2013 (2) TMI 573 - AT - Income Tax

Tribunal overturns penalties for share application money; Assessee favored in Income Tax Act case

The Tribunal allowed the appeals of the assessee, setting aside the penalties imposed under sections 271D and 271E of the Income Tax Act. It held that the ... Penalty 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. Levying of penalty under section 271D of the Income Tax Act.2. Levying of penalty under section 271E of the Income Tax Act.3. Applicability of sections 269SS and 269T to share application money and its repayment.4. Interpretation of conflicting judgments from different High Courts.Issue-Wise Detailed Analysis:1. Levying of Penalty under Section 271D of the Income Tax Act:The primary issue in both appeals is the confirmation of penalties levied under section 271D for the receipt of share application money. The Tribunal noted that the assessee had accepted monies on account of preference shares/debentures exceeding Rs. 20,000 without using account payee cheques or bank drafts. The Tribunal consistently held that the receipt of share application money does not violate section 269SS, which attracts penalty under section 271D. This view was supported by the Tribunal's previous decisions and the judgment of the Hon'ble Madras High Court in CIT vs. Rugmini Ram Ragav Spinners (P) Ltd., which stated that share application money is neither a deposit nor a loan, thus not attracting the provisions of section 269SS.2. Levying of Penalty under Section 271E of the Income Tax Act:The issue also involved the confirmation of penalties under section 271E for the repayment of share application money. The Tribunal reiterated that the repayment of share application money does not violate section 269T, which attracts penalty under section 271E. The Tribunal emphasized that penalties under sections 271D and 271E are not automatic and require a bona fide belief that the receipt and repayment of share application money would not be termed as loans or deposits. The Tribunal found no evidence that the share application money was received or repaid as loans or deposits, thus directing the deletion of penalties under sections 271D and 271E.3. Applicability of Sections 269SS and 269T to Share Application Money and its Repayment:The Tribunal examined whether the receipt and repayment of share application money violate sections 269SS and 269T. The Hon'ble Jharkhand High Court in Bhalotia Engineering Works (P) Ltd. vs. CIT held that share application money falls within the definition of loans and deposits under section 269SS. However, the Hon'ble Madras High Court in CIT vs. Rugmini Ram Ragav Spinners (P) Ltd. held that sections 269SS and 269T apply only to loans and deposits, not to share application money. The Tribunal favored the interpretation that share application money does not attract sections 269SS and 269T, thus not attracting penalties under sections 271D and 271E.4. Interpretation of Conflicting Judgments from Different High Courts:The Tribunal addressed the conflicting judgments from the Hon'ble Jharkhand High Court and the Hon'ble Madras High Court. It followed the principle established by the Hon'ble Supreme Court in CIT vs. Vegetable Products Ltd., which states that in cases of conflicting interpretations, the interpretation favorable to the assessee should be adopted. Consequently, the Tribunal adopted the interpretation of the Hon'ble Madras High Court, which was favorable to the assessee.Conclusion:The Tribunal set aside the orders of the revenue authorities and directed the deletion of penalties levied under sections 271D and 271E of the Income Tax Act. The appeals of the assessee were allowed, and the order was pronounced on 12.01.2012.