2021 (2) TMI 845 - AT - Income Tax

Penalty u/s 271D - assessee was contravening the provisions of section 269SS - Accepting cash deposits exceeding permisible limit - Scope of 'reasonable cause' - Bona-fide belief of the assessee - HELD THAT - In the present case, the assessee being the co-operative bank has accepted deposits in cash exceeding ₹ 20,000/- from its members which was prohibited under the provisions of section 269SS of the Act. The assessee did not dispute the applicability of the provisions of section 269AA but contended that the mistake was committed under the bona-fide belief and thus, sought the immunity under the provisions of section 273B of the Act. Provisions of section 273B of the Act prescribes that penalty shall not be imposable for any failure referred to in Sec.271D of the Act, if the assessee proves that there was reasonable cause for such failure. Therefore, in the instant case, what is required to be examined is as to whether the assessee had a reasonable cause for its failure to comply with the provisions of Sec. 269SS r.w.s. 271D of the Act. Admittedly, it was first mistake committed by the assessee in the year under consideration as evident from the affidavit filed by it. Further, the Revenue in the assessment framed under section 143(3) of the Act for the assessment year 2008-09 has not pointed out to the assessee for the contravention of the provisions of section 269SS of the Act. All these contentions of the assessee have not been controverted by the authorities below. Accordingly, we can draw an inference that the assessee has accepted the cash as deposits exceeding ₹ 20,000/- under the bona-fide belief. Bona-fide belief of the assessee that the transactions were exempted from the requirements of Sec.269SS of the Act and, there being no material to show that the transactions have been carried out with any intention to avoid or evade taxes, in our opinion, the assessee has been successful in showing that there was a reasonable cause for his failure to comply with the provisions of Sec.269SS of the Act. Accordingly, the order of the learned CIT(A) is set aside and the AO is directed to delete the penalty imposed under Sec. 271D - Decided in favour of assessee.

Issues Involved:
1. Whether the penalty levied under Section 271D of the Income Tax Act for accepting cash deposits exceeding ?20,000 in contravention of Section 269SS was justified.
2. Whether the assessee had a reasonable cause for the failure to comply with the provisions of Section 269SS, thereby warranting immunity under Section 273B.

Issue-wise Detailed Analysis:

1. Penalty under Section 271D for Contravention of Section 269SS:
The primary issue raised by the assessee was the confirmation of the penalty amounting to ?67,52,000/- levied under Section 271D for accepting cash deposits exceeding ?20,000, which is prohibited under Section 269SS. The assessee, a cooperative society, argued that it was under the bona-fide belief that its activities were akin to banking activities, and therefore, the provisions of Section 269SS did not apply. The assessee also pointed out that upon realizing the mistake, it immediately stopped accepting cash deposits.

The Assessing Officer (AO) found that the assessee had been claiming deductions under Section 80P, which are available to cooperative societies but not to cooperative banks, indicating that the assessee was aware that its activities were not at par with banks. The AO concluded that the assessee was a habitual defaulter and levied the penalty under Section 271D.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the society was registered long back and had been subjected to scrutiny in earlier years without any such mistake being pointed out. The CIT(A) found the assessee's arguments unconvincing and confirmed the penalty.

2. Reasonable Cause for Failure to Comply with Section 269SS:
The assessee contended that the penalty should not be imposed due to a reasonable cause under Section 273B. The assessee argued that the managing committee lacked necessary qualifications and knowledge of the Income Tax Act provisions and committed the mistake under a bona-fide belief. The assessee also highlighted that similar penalties had been deleted in identical cases by the ITAT and various courts.

The Income Tax Appellate Tribunal (ITAT) examined whether the assessee had a reasonable cause for its failure to comply with Section 269SS. The ITAT noted that the assessee had accepted cash deposits under the bona-fide belief that its activities were exempt from Section 269SS. This belief was supported by the fact that the AO had not pointed out any contravention in earlier assessments, and the society had immediately stopped accepting cash deposits upon realizing the mistake. The ITAT referred to several precedents where penalties were deleted under similar circumstances, emphasizing the importance of the bona-fide belief and reasonable cause.

The ITAT also considered the legislative intent behind Section 273B, which provides immunity from penalties if the assessee proves a reasonable cause for the failure. The ITAT concluded that the assessee had a reasonable cause for accepting cash deposits exceeding ?20,000 under the bona-fide belief that its activities were akin to banking.

Conclusion:
The ITAT found that the assessee had demonstrated a reasonable cause for its failure to comply with Section 269SS, warranting immunity under Section 273B. The penalty imposed under Section 271D was directed to be deleted, and the appeal of the assessee was allowed. The ITAT's decision was based on the bona-fide belief of the assessee, the immediate corrective action taken, and the lack of any material evidence showing an intention to evade taxes. The order of the CIT(A) was set aside, and the AO was directed to delete the penalty.

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