M/S. SHANTI CHEMSTEEL PVT. LTD.,MUZAFFARNAGAR V. JCIT, MUZAFFARNAGAR

ITA 1449/DEL/2016

AI Insights

The case involves Shanti Chemsteel Pvt. Ltd., which appealed against the penalty imposed by the Assessing Officer (A.O.) and upheld by the CIT(A) for accepting unsecured loans in cash amounting to Rs. 22,00,000, violating section 269SS of the Income Tax Act. The company argued that the amount was received as share application money, not as unsecured loans, and was mistakenly recorded as such by the accountant. The Tribunal, referencing several precedents, concluded that the transaction did not attract the penal provisions of section 271D, as the cash received was intended for share applications and not loans.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471631 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Other Referred Cases: CIT vs. Idhayam Publications Ltd., CIT Vs. Indore Plastics P. Ltd., CIT vs. Vamshi Chemicals Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIBHA MEENA
• Assessee Lawyers: ANKIT GUPTA
• Keywords: Opportunity of being heard; Reasonable cause
• Section: 13; 271D

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. Satbeer Singh Godara, Judicial Member & Sh. Avdhesh Kumar Mishra, Accountant Member ITA No. 1449/Del/2016 : Asstt. Year : 2011-12 Shanti Chemsteel Pvt. Ltd., 204/4, Patel Nagar, Muzaffarnagar Vs JCIT, Range-2, Muzaffarnagar (APPELLANT) (RESPONDENT) PAN No. AAICS8818D Assessee by : Sh. Ankit Gupta, Adv. Revenue by : Ms. Pratibha Meena, Sr. DR Date of Hearing: 14.01.2025 Date of Pronouncement: 29.01.2025 ORDER Per Satbeer Singh Godara, Judicial Member: This assessee’s appeal for Assessment Year 2011-12, arises against the order of CIT(A), Muzaffarnagar’s case No. 155/14015/MZR/1605 dated 11.01.2016, in proceedings u/s 271D of the Income Tax Act, 1961 (in short “the Act”). 2. Heard both the parties at length. Case file perused. 3. Coming to the assessee’s sole substantive ground herein seeking to reverse both the learned lower authority’s action levying section 271D penalty of Rs.22,00,000/-, Mr. Gupta invites our attention to the CIT(A)’s detailed discussion upholding the Assessing Officer’s action to this effect reading as under: ITA No. 1449/Del/2016 Shanti Chemsteel Pvt. Ltd. 2 “5. The facts of the case as well as submission made by the appellant have been considered. It is observed that in this case the penalty u/s 271D of the I.T. Act of Rs.22 lacs has been imposed by the A.O. vide order dated 1.9.2014 on the ground that the appellant has accepted unsecured loans of Rs.22 lacs in cash, thus violating provisions of Sec.269SS of the 1.T.Act. The appellant before the A.O. as well as during the appellate proceedings has stated that the amount of Rs.22 lacs received in cash during the year was mentioned as received as unsecured loans due to mistake of the accountant, whereas it was received as cash on account of share application money 'and the same was transferred to the unsecured loan account through transfer entry in the books of accounts. Further shares have also been claimed to have been allotted to these persons from whom unsecured loans were received. The appellant relied upon the notice dated 15.3.2010 of the Board Meeting, Resolution passed in the meeting of the Board of Directors, affidavit of the accountant dated 2.1.2014 regretting the wrong entry in the books of accounts and the affidavit of the Director to confirm that the amount of Rs.22 lacs was not deposit but share application money. The appellant thus argued its ease that the amount of Rs.22 lacs received in cash from 4 Directors during the year was not unsecured loans but share application money which was not covered u/s 269SS of the Act and hence no penalty u/s 271D of the Act could have been levied in this case. 5.1 The brief facts of the case are that the A.O. during the assessment proceedings on the perusal of the Audit Report in form 3CD observed that the appellant has taken unsecured loan of Rs.22 lacs during the year. Copy of the ledger a/c of the unsecured loans for the period 1.4.2010 to 31.3.2011 was obtained by the A.O. during the assessment proceedings. It was submitted by the appellant before the A.O. reflecting unsecured loans of Rs.25, 63,000/- as on 31.3.2011. The relevant details were called for and on the perusal of the ledger account as submitted by the appellant vide submission dated 5.12.2013 duly authenticated by Sh. Amit Jain, Director in respect of unsecured loan taken during the assessment proceedings, It was observed by the A.O. that the following cash loans on different dates have been accepted during the year:- Name Amount Sh. Amit Jain Rs.4 lacs Sh. Nitin Jain Rs.7 lacs Smt. Ruchi Jain Rs.7 lacs Sh. Sachin Jain Rs.4 lacs All the above persons are Directors of the Company. On perusal of the copy of account in respect of above cash loans as submitted during assessment proceedings, it was noted by the A.O. that the said cash loans have been taken on different dates in different amounts (copy of ledger a/c have been made by the A.O. as annexure to the penalty order). The A.O. issued a show cause dated 31.1.2014 why the penalty proceedings u/s 271-D of the Act not be initiated in this case. At this stage ITA No. 1449/Del/2016 Shanti Chemsteel Pvt. Ltd. 3 the appellant took stand vide this notice dated 5.2.2014 that the amount of Rs.22 lacs in cash was received during the year on account of share application money and it was mentioned as unsecured loan due to mistake of the accountant. Further, shares have been allotted to all the above persons on 4.2,2014. Thus the appellant explained the cash received on different dates of Rs.22 lacs as share application money and not the unsecured loans. The appellant submitted before the A.O. a copy of share application account authenticated by Sh. Amit Jain, Director in which the total cash of Rs. 31 lacs has been received on different dates during the financial year against which shares of Rs.9 lacs has been allotted and balance Rs.22 lacs have been transferred to the loan account of above 4 person. 5.2 It is noted that the explanation of the appellant during the penalty proceedings as well as appellate proceedings is an afterthought. The A.O. started investigation from the perusal of the Audit Report as submitted during the assessment proceedings. In the balance sheet signed by the Director and Auditor M/s Satish Chand Jain & Company dated 27.8.2011 as on 31.3.2011 clearly show that the appellant has shown unsecured loans of Rs.25.63,000/- from friends and relatives of Directors (schedule of the balance sheet). In the account following details have been provided:- Particulars Amount Sh. Sachin Jain Rs.7.63 lacs Sh. Amit Jain Rs.4 lacs Sh. Nitini Jain Rs.7 lacs Smt. Ruchi Jain Rs.7 lacs The Auditor has prepared the financial statements of the appellant as per the statutory requirements of the Companies Act as well as Income Tax Act after being satisfied with the correctness and nature of various entries made in the books of account and supporting documents. Alter the Auditor has prepared the financial statements after making complete Audit of the books of accounts, supporting documents, then Director of the Company further certifies it correctness. Therefore, it cannot be said that the amount received in cash as above during the year on different dates was in the nature of share application money which has been by mistake transferred to the unsecured loans by the Accountant at the end of the year. Mere perusal of unsecured loans accounts submitted during assessment proceedings show that the amounts have been received on different dates of different amounts. If the accountant has made any mistake, which could have been noticed by the Auditors and Directors as on 31.3.2011 or could well would have been rectified in the subsequent financial years i.e. as on 31.3.2012, 31.3.2013. It was only after the show cause given by the A.O. on 31.1.2014, the appellant changed its version by- giving colour of share application to the unsecured loan vide its submission dated 5.2.2014 and by making allotment of shares on 4.2.2014 i.e. allegedly alter more than 4 years. Whereas in its submission dated 5.12.2013 duly authenticated by Sh. Amit Jain. Director of the appellant , ITA No. 1449/Del/2016 Shanti Chemsteel Pvt. Ltd. 4 the said amount has been duly shown as unsecured loan from the 4 Directors of the Company. Further, it has been pointed out by the A.O. that if the cash received on different dates were in the nature of share application money even then the share application a/c would have been showing similar cash receipts as shown in the unsecured loans a/c as submitted on 5.12.2013 whereas both these accounts show different amounts received on different dates. On the basis of the above facts and detailed discussion, observations made by the A.O. in the penalty order it is clearly noted that the appellant has received amount of Rs.22 lacs in cash on account of unsecured loan from 4 persons in contravention of provisions of sec.269SS of the Act. The A.O. has provided adequate opportunity of being heard and has considered details/documents submitted by it in detail. The explanation submitted by the appellant has been found to be in nature of manipulation and after thought Submission of the appellant does not have any force or merit. Moreover the case of the appellant is not covered by any reasonable cause as per provisions of Section 273-B of the I.T. Act. Therefore, the A.O. was justified in levying penalty of Rs.22 lacs u/s 271D of the Act. Grounds of appeal Nos.1 to 9 are dismissed. 6. In result, the appeal is dismissed.” 4. Both the learned representatives reiterate their respective stand against and in support of the impugned penalty levied by the Assessing Officer in his order dated 01.09.2014 and upheld in the CIT(A)’s lower appellate discussion. 5. Learned counsel raises twin substantive arguments i.ee. the impugned cash loan of Rs.22,00,000/- represents share money not covered under the mischief of section 269SS. And that it had come from it’s four directors i.e. Sh. Amit Jain, Sh. Nitin Jain, Sh. Sachin Jain and Smt. Ruchi Jain of Rs.4,00,000/- Rs.7,00,000/-, Rs.4,00,000/- and Rs.7,00,000/-; respectively and therefore, the rigor of section 271D stood satisfied as the intention behind the same was to curs the practice of ploughing of black money in the system. ITA No. 1449/Del/2016 Shanti Chemsteel Pvt. Ltd. 5 6. Ms. Meena, learned Sr. DR on the other hand has sought to buttress the point in light of both learned lower authority’s respective findings that there was no paid up share capital liable to be allotted (supra) and therefore, it’s explanation tendered all along has been rightly rejected. 7. We have given our thoughtful consideration to the assessee’s and Revenue’s foregoing vehement rival submissions. We are of the considered view that the impugned penalty does not deserve to be sustained as it has come on record that the same represents cash received by the assessee from it’s four directors/related parties. We further wish to clarify here that the said four directors been duly allotted shares subsequently on 04.02.2014 i.e. para (iii) at page 13 in the penalty order dated 01.09.2014. We accordingly are of the considered view that given the fact that the assessee having received the cash loans or share application money in cash from it’s four directors, the impugned penalty is not sustainable. Case law CIT vs. Idhayam Publications Ltd. (2006) 285 ITR 221 holding that such an accounting entry does not violate the rigor u/s 269SS so as to attract the impugned penal provision u/s 271D herein. Learned counsel further quotes CIT Vs. Indore Plastics P. Ltd. (2003) 262 ITR 163 (MP) reiterating the very legal proposition. Hon’ble Calcutta High Court in ITA No. 1449/Del/2016 Shanti Chemsteel Pvt. Ltd. 6 (2024) 162 taxmann.com 906 (Cal) CIT vs. Vamshi Chemicals Ltd. has also held that both the above propositions u/s 269SS and 271D do not apply in an instance of share application money. We thus find merit in the assessee’s instant sole substantive grievance and conclude that both learned lower authorities have erred in law and in facts in levying the impugned penalty u/s 271D of Rs.22,00,000/- in it’s hands. The same is accordingly directed to be deleted. 8. This assessee’s appeal is allowed. Order Pronounced in the Open Court on 29/01/2025. Sd/- Sd/- (Avdhesh Kumar Mishra) (Satbeer Singh Godara) Accountant Member Judicial Member Dated: 29/01/2025 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR "