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2012 (2) TMI 355 - HC - Income TaxPenalty u/s 271D - unsecured loan received in cash / bearer cheques assessee contending them to be share application money Held that - Tribunal while deleting penalty took view that assessee company had entertained a bona fide belief of non-applicability of Section 269SS on loans accepted from its directors/ shareholders. Whereas records reveal that company specificaly pleaded the same to be share application money and not loans or deposits at all. How can it said that the company was under such bona fide belief of non-applicability of S 269SS on loans. Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 would also have no application in the present case wherein it is held that deposit does not include any amount received from a director or a shareholder of a private limited company. Further, shelter u/s 273B is granted if it is established that for some bona fide reasons the assessee could not get a loan or deposit by an account payee cheque or account payee bank draft which is absent in present case. Therefore, order of tribunal cancelling the penalty is set aside Decided in favor of revenue.
Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in concluding that no penalty was leviable under section 271D of the Income Tax Act, 1961. 2. Whether the amounts received were loans or share application money. 3. Whether there was a reasonable cause for the assessee's non-compliance with section 269SS of the Income Tax Act, 1961. 4. Interpretation of the expression "any other person" in section 269SS. 5. Applicability of section 273B to mitigate penalties under section 271D. Issue-wise Detailed Analysis: 1. Penalty under Section 271D: The substantial question of law was whether the Income Tax Appellate Tribunal (ITAT) was correct in concluding that no penalty was leviable on the assessee under section 271D. The High Court held that the penalty under section 271D is mandatory once a violation of section 269SS is established. The Tribunal's decision to cancel the penalty was set aside by the High Court, as it was not supported by adequate findings of "reasonable cause" for non-compliance with section 269SS. 2. Nature of Amounts Received: The assessee contended that the amounts received from the directors/shareholders were share application money and not loans. However, the Assessing Officer, CIT(A), and the Tribunal found that the amounts were shown as unsecured loans in the balance sheet and confirmation letters, and not as share application money. The authorized share capital during the relevant year was only Rs. 5 lakhs, which was later raised to Rs. 25 lakhs in 2003, making it impossible for the amounts to be share application money. This finding was not challenged by the assessee, and the amounts were conclusively treated as unsecured loans. 3. Reasonable Cause for Non-Compliance: The Tribunal accepted the assessee's plea that the loans were genuine and that the assessee had a bona fide belief that section 269SS did not apply to genuine loans. However, the High Court found that the assessee did not initially claim the amounts as loans but as share application money, which was an afterthought. The High Court emphasized that for section 273B to apply, there must be a genuine and bona fide transaction, and the taxpayer must prove that there was a bona fide reason for not using account payee cheques or drafts. The Tribunal did not provide a clear finding on the bona fide reasons for non-compliance, thus failing to justify the cancellation of the penalty. 4. Interpretation of "Any Other Person": The Tribunal noted differing views on whether the term "any other person" in section 269SS includes directors/shareholders. It relied on the Hyderabad Bench decision in Dillu Cine Enterprises (P) Ltd v. ACIT, which excluded directors from this term. However, the High Court rejected this interpretation, stating that the plain reading of the section does not exclude directors or members of the company. The corporate veil should not be pierced to create an identity between the company and its directors/members. 5. Applicability of Section 273B: Section 273B provides relief from penalties if there is a "reasonable cause" for non-compliance. The Supreme Court in Asst. Director of Inspection (Investigation) v. Kum. A.B. Shanthi clarified that both a genuine transaction and a bona fide reason for not using account payee cheques or drafts are required. The Tribunal failed to establish bona fide reasons for the assessee's non-compliance, which is essential for invoking section 273B. Without such a finding, the penalty under section 271D could not be waived. Conclusion: The High Court concluded that the Tribunal misdirected itself in law by construing the assessee's actions as bona fide and excusable under section 273B. The penalty imposed by the Assessing Officer under section 271D was justified due to the clear violation of section 269SS, and the Tribunal's order cancelling the penalty was set aside. The appeal was allowed in favor of the revenue, with no order as to costs.
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