2012 (9) TMI 557 - AT - Income Tax

Penalty u/s 271D - violation of provisions of sec. 269SS for accepting the deposits in cash - CIT(A) deleted the levy - Held that - As is apparent from the order of Addl. CIT, there is nothing on record to show that these transactions were attached with certain conditions or stipulation as to period of repayment, rate of interest, manner of repayment, etc. so as to treat the said transactions as deposits. The Revenue have not placed before us any material suggesting that the transaction was actually in the nature of loans or deposit. Since there is nothing on record to suggest that the transaction is in the nature of loan or deposit, apparently, the provisions of section 269SS are not attracted. When the CIT(A) found as a fact that the amount of Rs.14,81,208/- was indeed received by the assessee from the aforesaid two directors as share application money, we are not inclined to interfere with the findings of the CIT(A)& as the AO did not even attempt to examine as to whether or not the share application money can be treated as loan or deposit within the meaning of provisions of sec. 269SS penalty cannot be imposed - Also there is nothing on record, suggesting any tax planning or infraction of relevant provisions with malafide intention. Moreover, transactions are between the directors and the company and that too towards share application money/capital - in favour of assessee.

Summary

Issues Involved:
1. Legality of the penalty levied under Section 271D of the Income Tax Act, 1961 for violation of Section 269SS.
2. Applicability of Section 269SS to share application money received in cash.
3. Reasonable cause under Section 273B for not invoking the provisions of Section 271D.

Issue-wise Detailed Analysis:

1. Legality of the Penalty Levied under Section 271D:
The Revenue appealed against the order of the CIT(A) cancelling the penalty of Rs. 14,81,208/- levied by the AO under Section 271D for violation of Section 269SS. The AO had observed that the assessee received share application money in cash, which was considered a deposit, thus attracting the provisions of Section 269SS. The CIT(A) concluded that share application money cannot be treated as a loan or deposit and hence, the provisions of Section 269SS were not applicable.

2. Applicability of Section 269SS to Share Application Money:
The CIT(A) relied on various judicial precedents, including CIT vs. Rugmini Ram Ragav Spinners (P) Ltd., where it was held that contribution towards share application does not amount to loans or deposits. The Tribunal noted that there was no evidence suggesting that the transactions were loans or deposits with conditions such as repayment period or interest rate. The Tribunal also referred to the distinction between 'loan' and 'deposit' as explained in Chaturvedi and Pithisaria's Income-tax Law, emphasizing that share application money does not fall under these categories. Consequently, the provisions of Section 269SS were deemed inapplicable.

3. Reasonable Cause under Section 273B:
The CIT(A) also considered the argument that there was a reasonable cause for receiving the share application money in cash due to the initial stages of the company. The Tribunal supported this view, citing the legislative intent behind Sections 269SS and 269T, which was to counteract tax evasion. Since there was no case of tax evasion or concealment of income, and the transactions were genuine and bona fide, the Tribunal found that there was reasonable cause under Section 273B, thus justifying the cancellation of the penalty.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty, noting that the share application money was not a loan or deposit, and there was no evidence of tax evasion. The Tribunal dismissed the Revenue's appeal, affirming that the imposition of penalty under Section 271D was not justified both legally and factually. The appeal was dismissed, and the order was pronounced on 6.9.2012.