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2010 (5) TMI 565 - AT - Income TaxPenalty u/s 271D - Treatment of share application money as Deposit - 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 shall not escape by giving false explanation for the same. During search and seizures unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. - In absence of any judgment of Hon ble Apex Court or of Hon ble jurisdictional High Court on the issue the considered opinion that the contribution towards share application money received in cash does not come within the scope and ambit of the expression deposit appearing in the provisions of section 269SS in order to justify the levy penalty under section 271D - Hence the ld. CIT(A) was correct in law in deleting penalty under section 271D - The appeal of the revenue is dismissed
Issues Involved:
1. Deletion of penalty under section 271D of the Income-tax Act, 1961. 2. Interpretation of share application money as a deposit under section 269SS of the Income-tax Act, 1961. Issue-Wise Detailed Analysis: 1. Deletion of Penalty under Section 271D of the Income-tax Act, 1961: The revenue appealed against the order of the CIT(A) deleting the penalty imposed under section 271D. The Assessing Officer had imposed a penalty of Rs. 10,88,250 for accepting loans/deposits in cash exceeding Rs. 20,000, which was found during the assessment proceedings for the year 1999-2000. The CIT(A) cancelled the penalty of Rs. 3,00,000 imposed by the Assessing Officer, which led to the revenue's appeal. 2. Interpretation of Share Application Money as a Deposit under Section 269SS of the Income-tax Act, 1961: The revenue argued that the CIT(A) erred in deleting the penalty as the acceptance of share application money in cash should be considered a deposit within the meaning of section 269SS, as held in the case of Bhalotia Engg. Works Pvt. Ltd. v. CIT. The revenue cited several judgments supporting the interpretation that share application money partakes the character of a deposit and thus violates section 269SS if received in cash. The assessee's counsel argued that there are conflicting views on whether share application money constitutes a loan or deposit. They relied on the decision in CIT v. Rugmini Ram Ragav Spinners (P.) Ltd., where it was held that share application money does not amount to loans or deposits and thus is not covered under section 269SS. The counsel further argued that in cases of ambiguity, the interpretation favoring the assessee should be adopted, as per the Supreme Court's decision in CIT v. Vegetable Products Ltd. Judgment: The Tribunal analyzed the provisions of sections 271D and 269SS, as well as the rationale behind their enactment, which was to curb the proliferation of black money. It was noted that the transaction in question was properly recorded in the accounts and there was no intention to deceive the revenue. The Tribunal emphasized that the provisions of section 269SS read with section 271D are penal in nature and should be strictly construed. The Tribunal considered various judgments cited by both parties. The revenue's reliance on cases like J. J. Foams (P.) Ltd. v. CIT and Dhanji R. Zalte v. Asstt. CIT was found to be distinguishable on facts and not applicable to the present case. On the other hand, the judgments in CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. and Jagvijay Auto Finance (P.) Ltd. v. Asstt. CIT supported the assessee's position that share application money is neither a loan nor a deposit. The Tribunal concluded that in the absence of any judgment from the Supreme Court or the jurisdictional High Court on this issue, the interpretation favoring the assessee should be adopted. Therefore, the contribution towards share application money received in cash does not come within the scope of 'deposit' under section 269SS, and hence, the penalty under section 271D was rightly deleted by the CIT(A). Conclusion: The appeal of the revenue was dismissed, and the order of the CIT(A) deleting the penalty under section 271D was upheld.
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