Jhalawar Kendriya Sahakari Bank Ltd., a cooperative society engaged in banking activities in rural areas, failed to submit a statement of financial transaction (SFT) within the prescribed timeframe as mandated by section 285BA read with rule 114E. The bank argued that due to network connectivity issues at some of its 15 branches located in rural areas, it was unable to generate the necessary report for filing the SFT within the stipulated time. Consequently, the SFT return was filed after the due date. The Director of Income-tax, however, held the opinion that the bank’s internal administrative and mechanism problems could not be considered as valid reasons for the delay and, therefore, imposed a penalty under section 271FA on the bank.
In the case of Jhalawar Kendriya Sahakari Bank Ltd. v. Additional/Assistant Director of Income-tax (I&CI) Jaipur, the issue at hand was whether the penalty imposed on the bank was justifiable. The Income Tax Appellate Tribunal (ITAT) in Jaipur examined the facts and circumstances and rendered a decision in favor of the bank.
The ITAT acknowledged that there was no evidence to suggest any mala fide intention on the part of the bank. The delay in filing the SFT was primarily due to technical difficulties arising from network connectivity problems at certain branches situated in rural areas. The tribunal further observed that the breach committed by the bank was of a technical or minor nature, and it could be attributed to the bank’s genuine lack of knowledge or understanding rather than any deliberate non-compliance.
Considering these factors, the ITAT concluded that the penalty imposed on the bank was unwarranted. The tribunal opined that the breach of the filing requirement was not deliberate but rather a result of the bank’s bona fide ignorance. The technical or venial nature of the breach, coupled with the absence of any mala fide intention, led the ITAT to hold that the penalty should be revoked.
It is important to note that the ITAT’s decision was specific to the facts and circumstances of this particular case. The tribunal recognized the challenges faced by the bank in rural areas where network connectivity issues were prevalent. The ITAT took into account the genuine difficulties faced by the bank in generating the required report within the prescribed timeframe due to these connectivity problems.
In summary, the ITAT ruled in favor of Jhalawar Kendriya Sahakari Bank Ltd. by deleting the penalty imposed under section 271FA. The tribunal emphasized that the bank’s breach was not intentional but rather a technical or minor one arising from a lack of awareness. Since no malicious intent was involved and the bank’s non-compliance was attributable to genuine reasons, the penalty was deemed unjustifiable in this case.
It is worth noting that this decision pertains to the assessment year 2019-20 and was rendered by the ITAT in Jaipur. The case serves as an important precedent, highlighting the need to consider the specific circumstances and challenges faced by businesses operating in rural areas, especially in relation to compliance requirements dependent on network connectivity.
