2023 (12) TMI 1254 - AT - Income Tax

Penalty u/s 271D and 271E - period of Limitation u/s. 275(1)(c) - HELD THAT - The relevant date, is neither the date of assessment order, as contended by the appellant in Grihalakshmi Visions 2015 (8) TMI 1214 - KERALA HIGH COURT or the date of initiation of penalty proceedings by issue of notice under section 274 which though can only be by a competent authority, as contended by the Revenue in that case. But the date on which action for imposition of penalty stands initiated. This action is to be understood as the date on which reference is made to the competent authority for initiation of penalty proceedings. In the instant case/s, this is on 01.01.2008, vide letter issued. The limitation period would thus be up to 31.07.2008, being the later of 31.3.2008 and 31.7.2008. The penalty orders are thus not barred by time, i.e., going by the assessee s own case as made out, and we admit with merit. Further, it is nobody s case, nor could possibly be, that reference to the Jt. CIT by the AO on 01.01.2008, being after the completion of the assessment proceedings on passing the assessment order and issue of demand notice on 13/12/2017, is not valid in law inasmuch as it was after 13.12.2017. In a given case, the Joint/Addl. CIT may himself be the AO, in which case he, noticing and recording violation of sections 269SS/T, may, accordingly, propose to initiate penalty, in which case that would be the relevant proceedings. Why, in a given case, penalty proceedings may be initiated at the instance of the first appellate authority. The date of assessment order may thus not be relevant. Shri Raghunathan would before us seek to bolster his case by arguing that the Jt. CIT may well sleep over the matter, issuing notice u/s. 274, in an extreme case, after years, indefinitely postponing the proceedings, and, which cannot be the intent of the Legislature. While this may be a possibility, even if remote, we do not think it necessary to, given the clear language of the provision, seek to decipher or probe the rationale behind prescribing the time of action for initiation of penalty in its wisdom by the Legislature as against that of initiation of penalty , which could well have been so stated had that been the legislative intent. The words action for imposition of penalty has been/is initiated , in s. 275(1)(c), could only be on the reference to the competent authority in the matter, i.e., proposing initiation of penalty u/s. 271D/E of the Act, in collateral proceedings. The sleep over would, rather, defeat the levy of penalty inasmuch as action for the imposition of penalty precedes the date of its initiation.he assessee, for the reasons afore-stated, fails in it s challenge on limitation. We decide accordingly. Reasonable cause u/s. 273B - We have given our careful consideration to the matter, which may have implications beyond the instant case, the financial impact of which, at an aggregate of Rs. 231.24 cr., also emphasised by Shri Raghunath, is not insubstantial. The default being admitted, reference to the enhanced limit of Rs. 2 lakhs, up from Rs. 20,000, in sections 269SS/T, for a PACS, w.e.f. the previous year commencing 01.04.2023, as pointed out by Shri Das, so made, as explained by him, with a view to provide relief to the low income groups in rural areas and facilitate easier conditions of business operations in such areas, may not add any further strength to the Revenue s case; the burden to prove reasonable cause being in any case on the assessee. In our view, looking at the entirety of the facts and circumstances, the assessee deserves to succeed in the conspectus of it s case. Assessee is involved in both, i.e., borrowing, through acceptance of deposits, as well as lending, with the only difference that the members of the public are entitled to deposit their monies as well as borrow monies on becoming nominal members by paying a nominal sum upon filling an application form, permitted by it s governing Act and bye-laws. It is this that led to the denial of deduction u/s. 80P in assessment. The assessee-society, though registered as a PACS under the Kerala Act, is legally dealing with members and non-members, i.e., public at large, without restriction as to area, i.e., at par with a commercial or cooperative bank, excluded from the ambit of ss. 269SS/T. In our view there is thus a reasonable cause for the assessee, who has a past history of operating in such a manner, being so for over three decades post 30.06.1984, i.e., since when sections 269SS/T of the Act are on the statute, for having violated the said provisions, and is thus not liable to penalty under sections 271D/E of the Act in terms of s. 273B. We may also clarify; the same having also been duly considered and factored into our decision, that no doubt at any stage, including before us, has been expressed by the Revenue as regards the maintenance of proper records, including qua KYC, by the assessee. This is as, where so, this would have warranted remanding the matter back to identify such suspected cases inasmuch as there could be a transgression of the provisions of the PMLA, with the assessee using it s status, reach and clout as a bank to deal in illicit money or otherwise with customers without proper antecedents. Appeal of assessee allowed.

Summary

Issues Involved:

1. Limitation under Section 275(1)(c) of the Income Tax Act.
2. Reasonable Cause under Section 273B of the Income Tax Act.

Summary:

Issue 1: Limitation under Section 275(1)(c) of the Act

The assessee argued that the penalty orders dated 26.07.2018 are barred by time, as the limitation period should have ended on 30.06.2018. The assessee relied on the decision in Grihalakshmi Visions vs. Addl. CIT, which held that the initiation of penalty could only be by a competent authority upon the issue of notice under Section 274 of the Act. The Tribunal, however, found that the relevant date for limitation is the date on which action for imposition of penalty is initiated, which is when the reference is made to the competent authority (01.01.2008 in this case). Thus, the penalty orders were within the limitation period, and the assessee's challenge on limitation was dismissed.

Issue 2: Reasonable Cause under Section 273B of the Act

The assessee, a service co-operative bank, argued that it had a reasonable cause for accepting and repaying deposits in cash due to its nature of business and operational history. The Tribunal considered the assessee's operations, which are akin to a bank, accepting deposits and lending to members and non-members, and providing cheque facilities. The Tribunal acknowledged that the assessee operates as a bank without a license from RBI, which creates a reasonable cause for its actions. Consequently, the Tribunal held that the assessee is not liable for penalties under Sections 271D and 271E of the Act due to the reasonable cause provided under Section 273B. The appeals by the assessee were allowed.