DOREGULING PRIMARY AGRICULTURE COOPERATIVE SOCIETY LIMITED,MUNDGOD vs. INCOME TAX OFFICER,WARD-1, , SIRSI
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.Assessment Year : 2017-18
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC,
Delhi dated 30/04/2024 in respect of the A.Y. 2017-18 on the following grounds of appeal:
“1. The impugned penalty order dated, 01-02-2022 passed u/s 271D of the Act is passed in haste violating the principles of natural justice and opposed to the facts of the case. Hence, the same is void ab initio.
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Penalty u/s 271D
2.1. The learned AO as well as the learned CIT(A) failed to appreciate that penalty u/s 271D cannot be levied mechanically.
(i)
Without considering the surrounding facts of the case in right & proper perspective.
(ii)
Without considering the grounds taken
&
submissions made by the assessee.
(iii)
Without appreciating that section 269SS is not attracted to the deposits received from its members, who are agriculturists.
(iv)
Without considering the submissions and the principles laid down in the relied upon cases.
(v)
Without considering the intent of Circular of the CBDT dated, 25-03-2004 which has directed not to levy the penalty u/s 271D/271E indiscriminately against the co-operative societies and keep the provisions of section 273B in view which mandates that the penalty should not be levied if there is a reasonable cause.
2. In the light of the above, the learned CIT(A) erred in sustaining the penalty of Rs. 85,06,510/- levied u/s 271D of the Act.
The grounds are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon’ble Tribunal.
For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon’ble Tribunal may be pleased to allow the appeal in the interest of the equity and justice.”
The appeal has been filed by the assessee before this Tribunal with a delay of 73 days and the assessee had submitted the reasons in the delay condonation affidavit and we have perused the reasons and satisfied that the assessee has a valid reason for not presenting the appeal before this Tribunal within the period of limitation. We therefore condone the said delay of 73 days in filing the appeal before this Tribunal.
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Now we will take up the main appeal filed by the assessee for adjudication.
The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act and filed their return of income on 24/06/2017 and declared a Nil income. Thereafter, the case was selected for scrutiny under CASS and assessment was completed u/s. 143(3) of the Act by accepting the return of income filed by the assessee. At the time of assessment proceedings, the AO on verification of the cash book, found that the assessee had accepted deposits of Rs. 20,000/- and above by cash for which the AO had initiated penalty proceedings u/s. 271D of the Act for the alleged contravention of 269SS of the Act. The assessee filed their reply to the notices issued by the AO and contended that the deposits are received only from the members of the society and not from the any other person to attract the provisions. Further, the assessee submitted that the deposits made by the members could not be treated as loan or deposit in order to attract section 269SS of the Act. The assessee also relied on the order of the Hon’ble Hyderabad Tribunal reported in (2010) 41 DTR 305 (Hyderabad) in the case of Citizen Co-operative Society Ltd. vs. Addl. CIT. The AO not accepted the explanation offered by the assessee for the reason that the assessee had not shown that there is any business exigency to accept the loans / deposits in cash. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and once again explained the details and prayed to allow the appeal. The Ld.CIT(A) also dismissed the appeal on the very same ground that the assessee had not proved the business exigency to accept the loans / deposits in cash from the members. As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR brought to our notice that the assessee had properly explained the facts but in spite of that the AO had confirmed the levy of penalty for the reason that the assessee had not Page 4 of 18 produced any cogent material or evidence to show that there is any business exigency on the part of the assessee to accept the loans / deposits in cash.
The Ld.AR further submitted that the violation mentioned in section 269SS would not be attracted in the present case since the assessee received the deposits from the members and whose identity is verifiable and also contended that the deposits are not made from any other person not connected with the assessee. The Ld.AR further submitted that even though the assessee had relied on the order of the Hon’ble Hyderabad Tribunal, both the authorities had not discussed anything about the same which is also on the very same set of facts found in the present case. The Ld.AR also produced the copy of the reply filed by the assessee along with the acknowledgement and the acknowledgement for filing the return of income, statement of income, consolidated balance sheet as on 31/03/2017, consolidated profit and loss account for the year ended 31/03/2017, receipts and payments account for the year ending 31/03/2017, the audit report in form 3CA and 3CD. The Ld.AR therefore prayed to allow the appeal since the levy is not any tax but only penalty. The Ld.DR relied on the orders of the lower authorities and submitted that it is a fact that the assessee had received deposits more than Rs. 20,000/- in cash and therefore they have committed the violation as prescribed in section 269SS of the Act and therefore penalty u/s. 271D is rightly levied and confirmed by the authorities.
We have heard the arguments of both sides and perused the materials available on record.
First we will peruse the reply filed by the assessee to the show cause notice issued by the AO which is as follows:
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8. Along with the reply, the assessee had also enclosed the KYC details such as copies of PAN Card, Aadhaar Card for due verification of the assessing officer. As seen from the reply filed by the assessee, we are able to found that the assessee society was formed only for the welfare of the Tibetian immigrants who have fled to India during 1959-1960 because of the repression made by the China. The society is mainly engaged in providing credit facilities to its members who are all Tibetians and who are all carrying on the agricultural activities. The members of the society are also carrying on the business of animal husbandry and sweater business and they are not able to interact with the locals because they are alien to the local language and the culture of India. The members carried on their activities inside the settlement area. The members are all non-residents of India living in the refugee camp established under the Registration of Foreigners Rule 1939. Because the members of the society are all non-residents and not well versed with the local language, they are not able to transact with the bank located in their camp. Further, the members of the society were also not able to open bank accounts for want of some records. In such circumstances, the members would feel free to transact with the assessee society since the assessee society is also headed by a Tibetian.
On considering the above said facts, we are of the opinion that the assessee society is not on par with the other societies and its members. Because of the necessity, the members would deposit their earning in their account maintained in the society and get interest from that. It is not the case of the AO that the assessee had received deposits from third parties who are all not connected with the society but the AO himself had accepted the fact that the deposits are made only by the members and also furnished the details of the members. Therefore in the present case, the amounts received in cash could not be treated as a violation to attract penalty u/s., 271D of the Act.
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10. Further, we have also considered the intention for inserting section 269SS and the corresponding penalties which is as follows:
“ the CBDT has explained the object of introduction of s.
269SS by the Finance Act, 1984, in its Circular No. 387, dt. 6th July, 1984, (1984) 43 CTR (St) 3 : (1985) 152ITR
(St) 1 thus :
'Unaccounted cash found in the course of searches carried out by the IT Department is often explained by taxpayers 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 enables taxpayers to explain away unaccounted cash or unaccounted deposits, the bill seeks to make a new provision in the IT Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where 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
(whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000
or more. The proposed prohibition would also apply to cases where the amount of such loan or deposit together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.”
Therefore it is clear that the legislature had inserted the provisions only to curb the tax evasion whereby huge transactions are made outside the books of accounts by way of cash. This circular is cited in the order of the Hon’ble Hyderabad Tribunal which was relied on by the assessee. In the present case, there is no iota of evidence to show that the cash transactions made by the assessee is to evade any payment of tax or concealment of income. In fact all the deposits are made by the members which was duly recorded in the books of accounts of the society. Therefore, the cash
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received from the members could not be equated with the cash received from any other persons. Further, the assessee society is established only for the welfare of the Tibetian refugees and the AO had accepted the return of income filed by the assessee u/s. 143(2) of the Act without making any additions to the returned income. It shows that the assessee is properly maintaining the books of accounts and no concealment of income was there during the course of their activities. If the assessee had received the cash more than Rs. 20,000/- from any other persons, it can be treated as a violation and therefore penalty could be imposed u/s. 271D of the Act. The financial statements filed by the assessee would also exhibits that everything received by the assessee had been properly accounted for, audited by an independent auditor and also by the auditor appointed by the