2007 (7) TMI 237 - HC - Income Tax

Assessee had repaid some of the share application money which it had received earlier in cash assessee plea is that amount received is only for the purpose of allotment of shares and it is not a deposit or loan, is acceptable no interest paid on advance - bona fide belief that the money received is only for the purpose of allotment of shares - Tribunal rightly held that cash payments pertains to refund of share application money and not repayment of deposit or loan penalty not leviable

Summary

Issues:
1. Interpretation of cash payments made by the assessee - refund of share application money or repayment of deposit/loan.
2. Levy of penalty under section 271E of the Income-tax Act.

Issue 1 - Interpretation of Cash Payments:
The case involved a closely-held company receiving cash as advance towards share allotment without specifying a return timeframe. The Revenue contended that the cash repayments of share application money contravened section 271E, justifying penalty imposition. However, the assessee argued that the transactions were related to share application money, not loans or deposits, hence not violating section 269T. The High Court found that the retained money was share capital advance, not a deposit or loan. The provisions of sections 269SS and 269T aim to prevent tax evasion through concealed income laundering, applicable only to deposits or loans. As the transactions were not deposits or loans, penalty under section 271E was not automatic. The court emphasized the importance of establishing a reasonable cause to avoid penalty, which the assessee successfully demonstrated. The factual findings supported that the transactions were share application money, not loans or deposits, leading to the dismissal of the Revenue's appeal.

Issue 2 - Levy of Penalty under Section 271E:
The Assessing Officer imposed a penalty under section 271E for non-compliance with section 269T. Section 271E mandates penalties for repaying deposits contrary to section 269T. However, the High Court clarified that section 269T pertains to the repayment of deposits specifically, which was not the case in the present scenario where the transactions were related to share application money. The court highlighted that the absence of a deposit negates the applicability of section 269T and subsequently section 271E. Furthermore, section 273B provides for penalty exemption if a reasonable cause is proven, which the assessee successfully demonstrated. The court upheld the lower authorities' findings, emphasizing that the Revenue failed to provide evidence supporting the transactions as deposits or loans. The High Court dismissed the tax case, ruling in favor of the assessee and against the Revenue, citing no legal infirmity in the Tribunal's order.

In conclusion, the judgment clarified the distinction between share application money and deposits/loans, emphasizing the necessity of establishing a reasonable cause to avoid penalties under the Income-tax Act. The court's decision was based on valid evidence and factual findings, ultimately dismissing the Revenue's appeal and upholding the assessee's position.