2016 (4) TMI 902 - AT - Income Tax

Penalty levied u/s 271D - volition of sec 269SS - Held that - It is an admitted fact that Sh. Tejinder Singh had made the deposits, though in cash. there is no violation of the provisions of sec. 269SS of the Act, in as much as the transactions have duly been recorded in the accounts of the company. There is no dispute that since the company was in urgent need of money, considering the urgency, Sh Tejinder Singh, one of the directors of the company introduced the money with the assessee company. As we have already observed herein above that the object of introducing sec. 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he makes any false entry, he shall have no escape by giving false explanation to the same. In the instant case, it is clear that the cash transactions of the assessee were with the director of the company, and due to business expediency. Nobody has doubted the genuineness of the transactions. It is an admitted fact that the money was deposited by Shri Tejinder Singh, one of the directors of the company in the bank account of the assessee company. Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 exempts any amount received from a person who at the time of receipt of the amount was a director of the company, or any amount received from its shareholders by a private company, or by a private company which has become a public company. In the instant case, the amount was deposited by the director / share holder of the assessee company. Therefore, in view of the provisions of Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, it cannot be said that the assessee company has violated the provisions of section 269SS of the Act. Thus, the assessee has proved throughout beyond any shadow of doubt that transactions are genuine and there is a reasonable cause within the meaning of section 273B of the Act which provides that no penalty shall be imposed on the person or the assessee, as the case may be, for any failure referred to in section 269SS of the Act, if he / assessee proves that there was a reasonable cause for failure to take a loan or deposit otherwise than by account payee cheque or account payee bank draft then the penalty should not be levied. - Decided in favour of assessee

Summary

Issues Involved:
1. Nature of cash receipts as share application money or deposits.
2. Applicability of Section 269SS of the Income-tax Act, 1961.
3. Imposition of penalty under Section 271D of the Income-tax Act, 1961.
4. Existence of reasonable cause under Section 273B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Nature of Cash Receipts as Share Application Money or Deposits:
The assessee, a private limited company, received Rs. 30,26,000/- in cash from one of its directors, which was claimed to be share application money. The Assessing Officer (AO) and the Joint Commissioner of Income Tax (JCIT) treated this amount as deposits, invoking Section 269SS. The CIT(A) also concluded that the amount was not contributed as share application money due to lack of documentary evidence, including a Board's resolution.

2. Applicability of Section 269SS of the Income-tax Act, 1961:
Section 269SS prohibits accepting loans or deposits in cash exceeding Rs. 20,000/-. The JCIT and CIT(A) referred to the Jharkhand High Court's decision in Bhalotia Engineering Works (P) Ltd. v. CIT, which held that share application money partakes the character of deposits. However, contrary decisions from other High Courts (Delhi, Madras, Punjab & Haryana) stated that share application money does not amount to loans or deposits under Section 269SS.

3. Imposition of Penalty under Section 271D of the Income-tax Act, 1961:
The JCIT imposed a penalty of Rs. 30,26,000/- under Section 271D for contravention of Section 269SS. The CIT(A) upheld this penalty, stating the assessee failed to show reasonable cause under Section 273B. The Tribunal noted the conflicting judicial views on whether share application money falls under the purview of Section 269SS, making the issue debatable. The Supreme Court in Vegetable Products Ltd. held that in case of ambiguity, the interpretation favoring the assessee should be adopted.

4. Existence of Reasonable Cause under Section 273B of the Income-tax Act, 1961:
Section 273B provides that no penalty shall be imposed if there is a reasonable cause. The Tribunal found that the cash was introduced by a director with 99.9% shareholding for urgent business needs in a remote area without banking facilities. The genuineness of the transactions and the source of funds were not disputed. Citing cases like CIT v. Sunil Kumar Goel and CIT v. Maheswari Nirman Udyog, the Tribunal concluded that the transactions were genuine and due to business exigency, establishing reasonable cause under Section 273B.

Conclusion:
The Tribunal held that the penalty under Section 271D was not validly levied, considering the debatable nature of the issue and the reasonable cause demonstrated by the assessee. The appeal was allowed, and the penalty was canceled.

Order Pronounced:
The order was pronounced in the Open Court on 08.03.2016.