In a recent case, the Cochin Bench of Income Tax Appellate Tribunal (ITAT) held that the consolidated penalty under section 271D and 271E of Income Tax Act (ITA) cannot be levied without specifying individual cash transactions.
The assessee/ appellant Sulthan Bathery Service Co-operative Bank Limited, is a co-operative society operating in a rural area, providing services to people from economically weaker sections, primarily dependent on agriculture and small businesses.
The assessee faced penalties imposed under Sections 271D and 271E of ITA, and these sections pertain to penalties for accepting deposits in cash in violation of Section 269SS, and for repaying deposits in cash in violation of Section 269T of ITA.
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To elaborate, Section 269SS mandates that any deposit, loan, or other specified amount exceeding Rs. 20,000 must be received only through an account payee cheque, account payee bank draft, or electronic clearing system, and as per Section 269T, any bank, co-operative bank, or similar financial institution must pay back loans or deposits to customers through a cheque if the total amount is Rs. 20,000 or more.
The assessee argued that due to the nature of its clientele and local business conditions, it had to accept and repay deposits in cash.
However, when the assessee was under scrutiny in the financial year 2015-16, the Assessing Officer (AO) initiated proceedings based on the said cash transactions.
The aggregate amount accepted in cash by the assessee, ₹102.14 crores, was penalized under Section 271D of ITA, and ₹116.57 crores, the total repayment made in cash by the assessee., was penalized under Section 271E of ITA.
It should be noted here that the AO initiated proceedings without specifying individual transactions amounting to or exceeding ₹20,000.
Aggrieved, the assessee appealed against the order before the Commissioner of Income Tax (Appeals) [CIT (A) ], who upheld the AO’s order.
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Dissatisfied, the assessee appealed before the ITAT.
The appellant contended that the transactions were carried out in good faith and in line with the operational realities of the bank, which served a largely cash-dependent clientele in rural areas, and hence the penalties were erroneously attracted without taking the assessee’s specific situation into consideration.
It was also argued that the penalties were imposed beyond the limitation period, as stipulated under the ITA.
After examining the contentions, the bench comprising Mr George Mathan and Mr BR Baskaran primarily observed that the AO incorrectly applied Sections 271D and 271E of the ITA in a consolidated manner without individually identifying each loan or repayment exceeding Rs. 20,000.
The bench highlighted that the law requires the AO to specify each instance where a loan or repayment of Rs. 20,000 or more occurred before imposing penalties under Sections 271D and 271E. In other words, the AO must produce evidence of each cash transaction amounting to or exceeding Rs. 20,000 to justify the imposition of the penalty.
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The Tribunal further noted that there was a significant delay in issuing the penalty orders beyond the statutory period as well.
Accordingly, the matter was remitted back to the AO for fresh adjudication as there was a lack of evidence to justify the penalty.
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