2011 (3) TMI 1683 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition u/s 68 on account of unsecured loan.
2. Deletion of addition u/s 68 on account of unexplained share capital.
3. Deletion of addition u/s 68 on account of share application money.
4. Levy of penalty u/s 271D for contravention of section 269SS.

Summary:

1. Deletion of addition u/s 68 on account of unsecured loan:
The first issue raised by the Revenue was the deletion of addition of Rs. 1,23,35,523/- made by the Assessing Officer (AO) u/s 68 on account of unsecured loan received in cash. The AO observed that the appellant had accepted cash deposits in the bank accounts but failed to explain the source of these deposits. The Ld. Commissioner of Income Tax (Appeals) found that the appellant had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction. The Tribunal upheld the order of the Ld. Commissioner of Income Tax (Appeals), finding no infirmity in the deletion of the addition.

2. Deletion of addition u/s 68 on account of unexplained share capital:
The second issue was the deletion of addition of Rs. 1,48,82,000/- made by the AO u/s 68 on account of unexplained share capital received from various parties. The AO added the amount as income from undisclosed sources due to the receipt of cash payments without sufficient documentary evidence. The Ld. Commissioner of Income Tax (Appeals) noted that the appellant had provided affidavits, acknowledgment of returns, balance sheets, and bank statements of the investors. The Tribunal upheld the deletion, citing the Supreme Court decision in the case of Lovely Exports Pvt Ltd, which held that the Department could not regard share application money as undisclosed income if the names of the shareholders were provided.

3. Deletion of addition u/s 68 on account of share application money:
The third issue was the deletion of addition of Rs. 98,30,000/- made by the AO u/s 68 on account of share application money received from certain individuals. The AO doubted the creditworthiness of the investors based on their declared incomes. The Ld. Commissioner of Income Tax (Appeals) found that the identity and sources of the share applicants were established, and the amounts were received towards share application money. The Tribunal upheld the deletion, again referring to the Supreme Court decision in Lovely Exports Pvt Ltd.

4. Levy of penalty u/s 271D for contravention of section 269SS:
The final issue involved the levy of penalty u/s 271D for accepting cash payments in violation of section 269SS. The AO imposed a penalty of Rs. 3,70,47,523/-. The Ld. Commissioner of Income Tax (Appeals) found that share capital of Rs. 19,00,000/- was received by cheque and reduced the penalty amount to Rs. 3,51,47,523/-. The Tribunal dismissed the Revenue's appeal regarding the Rs. 19,00,000/- received by cheque and deleted the penalty on the unsecured loan of Rs. 1,23,35,523/-. For the remaining share capital money, the Tribunal followed the decision of the Hon'ble Madras High Court in the case of C.I.T. vs. Rugmini Ram Raghav Spinners Pvt. Ltd., which held that share application money was not a deposit or loan under section 269T, and deleted the penalty.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the Assessee's appeal, upholding the deletions made by the Ld. Commissioner of Income Tax (Appeals) and deleting the penalties imposed u/s 271D.