2014 (12) TMI 6 - AT - Income Tax

Levy of penalty u/s 271D Fixed deposits received in contravention of section 269SS - AO was of the view that there was no reasonable cause of the failure on the part of the assessee as prescribed u/s. 273B of the I.T. Act so as to receive fixed deposits in the form of cash in contravention of section 269SS CIT(A) confirmed the penalty u/s. 271D - Held that - The assessee is a society earning income from interest received on loan given to the members and also from the fixed deposits - while interpreting the provisions of section the marginal note is not decisive and cannot run contrary to substantive provisions contained therein - Only in case of doubt, the heading can be considered as aid for construction - there is no ambiguity in the language of s. 269SS and the provisions of s. 269SS are not only to counteract the evasion of tax but also to regulate certain transactions of money in a specified form - s. 269SS is not to judge the genuineness or otherwise of the credit entries appearing in account books - the provisions of s. 68 have been incorporated which deal with unexplained credits appearing in assessee s books of accounts. It is not legally correct to contend that the assessee and its members are one and the same person and the transactions with the members are outside the scope of s. 269SS - loan or deposit was involved in cash in excess of the amount specified in the section, the CIT(A) was justified in confirming the penalty in CIT v. Kumbakonam Mutual Benefit Fund Ltd. 1964 (5) TMI 2 - SUPREME Court it was held that if the profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied - a shareholder in the assessee-company is entitled to participate in the profits without contributing to the funds of the company by taking loans - the assessee shall show the reasonable cause for receiving the amount by way of cash and what is the reason for not receiving the deposit by way of account payee cheque or bank draft - If there is a reasonable cause for accepting the deposits in the form of cash, then only the assessee could be exonerated from the levy of penalty 271D - The assessee was unable to explain any reasonable cause for accepting the deposits in the form of cash - In the absence of any proof to show that there existed a reasonable cause for receiving the amount in cash, it is not possible to come to the conclusion that the assessee is not liable for payment of penalty - The burden is on the assessee to prove that there was reasonable cause for receiving the deposits by way of cash from the various persons - the lower authorities were justified in rejecting the contention of the assessee Decided against assessee.

Issues Involved:
1. Penalty levied under Section 271D of the Income Tax Act.
2. Contravention of Section 269SS of the Income Tax Act.
3. Applicability of the principle of mutuality.
4. Reasonable cause for accepting cash deposits.
5. Interpretation of Section 269SS in the context of genuine transactions.

Detailed Analysis:

1. Penalty Levied under Section 271D of the Income Tax Act:
The primary issue in this case is the penalty of Rs. 74,56,185 levied under Section 271D for accepting fixed deposits in cash, violating Section 269SS. The Assessing Officer found no reasonable cause under Section 273B for the assessee's failure to comply with Section 269SS, leading to the penalty. The CIT(A) upheld this penalty, and the assessee appealed against this decision.

2. Contravention of Section 269SS of the Income Tax Act:
Section 269SS mandates that no person shall accept any loan or deposit of Rs. 20,000 or more otherwise than by an account payee cheque or bank draft. The assessee, a co-operative society, accepted cash deposits from its members, which contravened this section. The assessee argued that the deposits were from employees of Hindalco Industries Ltd., and the principle of mutuality applied, thus exempting them from Section 269SS.

3. Applicability of the Principle of Mutuality:
The assessee contended that the principle of mutuality applied as the transactions were between the co-operative society and its members, and the income was exempt under Section 80P(2)(d). The Tribunal, however, noted that the principle of mutuality does not exempt the assessee from the provisions of Section 269SS. The Tribunal referenced the Supreme Court's decision in CIT v. Kumbakonam Mutual Benefit Fund Ltd., which held that mutuality does not apply if profits are distributed to shareholders without their contributing to the funds.

4. Reasonable Cause for Accepting Cash Deposits:
The assessee argued that the deposits were made in cash due to practical convenience, as employees received their salaries in cash and deposited the same in the co-operative society. The Tribunal found this explanation insufficient, noting that the assessee failed to prove any business expediency or lack of banking facilities that would justify accepting cash deposits. The Tribunal emphasized that the burden of proof lies on the assessee to show reasonable cause for accepting cash deposits.

5. Interpretation of Section 269SS in the Context of Genuine Transactions:
The assessee cited various judicial precedents to argue that penalties should not be levied if transactions are genuine and there is no intention to evade tax. The Tribunal acknowledged these precedents but distinguished the present case, noting that Section 269SS aims to regulate the mode of accepting loans and deposits, irrespective of the genuineness of transactions. The Tribunal clarified that Section 269SS and Section 68 operate in separate fields, with the former focusing on the mode of transaction and the latter on the genuineness of credits.

Conclusion:
The Tribunal concluded that the assessee failed to demonstrate a reasonable cause for accepting cash deposits, thus upholding the penalty under Section 271D. The principle of mutuality and the genuineness of transactions did not exempt the assessee from complying with Section 269SS. The appeal filed by the assessee was dismissed, affirming the penalty imposed by the lower authorities.

← Previous Next →