HC suggests additional provision audit of Co-operative Societies by Chartered Accountant [Read Order]

The Madras High Court in the matter of The Chennimalai Siragiri Murugan Primary Handloom Vs. The Income Tax Officer suggested additional provision of the audit of Co-operative Societies by Chartered Accountants.

Key Text of the Judgment:

The learned counsel for the petitioner would submit that the aforesaid impugned circulars were issued under Sections 194A and 194N of the Income Tax Act (hereinafter called as “IT Act”). As far as, the impugned circular issued under Section 194A of the IT Act is concerned, the same was issued by the 3rd respondent to the petitioners/ Co-operative Societies directing them to deduct the TDS for the interest income, which exceeds a sum of Rs.40,000. As far as the circular pertaining to Section 194N of the IT Act is concerned, the same was with regard to the deduction of TDS as follows:

i) 2% for the cash withdrawal, which exceeds a sum of Rs.20,00,000 up to Rs.1 Crore; and

ii) 5% for the cash withdrawal, which exceeds a sum of Rs.1 Crore.

Further, the objects and reasons for the introduction of Section 194N of IT Act are as follows:

(i) To go for a cashless economy;

(ii) To discourage the dealings and payments of cash;

(iii) To control the circulation of illegal money in the economy;

(iv) To track the financial transaction easily at any point of time;

(v) To carry on the official transactions easily at any point of time from any place;

Further, in the cashless economy, the money will be safe, since once the money deposited or invested in the bank account, there is almost nil chance of being lost, stolen or damaged unless paper money.

It is also pertinent to note that due to the permission granted to the Co-operative Societies to deal with the cash and to distribute the same to the members under the different reliefs, there is a large number of malpractices and mishandling of the cash. Even when this Court posted a question to the learned counsel for the petitioner, since he had appeared on behalf of many delinquent officers of the Co-operative Societies, who are all said to be involved in different types of malpractices, he had fairly accepted that in the cooperative societies, there are very bright chances for happening of very many types of malpractices and mishandling of money. Further, he would submit that in many number of cases, he had appeared before this Court for the delinquent officials to get reliefs from this Court. This Court had also came across many cases, where the officers of the cooperative societies viz., Secretary or other Officials, in collusion with other officers, had opened hundreds of fictitious accounts and granted loans to those fictitious accounts. Thereafter, if there is any loan waiver or interest waiver granted by the Government, the same benefits will goes to the persons, who are all involved in the creation of those fictitious accounts. Hence, this is where the Societies are functioning in an unregulated manner. It is also due to the reason that the qualified Auditors had not been mandated to audit the accounts of the Societies and only the departmental audits have been conducted, which would pave the way for all sort of malpractices in those cooperative societies. Under these circumstances, Section 194N of the IT Act would be one of the ways to curb the malpractices in distribution of cash and encourage the cashless economy.

Now-a-days, the Central Government is granting benefits to the poor people through their bank accounts. Hence, if it is possible for the land-less people to open their bank accounts, certainly, the petitioners/ Co-operative Societies cannot plead any excuse that its members, who are all having lands, are not in a position to open the bank accounts since it is very easy process to open the bank account for anyone at present.

If any distribution of cash for reliefs such as Pongal enam, flood relief, covid relief, etc., the same can be rooted through the respective bank accounts directly, whereby unnecessarily the members need not approach the Co-operative Societies for claiming the said reliefs. On the other hand, it will be automatically credited to their respective bank accounts and message, intimating the said deposit, will also be sent to their phones. In such case, the valuable time of the farmers and other members of the societies will be saved and the work of the cooperative society will also get reduced.

Even in the ration shop of the village, relatives had purchased only the eligible sugar but they had received an intimation through message as if they had purchased wheat, oil, etc., and it is not only happening for them, but for many persons, against which the complaints were also made. Even if the Government is intend to curb these types of fraud, still the persons, who are sitting and distributing the goods, are always finding the innovative ways to cheat the poor public. Hence, keeping all these aspects in mind, this Court is of the considered view that if there is any relief, the same has to be distributed directly to the members. Otherwise, the persons, who are working in the Co-operative Societies will always find some innovative methods and swindle the money from the poor farmers and other weavers, etc. Therefore, in such view of the matter, this Court is inclined to suggest and pass the following orders:

(i) Any benefit, such as pongal enam, flood reliefs, etc., shall be made only through the bank accounts of the respective members or non-members of the Co-operative Societies. The said act will save the valuable time of the members of the said Societies since if they are called for the payment of cash, initially they have to approach the Society or ration shop, etc., to register their name along with the address and thereafter, again they have to approach the Society or ration shop, etc., to collect the money, which would unnecessarily cause hardship for the members as well as the general public. On the other hand, if the funds are transferred to the respective bank accounts of the beneficiaries, it would be hassle-free for the public and there will be no question of mishandling of any cash;

(ii) If there is payment of cash for all the benefits provided by Government, such as pongal enam, flood reliefs, etc., it would only encourage and pave way for the mishandling of money and the same will also lead to the misappropriation of money and corruption at a large extent. When a way is available to completely eradicate the corruption and mishandling of money, etc., necessarily the Government/Societies, etc., should follow the same and distribute all sorts of reliefs through their bank accounts, in which case, the question of TDS would not arise.

(iii) When the reliefs are credited to the respective bank accounts of the beneficiaries, the withdrawal of the same should be allowed only in the presence of the beneficiaries in person. At any cost, the officials of the cooperative societies/ration shops, etc., should not be allowed for withdrawal of the said reliefs by bringing the cheques from its members. If it is allowed, there are chances for malpractices and mishandling of cash hereagain.

(iv) In a similar way, if any loan is granted to the members of the societies, the said loan has to be directly credited to the respective bank accounts of the members, in which case, the withdrawal should be permitted only in the presence of respective members of the cooperative society since there is a chance for collecting of cheques by the Societies from its members and withdrawing the loan amount under the guise of helping the poor farmers, which again lead to mishandling of money. Hence, the same should not be allowed. The aforesaid aspects has to be ensured by the respective banks and Co-operative Societies and other Government Agencies, who are involved in the distribution of cash to public.

(v) Further, this Court would suggest to consider and make a provision to audit the Co-operative Societies through the Chartered Accountant in addition to the present method of scrutinising the records by the Auditors.

(vi) The 1st respondent shall also consider with regard to the issuance of appropriate circulars for entertaining the cashless transactions by the Co-operative Societies by amending the IT Act. Once if the petitioners/Co-operative Societies have followed the above suggestions, there is no need for them to handle any cash transaction any more.

The order would also avoid the distribution of reliefs in the fictitious name, since the same will happen very often at the cooperative societies, due to which, a large number of cases were also filed against the officials of the cooperative society and pending before the Courts.

With all these observations and directions, these writ petitions are disposed of. No cost. Consequently, the connected miscellaneous petitions are also closed.

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