TMI Blog2010 (2) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... agmatically and as it is transactions are openly done, to meet the exigencies of business, it can be said to constitute 'reasonable cause'. The bona fide business of transaction cannot be considered for levying the penalty u/s 271D or 271E. More so, the assessee has been carrying on the banking business and it is having bona fide belief that provision of sec.269SS/269T is not applicable to the assessee case and same is coupled with genuineness of the transaction constitute a reasonable cause and in such case the default on the part of the assessee is merely of a technical or venial nature and no penalty be levied. - ITA Nos. 1156 to 1159/Hyd/2009 - - - Dated:- 26-2-2010 - G.C. GUPTA, VICE-PRESIDENT AND CHANDRA POOJARI, ACCOUNTANT MEMBER S. Ravi and S. Rama Rao for the Appellant. Smt. Vasundhara Sinha for the Respondent. ORDER Per : Chandra Poojari, Accountant Member These four appeals preferred by the assessee are directed against the different orders passed by the CIT(A) -VI and pertains to the assessment year 2006-07 and 2007-08. The grounds raised by the assessee in these four appeals are common in nature and hence these are, clubbed together, heard tog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash of Rs. 20,000 and above by the assessee company. After considering the various objections of the assessee, the assessing officer levied penalty u/s 271D and 271E as below: Assessment year Penalty u/s 271D (in Rs.) Penalty u/s 271E (in Rs.) 2006-07 6,75,16,398 53,84,815 2007-08 8,23,03,665 3,54,54,830 4. The CIT(A) also upheld the order of the assessing officer. Further aggrieved the assessee is in appeal before us. 5, Submissions made by Authorized Representative of the assessee : 5.1 The assessee is a co-operative society, originally registered under the Andhra Pradesh Mutually Aided Cooperative Societies Act on 31.5.1997. Thereafter, the society on 26.7.2005, was registered in pursuance of the Multi State Co-operative Societies Act, 2002 and extended its operations to the State of Maharashtra and Karnataka. He drew our attention to the bye-laws as modified and as registered with the Multi State Co-operative Society Act. He submitted that all the clauses of the Bye-laws are in accordance with the provisions of the Multi State Cooperative Society Act, 2002. Clause 5 deals with the objects of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses xviii) To grant loans to members for acquire, to construct new houses or to maintain and alter building against the mortgage of such proposed building to be acquired existing building to be alter or maintained, xix) To provide financial and technical assistance to self employed persons for setting up their own business and finance the small scale and other industries as are permitted bye-laws xx) To enter into participation arrangement/arrangements with any other banks or financial institutions with the object of making loans and advances xxi) To undertake any other form of business which the central govt, may specify as a form of business in which it is lawful for co-operative institutions to engage. 5.3 The principal object is to promote the interest of its members by providing mutual aid. In the process, it (a) receives the amounts from its members (b) borrows the funds required from the specified sources (c) provides the same to its members and (d) depositing the amounts with permissible institutions. 5.4. The provisions of the above mentioned Act permit admission of Members who are entitled for dividend and Nominal Associate Members who are not entitled for divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that as seen from the above funds flow statement that the borrowings from other permissible sources are the most minimum compared to the total funds dealt in during the activity of the society. It can also be seen that the amounts deposited by the members of the society are utilized only for the sake of the members of the society and for maintaining the minimum cash and bank balances. The capital of the society is utilized for the fixed assets. The details of utilization of the funds would clearly indicate that the assessee is acting strictly within the objects of the society. It is working for the mutual benefit of the members of the society. In the process of its working, the society has several controls. There is an internal audit system and each branch will be inspected and the books of account of each branch will be audited. The Branches are managed by the Managers appointed for the purpose in accordance with the bye laws of the society. The General Body examines the activity of the society vis-a-vis the bye laws of the Society and the provisions of various Acts governing the activity of the Society. 5.8. The entire processes of the activities of the society are cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount received does not represent either loan or a deposit made but is an amount kept by a member of the mutual benefit. iv) According to the provisions of sec. 269SS any person governed by the Banking Regulation Act would be exempted from its operation. It was submitted that a harmonious reading of section 5(1) and Se.56 of the Banking Regulation Act 1949 would indicate that the cooperative society carrying on the banking activity is governed by the Banking Regulation Act. v) There was under the bona fide impression that the provisions of sec,. 269SS and 269T have no application in view of the following: i) the provisions of section 269SS have no application (a) in view of the purpose for which section 269SS is introduced in the act 9 and (b) the petitioner is governed by the Banking Regulation Act and is a deemed Banking Company for the purpose of Banking Regulation Act 1949. ii) The deposits are made voluntarily by its own members and they do not represent the loans taken or the borrowings. The amounts are kept only for the mutual benefit of the members, iii) From the details furnished above, it is clear that it is a mutually aided society for the benefit of the member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rban Co-operative Banks, 1992. The relevant extract is placed at Page No.37 to 43 of the Paper Book. He submitted that once an application is made, the society can carry on the banking business till such time the said application for recognition has been rejected by the appropriate authority. The assessee herein did not receive any communication from the appropriate authority rejecting such an application. The assessing officer relied on a clarificatory of the Reserve Bank of India copy of which was not given to the assessee herein. The assessee counsel further submitted that when the provisions of the Act and the clarifications are so clear any such clarificatory letter from Reserve Bank of India may not be relevant for the purpose. He relied on the judgement of Supreme Court in the case of Padmasundara Rao Others Vs. State of Tamil Nadu reported in 225 ITR 147 wherein Observed that 'it is well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. The first and the primary rule of constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that there is no mutuality among the members in the activities carried on by the assessee is incorrect. It is submitted that the assessing officer is not justified in mentioning that there is no mutuality. The assessee herein is a cooperative society carrying on the banking activity. The very object of its activity is to receive the amount from its members for being utilized for mutual benefit. The assessing officer is not justified in mentioning that is for mutual benefit of tax evasion. All its transactions have been recorded in the books of account of the assessee. The details of amount received, advanced to the members have been provided. From the inflow of the funds it is clear that the society is holding the capital fund, reserves and the deposits, all of which represent the amounts belonging to the members of the society. If the outflow of the funds is considered, most of the amount was advanced as loans to the members of the society besides keeping the required cash and bank balances to regulate the banking transactions. Therefore the society is purely mutually aided society working only for the benefit of its members. 5.16. The assessee's counsel submitted that its onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grand father 2. D. Haritha (V.N. Muneswar Rao) Mother Leelavathi 3. VV Swetha (VN Muneswar Rao) Grand father 4. K. Surya Varshith Laxmi Grand mother (Vijaya) Firms associations, societies represented by Members: 1. Sri Sai Cooperative Society Ltd. Rao MD A.L.N.S. Prakash 2. Maruthi Mutually Aided Cooperative Chairman (Credit society) G. Venkat Rao 3. State Government Pensioners Family Welfare Association (Secretary) N. Laxminarayana 4. Sri Venkateswara Constructions Y. Jeevan Kumar, Managing (Partners) 5.19. He submitted that the reliance placed by the assessing officer on the judgement in the case of ADI (Inv.) Vs. AB Shanthi (255 ITR 258) is misplaced. The said decision was rendered by the Apex Court with regard to the constitutional validity of setion 269SS. The Apex Court observed that the provisions of sec. 269SS are to ensure that a tax payer is not allowed to give false explanation for his uncounted money. The income from its business is exempt from tax. There is no requirement for the assessee herein to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer mentioned that apparently some of the persons who have kept the amount are depositing their unaccounted money with the assessee. It is submitted that from the list of cases referred to by the additions were made on annexure-I to assessment order, it can be seen that the additions were made on the ground that the members did not admit interest and in some cases the exemptions claimed are not allowable. All the persons who are contacted by the department accepted the fact that they made deposits with the assessee which clearly shows that the deposits are genuine. It may be necessary to mention that the deposits are accepted by the Managers at various branches. The entire activity is taken care by the said Managers. 6.1. The assessing officer is of the view that the assessee herein is not covered by any regulations Banking Regulation Act. The assessee 's counsel submitted in the above is governed by the Banking Regulation Act and the provisions of sec.269SS and 269T have no application. 6.2. The assessing officer mentions that the assessee did not stop the activity of receiving the deposits in cash. In this regard, the assessee 's counsel submitted that the society is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. 6.4. Thus, it was submitted that the provisions of 269SS or 269T have no application to the facts of its and case and even otherwise, the assessee was under the bona fide impression that such provisions are not applicable to the society. 6.5. Finally, he drew our attention to the following documents: 1. Letter dated 10.10.1997 addressed to the Chief General Manager, Urban Bank Department, Reserve Bank of India, Mumbai. 2. Postal acknowledgement indicating that the letter was received by the Chief General Manager, Urban Banks Department. Reserve Bank of India, Mumbai on 24.10.1997. 3. Copy of Resolution No.9 of the meeting of the board of directors of the assessee society dated 16.10.1997 wherein the board resolved to convert the existing cooperative society into Urban Cooperative Bank and to request Reserve Bank of India for issuance of licence. 4. Letter dated 19.10.1997 addressed to CGM, Urban Banks, Reserve Bank of India, Mumbai 5. Postal acknowledgement indicating that the letter was received by CGM, Urban Banks, Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mentioning that the letter addressed to them was not received by them. 8. The Addl. CIT also obtained a letter from Reserve Bank of India who mentioned that the assessee society is not categorized as a cooperative bank and that cooperative society is not covered by Chapter V of Banking Regulation Act 1949 and not covered under the regulations of Reserve Bank of India. The assessee submitted a copy of the news report appeared in the Business standard as the news dt. 17.9.2009. The Reserve Bank of India requested all the Registrars of Cooperative Societies to restrict the individual shareholding in any Urban Cooperative Bank to 5% of the total paid up share capital and also further mentioned that the Reserve Bank of India requested the state governments not to register any new primary credit societies with a provision for acceptance of public deposits. 9. It has further requested the state governments not to register any new primary credit societies with a provision for acceptance of public deposits. This is because such cooperative society automatically become eligible to act as cooperative banks under the Reserve Bank of India when their paid up share capital and reserves ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative bank' to be multi state cooperative societies which undertakes banking business. The assessee herein is registered as a multi state cooperative society under the Act. The sub section is as under: Extract of S.2(f) 'cooperative bank' means a multi state cooperative society which undertakes banking business. Therefore, under the said Act, the assessee herein is a cooperative bank as it is carrying on banking business and it is a multi state cooperative societies . The registration and licensing of new urban cooperative bank, the Reserve Bank of India has appointed a committee in Sept. 1997. Later it has appointed another committee in Sept. 1991 with SS Marathe, as the Chairman. According to the procedure involved, at para 3.02 Chapter 3 of the committee's report, the following observation is made: 'Primary credit societies are allowed to accept deposits from the public, call themselves as banks and use the word 'bank', 'banker', 'banking' as part of their names. They do not come within the purview of the Banking Regulation Act 1949 (as applicable to cooperative societies ), the Reserve Bank of India does not exercise any control over the working of such societies. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the completion of the inspection process. In case, the application for issue of a licence is rejected by the Reserve Bank of India the concerned primary cooperative bank should itself discontinue the banking business. In case such initiative is not forthcoming, the cooperative department of the state concerned may invoke the powers vested in them and expedite the process'. 12.1. The assessee's counsel further submitted that even the provisions of section 22 of the Banking Regulation Act as applied to the cooperative societies in view of the provisions of sec.56(o) of the said act reads as under: (i) for sub sections (1) and (2) the following sub sections shall be substituted, namely: 1. Save as hereinafter provided, no cooperative societies shall carry on banking business in India unless: a) it is a primary credit society or b) it is cooperative bank and holds a lincece issued in that behalf by the Reserve Bank of India subject to such conditions, if any, as the reserve bank may deem fit to impose: Provided that nothing in cl.(b) of sub section (1) shall be deemed to prohibit: 7. a cooperative society carrying on business as a cooperative bank at the commencement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls from the Reserve Bank of India. However, the assessee submits that in view of the provision to sec.22 it is clear that a primary credit society cannot be prohibited from carrying on the banking business simply because the licence was not granted by Reserve Bank of India. The assessee is a cooperative bank because of the definition of cooperative bank under the Multi State Cooperative Societies Act, 2002. The assessing officer is of the view that as per section 22 no cooperative society can conduct banking business unless it is a cooperative bank and hold licence issued in that behalf by the Reserve Bank of India. The proviso to sec.22 as extracted above mentions clearly that a cooperative society cannot be prohibited from carrying on business for the reasons that it is not granted a license or it is notified by Reserve Bank of India that license cannot be granted to it. As mentioned by assessing officer, to sec.5(l)(i) (ccv) of the Banking Regulation Act the bye laws of a cooperative bank shall not admit any other cooperative society as member and that in the case of the assessee, the assessee has accepted deposits from other cooperative societies by treating them as nomin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (i) the activity of receipt and payment of deposits was being made through out from its inception and at no stage none of the authorities objected to the carrying on such activity and therefore the assessee was under the bona fide impression that it is not governed by the provisions of sec.269SS or 269T. 13.3. The assessee submitted that the savings made by the members of the society and which were withdrawn as per their requirement. The cooperative society is only pooling the funds of the members and is utilizing among the members. Therefore, the amounts received and paid are not in the nature of loans or advances received or paid by the society. Further, the learned AR submitted as follows: 1. The main object of the assessee society is to carry on banking business among its members, the deposits are confirmed by its members and the money belongs to members. Therefore, the provisions of section 269SS or 269T are not applicable to the assessee. 2. The assessee is governed by the Banking Regulation Act and falls within the meaning of the word 'Banking Company' as per explanation 1 to section 269SS of the IT Act. The assessee also places reliance on sec.56 of Banking Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the banking business till such time the said application for recognition has been rejected by the appropriate authority. Also as held by the Supreme Court in the case of Padmasundara Rao Others Vs. State of Tamilnadu (255 ITR 147), 'it is well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous.'. 7. Provision to sec.22 of the Banking Regulation Act, a primary credit society cannot be prohibited from carrying on the banking business simply because the licence was not granted by the Reserve Bank of India. 8. The assessee does not receive deposits from outsiders. The persons who are depositing and to whom repayments are made are not different from the Association of Persons i.e. the assessee. The principle object of the society is to promote the interest of its members by providing mutual aid and by and large the amounts deposited by the members are used only for the sake of the members of the society. The activity is a mutual activity of sharing funds amongst members. The amounts received and repaid do not represent either loan or deposit made by are amounts kept voluntarily by members of mutual benefit. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chapter XXB was introduced has no application to the assessee's case. 13. The assessee relied on the following decisions 1. Chandra Cement Vs. DCIT (68 TTJ 35), ITAT Jaipur Bench 2. Shrepak Enterprises Vs. DCIT (64 ITD 300) 3. Farrukhabad Investment (I) Ltd. Vs. JCIT (85 ITD 230) 4. Hindustan Steels Ltd. Vs. State of Orissa (83 ITR 26) He submitted that the claim of deduction of assessee u/s 80 P in the income tax return is a matter to be considered separately while deciding for the income tax assessment. Submissions of Departmental Representative's: 14. The learned Departmental Representative Smt.Vasundhara Sinha, submitted that the issue under dispute is not on the point that whether the assessee is entitled to do banking business among its members or not. The issue is whether the assessee is following the applicable rules and regulations including the provisions of IT Act, 1961. 14.1. The assessee claims to be Banking Co. as per the explanation 1 to section 269SS of the IT Act. The explanation has two sub clauses which are relevant for the present purpose. Clause 1 states that a banking company means a company to which the Banking Regulation Act applies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks, the report of the news paper is not backed by any notification or circular from Reserve Bank of India and the procedure laid down by the Banking Regulation Act does not envisage such automatic conversion. There is difference between eligibility and sanction. No doubt the assessee may be eligible to become a bank but such eligibility has to be followed up by a licence from Reserve Bank of India to name itself as a bank. If that were not so, there was no need for the assessee to file an application before Reserve Bank of India as claimed by it for grant of banking licence. The recommendations of the Marathe committee report also cannot be of any help because as already referred the assessee has to conduct its activity following the relevant rules and regulations. Also the report of Marathe committee cannot become law unless relevant amendments are made to the Banking Regulation Act. Even the Marathe Committee report on which reliance is placed by the assessee states that the primary credit societies do not come within the purview of the Banking Regulation Act 1949. It is also to be noted that the assessee does not write the word 'bank' in its name and provided to clarification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14.7. The argument that the assessee has provided addresses of all is not borne out from record. She submitted that as seen from record, the assessee has provided clear addresses in only about 30 cases. Also the same is not relevant for levy of penalty because admittedly deposits are taken and repaid in cash. In case identity of the depositors is under doubt, the department may have to pursue its case u/s 68 of the Income tax Act, 1961(the Act). The argument that applications of all members are available with the society, members only made deposits in case of minors, firms, associations and other societies, the same are not relevant for the present proceedings. Besides there is no evidence on record to show that the above details are furnished before the assessing officer. 14.8. Regarding the argument that the provisions of sec.269SS or 269T were never put to the notice of the assessee at an earlier point of time, it is submitted that the assessee is expected to know the legal provisions and conduct its operations following those provisions. Verification of records reveals that the assessing officer has provided adequate opportunity to the assessee but the assessee chose not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instance of borrower having predetermined repayment period, nor a deposit which was at the instance of depositor and was repayable on fulfillment of certain conditions,. The case of the 39 assessee is totally different wherein there is no obligation for the members or nominal members to make deposits. As explained by the jurisdictional bench of ITAT in the case of Industrial Enterprises Vs. DCIT (2000) 73 ITD 252, a Moan' is a contract by which property is transferred by a lender to a borrower on the promise of the borrower to return the property or its exact equivalent at a stated time or on demand. Whereas deposit is something entrusted to another's case, especially money put in a bank. The relationship between a lender and a borrower of money in the context of loan is the relationship of a creditor and a debtor. In the case of deposit, the person who accepts the deposit is acting as a trustee and he is not standing in the position of the debtor. He is standing in a higher pedestal than a debtor, in as much as he, as an acceptor of the deposit, has the discretion to accept or not to accept a particular deposit. Therefore, no doubt, a depositor has come voluntarily to become a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cases to counteract. 'Evasion of Tax' Legislative intention in bringing sec. 269SS in the IT Act was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash'. 14.13. She submitted that all the decisions cited above are prior to the decision of the SC in the case of A.B. Shanti, which clearly held that the provisions of sec. 269SS or 269T are applicable to the borrower. Also, in the case of Chamundi Granites (P) Ltd. Vs. DCIT Another (239 ITR 694) the Karnataka HC held that 'the loan may be genuine and in a particular case reasonable hardship might be created to the borrower by such provisions. But the ultimate aim of the sec. is to prevent evasion of tax'. In the same judgement another case is also quoted for analogy and the relevant portion is reproduced as under. "In Tripura Goods Transport Assn. Vs. CIT of Taxes (1999) 222 STC 609, AIR 1999 SC 719 requirement under sec. 38B of the Tripura Sales Tax Act for transporter operating its transport business relating to taxable goods in Tripura to obtain certificate of registration from the Commissioner of Taxes was held as within the legislative competen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothuing is to be read in, nothing is to be implied. On can only look fairly at the language used'. The observations of Rwlatt J. as above stand accepted and approved by the House of Lords in a later decision, in the case of Cacadian Eagle Oil Co. Ltd. Vs. The King (1946) AC 119 (1945) 2 All ER 499. Lord Thankerton also in a manner similar in IRC V. Ross and Coulter (Bladnoch Distillery Co. Ltd.) (1948) 1 All ER 616 at page 625 observed : If the meaning of the provision is reasonably clear, the courts have no jurisdiction to mitigate such harshness". From the above, it is clear that the purpose of the legislation is very clear i.e. to prevent tax evasion. When activity of Tax evasion is noticed and there is no reasonable cause for explaining the conduct, the assessee has no right to seek remission from the penalty as intended by law. 14.15. In the case of Orissa State Warehousing Corporation Vs. CIT (237 ITR 589) the Supreme Court cited some decisions of House of lord and the same are reproduced as under: Lord Halsbury as early as 1901, in Cooke V. Charles A. Vogeler Company (1901) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to all its branches for verification. When the assessee does not come forward to produce all its members for verification and fails to provide addresses in majority of the cases and also when all the members who are verified by the assessing officer except one is found to evade tax, there is no merit in the argument of the assessee that it does not provide shelter for tax evasion. 14.17. She submitted that the judgement cited by the assessee in the case of Hindustan Steels Ltd. (83 ITR 26) is not applicable because the assessee failed to provide reasonable cause and the penalty in the present case is levied after due verification of the facts. 14.18. She submitted that on one hand the assessee claims deduction u/s 80P in the status of Cooperative Society and for the purpose sec.269SS and 269T claims the status of a banking company/cooperative bank. The assessee cannot take contradictory stand as per his convenience. 14.19. She submitted that the provisions of sec.269SS and S.269T of the IT Act, 1961 are applicable to the assessee. She also stated that the assessee society facilitated deposits and repayments of unaccounted money of its members. Therefore, the levy of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. 2. As per the sec.22 of the Banking Regulation Act (as modified by Part V of the Act), no cooperative society can conduct banking business in India unless it is a) primary credit society or b) it is cooperative bank and holds a licence in that behalf by Reserve Bank of India to such conditions, if any, the Reserve Bank of India may deem fit to impose. From this it is clear that a primary credit society may undertake banking. This does not mean that it becomes a cooperative bank. When it is not cooperative bank, it does not escape its obligations u/s 269SS or 269T and has to conduct its business by obeying the law as laid down in S.269SS or 269T. 3. As per clause (ccv) of S.5(l)(i) of the Banking Regulation Act referred above, the bye laws of a cooperative bank shall not admit any other cooperative society as member. In the present case, the assessee has accepted deposits from other cooperative societies by treating them as nominal members. 4. It may be treated here that the assessee is claiming deduction u/s 80P even for assessment year 2007-08 onwards. For assessment year 2007-08, such deduction is not available to cooperative bank and the definition of cooperative bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of ITD. 13. S.23 of the Banking Regulation Act states that no new place of business can be opened without permission from Reserve Bank of India. The assessee has recently a branch at Khammam for which no permission is taken from Reserve Bank of India. 14. The deposits insurance and credit guarantee corporation Act applies to cooperative bank but the assessee is not subject to the Act. 15 The letter issued by 'The AP Cooperative Urban Banks Credit Societies Association' has no sanctity because the association itself suggests that cooperative bank as well as credit societies are its members. The letter appears to be issued in total ignorance of law and procedure. Such a letter is not also admissible as evidence as per the principles of Indian Evidence Act. 16.The provisions of 269SS or 269T are squarely applicable to the assessee as it is only a society and not a bank. The assessee failed to cite any special circumstances under which deposits are accepted in cash. During the penalty proceedings in several cases, it has been proven that the depositors are evading tax by not disclosing the investment and/or interest on the cash deposits for taxation and the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Regulation Act 1949 (10 of 1949) applies and includes any bank or banking institution referee to in section 51 of that Act. ii) 'Cooperative bank' shall have the meaning assigned to in it Part V of the Banking Regulation Act, 1949 (10 of 1949) iii) "Loan or deposit' means loan or deposit of money'. From the above reading of the aforesaid provision, it is manifestly clearly that after the insertion of the aforesaid said, no person should take or accept from any other person from any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount is Rs. 20,000 or more. 15.2. Section 271D lays down the provisions of imposition of penalty for failure to comply with the provisions of sec.269SS. Sec. 271D reads as under: 271D: Penalty for failure to comply with the provisions of sec.269SS (1) 1. If a person takes or accepts any loan or deposits in contravention of the provisions of sec.269SS he shall be liable to pay by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. 2. Any penalty imposable under sub section (1) shall be imposed by the Joint Commissioner". 15.3. Sec.269T reads as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it made by him with such entity otherwise than by cheque or an a/c payee bank draft in case where the amount of the deposit, or the aggregate amount and the interest thereon equals or exceeds the stipulated amount. In case of repayment by a bank , the repayment may be made by crediting the amount to the account, of the concerned creditor, if any, with such bank vide the first proviso Sec.269T (1) of the IT Act. The section would apply in relation to the repayment of any deposit made before 19th Sept. 1991. further, provides that no branch of a bank, and no other company, cooperative society, or a firm shall repay any deposit otherwise than through an a/c payee cheque or a/c payee bank draft, if amount of deposit or aggregate of deposit and interest thereon equals or exceeds the stipulated amount. W.e.f. 1.4.1989, the Direct Tax Laws (Amendment) Act, 1987 made provision 269T applicable to all other persons such as individuals, HUFs, and AOPs. The word 'deposit' also amended so that in case of all persons other than companies "deposit, for the purpose of sec.269T means deposit of any nature. In view of the extended definition in case of persons other than companies, deposits for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the memorandum is reproduced herein below (1984) 146 ITR (St.) 157, 162). 'Prohibition against taking or accepting certain loans and deposits in cash: 22. Unaccounted cash found in the course of searches carried out by the IT Deptt. Is often explained by taxpayers as representing loans 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. 23 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 June 30 1984 from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft in the amount of such loan 10,000 or more is 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 deposits is remaining unpaid (whether repayment has fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainly be referred for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in justice thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible." 16.1.2 In the case of Kerala State Industrial Development Corporation Ltd. Vs. CIT (2003) 259 ITR 51, the Supreme Court while answering the reference on a particular question of law under the IT Act, referred the decision of KP Varghese's case (1981) 131 ITR 597 (SC) and held that the Finance Minister's speech can be relied upon to throw light on the object and purpose of the particular provisions introduced by the Finance Bill. 16.2. The moot question, therefore, that falls for consideration is that as to whether the assessee shall be subjected to imposition of penalty, notwithstanding the findings recorded by the authorities that the transaction made in violation of Sec.269SS of the Act was a genuine transaction and the return was finally accepted u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g material and had sold materials to contractors and imposed penalty for failure to register as a dealer. The Appellate authority and the Tribunal confirmed the order. The HC also answered the reference against the assessee. The main questions that arose before the SC were whether the company sold building materials to the contractors during the relevant period, whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act, whether the imposition of penalties for failure to register as a dealer was justified. On the question of imposition of penalty, the SC observed that the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. Penalty will not ordinarily be imposed unless the person acted as a dealer in defiance of law was guilty of conduct, contumacious or dishonest. Their Lordships observed (page 29). "8. Under the Act, penalty may be imposed for failure to register as a dealer; sec.9(1) read with sec.25(l)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee which is not resulted in any loss of Revenue then invoking the provisions of S.271D or 271E is very harsh, which to be avoided. The object of Sec.269SS or 269T is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money or if he makes some false entries, he shall not escape by giving false explanation for giving same. A tax payer shall not be allowed to manipulate his account to suit the plea of him. The main object of these Sections is to curb this menace of making false entries in the account books and later giving an explanation for the same. The transactions not being impeached as not genuine or bogus, cannot lead to the levy of penalty u/s 271D/271E. Even if they were to apply, one should see the provisions of sec.273B. If the assessee having bona fide belief that it would not attract the penalty provisions, given the nature of the transactions and circumstances, the penalty need not be levied. In other words bona fide belief coupled with genuineness of ^ transactions constitutes reasonable cause for not invoking the provisions of sec.271D 271E. 17. In the present case, assessee is subject to rules laid down by cooperat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e source of deposit made by its customers. Also, the customer can keep the deposit for a period which is according to their convenience . The amount has to be repaid by the assessee to its customer immediately on demand. These features distinguish the case of the assessee from other ordinary assessees. Therefore, the provisions of sec.271D/271E to be viewed in the back ground of these aspects. Further, the assessee is subject to periodical inspects and audits by various statutory authorities and in case of any default assessee is liable for having penalty besides cancellation of its licence. This is not the case with other assessees. Further, the assessee has to maintain confidentiality in respect of the information collected by it from its customers , such information is not to be divulged to outsiders. There is no such obligation with other assessee. In spite of this, the assessee has furnished the information as available with it. Now if the address of the customers of the assessee found to be incomplete, this cannot form the basis for levying the penalty. There is no finding by the lower authorities that the assessee violated any guidelines issued by the Regulatory authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable for any penalty more so, undisputedly the penal action is quasi criminal nature. The income of the assessee is exempt u/s 80P of the Act and more so, there is no establishment of deliberate and intentional violation of the provisions by the assessee, that too, in order to hide any income or to evade any payment of tax. Usually penalty will not be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation and that penalty will also not be imposed merely because it is lawful to do so. /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 assesees, then penalty could not be levied. As such, in there existed reasonable cause in accepting the deposits in cash and paying by cash. Assessee may therefore be exonerated from the levy of penalty. The other contention of the assessee counsel is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the law is that contributors of the common fund and the participators in the surplus must be an identical body. Thatdoes not mean that each member should contribute to the common fund that or that each member should participate In the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a clause must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the society for his development and for providing better amenities to the member. In view of the transaction took place between the assessee and its member, the strict provisions of the sec.269SS/269T cannot be applied. 17.1. Further, the Legislature was intending to curb the tax evasion in a 'search situation' and referred to confirmatory letters produced in such situations to counter 'cash found'. A statute is an edict of the legislature and the conventional way of interpreting or constituting a statute is to seek the intention of its maker. A statute is to be constitute according to the intent of them who make it. The legislature in a modern state is actuated with some policy to curb s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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