In a significant ruling concerning tax-reporting obligations of cooperative banks, the High Court of Karnataka has quashed criminal proceedings arising from an Income Tax Department complaint against Mohit Maski, Chairman of SUCO Souharda Sahakari Bank Ltd.
Justice Ravi V. Hosmani, hearing Criminal Petition No. 5923 of 2019, held that in view of a final finding of the Income Tax Appellate Tribunal (ITAT), Bengaluru, it could not be alleged that the cooperative bank had violated Section 285BA of the Income Tax Act for the period prior to April 1, 2015.
The case arose from a private complaint filed by the Income Tax Department alleging that SUCO Souharda Sahakari Bank Ltd., its Chairman and CEO had failed to furnish statements of financial transactions or reportable accounts under Section 285BA of the Income Tax Act, 1961 read with Rule 114E of the Income Tax Rules, 1962 for financial years from 2004-05 to 2015-16.
Before the High Court, the petitioner’s Senior Counsel relied on an earlier ITAT Bengaluru ruling concerning the same bank. The Tribunal had held that cooperative banks were specifically included within Rule 114E with effect from April 1, 2015, and that the position for the earlier period gave rise to a bona fide belief and reasonable cause in the context of the penalty proceedings.
The ITAT had further observed that the amendment to Rule 114E was effective from April 1, 2015 and that, for the earlier period, there was no provision under Rule 114E specifically including cooperative banks. On that basis, it had deleted the penalty imposed for the relevant earlier financial years.
The Income Tax Department did not dispute before the High Court that the ITAT’s finding on the legal issue had attained finality in favour of the assessee-bank.
Taking note of that final finding, the High Court observed that “it cannot be alleged that accused no.1-Bank being Sauharda Co-operative Bank had violated Section 285BA of Act for period prior to 01.04.2015 as alleged in complaint.” The Court consequently held that initiation of the impugned proceedings was illegal.
Accordingly, the High Court allowed the petition and quashed the Income Tax Department’s complaint dated March 29, 2019, the order dated April 8, 2019, and the entire proceedings in C.C. No.130/2019 pending before the Special Court (Economic Offences), Bengaluru.
The ruling is significant for cooperative banking institutions because it reinforces the principle that a reporting requirement specifically extended to cooperative banks from April 1, 2015 could not be used to allege a violation for the period preceding that date.
However, the judgment should be understood in the context of the particular proceedings and the final ITAT finding concerning SUCO Souharda Sahakari Bank Ltd., rather than as a blanket exemption from tax-reporting obligations for cooperative banks.
