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2018 (3) TMI 375

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..... raised through share capital from other sources to repay the loan to Prakash Electronics System Ltd would only tantamount to stepping into the shoes of the businessman and we hold that the said observation is not warranted, more so in the penalty proceedings u/s 271E of the Act. The business compulsions of the assessee warranting such conversion of loan into equity cannot be brushed aside simply as a matter of doubt merely because the shares were issued at premium. - Decided in favour of assessee - I.T.A No. 2397/Kol/2016 - - - Dated:- 7-3-2018 - Shri Aby. T. Varkey, JM And Shri M.Balaganesh, AM For The Appellant : Shri Arvind Agarwal, Advocate For The Respondent : Shri Arindam Bhattacharjee, Addl. CIT ORDER Per M . Balaganesh, AM 1. This appeal is directed by the assessee against the order passed by the Learned Commissioner of Income Tax (Appeals) 15, Kolkata (in short the ld CITA) against the order passed by the Learned Additional Commissioner of Income Tax, Range -9, Kolkata (in short the ld AO) levying the penalty u/s 271E of the Act. 2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholdin .....

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..... ₹ 77,210/-. The source of fund with the assessee is share capital of ₹ 7.25 lacs, share premium of ₹ 5.40 lacs and advance of ₹ 4.65 lacs. The entire fund has been invested for acquisition of co-ownership property amounting to ₹ 15.68 lacs. The ld AO further observed that the co-ownership property has been mortgaged with Haryana Financial Corporation, Chandigarh as the additional security against the sanction of loan of M/s Perfect Gold India Ltd, Jaipur. The assessee has raised fresh funds of ₹ 4.89 lacs in the form of share capital and a sum of ₹ 4.65 lacs by way of advance against property aggregating to ₹ 9.54 lacs. Repayment of loan of ₹ 6.76 lacs could have been made using this amount of ₹ 9.54 lacs by observing the provision contained u/s 269T of the Act. Interestingly, this fund has not been utilized for the business of the assessee but has been utilized to acquire property and the same has been mortgaged to the bank for the benefit of an allied company. There was no compulsion on part of the assessee to utilize the fresh funds for its own business. Accordingly, the fresh funds could have been utilized for repaymen .....

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..... ternational Finance ( I ) Ltd reported in 345 ITR 270 ( Bom ) ; and b ) Hon ble Madras High Court in the case of CIT vs Lakshmi Trust Co . vide order dated 18 . 12 . 2006 7. The ld CITA held that the transactions of conversion of loan into equity in the sum of ₹ 6,00,000/- in the instant case are not genuine and accordingly upheld the levy of penalty u/s 271 E of the Act by reiterating the same findings of the ld AO. However, he deleted the levy of penalty u/s 271E of the Act in the sum of ₹ 70,875/- which was repaid by way of sale of shares. 8. Aggrieved, the assessee is in appeal before us on the following grounds:- 1 . Because that the Ld . Commissioner of Income Tax ( Appeals ) was erred in law as well as in facts in upholding the initiation of penalty proceedings u / s 271E by the Ld . Additional CIT, Range - 9, by issue of show cause notice dated 29 th March, 2011, and as such his conclusions are based on his surmises and conjunctures and are contrary to the facts and material on record and provision of law . 2 . Because that the ld . Commissioner of Income Tax ( Appeals ) was erred i .....

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..... h regard to increase in share capital has been examined by the ld AO in the assessment proceedings at the time of disallowance of fees paid for increase in authorized capital. After this examination, the ld AO in his wisdom had not proceeded to make any addition towards the share capital. Hence it could be safely concluded that the transactions of receipt of share capital and share premium has been accepted as bonafide and genuine by the ld AO in the assessment. While this is so, then how can the very same transaction could be treated as ingenuine and not bonafide for the purpose of levying penalty u/s 271E of the Act alone. Even assuming that the receipt of share capital with premium of ₹ 90 per share is not genuine, still the revenue had not taken any action on the assessee to treat the same as unexplained cash credit u/s 68 of the Act. The powers of the ld CITA are co-terminus with that of the ld AO. The ld CITA while adjudicating the penalty appeal, having come to a conclusion that the receipt of share capital with premium by the assessee was not genuine and bonafide transaction, ought to have triggered the Administrative Commissioner of Income Tax to initiate proceedings .....

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..... rship property for the purpose of its business and the businessman (i.e. assessee) cannot be compelled by the revenue to conduct its business as per the whims and fancies of the revenue. It is well settled that the businessman knows his interest best and the point of commercial expediency had to be viewed from the view point of the assessee and not from the view point of the revenue. Hence the observation of the ld CITA that the assessee could have utilized the amounts raised through share capital from other sources to repay the loan to Prakash Electronics System Ltd would only tantamount to stepping into the shoes of the businessman and we hold that the said observation is not warranted, more so in the penalty proceedings u/s 271E of the Act. The business compulsions of the assessee warranting such conversion of loan into equity cannot be brushed aside simply as a matter of doubt merely because the shares were issued at premium. As stated earlier, the remedy available to revenue in such scenario is provided elsewhere in the Act as stated supra. These factors cannot contribute to confirmation of levy of penalty u/s 271E of the Act which is equal to the amount of loan repaid. 9.2 .....

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