M/S THE PANNIYANKARA SERVICE CO-OP BANK LTD,KOZHIKODE V. THE JOINT COMMISSIONER OF INCOME TAX , RANGE 1, KOZHIKODE

ITA 910/COCH/2022

AI Insights

The case involves The Panniyankara Service Co-operative Bank Limited, which appealed against the penalty imposed by the Joint Commissioner of Income-tax under section 271D for contravening section 269SS of the Income Tax Act. The appellant argued that as a Primary Agricultural Credit Society, it was engaged in activities that necessitated accepting cash deposits, which should exempt it from the provisions of section 269SS. The tribunal considered various precedents and the specific provisions of the Income Tax Act, ultimately deciding that the penalty was rightly imposed as the appellant did not fall under any exempted categories and failed to demonstrate a reasonable cause for the cash transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361170 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2015-2016
• Other Referred Cases: CIT Vs. Hissaria Brothers, Grihalakshmi Vision v. Addl.CIT, Nadapuram Service Co-operative Bank Ltd. v. JCIT, Kum.A.B.Shanti, PCIT v. Kundrathur Finance and Chit Co., Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer, NSS Karayogam v CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VENI RAJ
• Assessee Lawyers: ARUN RAJ S
• Keywords: Reasonable cause; Bonafide belief; Co-operative Credit Society
• Section: 273B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Inturi Rama Rao, Accountant Member & Shri Prakash Chand Yadav, Judicial Member ITA No.910/Coch/2022 : Asst.Year 2015-2016 The Panniyankara Service Co-operative Bank Limited 20/114, H2, Haseena Bldg. Kallai, Kozhikode – 673 003. PAN : AADAP2833J. v. The Joint Commissioner of Income-tax, Range 1 Kozhikode. (Appellant) (Respondent) Appellant by : Sri.Arun Raj S, Advocate Respondent by : Smt.Veni Raj, CIT-DR Date of Hearing : 20.05.2025. Date of Pronouncement : 21.05.2025 O R D E R Per Prakash Chand Yadav, JM : The present appeal of the assessee is arising from the order of the National Faceless Appeal Centre / learned Commissioner of Income-tax (Appeals) [“CIT(A)” for short] dated 24th August, 2022, having DIN & Order No.ITBA/NFAC/S/ 250/2022-23/1044905568(1) and relates to the assessment year 2015-2016. 2. The brief facts of the case as coming out from the orders of the lower authorities are that the assessee is a cooperative society also carrying out the business of banking registered as per the Kerala Societies Act, 1969. The assessee filed its return of income on 30.03.2017 for the A.Y.2015-16 showing a ITA No.910/Coch/2022. The Panniyankara SCB Limited. 2 taxable income of Rs.Nil after claiming a deduction of Rs.82,46,633 u/s.80P(2)(a)(1). The case of the assessee was selected for scrutiny u/s.143(3) and completed on 20.12.2017 by disallowing the deduction claimed u/s.80P. The assessed income for the Assessment Year 2015-16 is Rs.1,48,86,392. During the course of assessment proceedings, it has come to light that there were violation of section 269SS and the assessing officer referred the case for initiation of penalty u/s.271D on 01.01.2018. Accordingly, penalty proceedings u/s.271D was initiated on 03.01.2018. Thereafter the JCIT levied penalty of Rs 48,79,81,702/- vide order dated 27.07.2018 . 3. Aggrieved with the order of the AO assessee preferred an appeal before the CIT (A). The Ld CIT(A) could not find any force in the arguments of the assessee and dismissed the appeal of the assessee. 3. Aggrieved with the order of the CIT(A), the assessee has come up in appeal before us, and raised following grounds of appeal:- “1. The order dated 24-8-2022 passed by the National Faceless Appeal Centre, Delhi (NFAC) confirming the order of the Joint Commissioner of Income Tax imposing penalty under section 271D of the Act is illegal, arbitrary and unjustified. 2. The NFAC erred in holding that there is contravention of the provisions of section 269SS of the IT Act and therefore penalty under section 271D is leviable. 3. The NFAC ought to have appreciated the fact that the appellant is a Primary Agricultural Credit Society, who is ITA No.910/Coch/2022. The Panniyankara SCB Limited. 3 carrying on the business of providing credit facilities to its members, the business consists of accepting deposits from the members and advancing loans to them and therefore collecting money in cash towards the deposits was integral to the appellants business and it was impossible for the appellant to avoid receiving deposits in cash. 4. The NFAC failed to note that the deposits made were to the various accounts of its members; the appellant cannot be said to be receiving cash in contravention of section 269SS of the Act and therefore penalty under section 271D was not applicable. 5. The lower authorities ought to have appreciated the fact that the remarks made by the auditor in the audit report cannot to be held against the assessee to hold that there is contravention of the provisions of section 269SS of the Act. 6. The NFAC erred in holding that the appellants are not entitled for exemption under the provisions of section 269SS of the Act 7. The NFAC erred in holding that the appellant did not have reasonable cause for not complying with the provisions of section 269SS of the Act. At any rate, the NFAC ought to have held that this is fit case where section 273B of the IT Act is applicable and penalty was not leviable. 8. The lower authorities failed to consider and appreciate the fact that the appellant had explained the nature of business and the compelling reason for receiving the cash from its members customers and therefore the penalty should not have been levied. 9. The NFAC and the JCIT failed to consider the issue in the right perspective.” 4. Besides the above grounds, the assessee has also raised an additional ground, which reads as under:- \"The penalty order dated 27-7-2018 passed under section 271 D of the Act after the expiry of six months from the end of the month of passing the assessment order dated 20-12-2017 is barred by limitation as per section 275(1)(c) of the Income Tax Act as held by the Hon'ble Supreme Court in CIT Vs. Hissaria Brothers vide order dated 22nd August, 2016; reported in [2016] 386 ITR 719 (SC).\" ITA No.910/Coch/2022. The Panniyankara SCB Limited. 4 5. The learned Counsel appearing on behalf of the assessee while challenging the additional ground argued that the date of initiation of penalty will have to be considered from the date of assessment order and not from the date of notice issued for initiation of penalty u/s.271D of the Act i.e. 03.01.2018 6. The learned CIT-DR, on the other hand, relied upon the CBDT Circular No.279/Misc/M-116/2012 dated 26th April, 2016 and argued that the penalty proceedings u/s.271D are independent of the assessment proceedings and hence the limitation for completion of penalty to be reckoned from the date of initiation and not the completion of assessment proceedings. The learned CIT-DR relied upon the judgment of the Hon’ble jurisdictional High Court in the case of Grihalakshmi Vision v. Addl.CIT in ITA Nos.83 & 86 of 2014 dated 7th August, 2015. After arrival of this decision, the CBDT vide Circular dated 26th April, 2016 has also clarified that the completion of penalty proceedings would be governed by the initiation and the statement in the assessment order that the proceedings u/s.271D and 271E are of no relevance. 7. We have heard the rival submissions and perused the material available on record. So far as the additional ground is concerned, we are of the view that this ground is to be decided against the assessee in view of the judgment of the Hon’ble jurisdictional High Court in the case of Grihalakshmi Vision (supra). Therefore, this ground of appeal is dismissed. ITA No.910/Coch/2022. The Panniyankara SCB Limited. 5 8. So far as the other grounds of appeal are concerned, the sole grievance of the assessee is regarding levy of penalty u/s.271D of the Act. The Counsel for the assessee argued that the authority who has levied the penalty has not considered the application of sec.273B, which provides that where there is reasonable cause, penalty u/s.271D is not to be levied. The learned Counsel for the assessee further argued that the assessee is a cooperative society and entitled to accept deposit in cash from the members. Further, the Counsel for the assessee has also placed reliance on the CBDT Circular to show the bona-fide of the assessee. 9. The learned CIT-DR relied upon the orders of the authorities below. 10. We have heard the rival submissions and perused the material available on record. We observe that similar issue has come up in appeal before this Tribunal in the case of The Nadapuram Service Co-operative Bank Ltd. v. JCIT in ITA No.957/Coch/2024 (order dated 14.05.2025), wherein the co- ordinate bench has observed as under:- “5. Being aggrieved by the order of NFAC confirming the levy of penalty, the appellant is in appeal before us. It is contended that the levy of penalty u/s.271D is arbitrary, inasmuch as, the appellant is into the banking business and no penalty can be levied in view of the decision of the Hon’ble Supreme Court in the case of Kum.A.B.Shanti (supra). It is further submitted that it was under the bonafide belief that the provisions of sec.269SS of the Act have no application, since the appellant was engaged in the banking business. Since the ITA No.910/Coch/2022. The Panniyankara SCB Limited. 6 transactions are genuine and bonafide, levy of penalty is not justified in view of the decision of the Hon’ble Madras High Court in the case of PCIT v. Kundrathur Finance and Chit Co. (2006) 283 ITR 329 (Mad.). It is further submitted that there is no intention on the part of the appellant to evade the tax thereby causing loss to the Revenue, inasmuch as, the transactions are genuine and bonafide and the acceptance of deposits in cash by the appellant co-operative society from the members does not fall within the purview of sec.269SS of the Act, placing reliance on the decision of Kolkata Tribunal reported in 2019 Tax Pub (DT) 3029 (Kol-Trib.). 6. On the other hand, the learned CIT-DR submits that the appellant co-operative society is not permitted to do the banking business in the absence of any licence granted by the RBI. In this connection, he relied on the judgment of the Hon’ble Supreme Court in the case of Kerala State Co- operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer (2023) 458 ITR 384 (SC). He further submits placing reliance on the provisions of sec.56 of the Banking Regulation Act, 1949 that no co-operative society shall carry out banking in India unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. He further submits that the transactions of acceptance of deposits or loans in cash from members of a co-operative society comes within the purview of provisions of sec.269SS of the Act, drawing support from the 3rd proviso inserted to sec.269SS of the Act. The learned CIT-DR placing reliance on the judgment of the Hon’ble Kerala High Court in the case of NSS Karayogam (2020) 271 Taxman 193 (Kerala) submits that the genuineness of the transaction are bonafide cannot be considered as reasonable cause as provided u/s.273 of the Act to avoid penal consequence of penalty u/s.271D of the Act. 7. We heard the rival submissions and perused the material available on record. The issue that arises for our consideration is whether the AO was justified in levying penalty u/s.271D of the Act for violation of the provisions of sec.269SS of the Act. The admitted facts of the case are that the assessee is a co- operative society incorporated under the provisions of Kerala State Co-operative Societies Act, 1956. It is classified as a primary agricultural co-operative credit society does not enjoy ITA No.910/Coch/2022. The Panniyankara SCB Limited. 7 the licence from the RBI to carry on the business of banking. The provisions of sec.269SS of the Act were inserted by the Finance Act, 1984 with effect from 1st July, 1984. It provides that no person shall after 30th day of June, 1984, take or accept from any person, any loan or deposit otherwise than by an account payee cheque or account payee bank draft or use of other electronic clearing system through a bank account, as may be prescribed in a sum exceeding Rs.20,000 or more. The first proviso to sec.269SS provides that the above provision shall not apply in respect of loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by, - (a) the Government; (b) any banking company, post office savings bank or co- operative bank; (c) any corporate established by a Central, State or Provincial Act; (d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013); (e) such other institution, association or body or class of institutions, associations or bodies which the Central government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; 8. The provisions of sec.271D of the Act provides for levy of penalty for contravention of provisions of sec.269SS of the Act. The provisions of sec.273B of the Act provides that where there is a reasonable cause for violation of the provisions of sec.269SS, no penalty shall be levied. There is no dispute about the factum of receipt of loans or deposits by the appellant- society from its members in cash and the appellant-society is a primary agricultural co-operative credit society, which does not fall under the category of any banking company or a co- operative bank, nor it falls under any of the exempted categories enumerated under the first proviso to the above section. The contention that the appellant is a co-operative bank cannot be accepted for the reason that the appellant co- operative society does not enjoy a banking licence issued by the ITA No.910/Coch/2022. The Panniyankara SCB Limited. 8 RBI. The Hon’ble Apex Court in the case of Kerala State Co- operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer (2023) 458 ITR 384 (SC) categorically held that in the absence of licence to carry on the banking business by a co-operative society, it cannot be considered as a co- operative bank. It is an admitted fact that the appellant does not enjoy the licence issued by the RBI to carry on the business of banking. Therefore, the contention that it is a co-operative bank cannot be accepted. 9. As regards the contention that the provisions of sec.269SS of the Act have no application to the society formed under the Co-operative Societies Act, has no legs to stand in view of the fact that the co-operative society does not fall under any of the exempted categories enumerated under the first proviso to sec.269SS of the Act. Furthermore, the Parliament has inserted the third proviso to sec.269SS providing for enhancing the threshold limit from Rs.20,000 to Rs.2,00,000 in the case of loan or deposit accepted by the primary agricultural co-operative credit society, primary agricultural and rural development bank. Thus, the intention of the Parliament is abundantly clear that the provisions of sec.269SS of the Act should be applied even in respect of loan or deposits accepted by primary agricultural co-operative credit society. Therefore, the legislative intention is very clear that to make the provisions of sec.269SS is applicable to a primary agricultural co- operative credit society. 10. It is the contention of the appellant that it was under the bonafide belief that the provisions of sec.269SS have no application. It is not demonstrated before us as to how it has entertained such a bonafide belief. The term “bonafide belief” has not been defined under the provisions of Income-tax Act, 1961, but the provisions sub-section (22) of sec.3 of General Clauses Act, 1897 defines the term “bonafide belief” has not been defined under the provisions of the Income-tax Act, 1961 but the provisions of sub-section (22) of section 3 of General Clauses Act, 1897 defines the term `bona fide belief’ to mean that a thing shall be deemed to be done in good faith where it is in fact done honestly, whether it is done negligently or not. Thus, if the element of honesty is present, the requirement of good faith is satisfied. But this requires to be judged taking into ITA No.910/Coch/2022. The Panniyankara SCB Limited. 9 consideration the factual situation prevailing in a particular situation. In the present case, on a careful perusal of the orders of the lower authorities, it would reveal that no factual foundation is laid as to how the appellant-society had entertained a bonafide belief that the provisions of sec.269SS of the Act have no application to it. In the absence of this factual foundation, no relief can be granted based on the bald submissions. Thus, we do not find any merit in the contention that it is under the bonafide belief that provisions of sec.269SS of the Act have no application. 11. Next, we will deal with the contention of the appellant- society that since the transactions of acceptance of loans or deposits in cash as genuine and bonafide, the penalty cannot be levied u/s.271D of the Act, placing reliance on the decision of the Hon’ble Madras High Court in the case of PCIT v. Kundrathur Finance and Chit Co. (2006) 283 ITR 329 (Mad.). This contention was rejected by the Hon’ble Kerala High Court in the case of NSS Karayogam v CIT (2020) 271 Taxman 193 (Kerala), wherein it was held that mere genuineness of transaction does not constitute a reasonable cause as contemplated u/s.271D of the Act for non-levy of penalty u/s.271D of the Act. The relevant portion of the judgment reads as under:- “6. We take note of the fact that, in Listin Stephen's case (supra), after referring to a catena of decisions like CIT v. P.K. Shamsudin 2011 (1) KLT online 1211, K.V.George (supra), Assistant Director of Inspection (Investigation) v. Kumari A.B.Santhi [2002 (2) KLT Online 1007 (SC)], NSS Karayogam v. CIT 2014 (2) KLT Online 1208 and Grihalakshmi Vision v. Addl. CIT 2015 (4) KLT SN 88 and CIT Thrissur v. Al Ameen Educational Trust 2018 (1) KLT Online 3133 held that the 'reasonable cause' contemplated under section 273B should be a reasonable cause as to why or what was the reason which compelled the assessee to accept the loans or deposit in cash. In other words, it should be proved that there existed reasonable and acceptable cause for not accepting the loans or deposits through crossed cheques or demand drafts. It was found that the mere proof regarding genuineness of the transaction or the intention in accepting the amounts in cash or that there was no attempt to induct black money into the business etc. cannot be considered as a reasonable cause or as compelling circumstances provided under section 273B to avoid the penal action contemplated under section 271D, with respect to violation of the provisions contained under section 269SS.” ITA No.910/Coch/2022. The Panniyankara SCB Limited. 10 12. Finally, the argument made on behalf of the appellant- society that there was a reasonable cause for accepting loans or deposits in cash from members, and therefore, no penalty can be levied u/s.271D of the Act also cannot be accepted for the reason that the appellant had failed to show the reasons which compelled the appellant-society to accept the loans and deposits in cash. Thus, this contention also cannot be accepted for the failure of the appellant to prove its reasonable cause. Therefore, we do not find any reason to interfere with the orders of the authorities below. Accordingly, the appeal filed by the assessee is dismissed by confirming the penalty u/s.271D of the Act.” 11. Perusal of the above finding would show that the co- ordinate bench has dealt with all the submissions vis-à-vis bona-fide belief and reasonable cause and held that the jurisdictional High Court has overturned these types of submissions made from the side of assessee. Respectfully following the view of the co-ordinate bench, we hold that the AO has rightly levied the penalty u/s.271D of the Act. We affirm the same. 12. In the result, the appeal filed by the assessee is dismissed. Order pronounced on this day of May, 2025. (Inturi Rama Rao) (Prakash Chand Yadav) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin; Dated : May, 2025. Devadas G* ITA No.910/Coch/2022. The Panniyankara SCB Limited. 11 Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "