2018 (5) TMI 623 - AT - Income Tax

Levy of penalty u/s 271D r.w.s. 269SS - assessee has received a payment of ₹ 50 lakhs by way of cash as a loan from directors - Held that - Both the Directors have contributed the share application money to the assessee company in the year 2011 and subsequently, the shares were allotted to the share applicants. This is evident from the balance sheet of the assessee. D.R. could not controvert the fact that the assessee company had received the share application money and allotted the shares subsequently. Case of ITO Vs. Sunder Synthetics (P) Ltd 2015 (11) TMI 918 - ITAT HYDERABAD followed. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under sections 271D and 269SS of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding the levy of penalty under sections 271D and 269SS of the Income Tax Act, 1961 for the assessment year 2012-13.

2. The Additional CIT initiated penalty proceedings as the assessee received a payment of ?50 lakhs in cash as a loan. The assessee argued that the share application money received from its directors was not a loan or deposit, citing various case laws. However, the Additional CIT imposed a penalty of ?50 lakhs under section 271D of the Act.

3. The CIT(A) noted that the shares were allotted to the directors after receiving the share application money, distinguishing the case from precedents cited by the Additional CIT. The CIT(A) allowed the appeal based on the fact that the share application money was converted into share capital, following relevant case laws.

4. The ITAT upheld the CIT(A)'s decision, emphasizing that the share application money was utilized for issuing shares to the directors, as evidenced by the company's balance sheet. The ITAT found no fault in the CIT(A)'s order and dismissed the revenue's appeal, citing lack of evidence to support the revenue's case.

This judgment clarifies the distinction between share application money and loans/deposits under the Income Tax Act, emphasizing the conversion of share application money into share capital as a valid practice. The decision highlights the importance of factual evidence and legal precedents in determining the applicability of penalties under sections 271D and 269SS of the Act.