TaxTMI 
TaxTMI 
2012 (9) TMI 846
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....lant was aggrieved by the addition of Rs. 1,48,82,000/- and Rs. 98,30,000/-. The latter amount received under Section 269SS of the Income Tax Act, 1961 (hereafter referred to as "the Income Tax Act") and the former received towards share application amounts in cash, were disallowed. Its appeal was allowed by the CIT (Appeals). The relevant part of the reasoning of the CIT (Appeals) is extracted from his order: "From the part of explanation reproduced by the AO himself in the assessment order, it is clear that the manufacturing had started towards the end of the August 05. There are a few instances of cash received toward share capital after that also but mostly the cash was received during the construction period. I agree with the appellant's contention that merely because the amount of shares capital was received in cash it cannot be said to be unexplained. The identity of the payer is established beyond doubt. The cash has been paid mostly by directors and their relative who belong to the promoter family. It is not unusual or uncommon to receive cash and deposit in the bank for urgent need. The point is that receipt of cash as share application money is not prohibited by law. ....
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....ount towards share capital. However these observations of the AO were merely in the nature of surmise and conjecture which cannot be the basis of making addition. More over it was also contended that these amounts were towards share application money and not loan. Accordingly once the identity of the share applicant was proved, there cannot be any addition in the case of the company as held by the Supreme Court in Lovely Exports. 4.3 I have carefully considered the submissions made on behalf of appellant. From the documents filed by the appellant in support of the transaction it is seen that not only the income statement but even the balance sheet of these persons have been filed. Even if the income of these persons was in the range of 1 to 1.5 lacs, they had sufficient capital and other resources on the basis of which the source of share application money as well as share capital was established. The three directors of the appellant company were partners in other family firms like Kamdenu Metal Indus. And Shri Sidhata Steel Tubes etc. They have taken loan from these firms, which was reflected in their balance sheets. It may be noted that the AO has merely expressed his doubts a....
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....secured loans in the last year had been converted into share capital. This was stated by way of letter dated 01.12.2008. The assessee had also furnished a list of persons who had made cash payments for the purchase of shares. The Tribunal took note of CIT(Appeals) order that the AO had been furnished with various documents - affidavit, acknowledgement of returns, balance sheet and in some cases, bank statements and copies of cheques from various parties. The PAN No. and names of parties who had given the amounts and who had also confirmed by their affidavits, were furnished during the assessment proceedings. In lieu of these payments, the shares had actually been allotted to them. Having regard to these, the CIT(Appeals) directed the deletion of Rs. 98.3 lakhs received in cash from five individuals towards the share application amount. The Tribunal's findings are as follows: "16. We have heard the rival contentions and perused the relevant records. We find that the identity of the share applicants has been established. This has not been disputed even by the Assessing Officer, the claim of share application money has been rejected on the ground that the share applicants did not h....
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....of the Tribunal, following the Madras High Court judgment and setting-aside the penalty is justified. In Commissioner of Income-Tax v. Rugmini Ram Ragav Spinners P. Ltd. [2008] 304 ITR 417 (Mad), the Madras High Court was of the view that if the explanation of an assessee is plausible, then in terms of Section 273B, no penalty can be imposed for infringement of various provisions, including Section 271D. The relevant discussion in this regard is as follows: "The above section provides that if the assessee proves that there is a reasonable cause, he is not subject to levy of penalty. The case of the assessee is that, the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan. In this case, the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares. Also, there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan. The first appellate authority as well as the Tribunal have come to a correct conclusion after accepting the explanation offered by the assessee. It is a....