2011 (4) TMI 841 - AT - Income Tax

Penalty under section 271D - Unaccounted share application money - CIT(A) deleted the penalty - Held that - The amount received from a Director or a shareholder of a private Company cannot be treated as a loan or deposit within the meaning of companies (acceptance of deposits, Rule 1975), however assessee failed to place on record copies of these rules and bring to our notice exact provisions. He simply just raised this argument but could not substantiated, that how it has to be given preference over the provisions of Income-tax Act. Confronting the assessee submittion that assessee has sent Form No. 23AC to the Registrar to Companies showing the receipt of share application money and also point out when this form was submitted he failed to substantiate this contention also. He was unable to give any reply to our query. The assessee has not received share application money. It has received the loan/deposit in contravention to section 269SS and it deserves to be visited with penalty - the appeal of revenue allowed.

Issues Involved:
1. Validity of penalty under section 271D of the Income-tax Act, 1961.
2. Compliance with section 269SS of the Income-tax Act, 1961.
3. Nature of the amount received by the assessee (loan/deposit vs. share application money).
4. Interpretation and application of judicial precedents and legislative intent.

Detailed Analysis:

1. Validity of Penalty under Section 271D:
The primary issue is whether the penalty of Rs. 1 crore levied under section 271D of the Income-tax Act, 1961, was valid. The penalty was imposed because the assessee allegedly accepted money in cash in contravention of section 269SS, which mandates that loans or deposits of Rs. 20,000 or more must be accepted only through an account payee cheque or bank draft.

2. Compliance with Section 269SS:
The Assessing Officer found that the assessee received Rs. 1 crore in cash as part of share application money from its director, which was against the provisions of section 269SS. The assessee argued that the amount was received as share application money and not as a loan or deposit. However, the authorized share capital of the company was only Rs. 1 lakh, and there was no application for an increase in share capital, which indicated non-compliance with section 269SS.

3. Nature of the Amount Received:
The assessee claimed that the amount received was share application money, not a loan or deposit. The Assessing Officer and the Additional Commissioner argued that since the authorized share capital was not increased, the amount could not be considered as share application money. The tribunal noted that the company had already received Rs. 8,05,000 in earlier years as share application money without increasing its authorized share capital. Furthermore, part of the amount (Rs. 34,75,986) was paid through bank accounts directly to parties for construction material, indicating that the money was used for business expenses and not for share capital.

4. Interpretation and Application of Judicial Precedents and Legislative Intent:
The CIT(A) had deleted the penalty by relying on various judicial precedents, including decisions from the Hon'ble Madras High Court and ITAT. The tribunal analyzed these precedents and concluded that the facts of those cases were distinguishable from the present case. The tribunal emphasized that the legislative intent behind section 269SS was to curb the introduction of black money and ensure that transactions are conducted transparently. The tribunal also noted that the assessee did not demonstrate any reasonable cause for receiving the amount in cash.

The tribunal concluded that the assessee had received the amount in contravention of section 269SS and, therefore, upheld the penalty under section 271D. The appeal of the revenue was allowed, and the order of the CIT(A) was set aside, restoring the order of the Assessing Officer.

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