THE NADAPURAM SERVICE COOPERATIVE BANK LIMITED,KOZHIKODE V. JCIT, RANGE 2, KOZHIKODE

ITA 957/COCH/2024

AI Insights

The case involves the Nadapuram Service Co-operative Bank Limited, which appealed against the penalty imposed by the Joint Commissioner of Income-tax for accepting and repaying deposits in cash, violating sections 269SS and 269T of the Income-tax Act, 1961. The appellant argued that as a primary agricultural credit society engaged in banking, it was exempt from these provisions. However, the tribunal, referencing various judicial precedents and statutory provisions, upheld the penalty, emphasizing that the society did not meet the criteria of a cooperative bank as it lacked an RBI license and did not qualify for any exemptions under section 269SS.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 316026 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Other Referred Cases: ACIT (Inv.) v. Kum.A.B.Shanti, Vasan Healthcare Private Limited, 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, 1961, Kerala Co-operative Societies Act, 1956, Banking Regulation Act, 1949, General Clauses Act, 1897
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: V.S.NARAYANAN
• Keywords: Reasonable cause; Bonafide belief; Co-operative Credit Society
• Section: 6; 273B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Inturi Rama Rao, Accountant Member & Shri Sandeep Singh Karhail, Judicial Member ITA No.957/Coch/2024 :Asst.Year 2015-2016 The Nadapuram Service Co- operative Bank Limited No.721, The Nadapuram SCB Building Kallachi, Kozhikode – 673 506. PAN : AACAT6179Q. v. The Joint Commissioner of Income-tax, Range-2 Kozhikode. (Appellant) (Respondent) Appellant by : Sri.V.S.Narayanan, CA Respondent by : Sri.Sanjit Kumar Das, CIT-DR Date of Hearing : 25.03.2025 Date of Pronouncement :14.05.2025 O R D E R Per Inturi Rama Rao, AM : This is an appeal filed by the assessee co-operative society directed against the order of the National Faceless Appeal Centre / Commissioner of Income-tax (Appeals) [“the CIT(A)”] dated 26th September, 2024 for the assessment year 2015-2016. 2. Briefly, the facts of the case are that the appellant is a co- operative society duly incorporated under the provisions of the Kerala Co-operative Societies Act, 1956. It is also classified as a primary agricultural credit society. The appellant filed return of income for the assessment year 2015-2016. Against the said return of income, the assessment was completed by the Joint Commissioner of Income Tax, ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 2 Range-2, Kozhikode (“the AO”) vide order dated 20th December, 2017 passed u/s.143(3) of the Income-tax Act, 1961 (“the Act”). During the course of assessment proceedings, the AO noticed that the appellant- society had accepted deposits from the members in cash in violation of the provisions of sec.269SS of the Act and also repaid the loans / deposits in cash to the members in violation of sec.269T of the Act. Accordingly, a show cause notice was issued u/s.274 r.w.s. 271D of the Act calling upon the appellant society to explain as to why penalty u/s.271D cannot be imposed. 3. In response to the show cause notice, it is submitted that it is a co- operative society registered under the provisions of Kerala Co-operative Societies Act permitted to do the banking business without licence from Reserve Bank of India. It was under the bonafide belief that the provisions of sections 269SS and 269T of the Act have no application, since the appellant is carrying on the banking business and the transactions are bonafide and genuine, therefore, the penalty cannot be levied. It is further contended that the penalty proceedings are barred by limitation, however, the AO brushing aside the above explanation had proceeded with the levy of penalty of Rs.33,67,71,039 vide order dated 14th May, 2019 u/s.271D of the Act. 4. Being aggrieved by the above order of penalty, the appellant preferred an appeal before the CIT(A), subsequently migrated to NFAC, contending that the appellant is an primary agricultural credit society carrying on the business of banking and the provisions of section 269SS of the Act have no application and further contended that there was ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 3 reasonable cause for accepting the deposits in cash from the members, and therefore, no penalty can be levied in view of the decision of the Hon’ble Supreme Court in the case of ACIT (Inv.) v. Kum.A.B.Shanti (2002) 255 ITR 258. However, the learned NFAC after referring to the judgment of the Hon’ble Madras High Court in the case of Vasan Healthcare Private Limited 103 taxman 26 (Mad.) and other judgments of High Courts held that in the absence of any reasonable cause for accepting the deposits or loans in cash, the levy of penalty is justified u/s.271D of the Act. 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 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 4 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 5 provisions of Kerala State Co-operative Societies Act, 1956. It is classified as a primary agricultural co-operative credit society does not enjoy 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 6 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 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 7 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 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 8 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 ITA No.957/Coch/2024. The Nadapuram SC.B Limited. 9 action contemplated under section 271D, with respect to violation of the provisions contained under section 269SS.” 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. 13. In the result, the appeal filed by the assessee stands dismissed. Order pronounced on this 14th day of May, 2025. Sd/- (Sandeep Singh Karhail) Sd/- (Inturi Rama Rao) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin; Dated : 14th May, 2025. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "