2010 (1) TMI 907 - AT - Income Tax

Violation of provisions of section 269SS of the Act - assessee received the amounts towards the share application money, contrary to the evidence on record. There mere fact that the shares had been allotted in the succeeding year and had been allotted in consideration of the value of land can be held to be no basis to assume that the value of land did not represent share application money and represented an amount of loan or deposit accepted by the assessee company and was thus in violation of provisions contained in section 269SS of the Act Held that - credit in the account was not for receipt of money but for purchase of land and the liability was partly discharged by taking as share application money - allotment of shares was in lieu of land purchased, amounts were received as share application money and subsequently shares were allotted to these persons. - Therefore, the amounts partook the character of deposit till final decision and the deposit in cash attracted the provision contained in section 269SS. If we apply the analogy of this case, if the shares had not been allotted to Vatika Ltd., the purchase price of the land would have been paid by the assessee. There would have been no occasion to receive the money, which could not be termed as loan or deposit. - the assessee did not receive any loan or deposit of money and the debt by way of unpaid purchase price was partly satisfied by allotment of shares to Vatika Ltd. - No penalty.

Summary

Issues Involved:
1. Confirmation of penalty under section 271D of the Income-tax Act, 1961.
2. Interpretation of "loan or deposit" under section 269SS of the Income-tax Act.
3. Assessment of share application money as capital receipt versus loan or deposit.
4. Application of judicial precedents and factual correctness of the CIT(Appeals) order.

Detailed Analysis:

1. Confirmation of Penalty Under Section 271D:
The primary issue is whether the levy of a penalty of Rs. 50.00 crore under section 271D of the Income-tax Act, 1961, was justified. The assessee contended that the CIT(Appeals) erred both in law and on facts in confirming the penalty. The assessee argued that it had not accepted any loan or deposit within the meaning of section 269SS, and thus the penalty under section 271D was unwarranted.

2. Interpretation of "Loan or Deposit" Under Section 269SS:
The assessee argued that the transaction in question did not constitute a "loan or deposit" as defined in Explanation (iii) to section 269SS, which exclusively refers to a loan or deposit of money. The assessee had purchased land from Vatika Ltd. and adjusted the sale consideration by allotting shares, which was reflected as share application money. The assessee maintained that this adjustment did not involve the receipt of money and thus did not violate section 269SS.

3. Assessment of Share Application Money as Capital Receipt Versus Loan or Deposit:
The assessee contended that the CIT(Appeals) incorrectly concluded that the share application money represented a loan or deposit. The assessee provided evidence that the land was received against the issue of share capital, valued at Rs. 50.00 crore, and shown as share application money. Therefore, it was argued that this was a capital receipt and not a loan or deposit.

4. Application of Judicial Precedents and Factual Correctness of the CIT(Appeals) Order:
The assessee challenged the CIT(Appeals) reliance on the Jharkhand High Court judgment in the case of M/s Bhalotia Engineering Works (P) Ltd., arguing that it was not applicable to the facts of their case. The assessee also pointed out that the CIT(Appeals) failed to appreciate the detailed written submissions, judicial pronouncements, and material placed on record.

Tribunal's Findings:

Confirmation of Penalty:
The Tribunal noted that the penalty was levied because the amount of Rs. 50.00 crore was shown as share application money received otherwise than by account payee cheque or draft, which was deemed a contravention of section 269SS. The CIT(Appeals) upheld the penalty, stating that the assessee did not prove that the amounts were received through account payee cheques or drafts.

Interpretation of "Loan or Deposit":
The Tribunal agreed with the assessee that the transaction did not constitute a "loan or deposit" of money. The credit in the account was for the purchase of land, and the liability was partly discharged by allotting shares. Therefore, it was concluded that the share application money was not received in cash and did not violate section 269SS.

Assessment of Share Application Money:
The Tribunal found that the share application money was indeed a part of the land purchase consideration and not a loan or deposit. The adjustment of the land cost towards share application money did not involve the receipt of money in cash, thus not attracting the provisions of section 269SS.

Judicial Precedents and Factual Correctness:
The Tribunal observed that the facts of the case differed significantly from the Bhalotia Engineering Works (P) Ltd. case cited by the CIT(Appeals). The Tribunal concluded that the CIT(Appeals) erred in applying this precedent and in sustaining the penalty without proper appreciation of the facts and submissions made by the assessee.

Conclusion:
The Tribunal held that the assessee did not receive any loan or deposit of money and that the liability for the land purchase was partly satisfied by allotting shares, which did not contravene section 269SS. Consequently, the Tribunal allowed the appeal and set aside the penalty of Rs. 50.00 crore under section 271D. The judgment was pronounced in the open court on 22 January 2010.