2022 (7) TMI 1551 - HC - Income Tax

Penalty imposed u/s. 271D and 271E - default u/s 269SS and Section 269ST - Whether ITAT was correct in finding that action u/s 68 was a prerequisite to levying penalty for contravention u/s. 269SS and 269ST​​​? - ITAT deleted addition - HELD THAT - There is no intention/mens rea on the part of the assessee-Co-operative society to accept the cash deposit from its members in their accounts maintained by it similar to savings account maintained by the banks in view of the provision of section 273B. No penalty would be leviable if the person concerned proves that there is reasonable cause for the alleged failure. Thus, the Tribunal as well as the CIT (A) have rightly held that the provision of section 273B gives the discretion to the authority to impose the penalty or not which has to be exercised in a just and fair manner having regard to the facts and material existing on record. When the CIT (Appeals) and the Tribunal on the basis of the facts and material on record have come to the conclusion that the assessee-Co-operative Society on bona fide belief coupled with the nature of transaction in question being genuine and bona fide undertaken during the regular course of business would not result in levy of penalty u/s 271D and E, there is no legal infirmity in the impugned orders of the CIT (Appeals) and the Tribunal requiring any interference by this Court.

Summary

Issues Involved:
1. Deletion of penalties imposed under Sections 271D and 271E of the Income Tax Act, 1961.
2. Applicability of the proviso to Sections 269SS and 269ST of the Income Tax Act, 1961 to the assessee.
3. Prerequisite of action under Section 68 for levying penalty for contravention of Sections 269SS and 269ST.

Detailed Analysis:

1. Deletion of Penalties Imposed Under Sections 271D and 271E:
The Revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) which deleted penalties under Sections 271D and 271E. The assessee, a registered Co-operative Credit Society, was found to have accepted and repaid loans/deposits in cash exceeding Rs. 20,000, violating Sections 269SS and 269T. The Assessing Officer levied penalties totaling over Rs. 55 crore. The CIT (Appeals) deleted these penalties, noting the assessee's activities were akin to banking for its members, and the transactions were genuine and bona fide. The CIT (Appeals) emphasized that the legislative intent behind Sections 269SS and 269T was to prevent unaccounted cash transactions, not to penalize genuine transactions within a cooperative society. The Tribunal upheld this view, noting the assessee's bona fide belief and the genuine nature of transactions.

2. Applicability of the Proviso to Sections 269SS and 269ST:
The Tribunal and CIT (Appeals) considered whether the assessee was covered under the proviso to Sections 269SS and 269ST. The CIT (Appeals) observed that the assessee's acceptance of deposits and repayment in cash were part of its regular activities, similar to banking operations, and were not intended to explain unaccounted cash. The Tribunal agreed, noting the transactions were genuine and the assessee operated under a bona fide belief that these provisions did not apply to its operations. The Tribunal highlighted that the Assessing Officer accepted the deposits as genuine, and no addition was made under Section 68, reinforcing the bona fide nature of the transactions.

3. Prerequisite of Action Under Section 68 for Levying Penalty:
The Tribunal found that action under Section 68 was a prerequisite for levying penalties under Sections 269SS and 269ST. Since the Assessing Officer did not doubt the veracity of the deposits and made no additions under Section 68, the Tribunal concluded that penalties under Sections 271D and 271E were not warranted. The Tribunal noted the cooperative society's role in providing banking-like services to its members in rural areas, where cash transactions were a necessity. The Chartered Accountant's audit reports also did not flag these transactions as contraventions, further supporting the assessee's bona fide belief.

Conclusion:
The High Court upheld the Tribunal's decision, agreeing that there was no mens rea or intention to contravene the provisions of the Income Tax Act. The Court noted that Section 273B provides discretion not to impose penalties if there is a reasonable cause for the failure. Given the genuine and bona fide nature of the transactions, the Court found no legal infirmity in the Tribunal's and CIT (Appeals)'s orders, dismissing the Revenue's appeal.