DCIT, CIRCLE GANDHINAGAR, GANDHINAGAR vs. SHRI UMIYA CO OPERATIVE CREDIT SOCIETY LTD LINCH, GANDHINAGAR

“5.1.1 On plain reading of provisions of Section 269SS of the Act, it is noted that the provisions are very much applicable on the co-operative societies except co-operative bank. Further, meaning of co-operative bank has been laid down in explanation of section 269SS which is as under (ii) "Co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act 1949 (10 of 1949). 5.1.2 In the instant case, the appellant cannot be treated as co-operative bank. On a reading of section 3 read with section 56 of banking Regulation Act, 1949, the primary co-operative bank cannot be a primary agricultural credit society. As such co-operative bank must be engaged in the business I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 4 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. of banking as defined by section-5(b) of the banking regulation act, 1949 which means accepting, for the purpose of lending and investment, of deposits of money from the public. Also, u/s 22(1)(b) of the Banking Regulation Act, 1949, no co-operative society can carry on banking business in India, unless it is, cooperative bank and holds a license issued in that behalf by Reserve Bank of India. 5.1.3 The above is not the case of appellant and accordingly, provisions of section 269T of the Act was found to be applicable by the AO, in this case. 5.1.4 However, after considering the facts of the case, the explanation furnished by the appellant, and the judicial precedents relied upon, I am of the view that the appellant has satisfactorily demonstrated the existence of a reasonable cause under section 273B for accepting cash deposits/ loans from its members. 5.1.5 It is evident that the appellant, being a co-operative society, accepted such deposits in the regular course of its banking/credit activities from its member only, and all such transactions were duly recorded in its books of accounts. There is no material on record to suggest that the transactions were aimed at evading taxes or were otherwise non-genuine. 5.1.6 In light of the above and in respectful deference to the decision of Hon'ble Gujarat High Court which is the jurisdictional High Court in case of appellant, has decided the issue vide order dated 07.07.2022, in appeal bearing R/Tax Appeal No. 268 of 2022 in case of Principal Commissioner Income Tax, Surat 2 Versus Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd. Hon'ble Court had held as under: “16. We have considered the order passed by the CIT (Appeals) as well as the Tribunal vis-a-vis the penalty order passed by the Assessing Officer. The CIT(Appeals) and the Tribunal have rightly held that there is no intention/mens rea on the part of the assessee-Co-operative society to accept the cash deposit from its members in their accounts maintained by it similar to savings account maintained by the banks in view of the provision of section 273B of the Act, 1961 which reads as under: "Section - 273B: Penalty not to be imposed in certain cases Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 5 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. section 271F, section 271FA, 99[section 271FAB.] section 271FB, section 271G, 1[section 271GA,J 2[section 271GB,] section 271H, 3 section 271-1], 4[section 271J,] clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 2728 or sub- section (1) or sub-section (1A) of section 272BB or sub-section sub-section (1) of section 2 section 2728BB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 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.”

I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 6 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd.

5.1.8 In view of the above facts and above discussed judgements and following the judicial discipline I have no option but to accept the contentions of the appellant and decide the appeal in favour of appellant. Accordingly, appellant succeeds in appeal and the penalty levied upon the appellant is hereby deleted.”

(a) The Ld. CIT(A) has erred in law and on facts in deleting the penalty levied u/s 271D of the Act, without appreciating that the assessee, being a co-operative credit society (and not a "co-operative bank" as defined under the proviso to s. 269SS), is fully amenable to the restrictions of s. 269SS prohibiting acceptance of loans/deposits exceeding Rs. 20/000/- in cash, thereby rendering the transactions of Rs. 28,01,69,810/- in clear violation. (b) The Ld. CIT(A) has erred in law and on facts in holding the existence of "reasonable cause" u/s 273B of the Act, as the assessee failed to adduce any cogent evidence of bona fide belief or unavoidable circumstances; mere routine business activity or recording in books does not ipso facto exempt deliberate cash acceptances from statutory penal provisions aimed at curbing unaccounted money. (c) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.

4.1. Aggrieved against the appellate order cancelling penalty levied u/s.271E of the Act, the Revenue is in appeal before us in raising the following Grounds of Appeal:

(a) The Ld. CIT(A) has erred in law and on facts in deleting the penalty of Rs.27,32,46,775/- levied u/s 271E of the Act for violation of section 269T, without appreciating that the assessee, being a cooperative credit society (and not a cooperative bank), is not entitled to the exemption under the proviso to section 269T, thereby mandating compliance with the non-cash repayment requirement for amounts exceeding Rs. 20,000/-. (b) The Ld. CIT(A) has erred in law and on facts in holding that the assessee established reasonable cause u/s 273B for the cash repayments totaling Rs.

I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 7 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd.

27,32,46,775/-, ignoring that mere recording of transactions in books and claim of 'regular course of business' does not constitute reasonable cause; no cogent evidence of unavoidable circumstances or bona fide belief in exemption was furnished by the assessee. (c) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.

6.1. On appeals before first appellate Authority, Ld. CIT(A) correctly invoked the provisions of Section 273B of the Act, Considered the explanation offered by the assessee society that the cash received from its members of the Co-operative Society as subscription, I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 8 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. deposit and loan repayment which were deposited in its Dena Bank Account which are clearly reflected in the books of accounts maintained by the assessee society and also in the return of income filed by the assessee. Thus the Ld. CIT(A) found that reasonable cause and thereby deleted the penalties following Jurisdictional High Court judgment which was confirmed by Hon’ble Supreme Court by dismissing the SLP filed by the Revenue. Therefore the orders passed by the Ld. CIT(A) does not require any interfere and the Revenue appeals are liable to be dismissed.

7.1. It is seen that the intention of the Legislature in enacting the provisions of sections 269SS and 269 T of the Act, were envisaged to apply to the loan/deposit accepted by a person for his own purposes and not keeping in mind cases like that of assessee society where the control and ownership remains with the person to whose credit money stand as a Member of the Society. The assesses like present is not obliged to question the source of deposit made by it's Members. Also, the Member can keep the deposit for a period which is according to their convenience. The amount has sometimes to be repaid by the assessee society to its Member immediately on demand. These features distinguish the case of the assessee society from other ordinary assessees. Therefore, the provisions of sections 27ID/27IE are to be viewed in the background of these aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities, the deposits received by the assessee, which was carrying on the activities of Proving credits, were not in the nature-of taking of any loans or deposits for the purpose of funding its project as a source of investment, rather, it was in the business of accepting deposits that in view of the nature of such business, the scrutiny deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc. to be used for its own investment The Authority vested with the power to impose penalty also has discretionary power not to levy the penalty. It is also to be noted I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 10 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. that there is no addition on account of these impugned deposits when the assessment was reopened which was dropped, thus it means that deposits are considered as genuine. Further the veracity of creditors is not doubted by the Revenue. The AO did accept the deposits as genuine. The breach of provisions of sections 269SS or 269T (if any,), occurred from a bona fide belief. Ex facie, it is a venial breach. The law takes no notice of trivialities.

7.2. Thus 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 society may therefore be exonerated from the levy of penalties. Thus a harmonious construction of the relevant provisions of sections 271D, 271E clearly reveals the use of expression ‘shall be liable to pay' and the provision of section 273B providing that no penalty would be leviable if the person concerned proves that there is reasonable cause for the said failure clearly indicates that these provisions give a discretion to the Authority to impose the penalty or not to impose the penalty. Such 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 ignorance of law cannot support the breach of a statutory provision, but the fact of such a technical break due to ignorance of the relevant I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 11 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. provisions of law or on account of bona fide belief, coupled with the fact that transactions in question are genuine and bona fide, transaction were undertaken during the regular course of its business will not result in levy of penalty under ss. 271D and 271E of the Act.

7.3. Thus in our considered view, the Ld. CIT(A) correctly invoked provisions of Section 273B of the Act and considered the reasonable cause thereby deleted the penalties levied u/s. 271D and u/s. 271E of the Act and also followed Jurisdictional High Court judgment in the case of Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd. which was confirmed by Hon’ble Supreme Court of India. Thus the grounds raised by the Revenue are devoid of merits and the same are liable to be dismissed.