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TMI Blog2014 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sically exempt as per section 80P(2)(d). The interest received from the members is also not to be included in the gross total income of the assessee as per section 80P(1). The Ld. AR submitted that the assessee had received fixed deposits in cash and the Addl. Commissioner issued show cause notice u/s. 271D directing to show cause as to why appropriate penalty u/s. 271D should not be levied on the assessee. 6. The Ld. AR submitted that the assessee filed a detailed reply on 24-06-2010 and stated therein that persons who have given fixed deposits by cash are employees of M/s. Hindalco Industries Ltd. The society was formed with the intention of encouraging thrift and savings as between members. However, the Assessing officer observed that explanations cited cannot be accepted as reasonable cause u/s. 273B of the Income Tax Act for the following reasons: 1. The assessee has not proved the business expediency and banking facility available for not taking loans or deposits by way of account payee cheque or DDs. 2. Provisions of sec. 269SS is a strict liability in the nature of adoption of procedure and it is immaterial whether the persons employees or not, it is also immateria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash being explained as loans was the main object of insertion of section 269SS of the Income Tax Act. This fact has been stated in Circular 387 dated 6.7.1984. With a view to counter in this device the Finance Act has inserted a new section 269SS in the Income Tax Act debarring persons from taking or accepting any loan or deposit otherwise than by account payee cheque or bank draft. This fact has been considered by various decisions of different benches of the Hon'ble High Courts. 9. The Ld. AR relied on the judgment of the Supreme Court in the case of Assistant Director of Inspection (Investigation) v. Kum. A.B. Shanthi and Chamundi Granites Pvt. Ltd. vs. DCIT and Another reported in 255 ITR 258 wherein it was stated that the main object of introducing section 269 was to curb furnishing of false explanation/false entries in the accounts by a tax payer. As such, imposition of penalty without considering the objects stated while introducing the section according to Circular No. 387 dated 6.7.84 of the CBDT is grossly incorrect and only to be set aside Hence section 269SS is not applicable and it has been held that wherever the depositor has been identified the levy of penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a reasonable cause. 15. The Ld. AR further relied on the judgment of the Rajasthan High Court in the case of CIT v. Lokhpat Film Exchange (Cinema) 304 ITR 172 wherein it was stated that the assessee's firm acting under a bona fide belief that transactions with partners did not attract provisions of section 269SS and 269T, such a bona fide belief constituted reasonable cause and the Tribunal was justified in deleting penalty u/s. 271D and 271E. 16. The Ld. AR relied on the judgment of the Gujarat High Court in the case of CIT v. Natvarlal Purshottamdas Parekh 303 ITR 5 wherein it was stated that penalty u/s. 271D and 271E - contravention of ss. 269Ss and 269T - Reasonable cause - Tribunal, on appreciation of evidence, having found that there was no contravention of ss. 269Ss and 269T and even if there was one, there was reasonable cause for the same, no interference was called for with the order of Tribunal deleting penalty under ss. 271D and 271E - Whether evidence is correctly appreciated or not cannot give rise to a question of law unless and until such findings are challenged as being contrary to the evidence on record or recorded after omitting to consider relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. Ratna Agencies, 284 ITR 609 wherein it was held that there is no reason to interfere with the findings of the Tribunal that there was reasonable cause for the as not strictly complying with the provisions of s. 269SS - Therefore, penalty under ss. 271D and 271E could not be imposed. 23. The Ld. AR relied on the judgment of the Madras High Court in the case of CIT vs. Balaji Traders, 303 ITR 312 wherein it was held that penalty u/s. 271D the genuineness of creditors and transactions were never doubted by the Department and there was no revenue loss to the exchequer; the assessee has shown reasonable cause. 24. The Ld AR relied on the judgment of the Delhi High Court in the case of Director of Income Tax (Exemption) vs. All India Deaf and Dumb Society, 283 ITR 113 wherein it was held that the substantial question of law penalty u/s. 271D and 271E No malafide intention on the part of the assessee and there was no intent of violating the law ingredients of ss. 271D and 271E not strictly satisfied finding of Tribunal not perverse and no substantial question of law arises. 24.1 The Ld. AR also submitted that the deposit holders are employees of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers to explain away unaccounted cash or unaccounted deposits the Finance Act has inserted a new section 269Ss in the Income Tax Act debarring persons from taking or accepting any loan or deposit otherwise than by account payee cheque or bank draft. Therefore, it is very clear that the very purpose of introduction of section 269SS is only to avoid unaccounted income of a person being brought into the books of accounts in the form of loans and deposits and subsequently these loans and deposits being explained as representing loans taken from various persons. 28. The Ld. AR submitted that in the case of the assessee there is no question of any unaccounted income. Employees have received the salary in cash and deposited the same in the co-operative society, which is situated in the same premises. The Ld. AR therefore submitted that each and every deposit made has been identified as belong to a certain employee and repayment has been made by way of account payee cheques only. The circumstances under which deposits have been made in cash in 2007 has been explained by the Company. The Company has also certified that the deposits have been made out of salary payment made in cash. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad Club, 150 ITR 401 (AP) 2. Assistant Director of Inspection (Investigation) vs. Ku. A.B. Shanthi and Chamundi Granites Pvt. Ltd. vs. DCIT and Another, CIT255 ITR 258(SC) 3. Chamundi Granites P. Ltd. vs. DCIT, 239 ITR 694(Kar) Chandra Cement Ltd. vs. DCIT, 68 TTJ (JP) 35 4. 96 ITR 261 (AP) 5. CIT vs. Nataraj Finance Corporation, 169 ITR 732 (AP) 6. Farrukhabad Investment (I) Ltd. vs. JCIT, 85 ITD 230 (Del)(Agra). 7. Industrial Enterprises vs. DCIT, 73 ITD 252(Hyd) 8. K.P. Varghese vs. I.T.O., 131 ITR 597 (SC) 9. Kerala State Industrial Development Corpn. Ltd. vs. CIT, 259 ITR 51(SC) 10. Orissa State Warehousing Corporation Rajasthan State Warehousing Corporation vs. CIT, 237 ITR 589 (SC) 11. Padmasundara Rao (Decd.) Ors. vs. State of Tamil Nadu Ors. 255 ITR 147(SC) 12. Shrepak Enterprises vs. DCIT, 64 ITD 300 (Ahd) 13. Jalgaon District Central Co-operative Bank Ltd. Another, 265 ITR 423(Bom) 14. Circular No. 387 dt. 6.9.1984 referred to. 33. The Ld. AR submitted that in that decision, it was held that Director or Members of Society is not covered by the expression any other person occurring in section 269SS and the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as non-genuine or bogus, penalty under section 271D/271E is not leviable. Further, if the assessee had a bona fide belief that the transactions do not attract the provisions of section 269SS and 269 given the nature of transactions and circumstances, penalty need not be levied. Thus, bona fide belief coupled with genuineness of the transactions constitute reasonable cause for not invoking the provisions of section 271D and 271E. 39. The Ld. AR submitted that the deposits were accepted and repaid by the assessee as part of its banking services. The said deposits were not in the nature of any loan or deposit taken for the purpose of funding a project. These deposits have been accepted as genuine and veracity of the creditors has not been doubted by the Revenue. Breach of provisions of section 269Ss and 269T occurred on account of bona fide belief of the assessee that the provisions of said sections are not applicable to it. Cash payments and receipts were made because of business exigencies. The Ld. AR submitted that it was not established that there is deliberate and intentional violation of the provisions by the assessee in order to hide any income or to evade any payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71E. More so, the assessee has been carrying on the banking business and it having bona fide belief that provisions of section 269SS/269T are not applicable to the assessee's case and same coupled with genuineness of the transaction constituted 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. 44. The Ld. AR submitted that section 269SS was inserted by the Finance Act, 1984, w.e.f. 1st April 1984, which lays down the mode of taking and accepting certain loans and deposits. Section 269Ss reads as under: 269SS -Mode of taking or accepting certain loans and deposits No person shall after the 30th day of June, 1984 take or accept from any other person, any loan or deposit otherwise than by an account payee cheque or account payee draft if (a) The amount of such loan or deposit or the aggregate amount of such loan and deposit or (b) On the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid. (c) The amount or the aggregate amount referred to in cl. (a) together with the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(A). 47. We have heard both the parties and perused the record. The Ld. AR placed much reliance on the order of the ITAT, Hyderabad 'B' Bench in the case of Citizen Co-operative Society Ltd. (supra). According to the Ld. AR, the assessee's case is squarely covered by the above order of the Tribunal. However, we are not in agreement with the Ld. AR on this point. In that case, the Tribunal gave a categorical finding that the assessee is in banking business. Being so, it was natural to accept deposits in the form of cash. The Ld. AR may not have noticed the categorical finding of the Tribunal in the case of Citizen Co-operative Society Ltd. vs. Additional Commissioner of Income Tax, cited supra in para 17 of the order. For the sake of clarity, we reproduce below para 17. 17. In the present case, assessee is subject to rules laid down by cooperative society Act and the assessee has been carrying out banking operation which are under audit of various authorities and therefore the assessee could not be put at par with the other cases of other concerns since the assessee have no control in respect of the amounts received from the customers in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees. Therefore, the provisions of sec.271D/271E to be viewed in the back ground of these aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities and in case of any default assessee is liable for having penalty besides cancellation of its licence. This is not the case with other assessees. Further, the assessee has to maintain confidentiality in respect of the information collected by it from its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessee. In spite of this, the assessee has furnished the information as available with it. Now if the address of the customers of the assessee found to be incomplete, this cannot form the basis for levying the penalty. There is no finding by the lower authorities that the assessee violated any guidelines issued by the Regulatory authorities. Usually, the bank was not required to go for detailed verification of addresses, whereabouts of its customers. There is no absolute obligation to assessee to make enquiries about the proposed customer so as to examine the genuineness/sources of the deposits. Bank usually rely in the introduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any income or to evade any payment of tax. Usually penalty will not be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation and that penalty will also not be imposed merely because it is lawful to do so. The imposition of penalty for failure to perform statutory obligation is only a discretionary power of the authority exercising judicial functions on consideration of all the relevant circumstances. If the assessee acted on genuine belief that penal provisions have no application to deposits and it applied only to other kind of assessees, then penalty could not be levied. As such, in present case, there exists reasonable cause in accepting the deposits in cash and paying by cash. Assessee may therefore be exonerated from the levy of penalty. However, in the present case, it is an admitted fact that the assessee is a society earning income from interest received on loan given to the members and also from the fixed deposits. Being so, it is an admitted fact that when the assessee has not received money as part of banking activity, the judgment of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated in the sections. It is well-settled that 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. In the light of this legal position, it is noted that there is no ambiguity in the language of s. 269SS and, therefore, we have no hesitation in holding that 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. If the contention of the assessee that no penalty is exigible because genuineness of transaction was not doubted, is accepted, it would lead to anomalous results. It is important to bear in mind that s. 269SS is not to judge the genuineness or otherwise of the credit entries appearing in account books. For this purpose the provisions of s. 68 have been incorporated which deal with unexplained credits appearing in assessee's books of accounts. The provision of s. 269SS are in addition to s.68 and not substitute of it. Both sections have their own separate field to operate in. When a transaction of taking loan o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount specified in the section, we are of the considered opinion that the CIT(A) was justified in confirming the penalty. We confirm the action of CIT(A) on that count also. 51. On the other hand, the assessee made an alternative plea that the assessee is lending money only to its members. Being so, applying the concept of mutuality, provision of section. 269SS cannot be applied. However, we find that this argument of the assessee is also devoid of merits. The Hon'ble Supreme Court had an occasion to consider this mutuality concept in the case of CIT v. Kumbakonam Mutual Benefit Fund Ltd. 53 ITR 241 (SC) wherein 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. He is entitled to receive dividend as long as he held shares. He did not have to fulfil any other condition. His position is in no way different from a shareholder in a banking company, limited by shares. Indeed, the position of the assessee is no different from an ordinary bank except that it lends m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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