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TMI Blog2023 (5) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on 24.04.2017 are liable to be quashed. Reasonable cause for violation of the provision of section 269SS and 269T - As assessee has discharged the onus which lay upon it to establish the existence of reasonable cause for violation of the provision of section 269SS and 269T of the Act. In our opinion, the explanation offered by the assessee before the Ld. JCIT/CIT(A) was reasonable but was discarded merely because they proceeded on the premise that breach of condition provided under section 269SS and 269T shall necessarily lead to penal consequences which understanding in our humble opinion is not in accordance with law. We, therefore, cancel the penalty levied under section 271D and 271E. Appeals filed by the assessee are allowed. - ITA Nos. 3107 And 3108/Del/2019 - - - Dated:- 26-4-2023 - Shri Shamim Yahya, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri C.S. Aggarwal, Sr. Advocate, Shri Ravi Pratap Mall, Adv., Ms. Pushpa Sharma, Adv., Shri Uma Shankar, Adv. And Shri Sandeip S Nagar, CA For the Department : Shri T. James Singson, CIT-DR ORDER PER ASTHA CHANDRA, JM The two appeals filed by the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional evidence which consisted of two volumes of Paper Book. Perusal thereof revealed that all the documents therein formed part of the records of the Revenue except pages 266 to 310 and 163 to 355 of Volume 1 which contained documents of a third party submitted by a disgruntled ex-member of the assessee society before Revenue authorities alleging that the assessee society has been acting fraudulently. The Ld. AR objected to the admittance thereof as none of the documents has any relevance to the appeal filed by the assessee before the Tribunal. Moreover, no finding has been recorded by the Revenue authorities nor there is any material on record to establish that the assessee has indulged in fraudulent activities. The Ld. DR was fair enough to submit that evidence not placed before the Ld. CIT(A) may not be admitted. After hearing the Ld. Representative of the parties and perusal of the material on record, we decline to accept the request of the Revenue for admittance of additional evidence and proceed to decide the appeal of the assessee on merits. 4. Perusal of the penalty orders dated 24.04.2017 reveal that on reference by the Ld. Assessing Officer ( AO ) vide letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation period provided under section 275(1)(c) of the Act. Vide write up dated 24.10.2018 submitted before the Ld. CIT(A), the assessee gave brief facts on the functioning and governing of the assessee cooperative society. It was pointed out that the decision of Hon ble Supreme Court in ADIT vs. AB Shanthi 255 ITR 258 (SC) relied upon by the Ld. JCIT actually supports the case of the assessee as the Hon ble Supreme Court observed therein that undue hardship is very much mitigated by the inclusion of section 273B. If there was a genuine and bonafide transaction and if for any reason the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bonafide reasons, the authority vested with the power to impose penalty has got discretionary power. The assessee also distinguished other decisions relied upon by the Ld. JCIT and emphasised that penalty cannot be imposed if there existed reasonable cause. 6.1 It was further submitted that the Ld. AO had not recorded his satisfaction about existence of conditions for initiation of impugned penalty proceedings before the assessment was concluded. In the absence of a clear finding as to violation of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the assesee, the assessment in its case in several preceding years have been completed under section 143(3) under complete scrutiny and impugned penalties have never been imposed on the assessee which confirmed the bonafide belief of the assessee that provisions of section 269SS/269T are not applicable to it. The Ld. AO in his order under section 143(3) dated 30.03.2016 did not record any adverse findings with regard to the deposits of the members and its repayment to them. 6.4 It was further stated that income of the assessee is exempt under section 80P. The Ld. AO/JCIT have not established that there was deliberate and intentional violation of the provisions of Section 269SS/269T in order to hide any income or to evade any payment of tax. Relying on the decision of Agra Bench of the Tribunal in DCIT vs. Akhilesh Kumar Yadav (2012) 26 taxmann.com 264 (Agra-Trib) it was submitted that the genuineness of transaction has not been doubted and involvement of unaccounted or black money has not been traced. Hence penalty for violation, if any, of the provisions of section 269SS/269T cannot be levied. 6.5 The assessee brought to the notice of the Ld. CIT(A) the need to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.1(B)........................The appellant has pleaded existence of reasonable ground on the following counts- (a) The transactions were genuine (b) That no penalties u/s 27ID or 27IE were ever initiated or levied in the earlier years and that the appellant s belief was bonafide. (c) On the basis of precedence in earlier years, no penalty u/s 27ID or u/s 27IE was to be initiated/levied. I have examined the appellant s pleas as aforesaid. The appellant s plea that such a penalty / violation not levied/detected in earlier years is not a valid argument for purposes of pleading a reasonable cause. It is established that the assessee -appellant has been violating provisions of section 269SS of the Income Tax Act, 1961. The appellant s plea tantamounts to saying that you did not catch my wrong doing and now you cannot do anything is not acceptable, as has been held by the Hon ble Supreme Court in the Case of Phool Chand Bajranglal {110 ITR 834(SC)}. Further, it has been held by Hon ble Supreme Court in the case of Distributors Baroda Pvt. Ltd. {155 ITR 120(SC)}, that to perpetuate an error is no heroism. Therefore, once an error / wrong doing is detected, the full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty in the a wrong name was bad), I hold that the original penalty proceedings were rightly brought to an end, The wrong notice (even without specifying the PAN of an assessee) is a defect which does not get cured even as per provisions of section 292B of the Income Tax Act, 1961. This is for the reason that penalty and penalty procedure have to be strictly construed/followed. Accordingly, I agree with Revenue Authorities that penalty proceedings in this case began with the fresh information received on 28.11.2016 and were therefore completed in time. The time bearing date was 31.05.2017 but penalty was levied on 24.04.2014 itself. In this view of the matter, I decide the issue of limitation against the assessee. 8. Aggrieved the assessee is in appeal before the Tribunal. The common Ground No. 1, 3, 4 in both the appeals relate to imposition of the impugned penalty which has been confirmed by the Ld. CIT(A) and Ground No. 2 relates to confirmation of the impugned penalty by the Ld. CIT(A) after the expiry of limitation period provided under section 275(1)(c) of the Act. 9. The Ld. AR submitted that the assessee is a co-operative society registered with the Registrar of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and to prevent the unaccounted income being brought in the books of account in the form of loans/deposits. In the case of the assessee, none of the deposits or repayments have been doubted or found to be ingenuine neither by the Ld. AO/JCIT/CIT(A). The Ld. AR asserted that the activities of the society are genuine, the transactions are genuine. Accordingly, the purpose for which these provisions were brought on the statute book does not apply to the assessee s case. Reliance was placed on several decisions including the decision of Delhi Tribunal in Farrukhabad Investment (I) Ltd. vs. JCIT reported in 85 ITD 230. 9.4 Stress was laid on the fact that the concept of mutuality in the case of Co-operative Societies has been recognised by the Hon ble Supreme Court in ITO vs. Venketsh Premises co-operative societies Ltd. (2018) 402 ITR 670 (SC) which is based on the theory that a person cannot make profit from himself. The assessee society is engaged in the activity of granting thrift and credit facilities to its members who are taxi operators from rural background. It is registered body and undertakes its activities in compliance to its bye laws duly approved by the Registrar o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusionary clause. 10.3 Refuting the argument of the Ld. AR that penalty cannot be imposed for technical / venial breach of statutory provision, the Ld. DR submitted that it has been observed by the Ld. CIT(A) that there is violation of statutory provisions of section 269SS and 269T which resulted in initiation of the penalty proceedings. 10.4 The Ld. DR assailed the argument of the Ld. AR that assessee is a cooperative society engaged in the business of banking providing credit facility to its member and as such neither section 269SS nor section 269T of the Act is applicable, relying on the definition of banking company and cooperative bank as per proviso and explanation (i) thereto. The very fact that from AY 2018-19 the assessee is no longer having transactions in cash establishes that there was violation of provisions of section 269SS and 269T prior to that assessment year without any reasonable cause. If the Revenue did not detect the said violation in earlier years it does not become a valid argument for pleading a reasonable clause. 11. We have carefully considered the rival submissions. We place on record our admiration for the efforts put in and pains taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiation of penalty proceedings take place? The answer is provided in the decision of the Hon ble Delhi High Court in PCIT vs. Mahesh Wood Products (P) Ltd. (2017) 394 ITR 312 (Del) wherein it is held that given the scheme of section 275(1)(c) the date of initiation of penalty proceedings would be the date on which Ld. AO wrote a letter to JCIT recommending the issuance of SCN. 14. In its submission vide letter dated 25.03.2019 before the Ld. CIT(A) the assessee submitted that during penalty proceedings the Ld. JCIT issued/served the following notices at the correct address to the assessee with slight variation in the name of the assessee. Sl. No. Notice u/s Notice Dispatch Ref. No. Notice Dated Issued by Fixed for Hearing on Reply submitted by assessee on 1. 274 r.w.s. 271D D. No. 38 05/05/2016 04.05.2016 Sh. Ashis Mohanty,JCiT, Range-60 16.05.2016 16.05.2016, 11.06.2016 07.07.2016 2. 274 r.w.s. 271E D. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the name of the assessee correctly but admittedly there was no mistake at all in the address of the assessee in SCN(s) issued by the Ld. JCIT(s) as pointed out above. It is not the case of the Revenue that SCN issued to the assessee by the Ld. JCIT on 04.05.2016 was not served upon the assessee. On being served the first SCN dated 04.05.2016 issued by the Ld. JCIT, the assessee acted upon it and submitted in response thereto as also to subsequent notices all the requisite details. Upto this stage there was no confusion in the mind of any of the stakeholders as to the validity of the initial SCN issued on 04.05.2016 by the Ld. JCIT on the basis of reference letter of the Ld. AO dated 28.04.2016 recommending issuance of SCN. Therefore, following the decision of Delhi High Court in Mahesh Wood Products (P) Ltd. (Supra), 28.04.2016 should have legally been taken as the date of initiation of penalty proceedings for the purpose of reckoning the period of limitation as per the provisions of section 275(1)(c) of the Act. Had it been so the limitation to pass penalty orders subsisted till 31.03.2017 or 31.10.2016 whichever expires later by which date the penalty orders should have been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of first SCN dated 04.5.2016 followed by subsequent notices dated 26.07.2016 and 29.09.2016. The Ld. CIT(A), however observes at page 65 of his appellate order that the penalty proceedings which had been initiated by issue of notice dated 04.05.2016 stood nullified as were other notices issued till 29.11.2016 for the reason that the earlier notices did not carry the correct name of the assessee and its PAN. The Ld. CIT(A) recorded the finding that such deficiency/defect does not get cured even as per provisions of section 292B of the Act. It is rather uncommon that the Revenue sought to use the provisions of section 292B against itself. 14.9 We observe from page 45 of the appellate order of Ld. CIT(A) that despite the fact that before the Ld. CIT(A) the assessee had argued relying upon the decisions mentioned below that minor defect/deficiency /irregularity in the notice, e.g. incorrect name and even incorrect PAN would not invalidate such notice, the Ld. CIT(A) chose to record his findings mentioned in para 14.8 above with which we are not inclined to agree:- i. Sky Light Hospitality LLP vs. ACIT (2018) 90 taxman.com 413 (Delhi) SLP dismissed in Sky Light Hospitality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) as also before us the reliance was placed on the decision of Hon ble Supreme Court in CIT vs. Jai Lakshmi Rice Mils (2015) 64 taxmann.com 75 (SC) and the decision of Hon le Delhi High Court in CIT vs. Rajender Kumar Somani (1980) 125 ITR 756 (Delhi) and decision of Bombay Tribunal in Kushu Ramsay vs. JCIT (2006) 5 SOT 9 (Mumbai). Ld. CIT(A) did not record any finding on this submission of the assessee. The Ld. DR, however, refuted the assessee s contention by saying that the assessment proceedings and penalty proceedings are two separate and independent proceedings not consequential to each other. Hence, satisfaction to be recorded in the assessment order is not required for initiation of penalty proceedings under section 271D and 271E of the Act. Due satisfaction was recorded by the Ld. AO while referring the issue to Ld. JCIT for initiation of penalty proceedings. We are of the view that controversy on the issue still continues and till it is finally put to rest, the penalty proceedings cannot be said to be vitiated on this ground alone. 17. The Ld. AR drew our attention to the rationale behind the introduction of section 269SS explained by the board in Circular No. 387 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and genuine belief that it being a credit thrift society could accept from its members sums in cash and advance to them such sums in cash and that there is no prohibition to do so. The assessee pleaded before the Ld. JCIT and the Ld. CIT(A) that for its default there existed reasonable cause within the meaning of section 273B of the Act. It was also the submission of the assessee that in none of the earlier years any contravention of the provisions of section 269SS and 269T was pointed out to the assessee by the Department. All these arguments/plea were not judicially acceptable to the Ld. JCIT/CIT(A) for the reason that once a wrong doing is detected, the full force of law has to be applied to remedy/rectify the situation/default. The Ld. DR also emphasised that the practice of cash dealings have been carried out by the assessee without any reasonable cause. 19. We considered carefully submissions of the parties. It is not in dispute that the assessee is a co-operative society which considers itself, though erroneously, to be engaged in the business of banking as it was providing credit facilities to its members right from inception. It is also an admitted position that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) it stated that the society works on the concept of mutuality and engaged in thrift and credit business, welfare activities of its members and employees and accepting deposits from its members and redeploying the funds by way of advancing loans to its members. It was further stated that as the nature of activities of the society is that of thrift credit/banking, the society has been classified under the Banking Section (as per Part V of the Banking Regulation Act, 1949) of the Co-operative Societies and the Assistant Registrar (Banking), Government of NCT, Delhi is supervising the activities of the society. 20.1 Before the Ld. CIT(A), drawing his attention to the provisions of section 273B of the Act, it was submitted that there is no finding in the assessment order that the transactions made by the assessee in breach of provisions of section 269SS or 269T were not a genuine transaction. Rather the penalties have been imposed stating that genuineness is no consideration, implying thereby that the genuineness of the transaction is accepted. The assessment order passed under section 143(3) after scrutiny of the books of account nowhere recorded any finding that the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng contained in the provisions of section 271D no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B. If there was a genuine and bonafide transaction and if for any reason the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bonafide reasons, the authority rested with the power to impose penalty has got discretionary power. 22. In Farrukhabad Investment (I) Ltd. vs. JCIT (2003) 85 ITD 230 (Delhi), the Delhi Bench of the Tribunal s observation applies squarely to the facts of the assessee s case. In para 46 of its order, the Tribunal observed that keeping in view the intent of the legislature behind enacting the above sections, we hold that the loans/deposits brought in by the assessee was not to explain its unaccounted cash and therefore, the question of violating the provisions of section 269SS/269T did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of section 269SS or 269T. On these facts which are akin to the case under consideration before us the Tribunal recorded the following findings and cancelled the penalty levied under section 271D and 271E of the Act :- In our opinion, belief on the part of the assessee in view of the past history of the case that deposit/repayment by its members in cash is bonafide belief. In the case of CIT vs. Lokpal Film Exchange (Cinema) (2008) 304 ITR 172, the Hon ble High Court held that the assessee had acted bonafidely and its plea that inter se transaction between the partners and the firm were not governed by the provision of section 269SS/269T, was a reasonable explanation and no penalty could be imposed. In view of the above, we are of the opinion that considering the bonafide and genuine transaction, reasonable cause in terms of section 273B of the Act, exist in the case of the assessee for not complying with the provision of section 269SS and 269T, and therefore, we cancel the penalty levied in terms of section 271D and 271E of the Act. 25. In the light of the above discussion and following the precedents we are of the view that the assessee has discharged the onus which l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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