M/S. BHATIA COAL TRADING & CONSIGNMENT (P) LTD.,(NOW KNOWN AS BHATIA GLOBAL TRADING LTD.), Indore V. THE ADDL. CIT RANGE 3, Indore

ITA 334/IND/2015

• Counselvise Citation: 33422714 RSA 2015
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S GAUTAM
• Assessee Lawyers: TRIBHUVAN SACHDEVA
• Keywords: Question of law; Reasonable cause
• Section: 143(3)

Judgement Text

ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NOS.333 & 334/IND/2015 A.YS. 2003-04 & 2005-06 M/S. BHATIA COAL TRADING & CONSIGNMENT (P) LTD., INDORE PAN AAACB 6751 C :: APPELLANT VS ADDL. CIT, RANGE-3, INDORE :: RESPONDENT ASSESSEE BY SHRI TRIBHUVAN SACHDEVA, ADV. RESPONDENT BY SHRI G.S. GAUTAM, DR DATE OF HEARING 30.12.2015 DATE OF PRONOUNCEMENT 30.12.2015 O R D E R PER SHRI B.C. MEENA, AM BOTH THE APPEALS ARE FILED BY THE ASSESSEE CHALLEN GING THE ORDER OF LD. CIT(A)-I, INDORE, DATED 10.12.2014 ON THE GROUN D THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY U/S 271D AT RS.99, 800 & RS.4,30,000/-, RESPECTIVELY. WE WILL TAKE A.Y. 2003-04 (ITA NO.333 OF 2015) AT FIRST. A.Y. 2003-04 (ITA NO.333 OF 2015) 2. FACTS, IN BRIEF, ARE THAT THE ASSESSEE RECEIVED AN AMOUNT OF RS.99,800/- ON 01.11.2002 BY WAY OF SHARE APPLICATI ON MONEY THROUGH ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 2 CASH PAYMENTS FROM THE PROMOTER SHAREHOLDER SHRI G. S. BHATIA. THE AMOUNT OF SHARE APPLICATION MONEY WAS SEPARATELY RE FLECTED UNDER THE SHARE APPLICATION ACCOUNT IN THE BOOKS OF ACCOUNT A S ON 01.11.2002. THE AMOUNT WAS ADJUSTED AGAINST ALLOTMENT OF SHARE CAPI TAL ON 02.11.2002 AND NOTHING WAS KEPT REFUNDABLE TO THE SHAREHOLDER. THE SHAREHOLDER IS RELATED TO THE BHATIA GROUP AS A PROMOTER AND THE A O HAS FINALIZED HIS CASES U/S 153A/153C R.W.S. 143(3) OF THE I.T. ACT. THE AO WAS OF THE VIEW THAT THE AMOUNT, SO RECEIVED, PARTAKES THE CHA RACTER OF A DEPOSIT AS IT IS REPAYABLE IN SPECIE ON REFUSAL TO ALLOT SHARE S AND IS REPAYABLE IF RECALLED BY THE APPLICANT BEFORE ALLOTMENT OF SHARE S AND THE CONCLUSION OF THE CONTRACT. THEREFORE, ACCEPTANCE OF SHARE APP LICATION MONEY IN CASH AMOUNTING TO RS.20,000/- OR MORE VIOLATES THE PROVISIONS OF SECTION 269SS ATTRACTING PENALTY U/S 271D OF THE I.T. ACT. THE AO RELIED ON THE DECISION OF HONBLE JHARKHAND HIGH COURT IN THE CAS E OF BHALOTIA ENGG. WORKS (P) LTD., (2005) 275 ITR 399. ACCORDINGLY, TH E AO LEVIED PENALTY U/S 271D OF THE I.T. ACT AT RS.99,800/-. AGAINST TH E ACTION OF THE AO, THE ASSESSEE APPROACHED THE LD. CIT(A), WHO AGREED WITH THE VIEW OF THE AO AND CONFIRMED THE PENALTY. NOW, THE ASSESSEE IS BEFORE US. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND FURTH ER CONTENDED THAT THE SAID AMOUNT, SO RECEIVED BY WAY OF SHARE APPLIC ATION MONEY, HAD ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 3 IMMEDIATELY BEEN USED AGAINST THE SHARE CAPITAL, TH US, THE SAME CANNOT BE TREATED AS DEPOSIT. THEREFORE, THE ASSESSEE HAS NOT VIOLATED THE PROVISIONS OF SECTION 269SS SO AS TO ATTRACT THE PE NALTY U/S 271D OF THE I.T. ACT. ON THE OTHER HAND, LD. DR RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT THE SIMILAR ISSUE OF TREATI NG THE SHARE APPLICATION MONEY AS DEPOSIT WAS DECIDED BY THE HONBLE DELHI H IGH COURT IN CASE OF CIT VS. I.P. INDIA P. LTD. VIDE ORDER DATED 21.1 1.2011, WHEREIN THE AFORESAID JUDGMENT OF HONBLE JHARKHAND HIGH COURT WAS ALSO CONSIDERED. THE RELEVANT PORTION OF THE ORDER DATED 21.11.2011 IS REPRODUCED HEREUNDER: THE FOLLOWING QUESTIONS OF LAW, STATED TO BE SUBSTA NTIAL QUESTIONS OF LAW HAVE BEEN RAISED IN THE APPEAL : '2.1 WHETHER LEARNED ITAT/CIT(A) ERRED IN DELETING THE PENALTY OF RS.18,00,000/- IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271D OF THE INCOME TAX ACT, 1961? 2.2 WHETHER ITAT WAS CORRECT IN LAW IN HOLDING THAT THE SHARE APPLICATION MONEY RECEIVED IN CASH IS NOT VIO LATION OF SECTION 269SS ATTRACTING PENALTY UNDER SECTION 271D OF THE INCOME TAX ACT, 1961? 2.3 WHETHER THE DECISION OF THE HON'BLE JHARKHAND H IGH COURT IN THE CASE OF M/S BHALOTIA ENGINEERING WORKS PVT. LTD. REPORTED AT 275 ITR 399 IS NOT APPLICABLE IN T HE PRESENT CASE? ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 4 2. THE RESPONDENT ASSESSEE IS A PRIVATE LIMITED COM PANY. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE RECEIV ED SHARE APPLICATION MONIES IN CASH FROM THREE PRIVATE LIMIT ED COMPANIES AS FOLLOWS : SL. NAME OF THE PERSON FROM WHOM SHARE APPLICATION MONEY NO. SHARE APPLICATION MONEY RECEIVED IN 'CASH' (IN RS.) RECEIVED 1. M/S SHEKHAWAT VANIJYA VIKAS P. LTD. 6,00,000/- 2. UDAIPURIA COMMODITIES PVT. LTD. 7,00,000/- 3. VEENA MERCHANTS PVT. LTD. 5,00,000/- 3. ON THE GROUND THAT THE PROVISIONS OF SECTION 269SS OF THE ACT ARE ATTRACTED TO THE RECEIPT OF THE ABOVE MONIES IN CAS H, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS LIABL E TO BE PROCEEDED AGAINST FOR LEVY OF PENALTY UNDER SECTION 271D . HE REFERRED TO THE JUDGMENT OF THE HIGH COURT OF JHARKHAND IN M/S BHAL OTIA ENGINEERING WORKS PVT. LTD. (2005) 275 ITR 399 WHER E IT WAS HELD THAT RECEIPT OF SHARE APPLICATION MONIES IN CASH, I N VIOLATION OF SECTION 269SS OF THE ACT SHOULD BE TREATED AS 'DEPOSITS' WITH TH E CONSEQUENCE THAT THE ASSESSEE WOULD BE LIABLE FOR P ENALTY UNDER SECTION 271D . IN THIS VIEW OF THE MATTER, HE REFERRED THE MATTE R TO THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 11, NEW DELHI, WHO WAS THE APPROPRIATE AUTHORITY TO LEVY THE PENAL TY. BEFORE THE ADDITIONAL COMMISSIONER OF INCOME TAX, THE ASSESSEE SUBMITTED A WRITTEN REPLY DATED 1ST AUGUST, 2008 AND CONTENDED THAT THERE WAS NO VIOLATION OF THE PROVISIONS OF SECTION 269SS AS IT HAD NOT ACCEPTED ANY LOAN OR DEPOSIT IN CASH. IT WAS CLAIMED THAT THE RE CEIPT OF SHARE APPLICATION MONIES IN CASH DID NOT AMOUNT TO ACCEPT ANCE OF LOAN OR DEPOSIT BY THE COMPANY. THESE SUBMISSIONS WERE, HOW EVER, REJECTED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, WHO B Y A BRIEF ORDER DATED 28 TH AUGUST, 2008 IMPOSED THE PENALTY OF RS. 18,00,000/- UNDER SECTION 271D . 4. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) R EPEATING THE ARGUMENTS ADVANCED BEFORE THE ADDITIONAL COMMISSION ER OF INCOME TAX. IN ADDITION, THE ASSESSEE RELIED ON THE JUDGME NT OF THE MADRAS HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RUGMIN I RAM RAGAV SPINNERS (P) LTD. (2008) 304 ITR 417 WHERE IT WAS H ELD THAT THE MONEY IN CASH BY A COMPANY TOWARDS ALLOTMENT OF SHA RES, WAS NEITHER ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 5 A LOAN NOR A DEPOSIT. THE CIT(APPEALS) CONSIDERED T HE SUBMISSIONS OF THE ASSESSEE IN DETAIL AND HELD THAT THERE WAS NO V IOLATION OF SECTION 269SS SINCE THE SHARE APPLICATION MONIES RECEIVED BY THE ASSESSEE COMPANY WOULD NOT AMOUNT EITHER TO A LOAN OR A DEPO SIT WITHIN A MEANING OF SECTION 269SS . HE FURTHER NOTED THAT THE SHARES HAVE IN FACT BEEN SUBSEQUENTLY ALLOTTED TO THE THREE COMPAN IES, WHO ADVANCED THE MONIES TO THE ASSESSEE. IN THIS VIEW OF THE MAT TER HE CANCELLED THE PENALTY AND ALLOWED THE ASSESSEE'S APPEAL. 5. THE REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL IN PARA 6 OF ITS ORDER NOTED THAT THERE WAS A CLEAVAGE OF JUDICIAL OPINION ON THE QUESTION WHETHER THE SHARE APPLICATION MONIE S COULD BE TREATED AS A DEPOSIT OR LOAN WITHIN THE MEANING OF SECTION 269SS AS COULD BE SEEN FROM THE JUDGMENTS OF THE JHARKHAND A ND MADRAS HIGH COURT (SUPRA) AND IN VIEW OF THE DIVERGENCE OF JUDI CIAL OPINION, THE ASSESSEE'S PLEA TO THE EFFECT THAT RECEIPT OF MONIE S IN CASH AGAINST ALLOTMENT OF SHARES CANNOT TERMED AS LOANS OR DEPOS ITS WOULD BE SUFFICIENT TO DROP THE PENALTY. IN THIS BEHALF THE TRIBUNAL RELIED ON THE JUDGMENT OF THE SUPREME COURT IN CIT VS. VEGETABLE PRODUCTS LTD (1973) 88 ITR 192 (SC) IN WHICH IT WAS HELD THAT I F THE COURT FINDS THAT A TAXING PROVISION OR PENALTY PROVISION IS AMB IGUOUS OR CAN GIVE RISE TO MORE THAN ONE MEANING, THEN IT SHOULD ADOPT THAT MEANING WHICH FAVOURS THE ASSESSEE. RELYING ON THIS JUDGMEN T OF THE SUPREME COURT, THE TRIBUNAL HELD THAT SINCE THERE WAS MORE THAN ONE VIEW ON THE APPLICABILITY OF SECTION 269SS TO MONIES RECEIVED AS SHARE APPLICATION MONIES, THE CIT(APPEALS) HAD RIGHTLY CA NCELLED THE PENALTY. THE APPEAL FILED BY THE REVENUE WAS THUS D ISMISSED. 6. THE REVENUE HAS RAISED THE QUESTIONS OF LAW EXTR ACTED ABOVE. THE FACTS ARE NOT IN DISPUTE. ON THESE FACTS, THE QUEST ION IS WHETHER ANY SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER O F THE TRIBUNAL CANCELLING THE PENALTY. 7. SECTION 269SS PROHIBITS ANY PERSON FROM ACCEPTING A LOAN OR DEPOSIT IN CASH EXCEEDING RS.20,000 IN THE AGGREGAT E IN A YEAR FROM A THIRD PERSON. IF THERE IS ANY VIOLATION, THE PERSON RECEIVING THE LOAN OR DEPOSIT WILL BE LIABLE TO PENALTY U/S.271D IN AN AM OUNT EQUAL TO THE AMOUNT OF THE LOAN OR DEPOSIT. A LOAN OR DEPOSIT IS DEFINED IN THE EXPLANATION BELOW SEC.269SS AS A 'LOAN OR DEPOSIT O F MONEY'. THE ASSESSEE'S CONTENTION, ACCEPTED BOTH BY THE CIT(A) AND THE TRIBUNAL, ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 6 IS THAT SHARE APPLICATION MONIES RECEIVED BY A COMP ANY, PENDING ALLOTMENT OF SHARES, DO NOT AMOUNT TO LOAN OR DEPOS IT. 8. ON A CAREFUL CONSIDERATION OF THE MATTER, WE FIN D THAT THE AO HAS RELIED ON THE JUDGMENT OF THE JHARKHAND HIGH COURT (SUPRA) AND REFERRED THE ISSUE OF LEVYING PENALTY TO THE ADDITI ONAL CIT. HE DID NOT EXAMINE WHETHER THE SHARE APPLICATION MONIES CAN BE TREATED AS 'LOAN' OR 'DEPOSIT' WITHIN THE MEANING OF SECTION 269SS . THE ADDITIONAL CIT HAS MERELY ENDORSED THE VIEW OF THE AO IN PASSING THE PENALTY ORDER. THE CIT(A) HAS FOUND AS A FACT THAT THE SHARES WERE SUBSEQUENTLY ALLOTTED TO THE APPLICANT- COMPANIES A S SHOWN BY THE FORM FILED BEFORE THE REGISTRAR OF COMPANIES. NEITH ER THE AO NOR THE ADDITIONAL CIT HAS TAKEN THE TROUBLE TO EXAMINE THI S ASPECT WHILE IMPOSING THE PENALTY. THEY HAVE MERELY RELIED ON TH E JUDGMENT OF THE JHARKHAND HIGH COURT (SUPRA). THE RELIANCE ON THIS JUDGMENT APPEARS TO US TO BE MISPLACED. IN BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. AND ORS VS K.L. ANAND (1998) 230 ITR 522, A LEARNED SINGLE JUDGE OF THIS COURT POINTED OUT THAT THE DISTINCTIO N BETWEEN A LOAN AND A DEPOSIT IS THAT IN THE CASE OF THE FORMER IT IS ORDINARILY THE DUTY OF THE DEBTOR TO SEEK OUT THE CREDITOR AND TO REPAY THE MONEY ACCORDING TO THE AGREEMENT WHILE IN THE CASE OF A D EPOSIT IT IS GENERALLY THE DUTY OF THE DEPOSITOR TO GO TO THE BA NKER OR TO THE DEPOSITEE, AS THE CASE MAY BE, AND MAKE A DEMAND FO R IT. THIS JUDGMENT WAS APPROVINGLY CITED BY A DIVISION BENCH OF THIS COURT IN DIRECTOR OF INCOME TAX (EXEMPTION) VS ACME EDUCATIO NAL SOCIETY (2010) 326 ITR 146 (DEL). IN THIS DECISION, IT WAS HELD THAT A LOAN GRANTS TEMPORARY USE OF MONEY, OR TEMPORARY AC COMMODATION, AND THAT THE ESSENCE OF A DEPOSIT IS THAT THERE MUS T BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON WHOSE BEHALF I T HAS BEEN MADE, ON FULFILLMENT OF CERTAIN CONDITIONS. IF THESE TEST S ARE APPLIED TO THE FACTS OF THE CASE BEFORE US, IT MAY BE SEEN THAT TH E RECEIPT OF SHARE APPLICATION MONIES FROM THE THREE PRIVATE LIMITED C OMPANIES FOR ALLOTMENT OF SHARES IN THE ASSESSEE-COMPANY CANNOT BE TREATED AS RECEIPT OF LOAN OR DEPOSIT. IN ANY CASE, THE TRIBUN AL HAS RIGHTLY NOTICED THE CLEAVAGE OF JUDICIAL OPINION ON THE POI NT AND HELD THAT IN THAT SITUATION THERE WAS REASONABLE CAUSE U/S.273B, APPLYING THE JUDGMENT OF THE SUPREME COURT IN VEGETABLE PRODUCTS (SUPRA). 9. WE ARE ACCORDINGLY OF THE VIEW THAT NO SUBSTANTI AL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. WE DECLINE T O ADMIT THE APPEAL. THE SAME IS DISMISSED WITH NO ORDER AS TO COSTS. ITA NOS.333 & 334 OF 2015 BHATIA COAL TRADING & CONSIGNMENT 7 WE, RESPECTFULLY, FOLLOWING THE ABOVE ORDER OF THE HONBLE DELHI HIGH COURT, HOLD THAT THE PENALTY, SO IMPOSED U/S 271D O F THE I.T. ACT, IN THE PRESENT MATTER IS NOT JUSTIFIED AND THUS, WE DELETE THE PENALTY. A.Y. 2005-06 (ITA NO.334 OF 2015) SO FAR AS THE A.Y. 2005-06 IS CONCERNED, WE FIND TH AT FACTS AND CIRCUMSTANCES OF THE A.Y. 2005-06 ARE SIMILAR TO TH AT OF 2003-04, THEREFORE, DECISION TAKEN IN A.Y. 2003-04 WILL PREV AIL FOR THE A.Y. 2005- 06 TOO. ACCORDINGLY, THE PENALTY IMPOSED IN THE A.Y . 2005-06 IS ALSO DELETED. 5. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30.12.201 5. SD/- ( D.T. GARASIA) JUDICIAL MEMBER SD/- (B.C. MEENA) ACCOUNTANT MEMBER DATED : 30.12.2015 !VYS! COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR, INDORE