PRAKASHBAPU PATIL GRAMIN BIGAR SHETI SAHAKARI PATH SANSTHA LTD SANGLI ,SANGLI vs. ACIT, CIRCLE- SANGLI, SANGLI

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE “B” BENCH : PUNE

BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

I.T.A. NO.1099, 1100 & 1101/PUN/2024 Assessment Years 2013-2014, 2014-15 & 2015-16

Shri Prakashbapu Patil The ACIT, Circle, Gramin Bigar Sheti Nishant Colony, Sahakari Path Sanstha Ltd. vs Sangli, Miraj, Kupwad Savali Miraj, Sangli. SANGLI. PIN – 416410. Maharashtra. Maharashtra. PAN AAAAP1616N (Appellant) (Respondent)

For Assessee : Smt. Deepa Khare For Revenue : Shri Arvind Desai, Addl. CIT-DR

Date of Hearing : 04.09.2024 Date of Pronouncement : 06.09.2024

ORDER PER SATBEER SINGH GODARA, J.M.

These assessee’s three appeals for assessment years

2013-2014, 2014-15 & 2015-16, arise against the National

Faceless Appeal Centre [in short the “NFAC”] Delhi’s as many

Din and Order No. ITBA/NFAC/S/250/2024-25/

1063943233(1); 1063998405(1) and 1064023134(1) dated

05.04.2024, 09.04.2024 and 27.09.2022, in proceedings

u/s.271 of the Income Tax Act, 1961 (in short “the Act”);

assessment year-wise, respectively.

Heard both the parties. Case files perused.

the first and foremost assessment year 2013-2014 herein

raises the following substantive grounds :

penalty u/s 271D of the Income Tax Act of

Rs.1,01,75,465/- in respect of deposits from its members. 2. The Id CIT(A) failed to appreciate that the appellant Society

is based in rural area and most of the members are

illiterate and agriculturists having transactions below Rs

20000/-. 3. The learned CIT erred in law and on facts in not

appreciating that the appellant Society was engaged in the

providing credit facilities and the transactions were

genuine carried out during the ordinary course of business

and was prevented by reasonable cause within the

meaning of Section 273B. 4. The appellant craves to add, alter, modify or substitute

any ground of appeal at the time of hearing.”

assessee pleads identical substantive grounds in the latter

twin appeals ITA.Nos.1100 and 1101/PUN/2024 since the

only exception therein is that of quantum of sec.271D

penalties levied by the lower authorities.

learned lower authorities have levied sec.271D penalties in

assessee, a cooperative society(ies)’s case; on the ground that

it had taken cash deposits from it’s members; which in turn;

violated the specified mode u/sec.269SS of the Act.

the impugned penalties that the assessee has not been able to

plead and prove any reasonable ‘cause’ within the meaning of

sec.273B of the Act so as to rebut the penal provision in

question.

is that since it is a cooperative society accepting and offering

credit facilities in relation to it’s members who are not served

by the banking facilities; there duly exists a reasonable cause

in accepting the deposits from the said members. Learned

counsel sought to buttress the point that this is not even the

Revenue’s case that all of it’s members are those in question

had been having regular bank accounts so as to comply with

the rigor of sec.269SS of the Act.

foregoing rival stands against and in support of sec.271D

penalties. It transpires during the course of hearing that this

tribunal’s coordinate bench’s order Bapujibuwa Nagari

Sahakari Pat Sanstha Maryadit, Pune vs. JCIT

ITA.No.946/PUN./2017 dated 17.02.2021 has held that the

impugned penal provision would not apply in such an instance

of a cooperative credit society accepting cash deposits from it’s

members as under :

“16. We have heard the rival contentions of both the

parties and perused the materials available on record. In

the present case, the dispute revolves around the

provisions of Sec. 269SS of the Act. The provisions of

section prohibit an assessee to accept from any other

person any loan or deposit exceeding Rs.20,000/- or more

otherwise than by an account payee cheques or an

account payee bank draft. In the present case, the

assessee being the co-operative bank has accepted

deposits in cash exceeding Rs.20,000/- from its members

which was prohibited under the provisions of section

269SS of the Act. The assessee did not dispute the

applicability of the provisions of section 269AA but

contended that the mistake was committed under the

bona-fide belief and thus, sought the immunity under the

provisions of section 273B of the Act.

prescribes that penalty shall not be imposable for any

failure referred to in Sec.271D of the Act, if the assessee

proves that there was reasonable cause for such failure.

Therefore, in the instant case, what is required to be

examined is as to whether the assessee had a reasonable

cause for its failure to comply with the provisions of Sec.

269SS r.w.s. 271D of the Act. Admittedly, it was first

mistake committed by the assessee in the year under

consideration as evident from the affidavit filed by it.

Further, the Revenue in the assessment framed under

section 143(3) of the Act for the assessment year 2008-09

has not pointed out to the assessee for the contravention of

the provisions of section 269SS of the Act. All these

contentions of the assessee have not been controverted by

the authorities below. Accordingly, we can draw an

inference that the assessee has accepted the cash as deposits exceeding ₹20,000/- under the bona-fide belief.

In holding so, we draw support and guidance from the

order of this Tribunal in the case of Ratnagiri Jilha

Gramsevak Vs. ACIT in ITA.No.1348/PN/2014 dated

20.08.2014 wherein it was held as under:

“7. We have considered the rival arguments made by

both the sides. It is an admitted fact that the assessee Pat

Sanstha has accepted deposits exceeding Rs.20,000/-in cash in

contravention of the provisions of section 269SS for which

penalty of Rs.10,95,000/-has been levied by the Addl.CIT which

has been upheld by the CIT(A). It is the contention of the Ld.

Counsel for the assessee that such contravention of law was

under bonafide belief and after the same was brought to its

notice the assessee Pat Sanstha has stopped accepting any

deposit or repayment of the same by cash. We find an identical

issue had come up before the Tribunal in a group of cases

namely Chiplun Taluka Nagari Pat Sanstha Ltd. and others

vide ITA Nos.666 to 671/ PN/2009 and ITA No.710/PN/2009

order dated 30-06-2009. We find the Tribunal cancelled the

penalty so levied u/s.271D of the LT. Act by observing as under

:

ordinate Bench of this Tribunal in the case of Vishal

Purandar Nagari Sahakari Pat Sanstha Maryadit in

I.T.A.No. 1290/PN/ 2008 wherein vide its order dated

22-12-2008 this Bench of the Tribunal had upheld the

grievance of the assessee by observing and concluding as

under :

before us is that the assessee was, until pointed out

by the Assessing Officer in the assessment

proceedings, was of the bonafide opinion that the

provisions of Section 269SS do not apply on the

credit cooperative societies. He invites our

attention to the fact that even the tax auditor, who

is a qualified professional, did not point out any

non-compliance with the provisions of Section

269SS even though there is a specific disclosure

requirement in respect of the same. Our attention

is also invited to the fact that this violation of

section 269SS took place in the cases of a very

large number of credit cooperative society which,

by itself, would show that there was a widespread,

even if erroneous, belief that the provisions of

Section 269SS did not apply to the credit

cooperative societies. Learned counsel then cites

CBDT circular dated 25th March 2004 which is

takes note of the fact that, in the cases of credit

cooperative societies, the penalties under section

271D and 271E of the Income Tax Act are being

imposed in a large number of cases without

appreciating the genuine difficulties faced by them

in complying with these provisions and advises the

field officers that "penalties under section 271D

and 271E for violations of the provisions of Section

269SS and 269T, respectively, should not be

indiscriminately imposed" and "the provisions of

Section 273B should be kept in view before

imposing 8 penalties". Learned counsel submits

that the business of the credit cooperative society,

though admittedly distinct from that of a bank, is

somewhat akin to the cooperative banks as, for all

practical purposes, the business consists of

accepting deposits from members and giving

advances to the members. It was thus quite

possible for these societies to bonafide believe that

concessions available to the banking institutions

would indeed he available to these institutions. It

is further submitted that these credit cooperative

societies are run and managed by elected

representatives who are not necessarily highly

qualified or business people. Even the professionals

working for these institutions have bonafide

believed that the provisions of Section 269SS are

not applicable, as evident from the tax audit

reports, and, therefore, it is futile to expect that the

management of these credit cooperative societies

will necessarily be well equipped with legal

knowledge. In any event, as pointed out by the

learned counsel, Chairman of the assessee society

has given an affidavit to the effect that until it was

so pointed out by the Assessing Officer, he was not

aware about the applicability of, inter alia, Section

269SS on the assessee cooperative society. Learned

counsel also invites our attention to several

decisions passed by the coordinate benches which,

relying upon the Hon'ble Supreme Court decision

in the case of Motilal Padmapat Sugar Mills Ltd

Vs State of Uttar Pradesh (118 ITR 326), upheld

the ignorance of law as a reasonable cause for non

compliance with the provisions of Section 269SS.

Learned counsel thus urges us to delete the penalty

on the ground that the assessee was not aware

about the legal requirements under section 269SS

and thus he was of the bonafide belief that there is

no violation of law in accepting cash deposits and

making cash payments. Learned counsel submits

that this bonafide belief, on the facts of the case, is a

reasonable cause for the purposes of section 273B.

Learned counsel has also addressed us on some

other peripheral legal issues, but, for the time

being, we see no need to deal with the same.

Learned Departmental Representative, on the other

hand, objects to this submission Departmental

Representative, on the other hand, objects to this

submission mainly on the ground that there is no

material on record to evidence the assessee's claim

of bonafide belief. He vehemently submits that a

bland statement about bonafide belief cannot

suffice; it must be backed by some material and

evidence. It is also his contention that post

Dharmendra Textile decision by the Hon'ble

Supreme Court, which holds penalty under section

271(1)(c) to be a civil liability, the concept of

bonafide belief, which can at best be a reasonable

cause for non compliance, is redundant in the

context of penalties under the Income Tax Act,

1961. By way of a written note, he further submits

that ignorance of law and absence of men's rea is a

defence only in respect of individuals and group of

individuals, and it has no application in the

context of juridical persons like body incorporate It

is his contention that the assessee before us is a co-

operative society which is managed by duly elected

members with the help of professional executives,

and, therefore, plea of ignorance of law s not

available at all. It is also contended that "the

maxim ignorance of law is no excuse is spelt and

subsequent judicial explanation making exceptions

to the extent everybody is not supposed to know

the law were dealing with cases of individuals or

body of individuals. He further adds that 'reference

to any case law index would show a number of

penalties levied under section 271D and 271B have

been confirmed for not showing reasonable that "if

ignorance of law is accepted, it will be putting a

premium on persons knowing the law and render

penal provisions otiose and should be avoided

Learned Departmental Representative has

painstakingly taken us through a number of

judicial precedents dealing with the matters

relating to penalties. On the strength of, inter alia,

these submissions, he urges us to confirm the order

of the authorities below and decline to interfere in

the matter.

at considerable length. We have also perused the

material on record and duly considered factual

matrix of the case as also the applicable legal

position.

cooperative society. - pat sansthan, as it is known

in the vernacular language. These pat sansthans

are quite a common phenomenon in this part of the

country and they render services, which are

somewhat close to the services usually rendered by

the cooperative banks, in the sense they accept

deposits from the members and give loans to the

members. These institutions usually work at the

level of talukas and moffusil towns. There is no

doubt that these are not banks and are not

permitted to carry out the banking business, but it

is also true that there is a fair degree of similarity

in the services rendered by these credit cooperative

societies and cooperative banks. In these

circumstances, the bonafides of assessee's belief for

being entitled to the same treatment as banking

institutions cannot be rejected outright. This is

surely an incorrect view, but when an authority is

examining an explanation in the context of a

penalty proceedings, all that the authority has to

see is whether or not such an explanation stands

the preponderance of probabilities, and whether

there are any inconsistencies or fallacies in such an

explanation which demonstrate that the

explanation is a make believe story.

position adopted by the assessee is correct or not

cannot be the only basis on which penalty matters

are decided, or else there is no need for any hearing

once the lapse on the part of the assessee is

established, nor can section 273B have any

relevance in such a situation. It is important to

bear in mind that section 273B comes into play

when the assessee has committed a lapse but the

assessee can demonstrate that there was reasonable

cause for having committed that lapse. The facts

relating to the factors leading to a lapse can only be

known to the persons committing that lapse are

best in the knowledge of person committing the

lapse, and, therefore, the onus on him to elaborate

the same. However, it is inherently impossible for

anyone to substantiate, with cogent evidence and

material - as being insisted by the best in the

knowledge of person committing the ase, and,

therefore, the onus on him to elaborate the same.

However, it is inherently impossible for anyone to

substantiate, with cogent evidence and material -

as being insisted by the learned Departmental

Representative, something like a bonafide, which is

a state of mind. All that can be done in such a

situation is to explain the circumstances and

factors leading to such a belief, and, in our

considered view,

whether or not ignorance of law can be an

acceptable explanation, and whether such an

explanation can be acceptable for individuals or

groups of individuals alone - and not juridical

persons. This issue is now well settled by the

Hon'ble Supreme Court in the case of Motilal

Padmapat Sugar Mills (supra) wherein Their

Lordships have observed that “…it must be

remembered that there is no presumption that

everyone is presumed to know the law. It is often

said that everyone is presumed to know the law,

but that is not a correct statement, there is no such

maxim known to law", and interestingly these

observations were made in the context of an

artificial juridical person, Le a company. Referring

to these observations of the Hon'ble Supreme

Court, a co ordinate bench of this Tribunal, in the

case of Sudershan Auto and General Finance Vs

CIT (60 ITD 177), observed as follows"

"The ignorance of law may or may not

constitute a valid excuse for justifying with a

provision of the statute. It will depend upon the

nature of default. If it is merely technical or venial

breach, no penalty would be impossible because the

levy of penalty would necessarily implies existence

of some guilty intention on the part of the defaulter

or the offender. In order to determine the existence

or absence of guilty intention on the part of the

assessee, one will have to consider all the

surrounding facts and circumstances. Whether by

committing default of non compliance with a

statutory provision of law, an assessee has derived

benefit, gain or advantage, whether by such a

default or non compliance the assessee has

defrauded the Revenue or caused any loss to the

revenue ? These are some of the factors which will

have to seriously considered before considering the

fact as to whether ignorance of law on the part of

the assessee or his consultant can constitute valid

excuse or reasonable cause for the purpose of

Section 273B......"

views so stated by the co ordinate bench. Viewed in

this perspective and bearing in mind entirety of the

case, as also the fact that the Assessing Officer has

in some of the cases accepted the same explanation

in the other years, we are of the considered view

that the explanation of the assessee deserves to be

accepted. It was a widespread, even if erroneous,

belief that the provisions of Section 269 SS do not

apply to the credit cooperative societies, and it is

also evident from the fact that even the CBDT has

taken notice of imposition of resultant penalties in

large number of cases, and issued a circular

highlighting that these penalties should not be

imposed indiscriminately and without considering

the scheme of Section 273 B. Such a widespread

belief, by itself, can be viewed as a reasonable cause

for assessee's bonafide belief.

that it is not a case where even after the assessee

after having come to know of the correct legal

position due to income tax department's action

against him continues to follow the same practice.

Once the assessee comes to know as to what is the

correct legal position or at least the revenue's

stand on that issue, there is no question of his

having bonafide but incorrect belief about the legal

position. That is a different situation and we are

not at all concerned with such a situation in the

present case. This decision cannot have any

precedence value in such a situation.

the grievance of the assessee and direct the

Assessing Officer to delete the impugned penalty.

The assessee gets the relief accordingly.

view already taken by the co- ordinate Bench in the

case of Vishal Purandar Nagari Sah. pat Sanstha

Maryadit (supra) and uphold the grievance of the

assessees directing the Assessing Officer to delete

the impugned penalties in respect of all the

assessees before us. The assessees get the relief

accordingly.

of CIT Vs Bandhkam Khate Sevakanchi Sahakari

Patsanstha Maryadit wherein Their Lordships

have held that after position of law is brought to

the notice of the assessee the assessee has started

taking money by cheque, in such a situation

Tribunal's cancelling penalty u/s.271D and 271E

does not call for any inference. In the present cases

11 assessees have given affidavits to that effect.

Keeping this in view also the penalties indeed

deserve to be deleted".

7.1. Similar view has been taken by the

Tribunal in various other decisions filed in the

paper book by the Ld. Counsel for the assessee. We

find when in one of the cases the Revenue filed an

appeal before the Hon'ble High Court, the High

Court in the case of CIT Vs. Bandhkam Khate

Sevakanchi Sahakari Pat Sanstha vide ITA No.156

of 2009 order dated 18/03/2009 has dismissed the

appeal filed by the Revenue by observing as under :

"PC: In respect of the similar cooperative

society, we have dismissed the appeal and we have

taken a note that after the position of Law was

brought to their notice, they have started accepting

the money by cheque. Considering the above, there

is no merit in this appeal which is accordingly

dismissed".

7.2. The submission of the assessee before

the AddL.CIT that it has stopped accepting or

repaying the deposits in cash after the law was

brought to its notice could not be controverted by

the Ld. Departmental Representative. In view of

the consistent decision of the Tribunal in various

cases where penalty levied u/s.271D has been

directed to be deleted and further considering the

fact that the CIT(A) himself in various identical

cases has deleted the penalty levied u/s.271D for

which the Revenue has not filed any appeal before

the Tribunal, therefore, we are of the considered

opinion that it is not a fit case for levy of penalty

u/s.271D of the I.T. Act. We, therefore, set-aside

the order of the CIT(A) and direct the Assessing

Officer to cancel the penalty so levied u/s.271D of

the I.T. Act."

placed reliance on various judgments which are not being

reproduced here for the sake of brevity and convenience

but suffice to say that the transactions in question are

genuine and bona-fide which were undertaken during the

regular course of its business. Accordingly, in the light of

above discussion, it can be inferred that there was the

reasonable cause for non-compliance of the provisions of

section 269SS of the Act.

considered pragmatically and if the facts of the present

case are examined keeping this legislative spirit in mind,

we find that there were enough circumstances to show

that the assessee company had acquired bona-fide belief

that its activities are at par with the bank.

namely, the bona-fide belief of the assessee that the

transactions were exempted from the requirements of

Sec.269SS of the Act and, there being no material to show

that the transactions have been carried out with any

intention to avoid or evade taxes, in our opinion, the

assessee has been successful in showing that there was a

reasonable cause for his failure to comply with the

provisions of Sec. 269SS of the Act. Accordingly, the order

of the learned CIT(A) is set aside and the AO is directed to

delete the penalty imposed under Sec. 271D of the Act.”

mutandis to accept the assessee’s instant identical sole

substantive grievance challenging sec.271D penalties in very

terms. Ordered accordingly.

All other pleadings on merits stand rendered

academic.

& 1101/PUN are allowed in above terms. A copy of this

common order be placed in the respective case files.

Order pronounced in the open court on 06.09.2024

Sd/- Sd/- [INTURI RAMA RAO] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated 06th September, 2024.

Copy to

//By Order//

//True Copy//

Sr. Private Secretary, ITAT Pune Benches : Pune

S.No. Details Date 1 Draft dictated on 04.09.2024 Sr.PS 2 Draft placed before author 05.09.2024 Sr.PS Draft proposed & placed before the Second .09.2024 3 J.M. Member 4 .09.2024 A.M. Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS .09.2024 Sr.PS 6 Kept for pronouncement on .09.2024 Sr.PS 7 Date of uploading of Order .09.2024 Sr.PS 8 File sent to Bench Clerk .09.2024 Sr.PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order