INCOME TAX OFFICER, INDORE vs. SEWA SAHKARI SANSTHA MARYADIT TILLOR KHURAD, INDORE

आदेश / O R D E R

Per Paresh M Joshi, J.M.:

This is an appeal filed by the Revenue who is aggrieved by

order bearing Number ITBA/CSR/F/74/2024-25/1064064818(1)

dated 12.04.2024 passed by Ld. CIT(A) Under Section 250 of the

Act, 1961 (hereinafter referred to as the ‘Act” for sake of

convenience and ease). The relevant Assessment Year is 2015-16

and the corresponding previous year period is from 01.04.2014 to

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 31.03.2015. The aforesaid order of Ld. CIT(A) is hereinafter

referred to as the “Impugned Order”.

2.1 That the assessee is M/s Sewa Sahakari Sanstha Maryadit,

Village Tillore Khurd, Tehsil & District Indore, Madhya Pradesh

with status as “AOP”.

2.2 That it was noted by the Department of Income Tax that the

assessee had made repayment of deposit in excess of

Rs.20,000/- to various persons as per Audit Report to the tune

of Rs.1,03,15,781/- otherwise than account payee cheque or

account payee Bank Draft or through use of Electronic Clearing

System through a bank account.

2.3 That in pursuance to this information a penalty notice was

issued to the assessee on 08.04.2019 and date of hearing was

fixed for 23.04.2019 requiring the assessee to show cause as to

why penalty u/s 271E of the Act should not be imposed on them.

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 2.4 That the assessee in compliance to the aforesaid notice,

furnished a written reply on 23.04.2019 (Reply copy not in PB

nor in penalty order of Ld. A.O).

2.5 That in meanwhile because of change of the incumbent

officer yet another penalty notice u/s 271E on 01.10.2019 date of

hearing fixed on 11.10.2019 came to be issued to the assessee

calling upon them to show cause as to why penalty u/s 271E of

the Act should not be imposed upon them.

2.6 That the aforesaid notice dated 01.10.2019 was replied by

the assessee vide their reply dated 17.10.2019 wherein it was

contended by the assessee that by virtue of assessee being an

agriculture credit cooperative society it is not covered by the

provisions of 269SS/269T of the Act.

2.7 That the Ld. A.O in his penalty order dated 21.10.2019

ultimately held as under:-

“In these circumstances, the undersigned is satisfied that it is a fit case for imposing penalty u/s 271E for violating the provision of 269T of the Act. As the amount has been prescribed to be a sum equal to the amount of the loan or deposit (or specified sum) so taken or accepted, therefore, I hereby impose penalty of Rs.1,03,05,731/-. Issue notice of demand and challans accordingly”.

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 2.8 That the assessee being aggrieved by the aforesaid penalty

order of Ld. Joint Commissioner of Income Tax, Range-2, Indore

preferred first appeal before Ld. CIT(A) in terms of Section 246A

of the Act and which appeal by ‘impugned order’ was allowed in

favour of the assessee on basis of reasons specified therein.

The Revenue being aggrieved by the “Impugned order” has filed

the present appeal before us in terms of Section 253 of the Act

and has raised following grounds of appeal against the impugned

order in Form 36 which are as under:-

“1. The Ld. CIT(A) was justified in deleting the penalty u/s 271E of the Act levied by the Joint Commissioner of Income Tax, Range-2, Indore for violating the provisions of section 269T of the Act as the penalty levied after due examination and rejection of the claim of the assessee of being an agricultural credit co-operative society being covered by the provisions of 269SS/269T of the Act.” 3. Record of Hearing

3.1 The hearing in the matter took place before this Tribunal on

06.03.2025 when the Ld. DR for and on the behalf of the Revenue

appeared and has placed on record of this Tribunal a synopsis

containing pages 1 to 6. The Ld. DR interalia contended before

us that the “Impugned order” is illegal, bad in law and not proper

and therefore the same should be set aside by this Tribunal and

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 the penalty order of Ld. A.O dated 21.10.2019 should be

restored. It was contended that the order of Ld. A.O imposing

penalty u/s 271E for violating the provision of Section 269T is

correct as admittedly it is an undisputed fact that the

assessee’s own Auditor has pointed out the violation of Section

269T in their “Audit Report”. The assessee has not disputed

the “Audit Report” of their own auditor in any manner

whatsoever. Further the order of penalty passed by Ld. A.O

dated 21.10.2019 is well merited and speaking order where entire

gamut of relevant sections of Act dealing with imposition of

penalty u/s 271E for violation of Section 269T is well analysed

and considered. It was respectfully contended that the “Impugned

order” has totally disregarded the statutory provisions of law

which are mandatory in nature. By passing the “impugned

order” the Ld. CIT(A) has misinterpreted the law. The law is clear

and express u/s 269T and 271E wherein there is a complete

prohibition on repayment of deposit through modes other than

prescribed banking channels. That the Ld. CIT(A) in the

“impugned order” has erroneously placed reliance on judicial

precedents that are distinguishable on the facts and that the

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 same were totally in applicable to the facts and circumstances of

the present case. The most peculiar feature of the present case is

that the assessee did in fact repaid deposit contrary to the

statutory scheme under the Act which are mandatory in nature

and no leeway of any kind whatsoever is provided by the Act.

Hence under these peculiar facts and circumstances there is

perse violation of the Act in terms of Section 269T and hence

imposition of penalty u/s 271E is justified. The assessee is credit

cooperative society which is registered under Madhya Pradesh

Cooperative Societies Act 1960 and functions under the

umbrella of Indore Premier Credit Cooperative Bank. The

assessee society accepts deposits from its Members in cash and

provides loans to its Members in cash. It was observed by the

JCIT that the assessee had made repayment of deposits in

excess of Rs.20,000/- to multiple persons which was reflected

in the audit report aggregating to Rs.1,03,15,781/- through

cash i.e. through modes other than by account payee cheque,

account payee bank draft or Electronic Clearing System which is

in the direct contravention of Section 269T of the Act. The

assessee in reply to the show cause notice has failed to offer a

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 reasonable explanation and no plausible reason is mentioned

therein hence levy of penalty of Rs.1,03,15,781/- is justifiable

u/s 271E of the Act by Ld. A.O vide order dated 21.10.2019. The

Ld. DR has contended that in the “impugned order” the Ld.

CIT(A) has deleted the penalty. The Ld. DR has also contended

before us that Ld. CIT(A) in the impugned order by having

observed in para 5.1 that “It is an undisputed fact that the

appellant has repaid loans in cash amounting to

Rs.1,03,15,781/- violating the provisions of Section 269T”. It

is further observed by the Ld. CIT(A) in the impugned order at

para 5.2 that “Section 269T prohibits a persons from repaying

any loan or deposit exceeding Rs.20,000/- otherwise than by

an account payee cheque or account payee demand draft or

electronic & clearing system through a bank account”.

Therefore in view of these observation the Ld. CIT(A) ought not to

have deleted the penalty in the impugned order by placing

reliance on judgment of Hon’ble Rajasthan High Court in case of

CIT V/s Lokhpal Film Exchange (Cinema) reported in (2003) 304

ITR 172 (Raj.) and further has erroneously concluded that

assessee had demonstrated a reasonable cause for the

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 contravention. The Ld. DR pointed out that in Rajasthan High

Court judgment (supra) assessee was under a bonafide belief

that Tax Auditors had not highlighted any violation of Section

269SS/269T whereas in the stark contrast in the present case

the Tax Auditors have explicitly reported the violation in the

Audit Report. Thus assessee cannot feign ignorance of the

statutory provision. Ld. A.O in penalty order has recorded this

fact. Further claim of the assessee that repayment of deposit/

loans is an inherent business activity akin to a banking

function is untenable. The statutory scheme of Section 269SS

and 269T does not provide any blanket exemption to Credit Co-

operative Societies. The legislative intend behind these

provisions is to curb unaccounted cash transactions and the

assessee’s reliance on the banking analogy is legally

unsustainable. The assessee’s plea of a bonafide belief that

Section 269SS/269T were in applicable lacks merit. The Tax

Auditor’s explicit mention of the violation negates any claim of

bonafide ignorance. It is settled principle that ignorance of law

is not an excuse. The Ld. DR contended that assessee arguments

that no finding has been recorded in the assessment order for

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 imposition of penalty u/s 271E of the Act is incorrect and law

does not contemplate such a situation. Reliance on the

judgment of Apex Court in case of CIT V/s Jain Laxmi Rice Mills

(2015) 64 Taxmann.com 75 (SC) and decision of ITAT, Indore

Bench in case of RVT Technologies Ltd No. 275 to 277/Ind/2023)

are all wrong as statutory provisions of the Act are express

and clear. There are no ambiguities in the relevant Section of

the Act. Imposition of Penalty has no nexus with assessment

order. It is an independent power and proceedings are all

independent.

3.2 Per contra Ld. AR for and on behalf of the assessee

contended that notice(s) for the imposition of penalty U/s 271E

was first issued on 23.07.2018 by ITO 2(4), Indore (Page 21 of PB)

and that the same was perse without jurisdiction. It ought to

have been issued by JCIT as powers conferred are express.

Reminder letter dated 18.09.2018 (PB page 22) issued by ITO

2(4), Indore too is without jurisdiction and it ought to have been

issued by JCIT, as powers are expressly conferred upon him. In

a worst case scenario even if the show cause notice dated

23.07.2018 is taken into consideration as having been rightly

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 issued the penalty order dated 21.10.2019 is time barred by

virtue of Section 271E r.w.s 275(1)(c) which mandates that it

should passed within six months from completion of assessment

proceedings. In the instant case, the assessment order was

passed on 28.07.2017, whereas the show cause notice for penalty

u/s 271E was issued on 23.07.2018. This itself was beyond 6

months from the end of the month of passing assessment order.

Further penalty order was passed on 21.10.2019 which is beyond

2 years from passing of assessment order. The Ld. AR then

contended that on page 23 of the PB there is yet another notice

dated 08.04.2019 which was issued by Addl. Commissioner of

Income Tax, Range-2, Indore wherein the assessee was called

upon to show cause as to why the penalty u/s 271E should not

imposed upon them for contravening the provisions of Section

269T of the Act in as much as assessee has repaid/given loan of

Rs.1,03,15,781/- to various assessee’s/persons in cash and the

amounts is/are more than Rs.20,000/-. It was however

respectfully submitted that if date of this show cause notice i.e.

08.04.2019 which was no doubt issued by the competent

jurisdictional authority i.e. Addl.CIT then impugned penalty order

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 dated 21.10.2019 can be said to have been passed within the

time limit provided by Section 275(1)(c) of the Act. The Ld.

AR however contended that initial notice dated 23.07.2018

issued by ITO 2(4), Indore was perse without jurisdiction as ITO

is not Joint Commissioner. If time from this illegal notice is

reckoned, then the impugned penalty order dated 21.10.2019

though passed by JCIT is time barred by virtue of Section

275(1)(c) of the Act. It was next vehemently contended by the

Ld. AR that in the instant case in so far as assessment order is

concerned which is dated 28.07.2017 u/s 143(3) of the Act, the

income tax authorities are not competent enough to initiate

proceedings for penalty within the meaning of Section 269T and

Section 271E of the Act as no satisfaction is recorded in course of

any proceedings under the Act. Reliance was placed on the

judgment of Hon’ble Supreme Court of India in case of CIT V/s

Jain Laxmi Rice Mills case reported in (2015) 64 Taxmann.com

75 (SC) wherein it was held as follows:-

"As pointed out above, insofar as, fresh assessment order is concerned there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, in so far as penalty under Section 271E is concerned, it was without

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 any satisfaction and, therefore, no such penalty could be levied." (emphasis applied]

The Ld. AR has also placed reliance on judgment of this

Tribunal in case of RVT Technologies case ITA No. 275 to

277/Ind/2023 dated 30.04.2024 (Page 83-107 PB) wherein the

issue is covered. Further the Ld. AR during the course of the

hearing before this Tribunal in support of his contentions on

legality and validity of notice(s) issued by ITO first and later on by

the JCIT and so also the penalty order of Ld. Assessing Officer is

time barred has placed reliance on judgment of Hon’ble

Rajasthan High Court in case of JCIT Jaipur V/s Jitendra Singh

Rathore reported in (2013) 31 Taxmann.com 52 (Rajasthan). Per

contra Ld. DR has relied upon the judgment of Hon’ble Kerala

High Court in case of Griha lakshmi Vision v/s Addl CIT reported

in (2015) 63 Taxmann.com 116 (Kerala).

4.1 We now have to examine the legality, validity and

proprietary of the “Impugned Order” basis records of the case.

4.2 We have carefully perused records of the case and have

heard rival contentions.

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 4.3 We are of the considered view that broad issue which needs

our determination is whether in the given facts and

circumstances of the instant case (which we have set out herein

above) there must necessarily be a satisfaction recorded against

the assessee by Ld. A.O in the assessment order and/or in course

of any proceedings under the Act for initiating the penal

proceedings or not?

4.4 If answer to the above question is in affirmative whether

penalty order passed by Ld. Assessing Officer is Nonest ?.

4.5 We hold that in the assessment order dated 28.07.2017

passed u/s 143(3) of the Act by ITO 2(4), Indore in respect of

assessee there is not even a whisper on initiation of penalty

proceedings against the assessee u/s 271E of the Act. There is

no imputation or allegation of any type whatsoever against the

assessee. The Ld. Assessing Officer in the said assessment order

u/s 143(3) dated 28.07.2017 has held as under:-

“Relevant documentary evidences have been furnished during the course of proceedings. The details so furnished have been examined. After scrutiny of the return of income and details furnished by the assessee the returned income of the assessee is accepted. “Assessed Income :- Nil”

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 Now since in the impugned Assessment order dated

28.07.2017 there is no finding and/or satisfaction with regard to

acts, omissions or commissions on part of the assessee rendering

themselves liable for penal/penalty action and that therefore, the

penalty proceedings are separately being initiated against the

assessee, the very initiation of penalty proceeding vide

Notice dated 08.04.2019 by JCIT/Addl.CIT becomes illegal

and bad in law. Our view is fortified by the judgment of Hon’ble

Supreme Court of India in case of CIT v/s Jain Laxmi Rice Mills

reported in 64 Taxann.com 75 (SC) wherein in para 2 to 5

Hon’ble Supreme Court of India has held as follows:-

"2. The assessee carried out this order in appeal. The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity to the assessee. 3. After remand, the Assessing Officer passed fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated 26.02.1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated 23.09.1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 when that assessment order had been set aside, could still survive. 4. The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. 5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed." 4.6 We are also of the considered opinion basis judgment of this

Tribunal in case of RVT Technologies Ltd ITA No.275 to

277/Ind/2023 dated 30.04.2024 (Page 83 to 107 of PB) that

there must be a satisfaction to be recorded by Ld. A.O in the

assessment order for initiating the penalty u/s 271E of the Act

for default of Section 269T of the Act. The Bench of ITAT, Indore

had observed in the decision (supra) that for valid initiation of

penalty there must be a satisfaction recorded to that effect in the

assessment order and in the absence of any recording of

satisfaction in the assessment order proceedings initiated for

penalty u/s 271E of the Act are vitiated. Needless to repeat and

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 reiterate that in the instant case assessment order dated

28.07.2017 is silent on aspect of initiation of penalty proceedings

u/s 271E of the Act. This is thus a undisputed fact. We also

gainfully refer to another decision of ITAT, Indore Bench in case

of Umakant Sharma V/s JCIT dated 19.07.2023 in ITA No. 364

to 366/Ind/2022 which is also referred and relied upon in RVT

Technologies Ltd (supra) wherein in para 11 it is recorded that :-

" 11. Therefore, it is pre-requisite condition that the initiation of penalty 271D/271E of the Act, there must be assessment proceedings or proceeding arising from assessment order are pending in the case of the assessee. Accordingly in the facts and circumstances of the case and following the judgment of Hon'ble Supreme Court as well as Coordinate Bench of the Tribunal in case of Vijayaben G. Zalavadia us. JCIT (supra), we hold that the penalty levied u/s 271D of the Act without any assessment proceedings in the case of the assessee is not valid and liable to be quashed. We order accordingly”. 4.7 We have also gone through the latest judgment of Hon’ble

Rajasthan High Court dated 30th January 2025 in DB Civil Writ

Petition No. 1102/2025 in case titled Sunil Agrawal V/s Asst.

Commissioner of Income Tax, CC-4, Jaipur wherein Hon’ble

Division Bench wherein in Para 2,3,4,5,6,7,8,9,11&12 has

observed and recorded as under:-

“1. These writ petitions are being decided by this order as the facts and issues involved are same. Though in some of the cases penalty under Section 271D and in others under Section 271E of the Income Tax Act,

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 1961 (hereafter 'the Act of 1961') was imposed. The language of Section 2710 and Section 271E are analogous. For the sake of convenience, the facts are being taken from D.B. Civil Writ Petition No. 1102/2025.

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 7. The reliance on the reference made by the DCIT to ACIT on 01.08.2024 shall not enhance case of the department as the reference was after the conclusion of reassessment proceedings by the DCIT.

High Court. We however observe that Ld. DR has not brought on

record of this Tribunal any contrary decision to the effect that for

imposition of penalty u/s 271E there is no necessity of any

satisfaction to be recorded by Ld. A.O in the assessment order.

However as and by way of abundant caution we note and observe

that statutorily there is nothing in the statue with regard to

satisfaction to be recorded in the assessment order or in course

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 of any proceeding under the Act for initiating penalty u/s 271E of

the Act. But this Tribunal being subordinate to Hon’ble Supreme

Court and Hon’ble High Court have to necessary follow judicial

discipline and doctrine of precedent. Hence we respectfully follow

ratio of Hon’ble Supreme Court & Hon’ble High Court (supra).

4.8 We finally hold that in the present case no satisfaction is

recorded in the assessment order dated 28.07.2017 u/s 143(3) of

the Act and therefore imposition of penalty u/s 271E is illegal

and bad in law on this limited legal ground.

4.9 Consequently we dismiss the appeal of the Revenue.

5.1 In result appeal of Revenue is dismissed.

Order pronounced in open court on 11.03.2025.

Sd/- Sd/-

(BHAGIRATH MAL BIYANI) (PARESH M JOSHI) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore िदनांक /Dated : 11/03/2025 Dev/Sr. PS

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Sewa Sahkari Sanstha Maryadit ITA No. 327/Ind/2024 – AY 2015-16 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY

Senior Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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