2015 (2) TMI 116 - HC - Income Tax

Penalty under Section 271D - whether share application money received in cash is in the nature of deposit and not in contravention to the provisions of Section 269 SS ? - Held that - In the present case 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. Hence, following the decision of this Court CIT V. Rugmini Ram Raghav Spinners Private Limited 2007 (7) TMI 237 - MADRAS HIGH COURT we find when rigours of Section 269SS of the Income Tax Act cannot be applied, penalty could not be levied under Section 271D of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of Section 269SS and Section 271D of the Income Tax Act regarding share application money received in cash.
2. Determination of whether the assessee had a reasonable cause in believing the money accepted was not a loan or deposit.
3. Assessment of whether the Tribunal's conclusion on the bonafide belief of the assessee was justified based on the evidence.

Analysis:
1. The case involved appeals by the Revenue against the Income Tax Appellate Tribunal's decision regarding share application money received in cash by the assessee company during the assessment years 2002-03, 2003-04, and 2004-05. The Assessing Officer considered the share application money as a deposit, alleging a violation of Section 269SS by not accepting account payee cheques. The Commissioner of Income Tax (Appeals) allowed the appeals based on a previous court decision. The Tribunal upheld this decision, emphasizing the genuineness of the transaction and the assessee's belief that the money was not a loan or deposit, thus negating the penalty under Section 271D.

2. The Tribunal's dismissal of the Revenue's appeals was based on the assessee's reasonable cause in believing the money received was solely for share allotment, not a loan or deposit. Citing a previous court decision, the Tribunal held that as long as the genuineness of the transaction was not in doubt and the assessee had a bonafide belief, penalties under Section 271D could not be imposed. The Tribunal's decision was in line with the principle that penalties are not levied if a reasonable cause is established by the assessee.

3. The High Court, in line with previous decisions, affirmed the Tribunal's order, stating that the assessee genuinely believed the money was for share allotment, not a loan or deposit. The Court highlighted that when there is a bona fide impression regarding the nature of the funds received, penalties under Section 271D are not applicable. The Court emphasized the importance of valid evidence and material to prove a transaction as a loan or deposit, which was lacking in this case. Consequently, the High Court dismissed the Revenue's appeals, upholding the Tribunal's decision based on the assessee's bonafide belief and the absence of legal infirmity in the order.