TaxTMI 
TaxTMI 
2010 (5) TMI 565
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....r the assessment year 1999-2000, it was found that the assessee company has taken loans/deposits in cash exceeding Rs. 20,000 from various parties to the tune of Rs. 1,08,64,916. Accordingly penalty proceedings under section 271D were initiated by the undersigned and show-cause notice to this effect was issued on 10-9-2002 fixing the date of hearing on 18-9-2002. In response to said show-cause notice assessee's representative Shri Sanjay Tulsian attended and sought adjournment for 23-9-2002, on which date assessee filed a written reply. Reply filed by the assessee has been duly considered and it was found that the two amounts of Rs. 3,00,000 in the name of Shri Abhishek Saraf and Rs. 7,88,250 in the name of Shri Niwas Agencies Pvt. Ltd. has no evidence in support of his contention, hence, penalty is leviable. In view of above facts it is clear that the assessee has contravened the provisions of section 269SS of the Income-tax Act and he is liable for penalty under section 271D of the Income-tax Act. In this case the assessee has accepted loans/deposits in cash, otherwise than in accordance with provisions of section 269SS to the tune of Rs. 10,88,250. I, therefore, impo....
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....; ITO v. Sunil M. Kasliwal [2005] 94 ITD 281 (Pune) (TM) (vi) CIT v. Sunil Kumar Goel [2005] 274 ITR 53 (Punj. & Har.) (vii) Chaubey Overseas Corpn. v. CIT [2008] 303 ITR 9 (All.) (viii) Shanta Electrical Industries v. ITO [1986] 160 ITR 774 (Delhi) (ix) CIT v. Capital Electronics [2003] 261 ITR 4 (Cal.). He further contended that for interpreting the provision mischief rule is required to be applied. It was his submission that this rule is required to be invoked, more particularly in the instant case, as the provision was enacted to suppress a mischief and to implement the object behind the enactment of any particular provision it would be relevant to under the object in the correct perspective. In support of this contention, he relied on the decisions in the cases of Mysore Sales International Ltd. v. Dy. CIT [2004] 134 Taxman 193 (Kar.) and State of Bihar v. CIT [1993] 202 ITR 535 (Pat.) wherein it was held that when an amendment is introduced to remove a mischief, court cannot provide a beneficial construction and interpretation which will invite consequences for such mischief must be adopted. Summarizing his arguments he urged before the Bench to rev....
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....s (P.) Ltd. (supra), it was held that the share application money received is neither loan nor deposit. Therefore, penalty under section 271D cannot be levied in respect of the amount received by the assessee in cash on account of share application money. As regards the decisions relied on by the ld. DR, it was the contention of the ld. Counsel that the ratios in those decisions are distinguishable on facts and also on law. He also submitted that a penal provision such as section 269SS read with section 271D must be construed strictly in accordance with the conditions laid down therein and cannot be extended to cover situations which are not within its ambit. The ld. Counsel further elucidated that to ascertain the true intention of the Legislature as regards the application of the provisions of section 269SS the object of enactment is required to be considered. The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money or if he makes some false entries, he does not escape by giving false explanation for the same during search and seizure operations as laid down in the decision of the Hon'ble Supreme Court....
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....f taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is [twenty] thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; b) Any banking company, post office savings bank or co-operative bank; (c) Any corporation established by a Central, State or Provincial Act; (d) Any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan....
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....269SS in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984 from any other person, any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposits is Rs. 10,000 or more..." Therefore in our considered opinion the provision was introduced to eliminate the proliferation of black money in the society at large and not otherwise. In the instant case, there was no violation of the Legislative intent behind the introduction of section 269SS inasmuch as the transaction has duly been properly recorded in the accounts with proper narration. We find the only confusion may have arisen because in the audit report under section 44AB of the Income-tax Act, 1961 such amount was inadvertently included in the schedule of "Loans". However, in the course of proceedings against the assessment order before the ld. CIT(A) such mistake was corrected and the addition was deleted by the first appellate authority after considering the genuineness of the amount received, a copy of such order is enclosed at paper book page 24, which was upheld by the ITAT ....
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....e a deposit within the meaning of that enactment. In the case before us, the shares had been allotted to the applicant and as such, the facts and the issues are entirely different and hence not applicable. (ii) Dhaniji R. Zalte's case (supra) In this case a search operation was carried out at the residential and other premises of an advocate assessee who was found to have violated the provisions of sections 269SS and 269T inasmuch as loans and deposits were accepted and repaid in cash and on such premise penalties imposed under sections 271D and 271E respectively were upheld. In the instant case, the issue is regarding the receipt of share application money in cash which was not a deposit and against which shares were issued. Therefore, the facts in the case cited are totally distinguishable and hence not applicable in the instant case. (iii) Kasi Consultant Corpn.'s case (supra) In this case the assessee firm has accepted deposits from public for the purpose of its business. Penalty proceeding under section 271D was initiated as it was found that the assessee has contravened the provisions of section 269SS and as it had failed to demonstrate the shortage of cash in the....
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....is not applicable in this case. (viii) Shanta Electrical Industries' case (supra) In this case the issue involved was the question of application of the provisions of section 271(1)(a) centering on the question of "reasonable cause". Since the issue of reasonable cause is not relevant in the context of the instant case therefore, the ratio of such judgment has no application. (ix) Capital Electronics (Gariahat)'s case (supra) The issue involved in this case was also one of "reasonable cause" for default. Since in the appeal before us the issue of reasonable cause has no application, the decision is not applicable in the facts of the present case. Thus, the ratio as laid down in the case laws relied on by the revenue is not applicable to the facts of this case. The case laws relied upon by the ld. Counsel of the assessee are dealt with as under: (i) Rugmini Ram Ragav Spinners (P.) Ltd.'s case (supra) In this case, the issue was regarding levy of penalty under section 271E for cash payments made by the assessee pertaining to refund of share application money. While deciding this issue, it was held that the money retained by the assessee company was neither dep....
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....the same was received towards allotment of shares from sixteen persons. It was also held that the provisions of sections 269SS and 269T have application only in limited way in respect of deposits or loans and when it is neither deposit nor loan, the provisions of sections 269SS and 269T have no application at all. As per this judgment of Hon'ble Madras High Court, no penalty can be imposed under section 271D also because once it is held that the receipt of share application money is neither loan nor deposit, the provisions of sections 269SS and 271D are, also not applicable because these provisions are applicable only when the assessee receives loan or deposit in cash. The judgment of Hon'ble Jharkhand High Court rendered in the case of Bhalotia Engineering Works (supra) is against the assessee. In this case, it was held by the Hon'ble Jharkhand High Court that share application money received by the assessee is a deposit and hence the provisions of section 269SS are applicable. Under this factual position, we find that there are two judgments of two different High Courts available on this issue out of which one judgment of Hon'ble Madras High Court is in favour of the assessee whe....