tax auditors had not flagged any violations. Citing the High Court's decision in CIT Vs Lokhpal Film Exchange (Cinema) (304 ITR 172), the Tribunal concluded that reasonable cause existed, and thus, the penalties under sections 271D and 271E were canceled.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, canceling the penalties under sections 271D and 271E due to the existence of reasonable cause for non-compliance with sections 269SS and 269T. Other grounds raised by the assessee were rendered academic and not adjudicated.