Appeline Cosmetics and Toiletries Ltd., Kolkata V. DCIT, Central Circle - XXII, Kolkata

ITA 1969/KOL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48071 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2002-2003
• Appeal Filed On: 20-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V A RAJU
• Keywords: Bonafide belief; Reasonable cause
• Section: 273B; 153A; 132; 10

Judgement Text

, C , , IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : KOLKATA () BEFORE , , , , , /AND , . . !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, J.M. & HONBLE SRI C.D. RAO, A.M.] # # # # / I.T.A NOS. 1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL/2009 $% $% $% $% &' &' &' &' / ASSESSMENT YEARS : 2002-03 TO 2004-05, 2007-08 & 20 02-03 TO 2004-05 APPELINE COSMETICS & TOILETRIES LTD., VS. DEPUTY COMMISSIONER OF INCOME TAX, KOLKATA (PAN : AADCA 0438 N) CENTRAL CIRCLE- XXII, KOLKATA ( () () () () /APPELLANT ) ( *+() *+() *+() *+() / RESPONDENT ) FOR THE APPELLANT: SHRI AMIT AGARWAL, A.R. FOR THE RESPONDENT: SHRI V.A. RAJU, D.R. !, !, !, !, /ORDER PER BENCH :- ALL THESE APPEALS BY ASSESSEE ARE EMANATING OUT OF ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-III, KOLKATA IN APPEAL NOS.231 , 229, 233, 236/CC- XXII/CIT(A)C-III/08-09, 232, 228, 234/CC-XII/CIT(A) C-III/08-09 VIDE DATED 01.09.2009. THE ASSESSMENTS WERE FRAMED BY DCIT, CC -XXII, KOLKATA U/S. 153A/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) FOR AYS. 2002-03 TO 2004-05, 2007-08 & 2002-03 TO 2004-05 VIDE ORDER DATED 14.07.2008. PENALTIES IN DISPUTE WERE LEVIED BY ADDL. CIT, RANG E-VI, CENTRAL, KOLKATA U/S. 271D AND 271E OF THE ACT VIDE HIS ORDER DATED 31.12.2008 . 2. THE ASSESSEE HAS RAISED FOUR EFFECTIVE GROUNDS, WHICH ARE SIMILAR FOR ALL THE APPEALS EXCEPT THE QUANTUM OF PENALTY. THE GROUNDS AS RAISED IN ITA NO. 1969/KOL./2009 FOR ASSESSMENT YEAR 2002-03 ARE BEIN G TAKEN TO DECIDE THIS ISSUE, WHICH IS COMMON IN ALL THE APPEALS, FOR THE SAKE OF BREVI TY, WHICH READ AS UNDER :- 1. THAT, THE LD. COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN APPRECIATING AND/OR CONSTRUING THE PRIMARY FACTS OF THE CASE AND THE CORRECT PRINCIPLES OF LAW APPLICABLE TO IT, AND ON THE BASIS OF SUCH MISCONCEIVED NOTION OF FACTS AS WELL AS OF LAW, HE FURTHER ERRED IN CONFIRMING THE PENALTY OF RS.32,46,761/- LEVIED BY THE ADDL. COMMISSIONER OF INCOME-TAX U/S. 271-D READ WITH SEC.269-SS OF TH E INCOME-TAX ACT. ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 2 2. THAT, THE LD. C.LT.(A) ERRED IN INFERRING THAT .... THE ACT OF PLACING MONEY BY THE SHARE APPLICANTS AT THE TIME OF APPLIC ATION WITH THE ASSESSEE FOR ALLOTMENT OF SHARES TANTAMOUNTS TO DEPOSITING O F MONEY .... (PAGE -28 OF THE APPELLATE ORDER), AND ON THE BASIS OF SUCH E RRONEOUS OBSERVATION, HE FURTHER ERRED IN AGREEING WITH THE AUTHORITY BELOW THAT THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY, IN THE AMOUNT OF RS. 20,000/- OR MORE IN CASH, FOR AN AGGREGATE AMOUNT OF RS.32,46,761/- FOR ALLOTMENT OF PREFERENCE SHARES IN VIOLATION OF THE PROVISIONS OF SEC.269-SS OF THE ACT. 3. THAT, WITHOUT PREJUDICE, THE LD. CJ.T.(A) ERRED IN OBSERVING INTER ALIA THAT .... THE APPLICANT HAD NOT PUT FORWARD ANY RE ASONABLE CAUSE FOR RECEIVING THE MONEY IN CASH FROM THE SHARE APPLICAN TS AND REPAYING THE MONEY IN CASH TO THE SHARE APPLICANTS .... (PAGE- 14 OF THE APPELLATE ORDER) AND ON THE BASIS OF SUCH ERRONEOUS OBSERVATI ON, HE FURTHER ERRED IN CONFIRMING THE ORDER U/S.271-D OF THE ACT. 4. THAT, THE CONCLUSION DRAWN BY THE LD. C.I.T.(A) IN CONFIRMING THE PENALTY U/S.271 -D IS BASED ON IRRELEVANT CONSIDERA TIONS AND, THEREFORE, THE IMPUGNED ORDER UNDER APPEAL IS BAD IN LAW AND P ERVERSE. 3. SIMILARLY IN BALANCE THREE APPEALS OF THE ASSESS EE, THE ISSUE IS REGARDING LEVY OF PENALTY UNDER SECTION 271E OF THE ACT AND THE GROUN DS RAISED ARE SIMILAR FOR ALL THE APPEALS EXCEPT THE QUANTUM OF PENALTY. THE GROUNDS AS RAISED IN ITA NO. 1973/KOL./2009 FOR THE ASSESSMENT YEAR 2002-03 ARE BEING TAKEN TO DECIDE THIS ISSUE, WHICH IS COMMON IN ALL THE APPEALS, FOR THE SAKE OF BREVITY, WHICH READ AS UNDER:- 1. THAT, THE LD. COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN APPRECIATING AND/OR CONSTRUING THE PRIMARY FACTS OF THE CASE AND THE CORRECT PRINCIPLES OF LAW APPLICABLE TO IT, AND ON THE BASIS OF SUCH MISCONCEIVED NOTION OF FACTS AS WELL AS OF LAW, HE FURTHER ERRED IN CONFIRMING THE PENALTY OF RS.5,50,352/- LEVIED BY T HE ADDL. COMMISSIONER OF INCOME-TAX U/S. 271-E READ WITH SEC.269-SS OF TH E INCOME-TAX ACT. 2. THAT, THE LD. C.LT.(A) ERRED IN INFERRING THAT .... THE ACT OF PLACING MONEY BY THE SHARE APPLICANTS AT THE TIME OF APPLIC ATION WITH THE ASSESSEE FOR ALLOTMENT OF SHARES TANTAMOUNTS TO DEPOSITING O F MONEY .... (PAGE -28 OF THE APPELLATE ORDER), AND ON THE BASIS OF SUCH E RRONEOUS OBSERVATION, HE FURTHER ERRED IN AGREEING WITH THE AUTHORITY BELOW THAT THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY, IN THE AMOUNT OF RS. 20,000/- OR MORE IN CASH, FOR AN AGGREGATE AMOUNT OF RS.5,50,352/- F OR ALLOTMENT OF PREFERENCE SHARES IN VIOLATION OF THE PROVISIONS OF SEC.269-SS OF THE ACT. 3. THAT, WITHOUT PREJUDICE, THE LD. CJ.T.(A) ERRED IN OBSERVING INTER ALIA THAT .... THE APPLICANT HAD NOT PUT FORWARD ANY RE ASONABLE CAUSE FOR RECEIVING THE MONEY IN CASH FROM THE SHARE APPLICAN TS AND REPAYING THE MONEY IN CASH TO THE SHARE APPLICANTS .... (PAGE- 14 OF THE APPELLATE ORDER) AND ON THE BASIS OF SUCH ERRONEOUS OBSERVATI ON, HE FURTHER ERRED IN CONFIRMING THE ORDER U/S.271-E OF THE ACT. ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 3 4. THAT, THE CONCLUSION DRAWN BY THE LD. C.I.T.(A) IN CONFIRMING THE PENALTY U/S.271-E IS BASED ON IRRELEVANT CONSIDERAT IONS AND, THEREFORE, THE IMPUGNED ORDER UNDER APPEAL IS BAD IN LAW AND P ERVERSE. ACCORDINGLY ALL THE SEVEN APPEALS RELATE TO THE ISS UE OF ACCEPTANCE AND REPAYMENT OF SHARE APPLICATION MONEY BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEARS INVOLVED IN APPEALS ARE 2002-03, 2003-04, 2004-05 AND 2007-08. THE ISSUE IS COMMON IN THESE APPEALS HENCE, WE WILL PASS A CONSOLIDATED ORDER. 4. BRIEF FACTS ARE THAT THE REVENUE CARRIED OUT A S EARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE ACT IN APPELLINE GROUP OF CASES ON 27.12.2006. SUBSEQUENTLY, ASSESSMENT PROCEEDINGS WERE STARTED BY ISSUING NOTI CES UNDER SECTION 153A OF THE ACT. THE ASSESSEE FILED RETURNS OF INCOME AND ASSESSING OFFICER MADE ASSESSMENT UNDER SECTION 153A OF THE ACT ON 14.07.2008 IN ALL THE YE ARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER INITIATED PENALT Y PROCEEDINGS UNDER SECTIONS 271D AND 271E OF THE ACT FOR VIOLATION OF PROVISIONS OF SECTION 269SS AND 269T OF THE ACT FOR ACCEPTING MONIES ON ACCOUNT OF PREFERENCE SHARE S/ DEBENTURES VALUING 20,000 RUPEES OR MORE FROM VARIOUS PERSONS OTHERWISE THAN BY ACCO UNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IN THE YEARS UNDER APPEALS. THE ADDITION AL COMMISSIONER OF INCOME TAX, RANGE-VI, KOLKATA AFTER HEARING THE ASSESSEE HAD LE VIED PENALTY UNDER SECTIONS 271D AND 271E OF THE ACT FOR ACCEPTING MONIES AND REPAYM ENT OF MONIES. THE COMPLETE DETAILS OF THE PENALTY LEVIED UNDER SECTION 271E AN D 271D ASSESSMENT YEAR-WISE READS AS UNDER :- ASSESSMENT YEAR RETURNED INCOME OR LOSS S.153A (RS.) ASSESSED INCOME S. 153A (RS. PREF. SHARE/ DEBENTURE APPLN. RECD. IN EXCESS OF RS.20,000/- (RS.) PENALTY LEVIED S. 271D (RS.) PREF. SHARE/ DEBENTURE REPAID IN EXCESS OF RS.20,000/- (RS.) PENALTY LEVIED S. 271E (RS.) 2002-03 LOSS 15198007 LOSS 15212291 3246761 3246761 550352 550352 2003-04 4690675 4690675 2947500 2947500 381525 3815 25 2004-05 7070682 7428268 16034000 16034000 1645550 1 645550 2007-08 61625 61625 668000 668000 NIL NIL ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 4 5. THE CIT(APPEALS) CONFIRMED LEVIES OF PENALTY UND ER SECTIONS 271D AND 271E OF THE ACT EXACTLY ON THE FINDINGS OF THE AO AND ALSO NOTED THE DEFINITION OF LOANS AND DEPOSITS BY FOLLOWING THE DECISIONS OF HONBLE JHAR KHAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD. VS. CIT (2005) 275 ITR 399 (JH). AGGRIEVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNA L. 6. LD. COUNSEL ON BEHALF OF ASSESSEE STATED THAT TH E ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESEE BY THE DECISION OF - (I) M/S. PRAVEZ CONSTRUCTIONS (P) LTD. VS. THE ADD L. CIT, CIRCLE-2, SILIGURI IN ITA NO. 1206/KOL./2005 (AY 2002-03) ORDER DATED 08.09.2006; (II) VLS FOODS (P) LTD. VS. ACIT (2010) 128 TTJ 1N (TDEL); (III) CIT VS. RUGMINI RAM RAGAV SPINNERS (P) LTD. (2008) 304 ITR 417 (MAD); (IV) PRADIP J. MEHTA VS. CIT (2008) 300 ITR 231 (S C); (V) ITO, WARD-7(1), KOLKATA VS. M/S. AVADH RUBBER LTD. (ITAT, KOLKATA) IN ITA NO. 1853/KOL./2008 (AY 1999-2000) ORDER DATED 28.05.2010; (VI) CIT VS. SPEEDWAYS RUBBER PVT. LTD. (2010) 326 ITR 31 (P&H); (VII) ITO VS. COOKME (SPICE) PVT. LTD. IN ITA NO. 599/KOL./2009 & 42/KOL./2010 ORDER DATED 16.11.2010; (VIII) BASIL EXPRESS LTD.VS. DCIT IN ITA NOS. 1912 TO 1914/KOL./2009 ORDER DATED 21.01.2011. 7. ON THE OTHER HAND, THE LD. CIT (D.R.) SHRI V.A. RAJU RELIED ON THE DECISION OF THE HONBLE JHARKHAND HIGH COURT IN THE CASE OF BHALOTI A ENGINEERING WORKS (P) LTD. (SUPRA). 8. WE HAVE HEARD RIVAL PARTIES AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. ADMITTED FACTS ARE THAT THE ASSESSEE HAS ACCE PTED MONIES ON ACCOUNT OF PREFERENCE SHARES/ DEBENTURES OF RS.20,000/- OR MORE AND ALSO REPAID MONIES RECEIVED ON ACCOUNT OF PREFERENCE SHARES/ DEBENTURES FROM VARIOUS PERSO NS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE BANK DRAFTS DURING THE YEA R UNDER APPEALS. NOW THE QUESTION ARISES WHETHER THE AMOUNT RECEIVED ON ACCOUNT OF SH ARE APPLICATION MONEY AND THE ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 5 REPAYMENT OF THE SAME VIOLATES THE PROVISIONS OF SE CTION 269SS AND 269T OF THE ACT ATTRACTING PENALTY UNDER SECTION 271D AND 271E OF T HE ACT. AS THE CASE LAW OF THE HONBLE JHARKHAND HIGH COURT IN THE CASE OF BHALOTI A ENGINEERING WORKS PVT. LTD.(SUPRA) RELIED BY LD. CIT (D.R.), WHEREIN HONB LE HIGH COURT HELD THAT THE ACCEPTANCE OF SHARE APPLICATION MONEY AMOUNTING TO RS.20,000/- OR MORE VIOLATES THE PROVISIONS OF SECTION 269SS OF THE ACT. ON THE OTHE R HAND, THE DECISION RELIED BY THE LD. COUNSEL IN THE CASE OF RUGMINI RAM RAGAV SPINNERS P VT. LTD. (SUPRA) OF HONBLE MADRAS HIGH COURT, WHEREIN IT IS HELD THAT THE PROV ISIONS OF SECTION 269SS AND 269T OF THE ACT HAVE APPLICATION ONLY IN A LIMITED WAY IN R ESPECT OF DEPOSITS OR LOANS. WHEN IT IS NEITHER DEPOSIT NOR LOAN, HONBLE COURT HELD THAT T HE PROVISIONS OF SECTIONS 269SS AND 269T OF THE ACT HAVE NO APPLICATION AT ALL. THE COU RT FURTHER HELD THAT EVEN IF THERE IS REPAYMENT BY CASH, IT COULD NOT BE SAID TO ATTRACT THE LEVY OF PENALTY AUTOMATICALLY UNDER SECTION 271E OF THE ACT. THE ADVANCES OF SHARE APPL ICATION MONEY OR REPAYMENTS OF SUCH ADVANCES HAVE NOT FLOWED FROM ANY UNDISCLOSED INCOME OF THE ASSESSEE OR THE CONCERNED PERSONS. IN THE PRESENT CASE ALSO, THE AS SESSEE WAS SEARCHED AND THESE SHARE APPLICATION MONIES WERE NEVER THE SUBJECT MATTER OF ADDITION IN THE CASE OF THE ASSESSEE AND ACCORDINGLY THE SHARE APPLICATION MONEY AND REP AYMENT OF THE SAME HAVE NOT FLOWED FROM ANY UNDISCLOSED INCOME OF THE ASSESSEE. WE FIND FROM THE RECORDS THAT THE ASSESSEE HAS NOT PAID ANY INTEREST ON ANY OF THE SH ARE APPLICATION MONIES TILL REPAYMENT, WHICH IS QUITE AFTER SOMETIME. IF THE INTENTION WAS TO RECEIVE THESE SHARE APPLICATION MONIES AS LOANS OR DEPOSITS, THEN CERTAINLY THE LEN DERS WOULD NOT HAVE MADE THE ADVANCES GRATUITOUSLY. WE FURTHER FIND THAT EVEN TH E PENALTY UNDER SECTION 271D AND 271E IS NOT AUTOMATIC ON THE ISSUE AS ARGUED BY THE LD. COUNSEL, THERE IS BONAFIDE BELIEF TO THE EFFECT THAT THE RECEIPT OF ADVANCES AGAINST ALLOTMENT OF SHARES AND REPAYMENT OF SHARE MONEY WOULD NOT BE TERMED AS LOANS OR DEPOSIT S, WHICH WOULD BE SUFFICIENT TO DROP THE PENALTY LEVIED IN THE PRESENT CASE. HERE T HE REVENUE IS UNABLE TO SUBSTANTIATE THAT THE MONEY RECEIVED IS ONLY A LOAN OR DEPOSIT R ATHER THERE IS NO DISPUTE THAT THE ADVANCES OR REPAYMENTS WERE ONLY AGAINST ALLOTMENT OF SHARES AND NOT BY WAY OF LOANS OR DEPOSITS. WE FURTHER NOTE THAT THE REVENUE COULD NOT BRING ON RECORD ANY MATERIAL THAT WOULD GO TO SHOW THAT THE ASSESSEE IN FACT WANTED O NLY LOAN OR DEPOSIT BUT TRIED TO SHOW THEM AS SHARE APPLICATION MONEY AND MERELY FOR THE REASON THAT FOR SOME OF THE APPLICATIONS MONIES WERE RETURNED AND IN SOME OF TH E APPLICATIONS THE SHARE ALLOTMENTS ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 6 WERE NOT IN FULL, IT CANNOT BE TAKEN INTO ACCOUNT T HAT THIS IS NO SHARE APPLICATION MONEY. HENCE, WE ARE OF THE VIEW, IN VIEW OF THE FACTUAL F INDINGS BY THE LOWER AUTHORITIES THAT THE AMOUNT RECEIVED BY WAY OF DEPOSIT OR LOAN IS ON LY SHARE APPLICATION MONEY. WE FURTHER FIND THAT THE HONBLE JHARKHAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. (SUPRA) HAS DECIDED THE ISSUE AS UN DER :- IF WE TAKE RECOURSE TO THE EXPLANATION IN SECTION 2 69T OF THE ACT, 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 APPLICATION FOR SHARES IS A DEPOSIT OF MONEY IN THE COMPANY WHICH IS REPAYABLE BY THE COMPANY AFTER THE PERIOD FOR ALLOTMENT OF SHARES COMES TO AN END, OR A DECISION IS TAKEN REGARDING T HE ALLOTMENT OF SHARES. THEREAFTER, THE AMOUNT IS REPAYABLE TO THE PERSON WHO PAID THE MONEY, EVEN WITHOUT A DEMAND IN THAT BEHALF. IN THE CASE OF REFUSAL OF SHARES THE A MOUNT HAS TO BE RETURNED IN SPECIE. IN THAT CONTEXT, IT APPEARS TO US THAT THERE CANNOT BE MUCH DIFFICULTY IN HOLDING THAT THE AMOUNT PAID IN SUPPORT OF AN APPLICATION FOR SHARES MUST BE CONSIDERED TO BE A DEPOSIT TILL THE ALLOTMENT OF SHARES OR REFUND OF THE MONEY ON REJECTION OF THE APPLICATION. WHAT WILL HAPPEN IF SHARES ARE ULTIMATELY ALLOTTED TO THE APPLICANT? WHAT IS THE NATURE OF THE AMOUNT IN THE HANDS OF THE COMPANY UNTIL THE SHARES ARE ALLOTTED? THE AMOUNT CANNOT BE A LOAN. BUT AT THE SAME TIME, THERE IS AN OBLIGATION ON THE COMPANY TO RETURN THE MONEY TO THE APPLICANT OR FOR ALLOTTING THE SHA RES APPLIED FOR. UNTIL EITHER OF THESE HAPPENS, THE AMOUNT CANNOT BE CONSIDERED TO BE A LO AN IN THE HANDS OF THE COMPANY. BUT IT APPEARS TO US THAT IT WILL PARTAKE OF THE CH ARACTER OF A DEPOSIT IN THE HANDS OF THE COMPANY ATTRACTING THE PROHIBITION CONTAINED IN SEC TION 269SS OF THE ACT. THE QUESTION HAS TO BE CONSIDERED IN THE CONTEXT OF THE PURPOSE SOUGHT TO BE ACHIEVED BY THE INSERTION OF SECTION 269SS IN THE ACT. OBVIOUSL Y, IT WAS DONE WITH A VIEW TO PREVENT TRANSACTIONS IN BLACK MONEY AND TO ENSURE THAT PAYM ENTS OF RS. 20,000 AND ABOVE, ARE TRACEABLE TO TRANSACTIONS THROUGH A BANK. IF THE MI SCHIEF THAT IS SOUGHT TO BE AVERTED IS KEPT IN MIND, IT WILL BE APPROPRIATE TO HOLD THAT ANY PAYMENT OF RS. 20,000 OR ABOVE, MADE TO A COMPANY AS SHARE APPLICATION MONEY, SHOUL D BE AS PROVIDED IN SECTION 269SS OF THE ACT. THEREFORE, EVEN IF SHARE APPLICATION MONEY CANNOT B E CONSIDERED AS A LOAN WITHIN THE MEANING OF SECTION 269SS OF THE ACT, WE ARE OF THE VIEW THAT IT PARTAKES OF THE CHARACTER OF A DEPOSIT, SINCE IT IS REPAYABLE IN SPECIE ON RE FUSAL TO ALLOT SHARES AND IS REPAYABLE IF RECALLED BY THE APPLICANT, BEFORE ALLOTMENT OF SHA RES AND THE CONCLUSION OF THE CONTRACT. BUT ON THIS VERY SIMILAR ISSUE, HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS RUGMINI RAM RAGAV SPINNERS P. LTD. (SUPRA) HAS HELD AS UNDER: HEARD COUNSEL. THE ASSESSEE HAD RECEIVED CASH OVER A PERIOD OF TIME, AS ADVANCE TOWARDS ALLOTMENT OF SHARES FROM 16 PERSONS WITHOUT STIPULATING ANY TIME FRAME TOWARDS RETURN/REFUND OF MONEY WITHOUT INTEREST, IN CASE OF NON-ALLOTMENT OF SHARES EITHER FULLY OR PARTLY. IN THIS CASE, THE MONEY RETAINED BY THE COMPANY WAS NEITHER DEPOSIT NOR LOAN, BUT IT IS ONLY SHARE CAPITAL ADVANCE. PENALTY UNDER SECTION 271E IS NOT AUTOMATIC AND TO BE LEVIED ONLY IN THE ABSENCE OF A REASONABLE CAUSE . NO DOUBT A REASONABLE CAUSE HAS TO BE ESTABLISHED BY THE ASSESSEE. THE RATIONALE BEHIN D THE PROVISIONS OF SECTIONS 269SS ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 7 AND 269T IS TO PREVENT TAX EVASION, I.E., THE LAUND ERING OF CONCEALED INCOME BY PARTIES IN THE GUISE OF CASH LOANS OR DEPOSITS IN OR OUTSID E THE ACCOUNTS. THE PROVISION OF SECTIONS 269SS AND 269T THEREFORE HAVE APPLICATION ONLY IN A LIMITED WAY IN RESPECT OF DEPOSITS OR LOANS. WHEN IT IS NEITHER DEPOSIT NOR L OAN, THE PROVISIONS OF SECTIONS 269SS AND 269T HAVE NO APPLICATION AT ALL. EVEN IF THERE IS REPAYMENT BY CASH IT COULD NOT BE SAID TO ATTRACT THE LEVY OF PENALTY AUTOMATICALLY, UNDER SECTION 271E OF THE ACT. THE ADVANCES OF SHARE APPLICATION MONEY OR REPAYMENTS O F SUCH ADVANCES HAVE NOT FLOWED FROM ANY UNDISCLOSED INCOME OF THE ASSESSEE OR THE CONCERNED PERSONS. IT IS ALSO SEEN FROM THE RECORDS THAT THE ASSESSEE HAD NOT PAID ANY INTEREST AT ALL ON ANY OF THE ADVANCES REPAID AFTER QUITE SOME TIME. IF THE INTEN TION WAS TO RECEIVE THEM AS LOANS OR DEPOSITS, THEN CERTAINLY THE LENDERS WOULD NOT HAVE MADE THE ADVANCES GRATUITOUSLY. IT IS ALSO A FACTUAL FINDING GIVEN BY THE AUTHORITIES BELOW THAT THE ASSESSEE WAS NOT CALLED UPON TO EXPLAIN THE DEFAULT UNDER SECTION 269SS ON RECEIPT OF THE ADVANCES IN EARLIER YEARS, WHICH WOULD SHOW THAT THE ASSESSEES CASE W AS NOT GOVERNED BY THE SAID PROVISIONS. PENALTY UNDER SECTION 271E IS NOT AUTO MATIC, AND A BONA FIDE BELIEF TO THE EFFECT THAT THE RECEIPT OF ADVANCES AGAINST ALLOTM ENT OF SHARES WOULD NOT BE TERMED AS LOANS OR DEPOSITS, WOULD BE SUFFICIENT TO DROP THE PENALTY LEVIABLE, UNLESS AND UNTIL THE MATERIAL ON RECORD POSITIVELY SHOWS THAT MONEY RECE IVED IS ONLY A DEPOSIT OR LOAN. THERE IS NO DISPUTE THAT THE IMPUGNED ADVANCES WERE ONLY AGAINST ALLOTMENT OF SHARES AND NOT BY WAY OF LOANS OR DEPOSITS. THE AUTHORITIE S BELOW HAVE GIVEN A FACTUAL FINDING TO THE EFFECT THAT IT IS NOT A DEPOSIT OR LOAN. THE TRIBUNAL, IN PARAGRAPH 3 OF ITS ORDER, HELD AS UNDER: THE DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ON RECORD ANY MATERIAL THAT WOULD GO TO SHOW THAT THE ASSESSEE IN FACT WANTED O NLY LOAN OR DEPOSIT BUT TRIED TO SHOW THEM AS SHARE APPLICATION MONEY. MERELY FOR T HE REASON THAT SOME OF THE APPLICATIONS WERE REJECTED AND IN SOME OF THE APPLI CATIONS THE SHARE ALLOTMENTS WERE NOT IN FULL, IT CANNOT BE TAKEN TO MEAN THAT I T WAS NOT SHARE APPLICATION MONEY. UPHOLDING THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THE APPEAL BY THE REVENUE IS DISMISSED. HENCE, THE FACTUAL FINDING BY THE AUTHORITIES BELOW IS THAT THE AMOUNT RECEIVED IS NOT A DEPOSIT OR LOAN, BUT IT IS ONLY SHARE APPLICATION M ONEY, AND THE SAME IS BASED ON VALID MATERIALS AND EVIDENCE. THE RELEVANT PROVISIONS OF LAW ARE SECTIONS 269T, 271D, 271E AND 273B OF THE ACT. IN THE PRESENT CASE, THE ASSES SING OFFICER LEVIED PENALTY UNDER SECTION 271E DEALS WITH PENALTY FOR FAILURE TO COM PLY WITH THE PROVISIONS OF SECTION 269T. SECTION 271E, AS ON THE RELEVANT PERIOD, REA DS AS FOLLOWS: 271E. (1) IF A PERSON REPAYS ANY DEPOSIT REFERRED TO IN SECTION 269T OTHERWISE THAN IN ACCORDANCE WITH THE PROVISIONS OF THAT SECTION, HE SHALL BE LIABLE TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF THE DEPOSIT SO REPAID. (2) ANYPENALTY IMPOSABLE UNDER SUB-SECTION (1) SHAL L BE IMPOSED BY THE DEPUTY COMMISSIONER. FROM A READING OF THE ABOVE, IT IS CLEAR THAT IF A PERSON REPAYS ANY DEPOSIT REFERRED TO IN SECTION 269T OTHERWISE THAN IN ACCORDANCE WITH T HE PROVISIONS OF THAT SECTION, HE SHALL BE SUBJECTED TO LEVY OF PENALTY. SECTION 269T DEALS WITHMODE OF REPAYMENT OF CERTAIN DEPOSITS. SECTION 269T, AS ON THE RELEVANT PERIOD, READS AS FOLLOWS: 269T.(1) NO COMPANY (INCLUDING A BANKING COMPANY), CO-OPERATIVE SOCIETY OR FIRM SHALL REPAY TO ANY PERSON ANY DEPOSIT OTHERWIS E THAN BY AN ACCOUNT PAYEE ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 8 CHEQUE OR ACCOUNT PAYEE BANK DRAFT WHERE THE AMOUN T OF THE DEPOSIT, OR WHERE THE AMOUNT OF THE DEPOSIT IS TO BE REPAID TOGETHER WITH ANY INTEREST, THE AGGREGATE OF THE AMOUNT OF THE DEPOSIT AND SUCH IN TEREST, IS TEN THOUSAND RUPEES OR MORE : PROVIDED THAT WHERE THE REPAYMENT IS BY A BANKING C OMPANY OR CO-OPERATIVE BANK, SUCH REPAYMENT MAY ALSO BE MADE BY CREDITING THE AMOUNT OF SUCH DEPOSIT TO THE ACCOUNT (IF ANY) WITH SUCH COMPANY OR BANK OF THE PERSON TO WHOM SUCH DEPOSIT HAS TO BE REPAID : PROVIDED FURTHER THAT NOTHING IN THIS SUB-SECTION S HALL APPLY TO OR IN RELATION TO THE REPAYMENT OF ANY DEPOSIT ON OR AFTER THE DATE O N WHICH THE INCOME-TAX (SECOND AMENDMENT) ACT, 1981, RECEIVES THE ASSENT OF THE PRESIDENT. (2) NO BRANCH OF A BANKING COMPANY OR A CO-OPERATIV E BANK AND NO OTHER COMPANY OR CO-OPERATIVE SOCIETY AND NO FIRM OR OTHE R PERSON SHALL REPAY ANY DEPOSIT MADE WITH IT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT DRAWN IN THE NAME OF THE PERSON W HO HAS MADE THE DEPOSIT IF (A) THE AMOUNT OF THE DEPOSIT TOGETHER WITH INTERES T, IF ANY, PAYABLE THEREON, OR (B) THE AGGREGATE AMOUNT OF DEPOSITS HELD BY SUCH P ERSON WITH THE BRANCH OF THE BANKING COMPANY OR CO-OPERATIVE BANK OR, AS THE CASE MAY BE, THE OTHER COMPANY OR CO-OPERATIVE SOCIETY O R THE FIRM, EITHER IN HIS OWN NAME OR JOINTLY WITH ANY OTHER PERSON ON TH E DATE OF SUCH REPAYMENT TOGETHER WITH THE INTEREST, IF ANY, PAYAB LE ON SUCH DEPOSITS, IS TWENTY THOUSAND RUPEES OR MORE : PROVIDED THAT WHERE THE REPAYMENT IS BY A BRANCH OF A BANKING COMPANY OR CO- OPERATIVE BANK, SUCH REPAYMENT MAY ALSO BE MADE BY CREDITING THE AMOUNT OF SUCH DEPOSIT TO THE SAVINGS BANK ACCOUNT OR THE CU RRENT ACCOUNT (IF ANY) WITH SUCH BRANCH OF THE PERSON TO WHOM SUCH DEPOSIT HAS TO BE REPAID : PROVIDED FURTHER THAT NOTHING IN THIS SUB-SECTION S HALL APPLY TO OR IN RELATION TO THE REPAYMENT OF ANY DEPOSIT BEFORE THE DATE ON WHI CH THE INCOME-TAX (SECOND AMENDMENT) ACT, 1981, RECEIVES THE ASSENT OF THE P RESIDENT. THE ABOVE SECTION PROVIDES THAT NO BRANCH OF A BANK ING COMPANY, COOPERATIVE BANK AND NO OTHER COMPANY OR CO-OPERATIVE SOCIETY OR PARTNER SHIP FIRM OR OTHER PERSON, CAN REPAY ANY DEPOSIT MADE WITH SUCH ENTITY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR AN ACCOUNT PAYEE DRAFT DRAWN IN THE NAME OF THE PE RSON WHO HAS MADE THE DEPOSIT. THE SPECIFIC WORD USED IN THE PROVISION IS DEPOSIT. I N THIS CASE, THE FINDING IS THAT THERE IS NO DEPOSIT. SECTION 273B OF THE ACT DEALS WITH PE NALTY NOT TO BE IMPOSED IN CERTAIN CASES. SECTION 273B, AS ON THE RELEVANT PERIOD, RE ADS AS UNDER: 273B. NOTWITHSTANDING ANYTHING CONTAINED IN THE PR OVISIONS OF CLAUSE (B) OF SUB-SECTION (1) OF SECTION 271, SECTION 271A, SECTI ON 271B, SECTION 271BB, SECTION 271C, SECTION 271D, SECTION 271E, CLAUSE (C ) OR CLAUSE (D) OF SUB- SECTION (1) OR SUB-SECTION (2) OF SECTION 272A, SUB -SECTION (1) OF SECTION 272AA ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 9 OR SUB-SECTION (1) OF SECTION 272BB OR CLAUSE (B) OF SUB-SECTION (1) OR CLAUSE (B) OR CLAUSE (C) OF SUB-SECTION (2) OF SECTION 273 , NO PENALTY SHALL 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 THAT THERE WAS RE ASONABLE CAUSE FOR THE SAID FAILURE. THE ABOVE SECTION PROVIDES THAT IF THE ASSESSEE PRO VES THAT THERE IS A REASONABLE CAUSE, HE IS NOT SUBJECT TO LEVY OF PENALTY. THE CASE OF T HE ASSESSEE IS THAT, THE AMOUNT RECEIVED BY THE ASSESSEE IS ONLY FOR THE PURPOSE OF ALLOTMEN T OF SHARES AND IT IS NOT A DEPOSIT OR LOAN. IN THIS CASE, THE REASONABLE CAUSE IS THAT TH E ASSESSEE WAS UNDER THE BONA FIDE BELIEF THAT THE MONEY RECEIVED IS ONLY FOR THE PURP OSE OF ALLOTMENT OF SHARES. ALSO, THERE IS NO MATERIAL OR EVIDENCE OR ANY COMPELLING REASON PRODUCED BY THE REVENUE TO PROVE THAT THE MONEY RECEIVED IS A DEPOSIT OR LOAN. THE F IRST APPELLATE AUTHORITY AS WELL AS THE TRIBUNAL HAVE COME TO A CORRECT CONCLUSION AFTER AC CEPTING THE EXPLANATION OFFERED BY THE ASSESSEE. IT IS A QUESTION OF FACT AND THE ORDE R OF THE TRIBUNAL IS NOT A PERVERSE ONE. THE CONCURRENT FINDING GIVEN BY BOTH THE AUTHORITIE S BELOW IS BASED ON VALID MATERIALS AND EVIDENCE. IN THE CASE OF CIT V. P. MOHANAKALA [ 2007] 291 ITR 278, THE SUPREME COURT HELD THAT WHENEVER THERE IS A CONCURRENT FIND ING BY THE AUTHORITIES BELOW, NO INTERFERENCE SHOULD BE CALLED FOR BY THE HIGH COURT . UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR OR LEGAL INFIRMITY IN THE ORDER OF THE TRIBUNAL SO AS TO WARRANT INTERFERENCE. 9. IN VIEW OF THE ABOVE TWO JUDGMENTS OF TWO HONBL E HIGH COURTS, WHERE CONFLICTING VIEWS ARE TAKEN, THE VIEW IN FAVOUR OF THE ASSESSEE, INTERPRETING THE PROVISIONS SHOULD BE ADOPTED IN VIEW OF THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS VEGETABLE PRODUCTS (1973) 88 ITR 195 (SC), WHEREIN HONBLE APEX COURT HAS HELD AS UNDER:- THERE IS NO DOUBT THAT THE ACCEPTANCE OF ONE OR TH E OTHER INTERPRETATION SOUGHT TO BE PLACED ON SECTION 271(1)(A)(I) BY THE PARTIES WOULD LEAD TO SOME INCONVENIENT RESULT, BUT THE DUTY OF THE COURT IS TO READ THE SECTION, UNDER STAND ITS LANGUAGE AND GIVE EFFECT TO THE SAME. IF THE LANGUAGE IS PLAIN, THE FACT THAT THE C ONSEQUENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TA KEN INTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING P ROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION RECOGNISED BY THIS COURT IN SEVERAL OF ITS DECISIONS. HENCE, ALL THAT WE HAVE TO SEE IS, WHAT IS THE TRUE EFFECT OF THE LANGUAGE EMPLOYED IN SECTION 271(1)(A)(I). IF WE FIND THAT LANGUAGE TO BE AMBIGUOUS OR CAPABLE OF MO RE MEANINGS THAN ONE, THEN WE HAVE TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSEE, MORE PARTICULARLY SO BECAUSE THE PROVISION RELATES TO IMPOSITION OF PENA LTY. 10. IN VIEW OF THE ABOVE DISCUSSION, CASE LAWS RELI ED BY BOTH THE SIDES, WE ARE OF THE CONSIDERED VIEW THAT ON RECEIPT OF SHARE APPLICATIO N MONEY AND REPAYMENT THEREOF WILL NOT VIOLATE THE PROVISIONS OF SECTION 269SS AND 269 T, WHICH ATTRACTS LEVY OF PENALTY ITA NOS.1969, 1970, 1971, 1972, 1973, 1974 & 1975/KOL./2009 10 UNDER SECTION 271D AND 271E OF THE ACT. ACCORDINGLY , THESE APPEALS OF THE ASSESSEE ARE ALLOWED. 11. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- [C.D. RAO/ ( . . )] [MAHAVIR SINGH / ] ]] ] ACCOUNTANT MEMBER/ !' !' !' !' JUDICIAL MEMBER/ DATED : 19 TH APRIL, 2011 COPY OF THE ORDER FORWARDED TO: 1 . M/S. APPELINE COSMETICS & TOILETRIES LTD., 12A, AMR ITA BANERJEE LANE,KOLKATA-700 026; 2 DCIT, CENTRAL CIRCLE-XXII, KOLKATA, PODDAR COURT, 1 8, RABINDRA SARANI, KOLKATA-1 3 . CIT(A)- ,KOLKATA 4 . CIT, KOLKATA- 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.