2002 (1) TMI 253 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271E for violation of Section 269T of the Income Tax Act, 1961.
2. Ignorance of law as an excuse for non-compliance.
3. Genuineness and bona fide nature of transactions.
4. Technical or venial breach of law.
5. Application of judicial precedents.

Detailed Analysis:

1. Imposition of Penalty under Section 271E for Violation of Section 269T:
The case revolves around the imposition of a penalty of Rs. 24,80,037 on the assessee for violating Section 269T of the Income Tax Act, 1961, which mandates that no branch of a banking company shall repay any deposit made with it otherwise than by an account payee cheque or bank draft. The assessee, a Regional Rural Bank, repaid fixed deposits in cash exceeding Rs. 20,000, thus violating Section 269T. The Joint Commissioner (Jt. CIT) imposed the penalty, which was partially sustained by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Ignorance of Law as an Excuse for Non-Compliance:
The assessee contended that the payments were made in cash due to the ignorance of the relevant provisions of the Income Tax Act by the staff, particularly a new payment passing officer. The CIT(A) rejected this plea, stating that ignorance of law is no excuse. However, the Tribunal noted that the staff's limited exposure to banking and income-tax laws, coupled with the lack of a training college, constituted a reasonable cause for the non-compliance. The Tribunal referenced the Supreme Court's decision in Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P., which held that "there is no presumption that every person knows the law."

3. Genuineness and Bona Fide Nature of Transactions:
The Tribunal emphasized that the transactions in question were genuine and bona fide, undertaken during the regular course of business. The Department did not dispute the genuineness of the transactions or allege that the depositors were Benami. The Tribunal held that the bona fide belief of the staff, coupled with the genuineness of the transactions, constituted a reasonable cause under Section 273B of the Act, thereby negating the penalty.

4. Technical or Venial Breach of Law:
The Tribunal observed that the breach of Section 269T was technical and venial, without any intention of tax evasion or concealment of income. The CIT(A)'s observation that even a technical breach warranted penalty was deemed unsustainable. The Tribunal cited the Supreme Court's decision in Hindustan Steel Ltd. vs. State of Orissa, which held that penalties should not be imposed for technical or minor breaches of the law.

5. Application of Judicial Precedents:
The Tribunal referenced several judicial precedents to support its decision, including:
- Industrial Enterprises vs. Dy. CIT: Highlighted that penalties should not be imposed for genuine transactions without any intention of tax evasion.
- Shreenath Builders vs. Dy. CIT: Emphasized the discretion in imposing penalties and the need for a fair and just exercise of such discretion.
- The Manager, State Bank of India vs. CIT: Noted that misunderstandings of tax law by bank officials could constitute a reasonable cause for non-compliance.

Conclusion:
The Tribunal concluded that the assessee had a reasonable cause for the non-compliance due to the bona fide belief and genuine nature of the transactions. The penalty imposed by the Jt. CIT and sustained by the CIT(A) was cancelled, and the appeal was allowed.