9911796707
TMI Blog2010 (2) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is recording each and every receipt and payment and the assessing officer did not find any omission on the part of the assessee herein. The CIT (A) failed to consider that the assessee carried on the business of banking and in the process of its business activity it is necessary to accept the deposits in cash. The CIT (A) also failed to appreciate the fact that the assessee is a Cooperative Bank within the meaning of the provisions of the Multi State Cooperative Societies Act 2002 and also is governed by the provisions of the Banking Regulation Act as applicable to the Cooperative Societies as it is a cooperative society carrying on banking business. 6. The CIT(A) failed to appreciate the fact that in so far as the amounts received by it and paid by it are only to its members and not to any outsiders and accordingly, ought to have held that the provisions of Section 269SS and Section 269T have no application. 7. The CIT(A) erred in confirming levy of penalty u/s 271D of Rs. 6,75,16,398 and u/s 27IE of Rs. 53,84,815 for the assessment years 2006-07 and u/s 271D of Rs. 8,23,03,665 and u/s 271E of Rs. 3,54,54,830/- for the assessment years 2007-2008. 3. Brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive among members iii) To accept deposits of money from the members for the purpose of lending to its members of investment, repayable on demand or otherwise iv) To borrow or raise money v) To lend or to advance money to members vi) To receive all kinds of bonds, scripts, valuables of deposits vii) To provide safe deposit vaults viii) To collect and transmit money and securities from constituents. ix) To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents. x) To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents xi) To prepare and to finance schemes for amelioration of the financial condition on constituents xii) To do all such other acts, deeds and things as are incidental and conducive to the promotion or advancement of the members xiii) To acquire, to construct, to maintain and to alter any building or works necessary or convenient for the purpose of the society xiv) To manage to sell and to realize any movable or immovable property those may come into the possession of the society in satisfaction or part satisfaction of any of its claims xv) To open branches and pay office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety as any other member can. The Nominal member is not entitled to participate in the management of the Society nor he can acquire the voting rights. 5.5. He drew our attention to the funds flow statement for the financial years ending on 31.3.2005 to 31.3.2009 to show that its activity involves receiving the amount from its members and providing the funds to the members: Details Year ended on 31-3-2005 31-3-2006 31-3-2007 31-3-2008 31-3-2009 No. of members including nominal members 19732 25664 32361 38765 50446 Rupees in Lakhs Subscribed capital 117.15 187.21 279.86 398.10 535.59 Reserves and surpluses 232.61 324.59 544.45 863.34 1259.67 Deposits from members 3338.96 5564.77 6660.40 12170.76 16024.49 Borrowings 34.56 Nil Nil 100.00 Nil Cash and bank 199.41 430.62 692.04 1299.77 704.91 Investments 241.09 922.55 1074.55 1764.45 2287.70 Advances to members 3183.90 4604.14 7230.09 10467.75 14971.38 others 112.01 133.34 166.38 192.81 233.23 5.6. He submitted that it can be seen from the above data that there was a constituent growth in the activities of the society. The Society is extending its operations by openi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all done in accordance with the bye laws of the society which in turn are in accordance with the provisions of the act. The Authorized Representative, therefore, submitted that the society is running its activity in the direction of fulfilling the objects of the society strictly in accordance with the bye laws of the society. 5.9. The assessee is claming the income to be exempt under the provisions of sec. 80P of the Act and the said claim is being accepted by the assessing officer. The assessee was filing the returns of income upto and including the assessment year 2005-06 and the assessments were completed. There was no occasion for the assessee to receive any such penalty notice. The final accounts were being examined by the Government. None of the authorities pointed out that there is any omission on the part of the assessee herein accepting cash deposits and repayment of such deposits. 5.10 According to the assessee society, the provisions of sec. 269SS and 269T have no application, According to Authorized Representative the principal object of the society to i) promote interest of its members in attaining social and economic betterment through self help and mutual aid. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 with reference to a banking company as under: The provisions of this Act, as in force from the time being, shall apply to, or in relation to cooperative society as they apply to, or in relation to banking companies subject to the following modifications namely: 10 a) Throughout this Act, unless the context otherwise requires i) references to a 'banking company' or 'the company' or 'such company' shall be construed as reference to a Cooperative Bank ii) references to 'commencement of this Act' shall be construed as references to commencement of the banking laws (application to cooperative society ) Act, 1965 (23 of 1965). 5.12. Therefore, according to sec.56 of Banking Regulation Act 1949, a cooperative society is to be termed as a banking company for the purpose of the said act and the provisions of the said act apply to a cooperative society as they apply to a banking company. Therefore, the provisions of the Banking Regulation Act apply to the assessee society. 5.13. Further, the learned AR submitted that vide its letter dated 19-10-1997 addressed the Reserve Bank of India, Bombay requesting for conversion of the cooperative society into an Urban Bank. A copy of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment ii) based on the information by the assessee the assessing officer is able to issue notices to the members and bring to tax the incomes which escaped assessment. This would indicate that the assessee did not help any of its members in avoiding tax. iii) From the details provided by the assessing officer in the order that the persons who have invested did not disclose the income correctly in their returns of income and that some claims for relief made by them were rejected. 5.15. He submitted that the observations of the assessing officer that the assessee is providing shelter to the activities of tax evasion are not correct and the assessing officer is not justified. The assessing officer is of the view that in eleven cases, full addresses of the members could not be provided and in case of five members, notices could not be served. The assessee maintains the application forms, addresses of its members which were provided from records. If there is any change in the address of any of the members, which is not intimated to the society, the assessee may not be able to provide present address of the members. The assessee counsel submitted that some of the members may not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dividend is collected by members. Therefore, the contributors' and the beneficiaries of the fund are the same members. Though the income of the society is taxable in view of the specific provisions contained in the act, it is mutual benefit society. In such circumstances, it is not known how such transactions, which are recorded in the books of account of the assessee, help mutual benefit of tax evasion. It is not correct to make such a comment particularly when the assessee herein is systematically recording the transactions. 5.18. He submitted that the assessing officer mentioned that some of the deposits are in the names of minors, firms and societies who cannot be the members of the society. If any deposit is made by a minor, the name and address of the parent is available and such parent who is the member deposits the amount with the assessee herein in the name is his minor child. The deposits made by minors are accepted only when either of their parent is a member of the society. Any cooperative society can be a member of our society and it is permissible according to the provisions of the act. The partnership firms are also represented by individuals who are the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the central Government may for reasons to be recorded in writing notify in this behalf in the official gazette. According to clause (b) of the proviso, a banking company is exempt from operation of the provisions of sec.269SS of the IT Act. The meaning of the word 'banking company' is explained in explanation 1 to the said section. According to the explanation (1) any company to which the Banking Regulation Act 1949 applies. Sub section (1) of section 5 defines the work 'banking company' to mean 'any company which transacts business of bank in India'. Sec.56 of the Act substitutes the word 'company' by the 'Cooperative society'. Therefore, even a cooperative society for which the provisions of section 56 apply shall be a banking company. Further, section 9 of the Multi State Cooperative Act 2002 mentions that any society registered under the multi state cooperative act shall be a body corporate by its name. Therefore it is a body corporate by its name. Therefore it is a body corporate within the meaning of the provisions of Multi State Cooperative Societies Act 2002. In view of the above, the assessee is a banking company for the purposes of the Banking Regulation Act 1949 and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplain its unaccounted cash, and therefore, question of violating provisions of sec.269SS or 269T does not arise. It is observed that Hon'ble ITAT that for the earlier years, the assessments were completed without initiating penalty proceedings though similar acceptance of the deposits were there in the earlier years. The ITAT held that penalty is not leviable. In the case of the assessee also, the amounts were deposited voluntarily by the members of the society and the assessments for the earlier years were completed u/s 143(3) and no such notices were issued. Therefore, there is every reason for the assessee herein to entertain a bona fide belief that there is no violation of the provisions of 269SS or 269T. 4. Hindustan Steels Ltd. Vs. State of Orissa in (83 ITR 26) held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately is defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merey because it is lawful to do so. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein he mentioned that he wrote to CGM, Urban Banks, Reserve Bank of India, Mum and the said authority mentioned that he did not receive any such application as claimed by the assessee. 7.2 The assessee's counsel in this regard submitted that the claim of the CGM, Reserve Bank of India, Mum is not correct in mentioning that the said communication was not received by them. The DGM did not mention about the acknowledgement sent along with the letter. The postal acknowledgement and the letter clearly indicate that the letter was received by the Reserve Bank of India. 7.3. The assessee's counsel submitted that on receipt of communication from Addl. CIT, it wrote the DGM, Reserve Bank of India, Urban Bank, Mum . vide its letter dated 10.10.2009 mentioning clearly as to what exactly happened. Assessee further submits that the said resolution was sent to Distt Cooperative Officer dated 22.11.1997 and was promptly received by the said authority who in turn wrote the Registrar of Cooperative Societies. The assessee requested the Registrar of cooperative society and Reserve Bank of India to convert the existing cooperative society into Cooperative bank. The events that took place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; The learned Authorized Representative submitted that according to the provisions of S.5(l) (i) and S. 11 of the Banking Regulation Act as modified by Part-V of the Act, the clauses are only prohibitory clauses restricting entry of cooperative societies into the sub clause of cooperative bank and that the criteria of capital and reserves of Rs.l lakh is only an eligibility criteria and it is not an automatic ticket to banking. That when without licence to assessee cannot be permitted as a cooperative bank in view of Part-V of the Banking Regulation Act. The assessee submitted that sec.56 part-V of the Banking Regulation Act mentions as under: The provisions of this Act, as in force for the time being, shall apply to, or in relation to, cooperative societies as they apply to or in relation to banking companies to the following modifications" 12. The assessee's counsel submitted that a plain reading of the provisions of the above section clearly indicates that the provisions of the act shall apply to a cooperative societies also. The assessee is a Multi State Cooperative Society which is primarily a cooperative bank and therefore it is a Multi state cooperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry credit societies doing banking business irrespective of any administrative instructions to the contrary. The complicated legal and administrative background, the committee felt that a pragmatic solution was necessary. While it was not feasible or desirable to deny licences to all these societies, it was essential to ensure that they conformed to certain norms as worked by the committee for fresh entry. The committee is of the view that all primary credit societies which attain the revised entry point norms prescribed under standards of viability for urban cooperative banks in this respect before 30th June, 1993 will become eligible for being considered for inclusion in the list of primary cooperative banks. In the case where societies have not applied, they may be allowed time upto 30th June, 1993 to apply in case they have reached the new entry point norms. Such societies may thereafter be taken up for inspection and considered for issue of licence on merit. This exercise should be completed within a period of 6 months from the date of taking the primary cooperative bank's name on record. The Reserve Bank of India's decision on the license application should be communicated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is made a part of the section itself. Therefore, once a cooperative society carrying on the business makes an application unless it is prohibited to carry on the business of banking. Therefore, the assessing officer is not justified in mentioning that without license the assessee can not carry on business of banking. The Addl. CIT referred to the communication received by him from Reserve Bank of India. The assessee that the officer communicated the information to the Addl. CIT without looking into the details of the assessee. According to him no application was filed, whereas there is evidence to the effect that such letter was already served on the Reserve Bank of India. The assessee submits that a letter was addressed by Reserve Bank of India to Addl.CIT on 30.9.2009 to the effect that the Reserve Bank of India did not receive the application stated to have been sent by the assessee. The assessee offered evidence to show that the application was sent to Reserve Bank of India. Therefore, the C.M.D approached the Reserve Bank of India, Bombay and requested them to provide the details with regard to the application. They were informed that no information will be kept beyond 5 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the provisions of sec. 119 of the multi state cooperative society act, 2002, the assessee is entitled to open new branches in any part of India. With regard to the reasonable cause, the assessee submits that it was under the bona fide impression that (a) it is carrying a Multi State cooperative society within the meaning of the provisions of the said act (c) it made application to the Reserve Bank of India (d) the Reserve Bank of India did not reject the application by the assessee and was kept pending (e) according to provisions of sec.22 as adopted by sec.56(o) of the Banking Regulation Act the society need not stop the activity of banking simply because the Reserve Bank of India did not accept the application (f) the provisions of the Banking Regulation Act and the report of the committee suggest that any cooperative society can carry on banking activity as long as the Reserve Bank of India rejects the application or objects to such carrying on the business (g) the assessee society did not receive any communication either from Reserve Bank of India or from Cooperative Registrar mentioning that it cannot carry on the banking business (h) the society was submitting the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new primary credit society with a provision to acceptance of public deposits. Also it is reported that Reserve Bank of India stated that any cooperative society having share capital and reserves exceeding Rs.l lakh would automatically eligible to act as cooperative bank. Therefore the opinion provided by Reserve Bank of India in the present proceedings is contrary to the public view taken by the Reserve Bank of India. 5. The assessee filed a letter on 19.10.1997 Reserve Bank of India requesting for conversion of society into an urban bank. A resolution was also passed by the Board and sent to Reserve Bank of India. The Chief GM, Reserve Bank of India is not correct in stating that communication from the assessee is not received by him and he did not mention any thing about the acknowledgement. The assessee wrote to DGM, Urban Bank Deptt. Reserve Bank of India, Mumbai on 10.10.2009. The assessee's counsel also stated that resolution was forwarded to Distt. Cooperative Officer also on 22.11.1997. 6. Pending such application before Reserve Bank of India the society has to be treated as a Banking Company. As per Marathe Committee Report of the Reserve Bank of India, once an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helter to activities of tax evasion. The assessing officer's findings is based on information gathered by him from some of the members. The observation is neither correct nor justified because admittedly the assessing officer is able to verify correctness of the returns of income filed by such persons and is liable to bring to tax the income that escaped assessment. The fact that the assessing officer is liable to issue notices to members clearly indicates that the assessee did not help any of its members in avoiding tax. The assessee maintains the application form, the addresses of its members which were provided to assessing officer. However, if there is any change in the address of any of the members which is not intimated to the society, the assessee cannot be found fault with. 33 12.The decision of ADI (Inv.) Vs. AB Shanti (255 ITR 258) the said decision was rendered by the Apex Court to constitutional validity of section 269SS. In this case the Apex Court observed that the provisions of section 269SS are to ensure that a tax payer is not allowed to give false explanation for his unaccounted money. However, in the case of assessee the income from business is exempted from tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act. Therefore, as per law, the provisions of section 269SS or 269T are applicable. It cannot be stated that the clarification from Reserve Bank of India is not relevant. It is common knowledge that regulates and conducts inspection as per Banking Regulation Act in case of all cooperative urban banks. All such Banks also maintained statutory reserves and furnish periodic reports to the Reserve Bank of India. Such banks are also covered by the provisions of the IT Act. In the present case of the assessee no such activity is noticed. The contention that as per the Multi state cooperative society Act, the assessee is a company is not correct because the term 'body corporate' employed in the said act is only for the purpose of indicating limited liability of society and 'company' has to be read with the meaning of income tax act read with the Banking Regulation Act defined in section 269SS or 269T for the present purpose. 14.2. She submitted that the news report in Business Standard on individual share holdings in a bank or grant of permission to new credit societies are not relevant for the present issue. With regard to the reported version on automatic eligibility to societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om and repaying the same to its members including nominal members. This does not mean that the identity of members gets merged into the society. For taxation purpose the status of a person is of a relevance. In the case, the status of the assessee is that of an 'association of persons' whereas that of its members is 'individual'. Therefore, when a deposit is accepted or repaid by a person from/to another person, the provisions of sec. 269SS or 269T are invoked. Any exemption from the operation of the above provisions has to be specifically mentioned in the act or notified by the Central Government. As per first proviso to sec.269SS second proviso to sec.269T only five categories of persons are exempt from the operation of sec. 269SS or 269T and the assessee is not covered in these categories. It may be seen here that till date only one institution viz., HDFC Ltd. is notified vide. S.0.3828 dt.28.10.1986 that too with regard to specific schemes. The decisions quoted by the assessee with regard to mutual benefit associations or principles of mutuality are not applicable in the case of the assessee as admittedly the assessee is filing the returns of income in the status of AOP and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and noticed that when the promoter director found company being unable to make the resources available for the project work, he decided to involve and utilize his own money for construction work. There were neither compelling reasons nor a compelling force by the so called artificial person, i.e. company, to bring in the money. It was merely a suo motu decision of the promoter to expose himself to such a huge risk of utilizing his personal money for company's purpose with the hope that he would take it back when the loans were disbursed to the company. It was a case where agent utilized his own money in order to fulfill his obligations towards the principal upon which he became entitled to get back the money. This was thus a unilateral transaction on the part of the promoter to involve and utilize his own money by withdrawing it from his own source. The company was bound to pay for the construction expenditure. The promoter paid it because he was interested in the capacity as promoter and also because his personal guarantees were involved in the finances to the company. Thus, he paid the amount and became entitled for the reimbursement by the company. It was thus, neither a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and nominal members are different. Besides, some of the members could be employees of the society. Another important distinction is that in case of a firm, the liability of the partners is unlimited whereas in the case of the assessee, the liability is limited. Also, in the case of Shrepak Enterprises, the issue of tax evasion was snot under consideration and the act was a technical violation of law. 14.12. In the case of Farukhabad Investments (I) Ltd., ITAT clearly held that the provision brought on the statute to prevent unaccounted income being brought into the books of account in the form of loans/deposits and held that the department has not made any allegation to this effect. In the present case, there is ample evidence that unaccounted income of members is brought into the books of the assessee in the form of loans and deposits. It is also pertinent to mention here that in the case of Industrial Enterprises Jurisdictional bench of ITAT held that 'Provision of section 269SS were brought, in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of chapter XXB of the Income tax Act, 1961(the Act) which reads requirement as to mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced as under. "Lord Halsbury as early as 1901, in Cooke V. Charles A Vogeler Company (1901) AC 102 (HL) stated that the law in the manner following : 'a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may hold it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should elad to absurd or mischievous results. If the language of this sub section be not controlled by some of the other provisions of the statute. It must, since its language is plain and unambiguous, be enforced and your Lordships' House sitting judicially is not concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to consequences just or unjust beneficial or mischievous'. The oft quoted observations of Rowlatt J. in the case of Cape Brandy Syndicate Vs. ITC (1921) 1 KB 64 ought also to be noticed at this juncture. The judge observed "in a taxing statute one has to look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case the assessee did not show any such reasonable cause. On the contrary, various depositors whose clear addresses have been furnished were found to evade tax on transactions of cash deposits and repayments. For the assessment years 2006-07 out of 229 persons from who cash deposits of Rs. 20,000 and above were accepted by the assessee, the assessee provided clear addresses in only 30 cases. In the balance cases the assessee did not furnish addresses. In None of the case the assessee produced any members for verification despite adequate opportunity being given as seen from record. Similarly, for the assessment years 2007-08 out of 287 persons from whom cash deposits of Rs. 20,000 and above were accepted by the assessee, the assessee provided clear addresses in only 30 cases. In balance cases the assessee did not furnish addresses. In none of the cases the assessee produced any members for verification despite adequate opportunity being given as seen from the record. If the assessee had no intention of protecting tax evaders, he would have made all efforts to produce the members whose list was provided by the assessing officer for verification. Also the assessee never furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibitory clauses restricting entry of cooperative societies into the sub class cooperative bank. In other words, to be a cooperative bank, the entity has to be a cooperative society with minimum capital but not vice versa. All cooperative bank are cooperative societies but all cooperative societies are not cooperative banks. The criteria of capital and reserves of Rs.l lakh is only an eligibility criteria. It is not an automatic ticket to banking. Once a society is eligible, Reserve Bank of India has to decide to grant a banking licence or not depending on the entry norms and regulations. In the present case, no doubt the assessee is eligible for obtaining a banking licence but no such licence is granted by Reserve Bank of India. Without such licence, the assessee cannot be termed as cooperative bank within the meaning of Part V of the Banking Regulation Act. This is clearly evident from the communication of the Reserve Bank of India. 1. As per clause (cc iia) of sec. 5(l)(i) of the Banking Regulation Act a multi state cooperative bank is a multi state cooperative society which is a primary cooperative bank. In the present case the assessee is not primary cooperative bank and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen a news paper referred to the society as bank, clarification was also issued that it is not a bank. 10. The news items quoted by the assessee regarding directions of Reserve Bank of India to Registrars of Cooperative Societies and other authorities, if any are not relevant for the present proceedings as such directions are advisory in nature to ensure financial discipline in the country. If such directions were to be mandatory in nature, then Registrars of Cooperative Societies must have debarred the assessee from accepting deposits, which is not the case. The directions were issued only with a view to limit entry of new players into the financial sector. Restrictions on individual holdings has no bearing on the present proceedings. 11. The assessee is not accepting deposits from public and conducting business only with its members. That is why TDS is also not done on interest on deposits. Banking is a wider activity compared to providing credit facilities to members. 12. The assessee is not maintaining any cash reserves or SLR funds, which clearly shows that it is not a banking company. The assessee also not subject to Reserve Bank of India inspections nor it provides inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining unpaid(whether repayment has fallen due or not) c) The amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause(b) Is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by: a) Government b) Any banking company, post office savings bank or cooperative bank c) Any corporation established by a Central, state or provincial act d) Any Govt. Company as defined in sec.617 of the Companies Act 1956(1 of 1956) e) Such other institution, association or body or class of institutions, associations or bodies which the central government may, for reasons to be recorded in writing notify in this behalf in the office gazettee Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation: For the purposes of this section: i) 'banking company' means a company to which the Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section shall apply to repayment of any loan or deposit taken or accepted from: i) government ii) any banking company, post office savings bank or cooperative bank iii) any government company as defined in sec.617 of the companies Act 1956 (1 of 1956) iv) any corporate established by a central state or provincial Act. v) Such other institution, association or body or class of institutions associations or bodies which the central govt, may for reasons to be recorded in writing notify in the behalf in the official gazette. Explanation - For the purpose of this section: i) banking company shall have the meaning assigned to it in clause (i) of the Explanation to sec. 269SS ii) 'cooperative bank' shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) iii) Moan or deposit' means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature. 15.4. Thus, Sec.269T provides that no company (including banking company) cooperative society or partnership firm shall repay to any person, any deposit made by him with such entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c.273 no penalty shall be imposable on the person or the assessee, as the case may be for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. 16. Now, it would be useful to consider the purpose and object of the provisions of Sections .269SS, 269T, 271D, 271E and 273B of the IT Act, 1969. 16.1. The Memorandum explaining the provisions in the Finance Bill, 1984 was placed before the Parliament by the Finance Minister. In the said Memorandum., the purpose of enacting the provisions of section 269SS was explained saying that unaccounted cash found in the course of searches carried out by the Income Tax Department is taxable by the taxpayer as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. With a view to circumventing this device, which h enables taxpayers to explain away unaccounted cash or unaccounted deposits, the provisions was inserted. The relevant text of the memorandum is reproduced her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan or deposit for the purposes of the proposed provision would mean loan or deposit of money. 26. If a person without reasonable cause or excuse takes or accepts any loan or deposit in contravention of the aforesaid provisions, he shall be punishable with imprisonment for a term which may extent to two years and shall also be liable to a fine equal to the amount of such loan or deposit. 27. The proposed provisions will take effect from April 1 1984, but as stated above, the prohibition contained therein shall apply only in relation to any loan or deposit taken or accepted after June 30, 1984. 16.1.1 In the case of KP Varghese Vs.ITO (131 ITR 597), the Supreme Court while considering the admissibility of the speeches made by the members of the Legislature on the floor of the House, observed that: "Now it is true that the speeches made by the Members of Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred for the purpose of ascertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed by the statute. Ref. May be made to the decision in Hindustan Steel Ltd. (83 ITR 26 (SC). 16.4. One of the cardinal principles of the English criminal law is expressed in the maxim actus non facit reum, nisi mens sit rea, that is a person cannot be convicted and punished in a proceeding of a criminal nature unless it can be shown that he had a guilty mind. A penalty imposed for a tax delinquency is a civil obligation, remedial coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal loss. 16.5. In the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) (83 ITR 26) (SC): (1969) to SCC 627, the facts of the case were that the appellant, company supplied to the contractors for using construction coal of factory building for the steel plant, residential building for its employees, bricks, coal, cement, steel, etc. For consideration and adjusted the value of the goods supplied at the rates specified in the Tender. The sales tax Officer held that the ay company was liable to pay tax on the ground that it was a dealer in the building material and had sold materials to contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been defined under the Act, but they could receive the same interpretation which is given to the expression 'sufficient cause'. Therefore, in the context of penalty provisions, the words 'reasonable cause' could mean a cause which beyond the control of the assessee. "Reasonable cause' means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fides. Before imposition of penalty, u/s 271 , the assessing officer must be satisfied, not arbitrarily but judiciously that the assessee has without reasonable cause failed to comply with the provisions. 16.7. Further, there should be findings in the assessment order that the transactions made by the assessee in breach of provisions of Sec.269SS or 269T were not a genuine transaction. The assessment order passed u/s 143(3) of the IT Act, which is after scrutiny of the books of accounts of the assessee should have findings that the transaction made by the assessee was mala fide and with the sole object to disclosed the concealed or undisclosed money. If there is a merely technical mistake committed by the assessee which is not resulted in any los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 949. 'Banking' is described as accepting, for the purpose of lending or investment of money, due from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise. The deposits held by the assessee are its stock in trade. The deposits and loans are just like buying and selling of goods/products. The amounts in account maintained by the assessee bank were not in the control of the assessee. In the sense that the bank may be required to pay at any point of time. In case of banks, like present assessee, the customer identity required to be taken with proper introduction, photographs and address etc. This is so because, any person from general public can come and open a deposit account with the bank. The acceptance of deposit by this assessee cannot be equated with other kind of assessees. In other cases, normally, deposits are accepted from the people connected with are known to the depositees. It is in accordance with the terms of Sec.131 of the Negotiable Instruments Act. The customer introduction had to be been taken to avoid any kind of fraud. The assessee like present is not obliged to question the source of deposit made by its customers. Also, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of funding its project as a source of investment, that rather, it was in the business of accepting deposits that in view of the nature of such business, the scrutiny of the deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc. The authority vested with the power to impose penalty as a discretionary power not to levy the penalty. It is all very well to paint justice blind, but she does better without a bandage round the eyes. She should be blind indeed to favour or prejudice, but clear to see which way lies the truth and the less dust there is about the We made attempt to examine the truth. We found that the addition on account of these impugned deposits in the return of income it means that deposits are genuine. Veracity of creditor not doubted by the Revenue. Assessing officer did accept the deposit as genuine. The breach of provisions of Sections 269SS /269T from a bona fide belief. Ex facie it is a venial breach. The law takes no notice of trivialities. Cash payments and receipts made because of business exigencies. The mere violation of a statutory obligation is not liable for any penalty more so, undisputedly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rise levy of penalty. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of facilities which it offers does not affect the mutuality of the enterprise. The contributor of the fund are entitled to participate in the surplus, thereby creating an identity between the participators and contributors and acceptance of deposits and repayment of the same is incidental to the attainment of the main object of the assessee society. The concept of mutuality is primarily based on the principle that one cannot make profit from himself . Thus, when the facilities are provided to only to members of the society, who provide the funds to the society and their identity with the funds and their participation in the surplus arising from the said fund is unmistakably found then the principles of mutuality will apply. The fact of the present case, are akin to the above position and all the ingredients necessary for holding the application of the concept of mutuality are satisfied because there is complete identity between the contributors and participators and the requirement of the law is that contributors of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, it can be said to constitute 'reasonable cause'. The bona fide business of transaction cannot be considered for levying the penalty u/s 271D or 271E. More so, the assessee has been carrying on the banking business and it is having bona fide belief that provision of sec.269SS/269T is not applicable to the assessee case and same is coupled with genuineness of the transaction constitute a reasonable cause and in such case the default on the part of the assessee is merely of a technical or venial nature and no penalty be levied. 18. To sum up, a harmonious construction of the relevant provisions of sections 271D, 271E and 273B clearly reveals the use of expression 'shall be liable to pay' in sections 271D and 271E and the provisions of sec.273B providing that no penalty would be leviable if the person concerned proves that there are reasonable cause or the said failure clearly indicates these provisions give a discretion to the authority to impose the penalty or not to impose the penalty. Such a discretion has to be exercised in a just and fair manner having regard to the entire facts and materials existing on record. Ordinarily, a plea as to be ignorance of law cannot support th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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