2010 (6) TMI 831 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are:
1. Imposition of penalty for accepting share application money in cash.
2. Penalty for treating share application money as a loan.
3. Penalty for violation of section 269SS of the Income Tax Act, 1961.
4. Applicability of case laws CIT V Speedways Rubber Pvt. Ltd. and CIT V. Vegetable Products Ltd.
5. Validity of penalty imposed by the authorities.

Imposition of penalty for accepting share application money in cash:
The appeal was against the order of Ld. CIT(A) for Assessment Year 2006-07, where the AO imposed a penalty of Rs. 50,000 for accepting share application money in cash. The AO noted that the amount was received in cash against which shares were allotted. The assessee argued that share application money is neither a loan nor a deposit, and that Section 269SS does not apply to share application money exceeding Rs. 20,000. The AO imposed the penalty under section 271D. The assessee cited judgments from various High Courts in their favor, arguing that the penalty was unjustified. The Tribunal decided in favor of the assessee based on the conflicting views of different High Courts.

Penalty for treating share application money as a loan:
The AO also imposed a penalty of Rs. 50,000 for treating the share application money as a loan. The assessee contended that the penalty should be deleted as the receipt of share application money in cash was for a reasonable cause. They presented the cash book showing the cash balance and payments made on the relevant date. The Tribunal considered the arguments and decided in favor of the assessee, stating that the penalty was not justified.

Penalty for violation of section 269SS of the Income Tax Act, 1961:
The AO imposed a penalty of Rs. 50,000 for the alleged violation of Section 269SS, which was confirmed by the Ld. CIT(A). The assessee argued that the penalty should be deleted based on reasonable cause and the bona fide nature of the share application money receipt. The Tribunal, after considering the conflicting judgments of different High Courts, decided in favor of the assessee, following the principle that the view favorable to the assessee should be adopted when two views are possible.

Applicability of case laws CIT V Speedways Rubber Pvt. Ltd. and CIT V. Vegetable Products Ltd.:
The Ld. CIT(A) held that the case laws CIT V Speedways Rubber Pvt. Ltd. and CIT V. Vegetable Products Ltd. were not applicable to the appellant's case. However, the Tribunal, after considering the judgments from various High Courts, decided in favor of the assessee based on conflicting views and the principle of adopting the view favorable to the assessee when two views are possible.

Validity of penalty imposed by the authorities:
The Tribunal allowed the appeal of the assessee, citing conflicting judgments from different High Courts and the principle of adopting the view favorable to the assessee when two views are possible. The decision was pronounced in favor of the assessee on 18th June 2010.