2016 (8) TMI 65 - AT - Income Tax

Penalty under section 271D - violation of the provisions of section 269SS - share application money exceeding ₹ 20,000/- was received in cash - Held that - The authorized share capital of the assessee company was already paid and nothing was left further against which the assessee could receive the share application money and, therefore, the argument of the assessee that the share application money exceeding ₹ 20,000/- was received in cash under bonafide belief that section 269SS do not prohibit so, is fallacious and devoid of any merit. We agree with the learned Departmental Representative that the assessee has squarely failed in pointing out any reasonable cause as why the money was received in cash despite both the subscriber and assessee company having enjoyed bank facilities. In view of the above discussion, we are of the considered opinion that the assessee failed to prove that there existed a reasonable cause for failure to comply with the provisions of section 269SS of the Act. Accordingly, we are not inclined to grant any immunity from levy of penalty under section 271D of the Act on the ground of existence of reasonable cause for failure to comply with the provisions of section 269SS of the Act. - Decided in favour of revenue

Summary

Issues Involved:
1. Validity of penalty under Section 271D of the Income Tax Act.
2. Applicability of Section 269SS to the assessee's transactions.
3. Existence of reasonable cause for non-compliance with Section 269SS under Section 273B.

Detailed Analysis:

1. Validity of Penalty under Section 271D:
The core issue revolves around the penalty of ?10,70,000 levied under Section 271D for accepting share application money in cash, allegedly violating Section 269SS. The Tribunal initially allowed the appeal, stating that at the time of receipt, there was no liability to return the money unless shares were not allotted, thereby negating the penalty. However, the High Court remitted the matter back to the Tribunal to re-examine whether the amount received was a loan or deposit, as this aspect was not sufficiently addressed by the Tribunal.

2. Applicability of Section 269SS:
The assessee argued that the share application money was neither a loan nor a deposit, thus not falling under Section 269SS. The Tribunal, upon re-examination, noted that the authorized share capital of the assessee was only ?1 lakh, fully paid up, and no shares were allotted against the share application money. The Tribunal observed that the money was utilized for business purposes and not kept separately for refund, indicating it was not genuinely share application money but rather a loan or deposit. This conclusion was supported by the precedent in the case of ITO vs. M/s. Nandi Promoters Private Limited, where similar circumstances led to the money being classified as a loan rather than share application money.

3. Existence of Reasonable Cause under Section 273B:
The assessee claimed immunity from penalty under Section 273B, citing a bona fide belief that Section 269SS did not prohibit accepting share application money in cash. However, the Tribunal rejected this argument, noting that both the assessee and the subscribers had bank accounts, and no reasonable cause was shown for accepting cash. The Tribunal emphasized that the authorized share capital was already fully paid, and no increase was sought, making the receipt of share application money in cash unjustifiable.

Conclusion:
The Tribunal upheld the penalty under Section 271D, concluding that the amount received in cash was in the nature of a loan or deposit, violating Section 269SS. The arguments for reasonable cause under Section 273B were dismissed due to the lack of justification for accepting cash when bank facilities were available. The appeal of the assessee was dismissed, and the penalty was sustained.