2011 (4) TMI 1409 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271D for violation of Sec. 269SS.
2. Confirmation of penalty u/s 271E for violation of Sec. 269T.

Summary:

Issue 1: Confirmation of penalty u/s 271D for violation of Sec. 269SS

The assessee challenged the penalty of Rs. 32,46,761/- levied by the Addl. Commissioner of Income-Tax u/s 271D read with Sec. 269SS. The CIT(A) inferred that the act of placing money by the share applicants for allotment of shares tantamounts to depositing of money, thus violating Sec. 269SS. The Tribunal noted that the assessee accepted monies on account of preference shares/debentures of Rs. 20,000/- or more otherwise than by account payee cheque or bank draft. The Tribunal referred to conflicting judgments: the Hon'ble Jharkhand High Court in Bhalotia Engineering Works (P) Ltd. Vs. CIT, which held that share application money is a deposit, and the Hon'ble Madras High Court in CIT Vs. Rugmini Ram Ragav Spinners (P) Ltd., which held that share application money is neither a loan nor a deposit. The Tribunal favored the assessee, interpreting the provisions in light of the Supreme Court's decision in CIT Vs. Vegetable Products, which mandates adopting the interpretation favoring the assessee in case of ambiguity. Consequently, the Tribunal concluded that receipt of share application money does not violate Sec. 269SS, and thus, the penalty u/s 271D was not justified.

Issue 2: Confirmation of penalty u/s 271E for violation of Sec. 269T

The assessee also contested the penalty of Rs. 5,50,352/- levied by the Addl. Commissioner of Income-Tax u/s 271E read with Sec. 269T. The CIT(A) confirmed the penalty, observing that the assessee received and repaid share application money in cash without reasonable cause. The Tribunal, however, referred to the same conflicting judgments as in the first issue and concluded that repayment of share application money does not attract the provisions of Sec. 269T. The Tribunal emphasized that the share application money and its repayment were not loans or deposits and did not flow from any undisclosed income. Therefore, the penalty u/s 271E was also deemed unjustified.

Conclusion:

The Tribunal allowed all the appeals filed by the assessee, ruling that the receipt and repayment of share application money do not violate Sec. 269SS and Sec. 269T, and thus, penalties u/s 271D and 271E were not applicable.