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

ITA 1932/AHD/2025

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT) appealing against the decision of the Commissioner of Income Tax (Appeals) which deleted the penalties imposed on Shri Umiya Cooperative Credit Society Ltd. for violations of sections 269SS and 269T of the Income Tax Act, 1961. These sections pertain to the prohibition of accepting and repaying loans in cash exceeding Rs. 20,000. The CIT(A) invoked section 273B, citing reasonable cause due to the nature of the society's business and the absence of intent to evade tax, a view supported by the jurisdictional High Court and Supreme Court in similar cases.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 822489 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 13-10-2025
• Other Referred Cases: PCIT vs. Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Condonation of delay; Reasonable cause; Reassessment proceedings; Question of law; Ignorance of law; Co-operative Credit Society
• Section: 56; 11; 273B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member The DCIT Circle Gandhinagar, Gandhinagar (Appellant) Vs Shri Umiya Co-operative Credit Society Ltd. 1, AT And Post Linch, Vata Bazar, Linch, Mehasana, Gandhinagar, Gujarat-384435 PAN: AAAJS1455M (Respondent) Revenue Represented: Shri Rignesh Das, CIT-DR Assessee Represented: Shri Dhinal Shah, A.R. Date of hearing : 17-12-2025 Date of pronouncement : 24-12-2025 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These two appeals are filed by the Revenue as against separate appellate orders both dated 08/07/2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the Penalties levied under sections 271D and 271E of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the same Assessment Year 2016-17. Since common issue is involved in these appeals, the same are disposed of by this common order, for the sake of convenience. ITA No. 1932 & 1933/Ahd/2025 Assessment Year: 2016-17 Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 2 2. Brief facts of the case are that the assessee is a co-op. credit society registered under the State Co-op Act vide Registration No. 27322 dated 08.05.1995. The assessee was filing regularly returns of income and the society was mainly engaged in providing credit facilities to its members and taking deposits from its members. On verification of high value transaction reported in Annual Information Report, the office of the ITO, Intelligence and Criminal Investigation (I&CI), Ahmedabad observed that the assessee had made cash deposits amounting to Rs.2,70,74,300/- in its bank account maintained with DENA Bank. It was observed during the enquiry by the ITO (I&CI), Ahmedabad that the assessee had violated the provisions of section 269SS and 269T of the Act. The Information regarding the violation was passed on to the Pr. CIT-3, Ahmedabad. As per information, it was found that the cash received from the Members as deposits, subscription and loan repayments are deposited into bank account. The above information was also passed by the ITO, [I&CI], Ahmedabad to the Jurisdictional Assessing Officer of the assessee i.e. Deputy Commissioner of Income-tax, Gandhinagar Circle. After analyzing the information, the JAO made a reference to the Addl. CIT, Gandhinagar Range and initiated penalty proceedings u/s 271D and 271E of the Act dated 31.03.2021. The limitation date to pass the order in the said penalty was 30.09.2021 which was extended to 31.03.2022 vide CBDT Notification 113/2021 dated 17.09.2021. Subsequently, case was migrated to Faceless Penalty Scheme 2021 and thereafter, notice u/s.271D dated 26.07.2021 was issued for making compliance on 06.08.2021, but assessee failed to make compliance to the said notice. However subsequently the assessee Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 3 filed reply on 10.09.2021. The AO observed that the assessee society had clearly and unambiguously contravened the provisions of Section 269SS and 269T of the Act, by accepting cash loan of Rs. 28,01,69,810/- (Exceeding Rs.20,000/- in cash on a single day) thereby, violating the provisions of Section 269SS of the Act, by way of accepting subscription, deposits and loan to the tune of Rs. 28,01,69,810/-. Accordingly, penalty u/s 271D of the Act, of Rs. 28,01,69,810/- was imposed on 29.03.2022. Similarly penalty u/s. 271E of the Act of Rs.27,32,46,775/- was imposed on 31-03-2022 for repayment of loans by cash mode exceeding Rs.20,000/-. 3. Aggrieved against the penalty orders, assessee society filed appeals before Ld. CIT(A) who has deleted the penalty invoking Section 273B of the Act by passing detailed orders as reasonable cause was made out by the assessee society wherein he considered the Jurisdictional High Court Judgment in the case of PCIT vs. Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd. which has been confirmed by Supreme Court by observing as follows: “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 Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 4 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, Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 5 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.” 17. On perusal of the above provisions it is clear that no penalty would be leviable if the person concerned proves that there is reasonable cause for the alleged failure. Thus, the Tribunal as well as the CIT (Appeals) have rightly held that the provision of section 273B of the Act, 1961 gives the discretion to the authority to impose the penalty or not which has to be exercised in a just and fair manner having regard to the facts and material existing on record. When the CIT (Appeals) and the Tribunal on the basis of the facts and material on record have come to the conclusion that the assessee-Co-operative Society on bona fide belief coupled with the nature of transaction in question being genuine and bona fide undertaken during the regular course of business would not result in levy of penalty under sections 271D and E of the Act, 1961, we are of the opinion that there is no legal infirmity in the impugned orders of the CIT (Appeals) and the Tribunal requiring any interference by this Court. 18. In view of the foregoing reasons, no question of law much less any substantial question of law proposed or otherwise arises from the impugned orders of the Tribunal.\" 5.1.7 The above judgment of the High Court was further affirmed by the Hon'ble Supreme Court in Special Leave Petition (Civil), whereby the appeal filed by the Revenue bearing Diary No. 33201/2024, was dismissed both on technical ground as well on merits, with following observations: \"Delay of 18 days in refiling is condoned. There is an inordinate delay of 660 days in filing the special leave petition. The explanation offered seeking condonation of delay is neither satisfactory nor sufficient in law to be condoned. Hence, the application seeking condonation is dismissed. Further, we do not find any merit in the special leave petition. Hence, the special leave petition is dismissed both on the ground of delay as well as on merits. Pending application(s) shall stand disposed of.\" Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 6 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.” 4. Aggrieved against the appellate order cancelling penalty levied u/s.271D of the Act, the Revenue is in appeal before us in ITA No. 1932/Ahd/2025 raising the following Grounds of Appeal: (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 ITA No. 1933/Ahd/2025 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. Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 7 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. 5. Ld. CIT-DR Shri Rignesh Das appearing for the Revenue strongly supported the penalty orders passed by the Assessing Officer and requested to uphold the same, since clear cut violation of Section 269SS and Section 269T of the Act, the assessee is liable to pay penalties u/s. 271D and u/s. 271E of the Act respectively. Further Ld. CIT(A) is not correct in invoking Section 273B of the Act and deleting the penalties levied by the assessing officer. Thus requested to uphold the penalties. 6. Per contra Ld. Counsel Shri Dhinal Shah appearing for the assessee submitted before us that the assessee was issued reopening notice u/s.148A of the Act for the above cash deposits by the assessee Society. Pursuant to the reply filed by the assessee, the reassessment proceedings initiated was dropped for the Asst. Year 2016-17 vide order dated 29-07-2022 passed u/s. 148A(d) of the Act. However, the DCIT proceeded with the penalty proceedings and imposed penalty u/s. 271D of Rs. 28,01,69,810/- and penalty levied u/s. 271E of Rs. 27,32,46,775/-. 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, Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 8 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. We have considered rival submissions and perused the materials placed on record as well as orders passed by the lower authorities and the case laws referred by the assessee. It is undisputed fact that the main object of the assessee credit society is to give loans to its members from the accumulated funds procured from other members of the society. The activities of various Credit societies are spread from city to the villages of interior parts of the country. The working of credit society are amongst Members who are admitted after due verification of eligibility norms and are known to each other as they are from the limited jurisdictional area. The main aim of the credit society is to give small financial assistance to needy people at reasonable rate of interest merely on the basis of guarantee of other Members even in absence of securities. So, small person, who do not have assets, can also obtain loans from credit societies merely by providing guarantee of two Member guarantors. So such person to whom bank were not giving finance due to non-availability of securities or non-availability of banking facility in nearby areas or who are Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 9 paying high rate of interest to private money lenders or NBFC, are able to manage their financial requirements smoothly due to availability of finance from credit societies. 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 Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 10 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 Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 11 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. 8. In the result, the appeals filed by the Revenue are hereby dismissed. Order pronounced in the open court on 24 -12-2025 Sd/- Sd/- (NARENDRA PRASAD SINHA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 24/12/2025 Rajesh आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad Printed from counselvise.com I.T.A 1932 & 1933/Ahd/2025 A.Y: 2016-17 DCIT Vs. Shri Umiya Cooperative Credit Society Ltd. 12 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद Printed from counselvise.com "