DCIT, Central Circle-2, Hyderabad V. M/s. Dhatri Constructions Pvt.Ltd, Hyderabad

ITA 1408/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66493 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: S RAMA RAO
• Keywords: Income from undisclosed sources; Search and seizure; Reasonable cause
• Section: 273B; 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1408/HYD/2011 A.Y. 2006-07 I.T.A. NO. 1409/HYD/2011 A.Y. 2007-08 I.T.A. NO. 1410/HYD/2011 A.Y. 2008-09 DY. CIT CENTRAL CIRCLE-2 HYDERABAD VS. M/S. DHATRI CONSTRUCTIONS PVT. LTD., HYDERABAD PAN: AACCD1895M APPELLANT RESPONDENT APPELLANT BY: SRI M.H. NAIK RESPONDENT BY: SRI S. RAMA RAO DATE OF HEARING: 09 . 1 0.2012 DATE OF PRONOUNCEMENT: 26.11.2012 O R D E R PER CHANDRA POOJARI, AM: THESE THREE APPEALS BY THE REVENUE ARE DIRECTED AG AINST THE COMMON ORDER OF THE CIT(A)-I, HYDERABAD DATED 6.6.2 011 FOR ASSESSMENT YEARS 2006-07 TO 2008-09. 2. THE REVENUE RAISED THE FOLLOWING COMMON GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE MONEY ADVANCED BY SRI S. VEKATESWARA REDDY, DIRECTOR OF THE COMPANY FOR PURCHASE OF LANDS BY THE COMPANY CAN BE TREATED AS SHARE APPLICATION MONEY FOR WHICH THE PROVISIONS OF SECTI ON 269SS ARE NOT APPLICABLE. 2. THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION IN T HE CASE OF M/S. BHALOTIA ENGINEERING WORKS (P) LTD. VS . CIT (275 ITR 399) (JHARKHAND) AND HELD THAT PENALTY IS EXIGIBLE FOR THE MONEY RECEIVED BY THE COMPANY FROM S. VENKATESWARA REDDY, DIRECTOR. 3. GOING BY THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE HELD THAT THE PAYMENTS I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 2 MADE FOR PURCHASE OF LAND BY THE DIRECTOR ARE NOTHING BUT DEPOSITS WHICH WERE LATER ADJUSTED SHARE CAPITAL. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSMENTS U /S. 143(3) R.W.S. 153A FOR THE AFOREMENTIONED ASSESSMENT YEARS WERE COMPLETED BY THE ASSESSING OFFICER. DURING THE COUR SE OF ASSESSMENT PROCEEDING, IT WAS NOTICED BY THE ASSESS ING OFFICER THAT THE APPELLANT COMPANY HAD ACCEPTED SHARE APPLI CATION MONEY IN CASH FROM SHRI S.V. REDDY, DIRECTOR OF THE COMPA NY DHATRI CONSTRUCTIONS PVT. LTD. AMOUNTING TO A TOTAL OF RS. 2,11,50,000/- AS PER DETAILS BELOW: FINANCIAL YEAR ASSESSMENT YEAR AMOUNT (RS.) 2005-06 2006-07 1,01,00,000 2006-07 2007-08 85,00,000 2007-08 2008-09 25,50,000 4. THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WA S A VIOLATION OF THE PROVISION OF SEC. 269SS OF THE I.T . ACT AND HENCE PENALTY PROCEEDING U/S. 271D WAS INITIATED. IN RESP ONSE TO THE SHOW CAUSE NOTICE, THE APPELLANT COMPANY FILED SUBM ISSION AS BELOW. A) THE COMPANY WAS INCORPORATED IN THE YEAR 2005. IN O RDER TO WITHSTAND THE BUSINESS COMPETITION IN THE MARKET IT HAD ADVANCED HUGE AMOUNTS TO LANDOWNERS AS AND WHEN REQUIRED IN CASH. INSTEAD OF RAISING LOAN, THE DIRE CTORS OF THE COMPANY HAD BROUGHT IN THE CASH. IN THE PROCESS, SH RI S.V. REDDY, DIRECTOR OF THE COMPANY HAS BROUGHT THE CASH AVAILABLE WITH HIM. THE PAYMENTS WERE LATER ADJUSTE D IN THE BOOKS OF THE APPELLANT COMPANY. B) THE AUTHORIZED SHARE CAPITAL OF THE COMPANY WAS INI TIALLY I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 3 RS. 5 LAKHS WHICH WAS PROPOSED TO BE ENHANCED TO RS .2 CRORE BASED ON THE QUANTUM OF BUSINESS. TILL THE CO MPANY LAW BOARD PERMITTED ENHANCEMENT OF AUTHORISED CAPIT AL THE SAID AMOUNT WAS SHOWN AS SHARE APPLICATION MONEY WH ICH WAS LATER ON TRANSFERRED TO THE SAID CAPITAL A/C WH EN THE SHARE CAPITAL WAS ENHANCED. C) THE SAID TRANSACTIONS WHICH ARE SAID TO BE SHARE AP PLICATION MONEY WAS NEITHER A LOAN NOR A DEPOSIT. HENCE, PROV ISIONS OF SEC. 269SS HAVE NO APPLICATION. THE APPELLANT RELIE S ON THE DECISION IN THE CASE OF CIT VS. RUGMINI RAM RAGAV S PINNERS (P) LTD. (304 ITR 417). 5. THE ASSESSING OFFICER DID NOT ACCEPT THE ARGUMENT A DVANCED BY THE ASSESSEE. THE AO ARGUED THAT THE AMOUNTS WER E RECEIVED IN CASH AND SHOWN AS SHARE APPLICATION MONEY WHICH WAS EITHER TO BE RETURNED TO THE APPLICANT OR SHARES FOR THE AMOU NTS ARE TO BE ISSUED. THE AO ARGUED THAT THE AMOUNTS WERE CLEARLY NOT LOAN REPAYABLE EVEN WITHOUT A DEMAND BY THE LENDERS BUT THEY WERE LIABLE TO BE REFUNDED TO THE APPLICANT ONCE IT WAS DECIDED THAT THE SHARES WERE NOT TO BE ALLOTTED TO THEM. IN A SENSE, IT WAS BAILMENT THOUGH NOT NECESSARILY TO RETURN IT IN SPECIE AND M IGHT BE RETURNABLE IN THE FORM OF SHARES. REFERRING TO THE EXPLANATION IN SEC.269SS, THE AO OBSERVED THAT THE DEPOSIT MEANS A DEPOSIT OF MONEY WHICH IS REPAYABLE AFTER NOTICE OR REPAYABLE AFTER A PERIOD. MONEY PAID TO A COMPANY IN SUPPORT OF AN APPLICATIO N FOR SHARES IS A DEPOSIT OF MONEY IN THE COMPANY WHICH IS REPAYABL E TO THE COMPANY AFTER THE PERIOD OF ALLOTMENT OF SHARES COM ES TO AN END OR A DECISION IS TAKEN REGARDING THE ALLOTMENT OF SHAR ES. THEREAFTER THE AMOUNT IS REPAYABLE TO THE PERSON WHO PAID THE MONEY EVEN WITHOUT A DEMAND IN THAT BEHALF. IN THE CASE. OF RE FUSAL OF SHARES, THE AMOUNT HAS TO BE RETURNED IN SPECIE. IN THAT CO NTEXT, THERE CANNOT BE MUCH DIFFICULTY IN HOLDING THAT THE AMOUN T PAID IN I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 4 SUPPORT OF AN APPLICATION MUST BE CONSIDERED TO BE A DEPOSIT TILL THE ALLOTMENT OF SHARES OR REFUND OF MONEY ON REJEC TION OF APPLICATION. CONSIDERING THIS, THE AO HELD THAT EVE N IF SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS A LOAN, W ITHIN THE MEANING OF SEC. 269SS, IT PARTAKES THE CHARACTER OF A 'DEPOSIT' SINCE IT IS REPAYABLE IN SPECIE ON REFUSAL TO ALLOT SHARES AND IS REPAYABLE IF RECALLED BY THE APPLICANT BEFORE ALLOT MENT OF SHARES. THEREFORE, IT IS TO BE HELD THAT ACCEPTANCE OF SHAR E APPLICATION MONEY IN CASH AMOUNTING TO RS. 20,000/- OR MORE VIO LATES THE PROVISION OF SEC. 269SS. WITH THIS REASONING PENALT Y U/S. 271D WAS IMPOSED FOR VIOLATION OF PROVISION OF SEC. 269S S AS BELOW. ASST. YEAR AMOUNT (RS.) 2006-07 1,01,00,00 2007-08 85,00,000 2008-09 25,50,000 6. ON APPEAL, THE CIT(A) DELETED THE PENALTY BY OBSERV ING THAT FROM THE JUDICIAL DECISIONS AS ABOVE IT IS EVIDENT THAT CASH PAYMENTS, FOR THE PURPOSE OF SHARE APPLICATION MONE Y CANNOT BE HELD TO BE LOAN OR DEPOSIT SO AS TO ATTRACT THE PRO VISION OF SECTION 26955. IN THE CASE UNDER CONSIDERATION THE GENUINEN ESS OF THE TRANSACTION IS NOT DOUBTED. THE IDENTITY OF THE PER SON FROM WHOM SHARE APPLICATION MONEY IS RECEIVED IS CLEARLY ESTA BLISHED. THUS THE FACTS IN THE APPEALS UNDER CONSIDERATION ARE ID ENTICAL TO THE ONE DECIDED BY ITAT, KOLKATA IN THE CASE OF AVADH R UBBERS LTD. 43 SOT 309 (KOLKATA) WHEREIN HELD THAT: 'THE CONDITIONS PRECEDENT FOR IMPOSING PENALTY UNDE R SECTION 271D ARE SATISFIED ONLY WHEN THE ASSESSEE ACCEPTS LOANS OR DEPOSITS IN INFRINGEMENT OF THE PROVISIONS OF SECTION 269SS AND NOT OTHERWISE. THE PROVISION OF SECTION 269SS WAS INTRODUCED TO ELIMINATE THE PROLIFERATION OF BLACK MONEY IN THE SOCIETY AT LARGE AND NOT OTHERWISE. IN THE INSTANT CASE, THERE WAS N O VIOLATION OF THE LEGISLATIVE INTENT BEHIND THE INTRODUCTION OF SECTION 269SS INASMUCH AS THE TRANSACTION HAD DULY BEEN RECORDED IN THE ACCOUNTS I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 5 WITH PROPER NARRATION. THE ONLY CONFUSION MAY HAVE ARISEN BECAUSE IN THE AUDIT REPORT UNDER SECTION 44 AB SUCH AMOUNT WAS INADVERTENTLY INCLUDED IN THE SCHEDULE OF 'LOANS'. HOWEVER, IN THE COURSE OF PROCEEDINGS AGAINST THE ASSESSMENT ORDER BEFORE THE COMMISSIONER (APPEALS) SUCH MISTAKE WAS CORRECTED AND THE ADDITION WAS DELETED BY THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE GENUINENESS OF THE AMOUNT RECEIVED. IT WAS, THEREFORE, NOT IN DISPUTE THAT THE SHARE APPLICATION MONEY DID NOT PARTAKE OF THE CHARACTER OF EVIL WHICH WAS SOUGHT TO BE ROOTED OUT BY INCORPORATING THE PROVISIONS OF SECTION 26955 AND AS SUCH THERE WAS NO MALA FIDE INTENTION IN THIS RESPECT. IT WAS NOT IN DISPUTE THAT THE SHARE APPLICATION MONEY OF RS. 3 LAKHS RECEIVED FROM 'A' WAS GENUINE AND THAT THERE WAS NO INTENTION TO DECEIVE THE REVENUE. THEREFORE, THERE WAS NO CONTRAVENTION OF THE LAW IF ONE READS THE FACTS OF THE CASE KEEPING IN MIND THE INTENTION OF THE LEGISLATURE. FURTHER IT WAS THE CONTENTION OF THE REVENUE THAT THE PROVISION OF SEC TION 26955 HAD TO BE CONSTRUED BY GIVING EFFECT TO THE MISCHIEF RULE. HOWEVER, THE PROVISIONS OF SECTION 26955 READ WITH SECTION 2710 ARE PENAL IN NATURE. THEREFO RE, THE RULE OF STRICT CONSTRUCTION WILL APPLY WHILE INTERPRETING A PENAL STATUTE, WHICH CANNOT COVER CASES NOT SPECIFICALLY INCLUDED WITHIN ITS LETTER. THEREF ORE, THE INTERPRETATION OF THE PROVISION OF SECTION 26955 RE AD WITH SECTION 2710 SHOULD BE STRICTLY CONSTRUED AND THIS ARGUMENT OF THE REVENUE WAS TO BE REJECTED. IN VIEW OF AFORESAID, IT WAS TO BE HELD THAT THE CONTRIBUTION TOWARDS SHARE APPLICATION MONEY RECEIVED IN CASH FR OM 'A' IN THE SUM OF RS. 3 LAKHS DID NOT COME WITHIN T HE SCOPE AND AMBIT OF THE EXPRESSION 'DEPOSIT' APPEARI NG IN THE PROVISIONS OF SECTION 26955 IN ORDER TO JUSTIFY THE LEVY OF PENALTY UNDER SECTION 2710 AND, HENCE, THE COMMISSIONER (APPEALS) WAS CORRECT IN LAW IN DELETI NG PENALTY UNDER SECTION 271D'. 7. FURTHER THE CIT(A) PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF VLS FOODS PVT. LTD. VS. ADD L. CIT (128 TTJ 1) (DELHI) WHEREIN HELD THAT RECEIPT OF SHARE APPLI CATION MONEY IS NEITHER LOAN NOR DEPOSIT AND, THEREFORE, PENALTY U/ S. 271D OF THE INCOME-TAX ACT, 1961 CANNOT BE LEVIED IN RESPECT OF AMOUNT RECEIVED BY THE ASSESSEE IN CASH ON ACCOUNT OF SHAR E APPLICATION MONEY. I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 6 8. FURTHER THE CIT(A) ALSO RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT V. RUGMINI RAM RAGAV SPINNERS (P) LTD. (304 ITR 417) (MAD) FOR THE SAME PROPOSITION. ACCORDINGLY, HE HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED I N TREATING THE SHARE APPLICATION MONEY AS 'DEPOSIT' SO AS TO ATTRA CT THE PROVISION OF SEC. 269SS. CONSEQUENTLY, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING PENALTY U/S. 271D FOR ALLEGED VIOLATION OF SEC. 269SS. ACCORDINGLY, THE CIT(A) CANCELLED THE PENALT Y LEVIED BY THE ASSESSING OFFICER FOR ALL THE THREE ASSESSMENT YEAR S. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 9. THE LEARNED DR SUBMITTED THAT THE CIT(A) ALLOWED TH E APPEAL OF THE ASSESSEE WITHOUT PROPERLY INTERPRETING THE P ROVISIONS OF SECTION 269SS AND DELETED THE PENALTY LEVIED U/S. 2 71D OF THE ACT. THE CIT(A) HAS NOT GIVEN ANY FINDING AS TO WHETHER OR NOT THE RECEIPT OF AMOUNT BY THE COMPANY FROM ITS DIRECTORS WAS IN ACCORDANCE WITH THE REQUIREMENT OF SECTION 271D OF THE ACT. ACCORDING TO THE DR THERE IS NO REASONABLE CAUSE AS ENVISAGED U/S. 273B OF THE ACT TO DELETE THE PENALTY LEVIED B Y THE ASSESSING OFFICER U/S. 271D OF THE ACT. HE SUBMITTED THAT TH E PENALTY ORDER OF THE CIT(A) IS TO BE REVERSED. 10. THE AR STRONGLY RELIED ON THE ORDER OF THE CIT(A) A ND ALSO RELIED ON THE JUDGEMENT OF CHHATTISGARH HIGH COURT IN THE CASE OF CIT VS. PREETI FUELS AND FLAMES PVT. LTD. (330 ITR 129) WHEREIN HELD THAT PENALTY U/S. 271D IS NOT LEVIABLE IN RESP ECT OF DEPOSITS RECEIVED BY THE ASSESSEE THROUGH BANK FROM ITS DIRE CTORS OR PROMOTERS. HE ALSO RELIED ON THE JUDGEMENT OF DELH I HIGH COURT IN THE CASE OF CIT VS. IP INDIA PVT. LTD. (343 ITR 353 ) (DEL) WHEREIN IT WAS HELD THAT SHARE APPLICATION MONEY RECEIVED BY T HE ASSESSEE IN CASH FOR ALLOTMENT OF SHARES DID NOT AMOUNT TO EITH ER LOAN OR DEPOSIT WITHIN THE MEANING OF SECTION 269SS. HENCE NO PENALTY COULD BE LEVIED U/S. 271D OF THE ACT. THE AR FURTH ER RELIED ON IN I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 7 THE CASE OF CIT VS. SPEEDWAYS PVT. LTD. (326 ITR 31 ) (P & H) WHEREIN HELD THAT BONA-FIDE TRANSACTIONS RELATING T O ACCEPTANCE OF SHARE APPLICATION MONEY IN CASH ARE NOT LIABLE FOR LEVY OF PENALTY AS THE DEFAULT IS ONLY A TECHNICAL NATURE. HE FURT HER RELIED ON THE JUDGEMENT IN THE CASE OF BHIKHABHAI DHANJIBHAI PATE L VS. ACIT (127 TTJ 479) (AHD) WHEREIN HELD THAT WHEN THE ASSE SSEE FIRM RECEIVED CAPITAL CONTRIBUTION FROM THE PARTNERS PEN ALTY U/S. 271D CANNOT BE LEVIED. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. PROVISIONS OF SECTION 269SS READ AS FOLLO WS: '269SS. NO PERSON SHALL, AFTER THE 30TH DAY OF JUNE, 1984, TAKE OR ACCEPT FROM ANY OTHER PERSON (HEREAFTER IN THIS SEC TION REFERRED TO AS THE DEPOSITOR), ANY LOAN OR DEPOSIT OTHERWISE TH AN 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 DEP OSIT, ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARLIER BY SUCH P ERSON FROM THE DEPOSITOR IS REMAINING UNPAID (WHETHER REPAYMEN T HAS FALLEN DUE OR NOT), THE AMOUNT OR THE AGGREGATE AMO UNT REMAINING UNPAID ; OR (C) THE AMOUNT OR THE AGGREGATE AMOUNT REFERRED TO IN C LAUSE (A) TOGETHER WITH THE AMOUNT OR THE AGGREGATE AMOUNT RE FERRED TO IN CLAUSE (B), IS [TWENTY] THOUSAND RUPEES OR MORE : PROVIDED THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y TO ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED FROM, OR ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED BY, (A) GOVERNMENT ; (B) ANY BANKING COMPANY, POST OFFICE SAVINGS BANK OR CO - OPERATIVE BANK ; (C) ANY CORPORATION ESTABLISHED BY A CENTRAL, STATE OR PROVINCIAL ACT ; I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 8 (D) ANY GOVERNMENT COMPANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956); SUCH OTHER INSTITU TION, ASSOCIATION OR BODY OR CLASS OF INSTITUTIONS, ASSOC IATIONS OR BODIES WHICH THE CENTRAL GOVERNMENT MAY, FOR REASON S TO BE RECORDED IN WRITING, NOTIFY IN THIS BEHALF IN THE O FFICIAL GAZETTE : [ PROVIDED FURTHER THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO ANY LOAN OR DEPOSIT WHERE THE PERSON FROM WHOM THE LOAN OR DEPOSIT IS TAKEN OR ACCEPTED AND THE PERSON BY W HOM THE LOAN OR DEPOSIT IS TAKEN OR ACCEPTED ARE BOTH HAVING AGR ICULTURAL INCOME AND NEITHER OF THEM HAS ANY INCOME CHARGEABL E TO TAX UNDER THIS ACT.] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, [(I) 'BANKING COMPANY' MEANS A COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949), APPLIES AND INCL UDES ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT ; (II) 'CO-OPERATIVE BANK' SHALL HAVE THE MEANING AS SIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1 949) ; (III) 'LOAN OR DEPOSIT' MEANS LOAN OR DEPOSIT OF MO NEY.] 12. PROVISIONS OF SECTION 271D READ AS FOLLOWS: '(1)] IF A PERSON TAKES OR ACCEPTS ANY LOAN OR DEPO SIT IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS, H E SHALL BE LIABLE TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUN T OF THE LOAN OR DEPOSIT SO TAKEN OR ACCEPTED.] [(2) ANY PENALTY IMPOSABLE UNDER SUB-SECTION (1) SH ALL BE IMPOSED BY THE [JOINT] COMMISSIONER.]' 13. PROVISIONS OF SECTION 273B READ AS FOLLOWS: '273B. NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISIO NS OF [CLAUSE (B) OF SUB-SECTION (1) OF] [SECTION 271, S ECTION 271A, [SECTION 271AA,] SECTION 271B [, SECTION 271BA], [S ECTION 271BB,] SECTION 271C, [SECTION 271CA,] SECTION 271 D, SECTION 271E, [SECTION 271F, [SECTION 271FA,] [SECTION 2 71FB,] [SECTION 271G,]] [ SECTION 271H, ] CLAUSE (C) OR CLAUSE (D) OF SUB- SECTION (1) OR SUB-SECTION (2) OF SECTION 272A, SUB -SECTION (1) OF SECTION 272AA] OR [SECTION 272B OR] [SUB-SECTI ON (1) [OR SUB- SECTION (1A)] OF SECTION 272BB OR] [SUB-SECTION (1) OF SECTION 272BBB OR] CLAUSE (B) OF SUB-SECTION (1) OR CLAUSE (B) OR CLAUSE (C) OF SUB-SECTION (2) OF SECTION 273, NO PENALTY S HALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF HE PROVES THA T THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE.] I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 9 14. FURTHER THE ISSUE RELATING TO CONSTITUTIONAL VALIDI TY OF PROVISIONS OF SECTION 269SS CAME BEFORE THE SUPREME COURT IN THE CASE OF ASST. DIRECTOR OF INSPECTION (INVESTIGATION ) VS. A.B. SHANTI (255 ITR 258) (SC) WHEREIN THEIR LORDSHIPS CONFIRME D THE CONSTITUTIONAL VALIDITY OF THIS SECTION AND THE OBJ ECT OF PROVISIONS OF SECTION 269SS IS AS UNDER AS ENUMERATED IN THAT JUD GEMENT: 'THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENSU RE THAT THE TAX PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY, OR IF HE MAK ES SOME FALSE ENTRY, HE SHALL NOT ESCAPE BY GIVING FAL SE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZUR E, UNACCOUNTED MONEY IS UNEARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE EXPLANATION THAT HE HAD BORROWED OR RECEIVED DEPOSITS FROM ITS RELATIVES OR FRIENDS AND IT IS EASY FOR THE SO CALLED LENDER ALS O TO MANIPULATE HIS RECORDS TO SUIT THE PLEA OF THE TAXP AYER. THE MAIN OBJECT OF THE SECTION 269SS WAS TO CURB TH IS MENACE OF MAKING FALSE ENTRIES IN THE ACCOUNTS BOOK S AND LATER GIVING AN EXPLANATION FOR THE SAME 15. FURTHER, WE HAVE TO LOOK INTO THE CIRCULAR ISSUED B Y THE CBDT NO. 387 DATED 5 TH JULY, 1984 (43 SOT 309 PARA 5) WHICH READS AS FOLLOWS: 5. AFTER HEARING THE RIVAL SUBMISSIONS, CAREFULLY P ERUSING THE MATERIAL ON RECORD AND CASE LAW CITED BY BOTH THE P ARTIES, WE FIND THAT THE SOLE DISPUTE IS WHETHER THE CONTRIBUTION O F ABHISEK SARAF IN CASH TOWARDS SHARE APPLICATION MONEY IN THE SUM OF RS. 3 LACS SHOULD BE CONSTRUED TO BE A DEPOSIT WITHIN THE MEAN ING OF S. 269SS IN ORDER TO APPLY THE PROVISIONS OF S. 271D. BEFORE WE EMBARK ON THE CONTROVERSY INVOLVED IN THE ONLY ISSUE, IT IS A PPOSITE TO CONSIDER THE PROVISIONS WHICH LED TO THE DISPUTE. T HE PROVISIONS OF S. 271D READ AS UNDER : '271D. (1)PENALTY FOR FA ILURE TO COMPLY WITH THE PROVISIONS OF S. 269SS.IF A PERSON TAKES OR ACCEPTS ANY LOAN OR DEPOSIT IN CONTRAVENTION OF THE PROVISIONS OF S. 269SS, HE SHALL BE LIABLE TO PAY, BY WAY OF PENALTY , A SUM EQUAL TO THE AMOUNT OF THE LOAN OR DEPOSIT SO TAKEN OR ACCEP TED. (2) ANY PENALTY IMPOSABLE UNDER SUB-S. (1) SHALL BE IMPOSED BY THE JT. CIT.' THEREFORE THE CONDITIONS PRECEDENT FOR IMPOS ING PENALTY UNDER 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 : '269SS. MODE OF TAKING OR ACCEPTING CERTAIN LOANS AND DEPOS ITS.NO PERSONS SHALL, AFTER THE 30TH JUNE, 1984, TAKE OR A CCEPT FROM ANY I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 10 OTHER PERSON (HEREAFTER IN THIS SECTION REFERRED TO AS THE DEPOSITOR), ANY LOAN OR DEPOSIT OTHERWISE THAN BY A N ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IF, (A) T HE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMOUNT OF SUC H LOAN AND DEPOSIT; OR (B) ON THE DATE OF TAKING OR ACCEPTING SUCH LOAN OR DEPOSIT, ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARL IER BY SUCH PERSON FROM THE DEPOSITOR IS REMAINING UNPAID (WHET HER REPAYMENT HAS FALLEN DUE OR NOT), THE AMOUNT OR THE AGGREGATE AMOUNT REMAINING UNPAID; OR C) THE AMOUNT OR THE AG GREGATE AMOUNT REFERRED TO IN CL. (A) TOGETHER WITH THE AMO UNT OR THE AGGREGATE AMOUNT REFERRED TO IN CL. (B) IS (TWENTY) THOUSAND RUPEES OR MORE : PROVIDED THAT THE PROVISIONS OF THIS SECT ION SHALL NOT APPLY TO ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED FROM , OR ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED BY, (A) GOVERNMENT; ( B) ANY BANKING COMPANY, POST OFFICE SAVINGS BANK OR CO-OPE RATIVE BANK; (C) ANY CORPORATION ESTABLISHED BY A CENTRAL, STATE OR PROVINCIAL ACT; (D) ANY GOVERNMENT COMPANY AS DEFINED IN S. 61 7 OF THE COMPANIES ACT, 1956 (1 OF 1956); (E) SUCH OTHER IN STITUTION, ASSOCIATION OR BODY OR CLASS OF INSTITUTIONS, ASSOC IATIONS OR BODIES WHICH THE CENTRAL GOVERNMENT MAY, FOR REASONS TO BE RECORDED IN WRITING, NOTIFY IN THIS BEHALF IN THE OFFICIAL GAZE TTE : PROVIDED FURTHER THAT THE PROVISIONS OF THIS SECTION SHALL N OT APPLY TO ANY LOAN OR DEPOSIT WHERE THE PERSON FROM WHOM THE LOAN OR DEPOSIT IS TAKEN OR ACCEPTED AND THE PERSON BY WHOM THE LOAN O R DEPOSIT IS TAKEN OR ACCEPTED ARE BOTH HAVING AGRICULTURAL INCO ME AND NEITHER OR THEM HAS ANY INCOME CHARGEABLE TO TAX UNDER THIS ACT. EXPLANATION : FOR THE PURPOSE OF THIS SECTION, (I) BANKING COMPANY MEANS A COMPANY TO WHICH THE BANKING REGUL ATION ACT, 1949 (10 OF 1949), APPLIES AND INCLUDES ANY BANK OF BANKING INSTITUTION REFERRED TO IN S. 51 OF THAT ACT; (II) CO-OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (III) LOAN OR DEPOSIT MEANS LOAN OR DEPOSIT OF MONEY.' IN ORDER TO ASCERTAIN THE OBJECT OF THE ENACTMENT, WE ARE OF THE CONSIDERED OPINION THAT THE RATIONALE BEHIND THE PR OVISION IS REQUIRED TO BE UNDERSTOOD IN THE CORRECT PERSPECTIV E. THE HONBLE APEX COURT IN THE CASE OF ASSTT. DIRECTOR OF INSPEC TION (INV.) VS. KUM. A.B. SHANTHI (SUPRA), DEALT WITH THE OBJECT O F INTRODUCTION OF THE PROVISION OF S. 269SS AS UNDER : 'THE OBJECT OF INTRODUCING S. 269SS IS TO ENSURE THAT A TAXPAYER IS NOT ALLOWE D TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY, OR IF HE MAK ES SOME FALSE ENTRIES, HE SHALL NOT ESCAPE BY GIVING FALSE EXPLAN ATION FOR THE SAME. DURING SEARCH AND SEIZURES, UNACCOUNTED MONEY IS UNEARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE E XPLANATION THAT HE HAD BORROWED OR RECEIVED DEPOSITS FROM HIS RELATIVES OR FRIENDS AND IT IS EASY FOR THE SO-CALLED LENDER ALS O TO MANIPULATE HIS RECORDS TO SUIT THE PLEA OF THE TAXPAYER. THE M AIN OBJECT OF S. I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 11 269SS WAS TO CURB THIS MENACE OF MAKING FALSE ENTRI ES IN THE ACCOUNT BOOKS AND LATER GIVING AN EXPLANATION FOR T HE SAME.' THE CBDT IN CIRCULAR NO. 387, DT. 6TH JULY, 1984 HAS IN EXPLANATORY NOTES ISSUED AFTER THE FINANCE ACT, 1984 HAS CONSID ERED THE SAME AS UNDER : '32.1 UNACCOUNTED CASH FOUND IN THE COU RSE OF SEARCHES CARRIED OUT BY THE IT DEPARTMENT IS OFTEN EXPLAINED BY TAXPAYERS AS REPRESENTING LOANS TAKEN FROM OR DEPOS ITS MADE BY VARIOUS PERSONS. UNACCOUNTED INCOME IS ALSO BROUGHT INTO THE BOOKS OF ACCOUNT IN THE FORM OF SUCH LOANS AND DEPO SITS, 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 FINAN CE ACT HAS INSERTED A NEW S. 269SS IN THE IT ACT DEBARRING PER SONS FROM TAKING OR ACCEPTING, AFTER 30TH JUNE, 1984 FROM ANY OTHER PERSON, ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PA YEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IF THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMOUNT OF SUCH LOAN AND DEPOSITS IS R S. 10,000 OR MORE..' THEREFORE IN OUR CONSIDERED OPINION THE P ROVISION WAS INTRODUCED TO ELIMINATE THE PROLIFERATION OF BLACK MONEY IN THE SOCIETY AT LARGE AND NOT OTHERWISE. IN THE INSTANT CASE, THERE WAS NO VIOLATION OF THE LEGISLATIVE INTENT BEHIND THE I NTRODUCTION OF S. 269SS IN AS MUCH AS THE TRANSACTION HAS DULY BEEN P ROPERLY RECORDED IN THE ACCOUNTS WITH PROPER NARRATION. WE FIND THE ONLY CONFUSION MAY HAVE ARISEN BECAUSE IN THE AUDIT REPO RT UNDER S. 44AB OF THE IT ACT, 1961 SUCH AMOUNT WAS INADVERTEN TLY INCLUDED IN THE SCHEDULE OF 'LOANS'. HOWEVER, IN THE COURSE OF PROCEEDINGS AGAINST THE ASSESSMENT ORDER BEFORE THE LEARNED CIT (A) SUCH MISTAKE WAS CORRECTED AND THE ADDITION WAS DELETED BY THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE GENUINEN ESS OF THE AMOUNT RECEIVED, A COPY OF SUCH ORDER IS ENCLOSED A T PAPER BOOK P. 24, WHICH WAS UPHELD BY THE TRIBUNAL 'D' BENCH K OLKATA IN ITA NO. 1767/KOL/2003, DT. 27TH APRIL, 2004, A COPY OF WHICH ORDER IS ENCLOSED AT PAPER BOOK P' . 16. THEREFORE, IN OUR CONSIDERED OPINION, THE PROVISION S WERE INTRODUCED TO ELIMINATE THE PROLIFERATION OF BLACK MONEY IN THE SOCIETY AT LARGE AND NOT OTHERWISE. AS HELD BY THE CO-ORDINATE BENCH IN THE CASE OF ANDHRA BOMBAY CARRIERS VS. ADD L. CIT (132 ITD 1), THE PROVISIONS OF SECTION 271D ARE TO BE RE AD WITH THE PROVISIONS OF SECTION 273B WHICH PROVIDE THAT IF TH ERE WAS A GENUINE AND BONA-FIDE TRANSACTION AND THE TAXPAYER COULD NOT BE ABLE TO GET LOAN OR DEPOSIT BY WAY OF ACCOUNT PAYEE CHEQUE OR DD FOR SOME BONA-FIDE REASON THE AUTHORITY VESTED WITH THE POWER TO I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 12 IMPOSE PENALTY WHICH IS A DISCRETIONARY POWER, CHOI CE HAS TO BE EXERCISED IN FAVOUR OF THE ASSESSEE. IF THERE IS A REASONABLE CAUSE FOR ACCEPTING THE LOAN OR DEPOSIT IN CASH NO PENALT Y CAN BE LEVIED. 17. FURTHER IT WAS HELD BY MADRAS HIGH COURT IN THE CAS E OF LAKSHMI TRUST COMPANY (303 ITR 99) THAT WHEN THE TR ANSACTION WAS GENUINE AND THE IDENTITY OF LENDERS IS ESTABLIS HED NO PENALTY U/S. 271D IS TO BE LEVIED. IT WAS HELD BY THE MADR AS HIGH COURT IN THE CASE OF CIT VS. IDHAYAM PUBLICATIONS LTD. (285 ITR 221) (MAD) THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE D IRECTOR-CUM- SHAREHOLDER WAS NOT A LOAN OR DEPOSIT AND IT WAS ON LY A CURRENT ACCOUNT IN NATURE AND NO INTEREST WAS BEING CHARGED FOR THE ABOVE TRANSACTION, NO PENALTY IS TO BE LEVIED U/S. 271D O F THE ACT. FURTHER IT WAS HELD IN THE CASE OF CIT VS. SPEEDWAY S RUBBER PVT. LTD. (326 ITR 31) (P&H) THAT THE BONA-FIDE TRANSACT ION AND THAT DEFAULT IN ACCEPTING SHARE APPLICATION MONEY IN CAS H WAS A TECHNICAL NATURE WHICH IS NOT LIABLE FOR PENALTY U/ S. 271D OF THE ACT. FURTHER, IT WAS HELD IN THE CASE OF BHALOTIYA ENGINEERING WORKS PVT. LTD. VS. CIT (275 ITR 399) (JHARKHAND) T HAT ACCEPTANCE OF SHARE APPLICATION MONEY IN CASH IN VIOLATION OF PROVISIONS OF SECTION 269SS WOULD ATTRACT PENALTY U/S. 271D OF TH E ACT. IN THE CASE OF VLS FOODS PVT. LTD. (SUPRA) THEY HAVE CONSI DERED THE JUDGEMENT IN THE CASE OF BHALOTIYA ENGINEERING WORK S PVT. LTD. (SUPRA) AND DISTINGUISHED THE SAME BY PLACING RELIA NCE ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. V EGETABLE PRODUCTS LTD. (88 ITR 192) (SC) WHEREIN HELD THAT I F THE COURT FINDS THAT ANY OF THE TAXING PROVISION IS UNAMBIGUO US OR CAPABLE OF MORE MEANINGS THAN ONE, THEN THE COURT HAS TO AD OPT THE INTERPRETATION WHICH FAVOUR THE ASSESSEE, MORE PART ICULARLY SO WHERE THE PROVISIONS RELATE TO IMPOSITION OF PENALT Y. BEING SO, THERE ARE CONFLICTING VIEWS OF NON JURISDICTIONAL H IGH COURTS AND AS SUCH THE INTERPRETATION THAT CONTRIBUTION TO SHARE CAPITAL COULD NOT BE TREATED AS LOAN OR DEPOSIT HAS TO BE COVERED BY THE I.T.A. NOS. 1408-1410/HYD/2011 M/S. DHATRI CONSTRUCTIONS PVT. LTD. =========================== 13 PROVISIONS OF SECTION 269SS OF THE ACT SHOULD BE AD OPTED IN THE LIGHT OF THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. (SUPRA). THIS BEING SO, AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF RUGMINI RAM RAGAV SPINNERS (P) LTD. (SUPRA) THE SHARE APPLICATION MONEY RECEIVED I S NEITHER LOAN NOR DEPOSIT AND PENALTY U/S. 271D CANNOT BE LEVIED. EVEN OTHERWISE THERE IS A REASONABLE CAUSE FOR ACCEPTING THE MONEY BY THE ASSESSEE FROM ITS DIRECTORS IN CASH AS EXPLAINE D BY THE ASSESSEE THAT TO WITHSTAND THE BUSINESS COMPETITION IN THE MARKET IT HAD ADVANCED HUGE AMOUNTS TO LAND OWNERS AS AND WHEN REQUIRED IN CASH. INSTEAD OF RAISING LOANS, THE DI RECTORS OF THE COMPANY HAD BROUGHT IN CASH IN THE FORM OF SHARE AP PLICATION MONEY AS THE MONEY WAS AVAILABLE WITH THE DIRECTORS AND LATER THIS AMOUNT RESULTED IN ADJUSTMENT TOWARDS SHARE CAPITAL OF THE ASSESSEE COMPANY. BEING SO, WE ARE OF THE OPINION THAT THE DELETION OF PENALTY BY THE CIT(A) IS JUSTIFIED. 18. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 26 TH NOVEMBER, 2012 COPY FORWARDED TO: 1. THE DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE - 2, 7 TH FLOOR, AAYAKAR BHAVAN, L.B. STADIUM ROAD, BASHEERBAGH, HYDERABAD-500 004. 2. M/S. DHATRI CONSTRUCTIONS PVT. LTD., PLOT NO. 8 - 2 - 608/30, GAFFER KHAN COLONY, ROAD NO. 10, BANJARA HILLS, HYDERABAD. 3. THE CIT(A) - I, HYDERABAD. 4. THE CIT (CENTRAL), HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO