2013 (2) TMI 598 - AT - Income Tax

Penalty u/s 271D and 271E Whether receipt of share application money and repayment thereof will violate the provisions of section 269SS and 269T Assessee has accepted monies on account of shares/ debentures of Rs.20,000/- or more and also repaid monies otherwise than by account payee cheques or account payee Bank Drafts Held that - As decided in the case of Rugmini Ram Ragav Spinners Pvt. Ltd. 2007 (7) TMI 237 - MADRAS HIGH COURT provisions of section 269SS and 269T have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan the provisions of sections 269SS and 269T have no application at all. The Court further held that even if there is repayment by cash, it could not be said to attract the levy of penalty automatically under section 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons. In the present case also, the assessee was searched and these share application monies were never the subject matter of addition in the case of the assessee and accordingly the share application money and repayment of the same have not flowed from any undisclosed income of the assessee. Further even the penalty under section 271D and 271E is not automatic there is bonafide belief to the effect that the receipt of advances against allotment of shares and repayment of share money would not be termed as loans or deposits, which would be sufficient to drop the penalty levied in the present case In favour of assessee.

Summary

Issues Involved:
1. Confirmation of levying of penalty under Section 271D or 271E of the IT Act.
2. Application of provisions of Section 269SS and 269T of the IT Act to receipt and repayment of share application money.

Issue-Wise Detailed Analysis:

1. Confirmation of levying of penalty under Section 271D or 271E of the IT Act:

The appeals concern the confirmation of penalties levied under Sections 271D and 271E of the IT Act. The penalties were imposed due to the receipt and repayment of share application money, which the revenue authorities argued violated Sections 269SS and 269T. The assessee contended that the issue was covered in their favor by the judgment of the Hon'ble Madras High Court in the case of CIT vs. Rugmini Ram Ragav Spinners (P) Ltd., which held that share application money does not fall under the definition of loans or deposits as per Sections 269SS and 269T. The assessee also cited the Supreme Court's ruling in CIT vs. Vegetable Products Ltd., which states that in cases of conflicting views by different High Courts, the interpretation favorable to the assessee should be adopted.

2. Application of provisions of Section 269SS and 269T of the IT Act to receipt and repayment of share application money:

The revenue relied on the Jharkhand High Court's decision in Bhalotia Engineering Works (P) Ltd. vs. CIT, which held that share application money falls within the definition of loans and deposits under Section 269SS. The Tribunal, however, consistently held that receipt and repayment of share application money do not violate Sections 269SS and 269T, thereby not attracting penalties under Sections 271D and 271E. The Tribunal referenced its own earlier decisions and the Madras High Court's ruling, which differentiated share application money from loans or deposits, emphasizing that such transactions do not automatically attract penalties unless they stem from undisclosed income.

The Tribunal noted that the assessee did not pay interest on the share application monies, indicating the absence of intent to treat these as loans or deposits. The Tribunal also observed that the revenue could not substantiate that the transactions were loans or deposits disguised as share application money. The Madras High Court's judgment was favored over the Jharkhand High Court's ruling, aligning with the Supreme Court's directive to adopt the interpretation favorable to the assessee in cases of conflicting views.

Conclusion:

The Tribunal set aside the revenue authorities' orders and directed the AO to delete the penalties levied under Sections 271D and 271E of the IT Act. The Tribunal's decision was based on the consistent view that share application money and its repayment do not violate Sections 269SS and 269T, and the principle that in cases of conflicting judicial interpretations, the one favoring the assessee should be adopted. All eight appeals by the assessee were allowed.