2014 (12) TMI 392 - HC - Income Tax

Deletion of penalty u/s 271D Violation of provisions of Section 269SS or not Amount received for the purpose of allotment of shares or not - Held that - The Tribunal was rightly of the view that in CIT vs. Rugmini Ram Raghav Spinners Ltd. 2007 (7) TMI 237 - MADRAS HIGH COURT it has been held that share application money is neither deposit nor loan and therefore, provisions under section 269-SS and section 269-T have no application and there cannot be penalties under section 271-D and section 271-E - if the assessee proves that there is a reasonable cause, he is not subject to levy of penalty - the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan - the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares - also, there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan - it is a question of fact and the order of the Tribunal is not a perverse one - the assessee was under the bona fide impression that the money received was only towards allotment of shares and it is not a loan or deposit thus, as such no substantial question of law arises for consideration Decided against revenue.

Summary

Issues:
1. Deletion of penalty order under Section 271D of the Income Tax Act.

Analysis:
The case involved the Revenue appealing against the deletion of a penalty order under Section 271D of the Income Tax Act by the Income Tax Appellate Tribunal. The issue stemmed from the assessee company accepting share application money in cash during the assessment years 2001-02 and 2002-03. The Assessing Officer contended that this violated Section 269SS, which led to the imposition of a penalty. However, the Commissioner of Income Tax (Appeals) referenced a court decision and held that the share application money received did not fall under the purview of Section 269SS. The Commissioner further stated that the assessee had a reasonable cause for any default under Section 269SS, as per Section 273B, and subsequently deleted the penalty for both assessment years.

The Revenue challenged the Commissioner's decision before the Income Tax Appellate Tribunal, which upheld the deletion of the penalty. The Tribunal cited a previous judgment by the Madras High Court, emphasizing that share application money is not a deposit or loan, thus negating the applicability of penalties under Section 271D and Section 271E. Consequently, the Tribunal dismissed the Revenue's appeals.

Upon further appeal to the High Court, it was noted that the assessee genuinely believed the money was for share allotment and not a loan or deposit. Citing the previous court decision, the High Court affirmed the Tribunal's decision, stating that no substantial question of law arose for consideration. The High Court upheld the Tribunal's order, dismissing both Tax Case (Appeals) and confirming the deletion of the penalty.