Cash Transactions of Co-operative Society with its Members Not Penal if Reasonable Cause Exists: ITAT Deletes Penalties u/s 271D and 271E [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bench at Ahmedabad has dismissed the Revenue’s appeals and upheld the deletion of penalties imposed under Sections 271D and 271E of the Income Tax Act, 1961.

It was ruled that cash transactions undertaken in the regular course of business by a co-operative credit society with its members were protected by the “reasonable cause” exception under Section 273B.

The appeals were filed by the Deputy Commissioner of Income Tax against Shri Umiya Co-operative Credit Society Ltd., challenging separate orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, wherein penalties relating to Assessment Year 2016-17 were deleted.

The penalties had been levied for alleged violations of Sections 269SS and 269T on account of acceptance and repayment of loans where cash deposits exceeded the prescribed threshold.

The assessee was engaged in providing credit facilities to its members and accepting deposits from them. During verification of high-value cash transactions reported in the Annual Information Report, the Department alleged that the society had accepted cash deposits and repayments aggregating to over ₹28 crore and ₹27 crore respectively. This was found to be in contravention of Sections 269SS and 269T. As a result, penalties equivalent to the transaction amounts were imposed under Sections 271D and 271E.

On appeal, the CIT(A) deleted the penalties after invoking Section 273B, holding that the assessee had demonstrated reasonable cause. It was noted that the cash transactions were carried out only with members, and were duly recorded in the books of accounts. The CIT(A) relied upon the Gujarat High Court ruling in PCIT v. Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd., which was also affirmed by the Supreme Court.

Before the Tribunal, the Revenue contended that the assessee, not being a co-operative bank, was covered by the prohibitions under Sections 269SS and 269T and routine business activity could not constitute reasonable cause.

The assessee, on the other hand, argued that there was no intention to evade tax and all transactions were genuine and transparent.

The Tribunal, comprising T.R. Senthil Kumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member), observed that the nature and functioning of co-operative credit societies are distinct as they operate with a limited membership and cater to small borrowers. It held that the legislative intent behind Sections 269SS and 269T was to curb unaccounted money and not to penalise bona fide transactions carried out in the ordinary course.

The bench further noted that there was no addition made in assessment proceedings in respect of the impugned transactions. The genuineness of deposits and repayments had also not been disputed by the Revenue. In such circumstances, the breach, if any, was held to be venial, arising out of a bona fide belief.

In conclusion, the Bench upheld the findings of the CIT(A) and the Revenue’s appeals were dismissed.

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