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2013 (2) TMI 497 - AT - Income TaxPenalty 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.
Issues Involved:
1. Confirmation of levying of penalty under Section 271D or Section 271E of the Income Tax Act. 2. Applicability of Sections 269SS and 269T of the Income Tax Act to share application money and its repayment. Detailed Analysis: Confirmation of Levying Penalty under Section 271D or Section 271E: The core issue in all six appeals is the confirmation of penalties levied under Sections 271D and 271E of the Income Tax Act. These penalties were imposed on account of the receipt and repayment of share application money, which the revenue authorities argued fell under the purview of Sections 269SS and 269T of the Act. The Tribunal was tasked with determining whether these transactions indeed violated the provisions, thereby justifying the penalties. Applicability of Sections 269SS and 269T to Share Application Money: The Tribunal examined whether the receipt and repayment of share application money constituted a violation of Sections 269SS and 269T, which regulate the acceptance and repayment of loans and deposits. The Tribunal noted that there were conflicting judgments from different High Courts on this matter. 1. Arguments by the Assessee: - The assessee's counsel argued that the issue was covered in favor of the assessee by the judgment of the Madras High Court in the case of CIT vs. Rugmini Ram Ragav Spinners (P) Ltd. The counsel further contended that in cases of conflicting High Court judgments, the interpretation favorable to the assessee should be adopted, citing the Supreme Court's decision in CIT vs. Vegetable Products Ltd. 2. Arguments by the Revenue: - The revenue's representative 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. 3. Tribunal's Observations and Decision: - The Tribunal consistently held that the receipt of share application money and its repayment did not violate Sections 269SS and 269T, and thus did not attract penalties under Sections 271D and 271E. The Tribunal referenced its own previous decisions and the judgments of higher courts to support this view. - The Tribunal cited the Madras High Court's decision, which clarified that Sections 269SS and 269T apply only to loans and deposits, and not to share application money. The Madras High Court had held that share application money is neither a loan nor a deposit, and thus does not attract penalties under Sections 271D and 271E. - The Tribunal also noted that the revenue could not provide evidence to show that the money received was anything other than share application money. The Tribunal emphasized that penalties under Sections 271D and 271E are not automatic and require a bona fide belief that the transactions were not loans or deposits. 4. Conflicting High Court Judgments: - The Tribunal acknowledged the conflicting judgments from the Jharkhand and Madras High Courts. Following the Supreme Court's principle in CIT vs. Vegetable Products Ltd., the Tribunal adopted the interpretation favorable to the assessee, thereby setting aside the penalties. 5. Conclusion: - The Tribunal concluded that the receipt and repayment of share application money did not violate Sections 269SS and 269T. Consequently, the penalties levied under Sections 271D and 271E were deleted. The Tribunal's decision was based on a consistent interpretation of the law, favoring the assessee in light of conflicting High Court judgments. Result: All six appeals filed by the assessee were allowed, and the penalties levied under Sections 271D and 271E were deleted. The order was pronounced on 12.01.2012.
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