Eminent Infra Projects Pvt. Ltd., Delhi V. Addl.CIT, New Delhi

ITA 799/DEL/2012

• Counselvise Citation: 79920114 RSA 2012
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 799/DEL/12 A.Y. 2007-08 EMINENT INFRA PROJECTS PVT. LTD. VS. ADD. CIT RANG E-11, C/O KAPIL GOEL ADV. NEW DELHI. A-1/25, SECTOR 15, ROHINI DELHI. PAN/ GIR NO. AAJCS 5958 D ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI KAPIL GOEL ADV. RESPONDENT : MS. NANDITA KANCHAN SR. DR O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER D ATED 16-11-2011, CHALLENGING THE SUSTENANCE OF PENALTY OF RS. 13,12, 526/-, LEVIED BY THE ASSESSING OFFICER U/S 271D OF THE INCOME-TAX ACT, 1961, RELATING TO A.Y. 2007-08. 2. BRIEF FACTS ARE: THE ASSESSEE ACCEPTED SHARE APP LICATION MONEY IN CASH AMOUNTING TO RS. 13,12,526/- FROM ONE OF ITS DIRECT OR MANISH AGARWAL AS UNDER: JULY 15,2006 RS. 1,00,000/- SEPTEMBER 26, 2006 RS. 10,00,000/- OCTOBER 30,2006 RS. 2,12,526/- 2.1. THE ASSESSEE COMPANY ALLOTTED EQUITY SHARES TO THE SAID DIRECTOR SHHRI MANISH AGARWAL AS UNDER: 2 4-6-2007 RS. 1,87,500/- 27-2-2010 RS. 7,12,500/- TOTAL: RS. 9,00,000/- 2.2. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE H AD ACCEPTED CASH DEPOSITS FROM DIRECTOR SHRI MANISH AGARWAL AND INIT IATED PENALTY PROCEEDINGS U/S 271D OF THE I.T. ACT, 1961. 2.3. IN RESPONSE THERETO, THE ASSESSEE REPLIED THA T THE AMOUNTS WERE PAID BY THE DIRECTOR TOWARDS SHARE APPLICATION MONEY AND ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE SHARE APPLICATION MONEY C AN BE ACCEPTED BY WAY OF CASH, AS HELD BY VARIOUS JUDICIAL AUTHORITIES, INCL UDING FOLLOWING JUDGMENTS: - ITAT DELHI BENCH F ORDER DATED 18-6-2010 RENDER ED IN ITA NO. 1355/DEL/2010 IN THE CASE OF ADDL. CIT V. M/S NEHSE L EXPORTS PVT. LTD. - CIT V. RUGMINI RAM RAGAV SPINNERS (P) LTD. (2008) 220 CTR (MAD) 520 - CIT V. SPEEDWAYS RUBBER PVT. LTD. ( ITA NO. 361 O F 2009 DATED 22- 10-2009 (P&H)]. - CIT V. KARDAH LEXOPLAST PVT. LTD. [ITA NO. 184/99 DATED 16-1-2008]. 2.4. ASSESSING OFFICER , HOWEVER, PREFERRED TO RELY ON HONBLE JHARKHAND HIGH COURT IN THE CASE OF M/S BHALOTIA ENGINEERING WORKS (P) LTD. [2005] 275 ITR 399, WHICH HELD THAT UNTIL THE SHARES ARE A LLOTTED THE NATURE OF THE AMOUNT OF SHARE APPLICATION PARTAKES THE CHARACTER OF DEPOSIT, WHICH ATTRACTS THE PROHIBITION CONTAINED IN SEC. 269SS. ASSESSING OFFICER , THUS HELD THAT THE AMOUNT ADVANCED BY SHRI MANISH AGARWAL WAS CASH DEPOSIT AND IMPOSED THE PENALTY. 2.5. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH EREIN THE PENALTY WAS CONFIRMED BY CIT(A) WITH FURTHER OBSERVATION THAT ITAT DELHI BENCH IN THE CASE OF ITO VS. M/S NANDI PROMOTERS PVT. LTD. [ ITA NO. 3462/DEL/2009(2011) 13 TAXMANN 213 (DEL.), HAS HELD THAT SHARE 3 APPLICATION MONEY RECEIVED IN EXCESS OF AUTHORIZED CAPITAL CANNOT BE TREATED AS SHARE APPLICATION MONEY. AGGRIEVED, ASSESSEE IS BEFORE US. 3. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND CONTENDS THAT LOOKING AT THE DIVERSITY OF JUDICIAL PRONOUNCEMENTS , THE EXACT NATURE OF SHARE APPLICATION MONEY BEING A DEPOSIT IN TERMS OF SEC. 269-SS OR NOT WAS A DEBATABLE ISSUE. THE ASSESSEE WAS UNDER BONA FIDE B ELIEF THAT THE AMOUNT RECEIVED FROM A DIRECTOR AS SHARE APPLICATION MONE Y CAN BE RECEIVED IN CASH. HONBLE JHARKHAND HIGH COURT IN THE CASE OF M/S BHA LOTIA ENGINEERING WORKS (P) LTD. (SUPRA) HAS ALSO HELD THAT IT PARTAK ES THE CHARACTER OF DEPOSIT. THUS, THERE EXISTED A DEBATE ABOUT THE NATURE OF SH ARE APPLICATION MONEY BEING DEPOSIT OR NOT. IT IS ONLY AFTER VARIOUS JUDI CIAL PRONOUNCEMENTS THAT THIS ISSUE HAS EVOLVED TO THIS EXTENT NOW. SINCE THE ASS ESSEE WAS UNDER A BONA FIDE BELIEF, THE PENALTY SHOULD NOT BE IMPOSED. AS THE TRANSACTIONS IN QUESTION HAVE BEEN HELD TO BE GENUINE, THE DEFAULT BECOMES TECHNICAL IN NATURE. RELIANCE IS PLACED ON HONBLE SUPREME COURT JUDGMENT IN THE CASE OF HINDUSTAN STEELS LTD. 83 ITR 26 HOLDING THAT PEN ALTY SHOULD NOT BE IMPOSED ONLY BECAUSE II IS LAWFUL TO DO SO AND IF T HE ASSESSEE WAS UNDER BONA FIDE BELIEF, PENALTY SHOULD NOT BE VISITED FOR TECHNICAL AND VENIAL BREACH OF LAW. LD. COUNSEL FURTHER PLACED RELIANCE ON: (I) HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. I.P. INDIA PVT. LTD. ( ITA NO. 1192/2011 DATED 21-11-201 1), DELETING SIMILAR PENALTY BY FOLLOWING OBSERVATION: SECTION 269SS PROHIBITS ANY PERSON FROM ACCEPTING A LOAN OR DEPOSIT IN CASH EXCEEDING RS. 20,000 IN THE AGGREGATE IN A YEAR FROM A THIRD PERSON. IF THERE I S ANY VIOLATION, THE PERSON RECEIVING THE LOAN OR DEPOSIT WILL BE 4 LIABLE TO PENALTY U/S 271D IN AN AMOUNT EQUAL TO TH E AMOUNT OF THE LOAN OR DEPOSIT. A LOAN OR DEPOSIT IS DEFINED IN THE EXPLANATION BELOW SEC. 269SS AS A L OAN OR DEPOSIT OF MONEY. THE ASSESSEES CONTENTION, ACCEPTED BOTH BY THE CIT(A) AND THE TRIBUNAL, IS T HAT SHARE APPLICATION MONIES RECEIVED BY A COMPANY, PENDING ALLOTMENT OF SHARES, DO NOT AMOUNT TO LOAN OR DEPOSIT. ON A CAREFUL CONSIDERATION OF THE MATTER, WE FIND T HAT THE AO HAS RELIED ON THE JUDGMENT OF THE JHARKHAND HIGH COURT (SUPRA) AND REFERRED THE ISSUE OF LEVYING PEN ALTY TO THE ADDITIONAL CIT. HE DID NOT EXAMINE WHETHER THE SHARE APPLICATION MONIES CAN BE TREATED AS LOAN O R 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 HE SHARES WERE SUBSEQUENTLY ALLOTTED TO T HE APPLICANT-COMPANIES AS SHOWN BY THE FORM FILED BEFO RE THE REGISTRAR OF COMPANIES. NEITHER THE AO NOR THE ADDITIONAL CIT HAS TAKEN THE TROUBLE TO EXAMINE THI S ASPECT WHILE IMPOSING THE PENALTY. THEY HAVE MERELY RELIED ON THE JUDGMENT OF THE JHARKHAND HIGH COURT (SUPRA). THE RELIANCE ON THIS JUDGMENT APPEARS TO U S TO BE MISPLACED. IN BAIDYA NATH PLASTIC INDUSTRIES (P) LT D. AND ORS VS. K.L. ANAND (1998) 230 ITR 522, A LEARNED SI NGLE 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 S EEK OUT THE CREDITOR AND TO REPAY THE MONEY ACCORDING TO T HE AGREEMENT WHILE IN THE CASE OF A DEPOSIT IT IS GEN ERALLY THE DUTY OF THE DEPOSITOR TO GO TO THE BANKER 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 EDUCATIONAL SOCIETY (2010) 32 6 ITR 146 (DEL). IN THIS DECISION, IT WAS HELD THAT A LOAN GRANTS TEMPORARY USE OF MONEY, OR TEMPORARY ACCOMMODATION, AND THAT THE ESSENCE OF A DEPOSIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM 5 OR ON WHOSE BEHALF IT HAS BEEN MADE, ON FULFILLMENT OF CERTAIN CONDITIONS. IF THESE TESTS ARE APPLIED TO T HE FACTS OF THE CASE BEFORE US, IT MAY BE SEEN THAT THE RECEIPT OF SHARE APPLICATION MONIES FROM THE THREE PRIVATE LIMITED COMPANIES FOR ALLOTMENT OF SHARES IN THE ASSESSEE COMPANY CANNOT BE TREAT ED AS RECEIPT OF LOAN OR DE POSIT. IN ANY CASE, THE TRIBUNAL HAS RIGHTLY NOTICED THE CLEVAGE OF JUDICIAL OPINION ON THE POINT AND HELD THAT IN T HAT SITUATION THERE WAS REASONABLE CAUSE U/S 273B, APPL YING THE JUDGMENT OF THE SUPREME COURT IN VEGETABLE PRODUCTS (SUPRA). (II) ITAT DELHI BENCH G IN CROSS APPEALS IN THE C ASE OF M/S SHRI SIDHATA ISPAT (P) LTD. VIDE ORDER DATED 31-3-2011 R ENDERED IN ITA NOS. 3569 & 281/DEL/2010 AND 4577/DEL/2009, DELETI NG PENALTY LEVIED U/S 271E BY FOLLOWING OBSERVATIONS: 25. AS REGARDS THE REST OF THE SHARE CAPITAL MONEY ARE CONCERNED, WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RELIED UPON THE DECISION OF THE HONB LE HIGH COURT OF JHARKHAND IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD. VS. CIT (SUPRA). 26. IN THIS CONNECTION, LD. COUNSEL OF THE ASSESSE E HAS PLACED RELIANCE UPON THE DECISION OF THE HONBLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. RUGMINI RAM RAGHA V SPINNERS PVT. LTD. 304 ITR 417 WHEREIN IT HAS BEEN HELD THAT THE SHARE APPLICATION MONEY WAS NOT DEPOSIT OR LOAN UNDER THE PROVISIONS OF SECTION 269T AND THEREFORE, THE PENALTY U/S 271E WAS LIABLE TO BE DELETED. ON THE S TRENGTH OF THIS RULING, LD. COUNSEL OF THE ASSESSEE REFE RRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C IT VS. VEGETABLE PRODUCTS 88 ITR 192 FOR THE PROPOSITI ON THAT WHEN TWO VIEWS ARE POSSIBLE, THE VIEW WHICH IS IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. 27. RESPECTFULLY FOLLOWING THE AFORESAID HONBLE AP EX COURT DECISION IN OUR CONSIDERED OPINION, ON THE ST RENGTH 6 OF HONBLE MADRAS HIGH COURT DECISION STATED ABOVE, THE ASSESSEE IS LIABLE TO GET RELIEF FROM THE LEVY OF P ENALTY IN THIS REGARD. HENCE, RESPECTFULLY FOLLOWING THE HON BLE MADRAS HIGH COURT DECISION CITED ABOVE, WE HOLD THA T EH PENALTY ON CASH RECEIPTS OF SHARE APPLICATION MONEY IS LIABLE TO BE DELETED. HENCE, WE SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DELETE THE LEVY OF PENALTY IN THIS CASE. HENCE, ASSESSEES APPEAL IS ALLOWED. 4. LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW AND CONTENDS THAT WHEN THE IMPUGNED CASH DEPOSITS WERE TAKEN FROM THE DIRECTOR, THE ASSESSEE HAD NO UNSUBSCRIBED CAPITAL. THE SHARE CAPITAL WAS INCREASED MUCH LATER AND AFTER THE NECESSARY PERMISSION FROM ROC. THEREAFTER , THESE AMOUNTS ADVANCED BY DIRECTORS WERE TREATED AS SHARE APPLICA TION MONEY. THUS, AT THE TIME OF ADVANCING THEY WERE CASH DEPOSITS. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE, THE IMPUGNED AMOUNTS WERE ADVANCED BY THE DIRECTOR AND ASSESSEE HAD NO UNSUBSCRIBED AUTHORIZED CAPITAL, WHICH WAS INCREASED SUBSEQUENT TO DEPOSITS . 5.1. CIT(A) HAS RELIED ON THE ITAT DECISION IN THE CASE OF M/S NANDI PROMOTERS PVT. LTD. (SUPRA), WHERE IT HAS BEEN HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY OVER AND ABOVE THE AUTHORIZ ED SHARE CAPITAL CANNOT BE TREATED AS SHARE APPLICATION MONEY. ASSESSEE HAS EXPLAINED THAT IT WAS UNDER BONA FIDE BELIEF THAT THE AMOUNT RECEIVED FR OM THE DIRECTOR WAS TOWARDS SHARE APPLICATION MONEY, WHICH WERE TO BE S UBSEQUENTLY ALLOTTED. THESE AMOUNTS WERE INCURRED FOR THE COMPANY BY THE DIRECTOR WITH UNDERSTANDING THAT IT WILL BE APPROPRIATED TOWARDS ALLOTMENT OF SHARES IN FUTURE. 7 5.2. THE ISSUE FOR OUR CONSIDERATION IS WHETHER THE ASSESSEE WAS UNDER BONA FIDE BELIEF OR NOT. IN THE CASE OF M/S NANDI P ROMOTERS PVT. LTD. (SUPRA), THE APPEAL BEFORE ITAT WAS AT THE INSTANCE OF REVEN UE, WHICH INDICATES THAT THE CIT(A) IN THAT CASE HAD ACCEPTED THE AMOUNTS T O BE SHARE APPLICATION MONEY, WHICH WAS SUBSEQUENTLY REVERSED BY THE ITAT. 5.3. SIMILARLY, IN THE CASE OF M/S BHALOTIA ENGINEE RING WORKS (P) LTD. (SUPRA), AFTER CONSIDERING VARIOUS ARGUMENTS, IT HA S BEEN HELD THAT THE SHARE APPLICATION MONEY BEFORE ALLOTMENT PARTAKES THE CHA RACTER OF A DEPOSIT. 5.4. IT IMPLIES THAT THERE WAS DIVERSITY OF JUDICI AL OPINION ABOUT THE EXACT NATURE OF SHARE APPLICATION MONEY AND ITS NATURE W HEN THERE WAS NO AUTHORIZED CAPITAL. THE JUDICIAL DEBATE ON A PROPOS ITION CAN GIVE RISE TO BELIEF IN THE MIND OF THE ASSESSEE. HOLDING OF A BO NA FIDE BELIEF DEPENDS ON FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS CASE T HE EXISTENCE OF THE DIRECTOR, HIS FINANCIAL CAPACITY TO ADVANCE THE CASH AND ITS SUBSEQUENT CONVERSION INTO SHARE APPLICATION MONEY HAS NOT BEEN DOUBTED. THUS, THE DEFAULT ASSUMES TECHNICAL CHARACTER. 5.5. THE PROVISIONS OF SEC. 269SS WERE BROUGHT ON S TATUTE TO CURB THE PRACTICE OF BLACK MONEY IN CASH TRANSACTION. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT CANNOT BE HELD THAT THERE WAS ANY B LACK MONEY INVOLVED IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE DEFAULT BECOME S A TECHNICAL OR VENIAL DEFAULT. 5.6. HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN STEELS LTD. (SUPRA) HAS CATEGORICALLY HELD THAT PENALTY SHOULD NOT BE I MPOSED ONLY BECAUSE II IS LAWFUL TO DO SO. IN THIS CASE, THOUGH THE PROVISION S ARE ATTRACTED THAT IT MAY BE LAWFUL TO IMPOSE PENALTY, BUT IN THE EVENT OF IT S BEING A TECHNICAL OR VENIAL BREACH AND THE BONA FIDE BELIEF, HONBLE SUP REME COURTS OBSERVATION COMES TO ASSESSEES RESCUE. 8 5.7. FACTS OF THE CASE IN HAND ARE SIMILAR TO THE F ACTS IN THE CASE OF I.P. INDIA PVT. LTD. & M/S SHRI SIDHATA ISPAT (P) LTD. ( SUPRA). RESPECTFULLY FOLLOWING HONBLE DELHI HIGH COURTS JUDGMENT IN T HE CASE OF I.P. INDIA PVT. LTD. (SUPRA) AND AUTHORITIES ABOUT THE NATURE OF SHARE CAPITAL, THERE EXIST DIVERGENCE OF JUDICIAL OPINION ON THE ISSUE ABOUT T HE EXACT MEANING OF THE WORD DEPOSIT, AND SUBSEQUENT INCREASE OF AUTHOR IZED CAPITAL. WE ARE OF THE VIEW THAT ASSESSEES BONA FIDE CANNOT BE HELD T O BE WITHOUT ANY REASON. RESPECTFULLY FOLLOWING THESE AUTHORITIES AND HONBL E SUPREME COURTS JUDGMENT IN THE CASE OF HINDUSTAN STEELS LTD. (SUPR A), WE HOLD THAT THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE AMOUNT S COULD HAVE BEEN ACCEPTED BY CASH. ACCORDINGLY, THE PENALTY LEVIED U /S 271D IS DELETED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13-7-2012. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13-7-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 9