TMI Blog2011 (1) TMI 1483X X X X Extracts X X X X X X X X Extracts X X X X ..... r AYs. 2004-05 and 2007-08 confirming penalty of ₹ 5,15,300/- and ₹ 3,57,500/- respectively. The Income Tax Department had carried out a search seizure operations U/s.132 of the Income tax Act. 1961 against the Basil/Appelline Group of cases of which the assessee was part of, on 27.12.2006. Following the search notices U/S. 153A of the Income Tax Act, 961 had been issued and on the basis of the returns file by the assessee the Assessing Officer had made assessments U/s. 153A of the Income Tax Act,1961 on 14- 07-2008. The Assessing Officer had intimated the Addl. CIT, Range VI, Kolkata of the fact of the assessee accepting monies on account of Preference Shares / Debentures amounting to ₹ 20,000/- or more from any particular person otherwise than by an account payee cheque or account payee bank draft in the assessment years under appeal. The Addl, CIT , Range VI, Kolkata had, after hearing the assessee, levied Penalty u/s. 271D of the Income Tax Act, 1961 in the said assessment years on 31-12-2008. Similarly, on the intimation by the Assessing Officer of the assessee had made repayment of monies taken on account of Preference Shares / Debentures amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of share application money in cash amounting to ₹ 20,000/-. or more violates the provisions of Sec.269SS. The Addl CIT had also held, in the context of levy of penalty under section 271E, that it is clear that if the acceptance of cash for the purpose of contribution to share capital/debenture is held as violated the provisions of Sec.269SS of the IT Act it is equally clear that the repayment of such money exceeding ₹ 20,000/- in cash to a particular person violated the provisions of Sec.269T of the 1 T Act. Further, the debenture, as per the Addl. CIT, itself means debt or loan and the repayment of this money in cash will definitely attract the provisions of Sec.269T of the I T Act. Accordingly, the Addl.CIT had held that the assessee had contravened the provisions of Sec.269SS by accepting preference share capital or debenture money amounting to ₹ 25,56,000/-,Rs.25,81,000/-, ₹ 7,53,000/- and ₹ 3,57,500/- for Assmt Years 2002-03,2003-04 2004-05 and 2007-08 respectively otherwise than by account payee cheque or account payee bank draft . The Addl.CIT had, therefore, levied penalty U/s.271 D of ₹ 25,56,000/-,Rs.25,81,000/- ₹ 7,53, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner. Therefore the conditions precedent for imposing penalty u/s. 271D are satisfied only when the assessee accepts loans or deposits in infringement of the provisions of s. 269SS and not otherwise. The provisions of s. 269SS read as under: Mode of taking or accepting certain loans and deposits. 269SS. No persons shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if, - (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The Central Board of Direct Taxes in Circular No. 387 dated 06-07-1984 has in explanatory notes issued after the Finance Act, 1984 has considered the same as under: 32.1 Unaccounted cash found in the course of searches carried out by the Income Tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. 32.2 With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion must be construed strictly in accordance with the conditions laid down therein. Therefore, the interpretation of the provision of s. 269SS read with s. 271D should be strictly construed and this argument of the Ld. DR is rejected. Now coming to the issue at hand, both the parties have relied upon the catena of judgments in support of their respective claims. The Ld. DR has relied on the following decisions which are dealt with as under: i) J. J. Foams (P) Ltd. -Vs- CIT supra In this case, the assessee itself had treated the amounts raised by it as deposits and paid interest thereupon without shares being allotted and on such premise it was held that the provisions of s. 40A(8) were applicable. In the instant case, the issue is one of penalty u/s. 271D read with s. 269SS wherein the contribution in cash towards share application money received which was considered to be 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 -Vs- ACIT supra In this case a search operation was carried out at the residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT, C Bench, Kolkata in ITA No. 487/Kol/2005 dated 04/07/2005 in toto. Therefore, in our considered opinion, there was no violation of the dictum of speaking order so that the decision relied on has no relevance in the facts of the case. vii) Chaubey Overseas Corporation -Vs- CIT supra In this case the assessee has received cash for supply of silk fabric which could not be executed in time and the money so received was treated to be a deposit as the assessee was under obligation to return it and in such circumstances, the penalty for contravention of s. 269SS was levied and upheld. Whereas in the instant case the money received from Sri Abhisek Saraf in the sum of ₹ 3,00,000/- on 31-03-1999 was fully absorbed and set off against the issue of shares and as such the very conception of deposit is not applicable in this case. viii) CIT -Vs- Shanta Electrical Industries supra In this case the issue involved was the question of application of the provisions of s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the ratios of the decisions rendered in the cases of Bhalotia Engineering Works supra relied on by the Revenue and Rugmini Ram Ragav supra relied on by the assessee. It was so held as under: We find that it is an admitted position that in the present case, the impugned amount of ₹ 8.55 lakhs was received by the assessee in cash as share application money. In the case of Rugmini Ram Ragav (supra), the issue before Hon'ble Madras High Court was regarding levy of penalty under s. 271E for cash payments made by the assessee pertaining to refund of share application money. While deciding this issue, it was held by Hon'ble Madras High Court that the money retained by the assessee company was neither deposit nor loan because the same was received towards allotment of shares from sixteen persons. It was also held that the provisions of ss. 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 ss. 269SS and 269T have no application at all. As per this judgment of Hon'ble Madras High Court, no penalty can be imposed under s. 271D also because once it is held that the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not governed by s. 269SS of the Act. In light of the facts of this case and the legal position on this issue and in absence of any judgment of Hon'ble Apex Court or of Hon'ble jurisdictional High Court on the issue before us, we are of the considered opinion that the contribution towards share application money received in cash from Sri Abhisek Saraf in the sum of ₹ 3 lacs does not come within the scope and ambit of the expression 'deposit' appearing in the provisions of s. 269SS in order to justify the levy penalty u/s. 271D and hence the Ld. CIT(A) was correct in law in deleting penalty u/s. 271D of ₹ 3 lacs in the circumstances of the case and after due deliberation, we are inclined to uphold the same. We also find that the Coordinate bench in the case ITO Vs. Cookme (Spice) Pvt. Ltd. in ITA Nos. 999/K/2008, 599/K/2009 and 42/K/2010 for A.Y. 2003-04 dated 16.11.2010 has held as under : 5. After hearing the rival parties , perusing the material available on record, and the case laws cited by the parties, we find that while deleting the penalty the Ld. CIT(A) has dealt the issue as under : I have carefully considered the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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