2011 (1) TMI 1483 - AT - Income Tax

Tribunal cancels penalties under Income Tax Act Sections 271D & 271E, citing proper record-keeping and lack of deceptive intent.

Basil Exports Ltd. Versus Deputy Commissioner of Income-tax

Basil Exports Ltd. Versus Deputy Commissioner of Income-tax - TMI Issues Involved:1. Penalty under Section 271D of the Income Tax Act for acceptance of cash exceeding Rs. 20,000.2. Penalty under Section 271E of the Income Tax Act for repayment of cash exceeding Rs. 20,000.Detailed Analysis:1. Penalty under Section 271D of the Income Tax Act for acceptance of cash exceeding Rs. 20,000:The assessee filed appeals against the penalty orders passed by the Ld. CIT(A) under Section 271D for the assessment years 2002-03 to 2004-05 and 2007-08. The penalties were imposed for accepting monies on account of Preference Shares/Debentures amounting to Rs. 20,000 or more from any particular person otherwise than by an account payee cheque or bank draft. The Addl. CIT, Range VI, Kolkata, after hearing the assessee, levied penalties of Rs. 25,56,000/-, Rs. 25,81,000/-, Rs. 7,53,000/-, and Rs. 3,57,500/- for the respective assessment years.The Addl. CIT held that the assessee did not deny the receipt of cash over Rs. 20,000 from any single person nor objected to the aggregate amount accepted in cash. The reliance was placed on the judgment of the Hon'ble Jharkhand High Court in Bhalotia Engineering Works (P) Ltd Vs CIT, which held that share application money is a deposit, and acceptance of such money in cash in excess of Rs. 20,000 violated Section 269SS of the Income Tax Act.2. Penalty under Section 271E of the Income Tax Act for repayment of cash exceeding Rs. 20,000:Similarly, the assessee filed appeals against the penalty orders passed by the Ld. CIT(A) under Section 271E for the assessment years 2004-05 and 2007-08. The penalties were imposed for repaying monies taken on account of Preference Shares/Debentures amounting to Rs. 20,000 or more to any particular person otherwise than by an account payee cheque or bank draft. The Addl. CIT, Range VI, Kolkata, after hearing the assessee, levied penalties of Rs. 5,15,300/- and Rs. 3,57,500/- for the respective assessment years.The Addl. CIT held that the assessee did not deny the repayment in cash over Rs. 20,000 to any single person nor objected to the aggregate amount repaid in cash. The judgment of Bhalotia Engineering Works (P) Ltd was again referenced to hold that repayment of share application money in cash in excess of Rs. 20,000 violated Section 269T of the Income Tax Act.Tribunal's Findings:At the hearing, both parties conceded that the issue is covered in favor of the assessee by a series of judgments, including M/s. Pravez Constructions (P) Ltd. Vs. Addl. CIT, VLS Foods (P) Ltd. Vs. Addl. CIT, CIT Vs. Rugmini Ram Ragav Spinners P. Ltd., and others. The Tribunal referenced the case of ITO Vs. M/s. Avadh Rubber Ltd., which held that the receipt of share application money is neither a loan nor a deposit and hence does not attract the provisions of Section 269SS or Section 271D.The Tribunal noted that the object of introducing Section 269SS was to prevent unaccounted money and false entries in the account books. However, in the present case, the transactions were properly recorded with no intention to deceive the Revenue. The Tribunal emphasized that penal provisions must be construed strictly and only apply to cases specifically included within their letter.The Tribunal also referenced the judgment in VLS Foods (P) Ltd. Vs. Addl. CIT, which stated that receipt of share application money is neither a loan nor a deposit, and hence Sections 269SS and 271D are not applicable.Conclusion:Based on the legal position and the facts of the case, the Tribunal held that the penalties under Sections 271D and 271E were not justified. The appeals of the assessee were allowed, and the penalties were deleted.Order Pronouncement:The order was pronounced in the open court on 21.1.2011.