Case Law Details

Case Name : VLS Foods (P.) Ltd. Vs Additonal Commissioner of Income-tax IT (ITAT Delhi)
Appeal Number : Appeal No. 3697 (Delhi) Of 2007
Date of Judgement/Order : 06/05/2009
Related Assessment Year : 2000- 01
Courts : All ITAT (4430) ITAT Delhi (983)

It was held by the Hon’ble Madras High Court in the case of CIT Vs. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 220 CTR (Mad.) 520 that receipt of share application money is neither loan nor deposit. Once we hold and accept that receipt of share application money is neither loan nor deposit, the provisions of ss. 269SS and 271D are not applicable because the provisions of s. 269SS are in connection with acceptance of the loan and deposit and the provisions of s. 271D are in connection with violation of s. 269SS.

We, therefore, hold that since in the present case, the alleged amount of Rs. 8.55 lakhs was received by the assessee in cash on account of share application money, penalty under s. 271D cannot be levied because the receipt of share application money is neither loan nor deposit and hence the impugned receipt of Rs. 8.55 lakhs is not governed by s. 269SS of the Act. We therefore, delete the penalty.

ITAT DELHI BENCH ‘I’

VLS Foods (P.) Ltd.

vs.

Additonal Commissioner of Income-tax

I.P. Bansal, Judicial Member And A.K. Garodia, Accountant Member

IT Appeal No. 3697 (Delhi) Of 2007- Assessment Year 2000-01

Date of Pronouncement- 06.05.2009

ORDER

A.K. Garodia, Accountant Member : This is an assessee’s appeal directed against the order of learned CIT(A) XX, New Delhi, date 20th March, 2007 for asst. yr. 2000-01.

2. The grounds raised by the assessee read as under :

“1. That the penalty levied and sustained to the extent of Rs. 8,55,000 under s. 271 D is absolutely illegal and unjustified in law as well as on merits.

2.   That both the lower authorities erred in law in holding that share application money is in the nature of loan or deposit for the purposes of s. 269SS r/w s. 271D of the IT Act. 1961.

3.  That without prejudice under the facts and circumstances, there existed a reasonable cause under s. 273B, therefore no penalty should have been levied.

4.  That without prejudice after holding the share application money transaction to be genuine and bona fide, there could not have been any reason or occasion to hold that there is a violation of s. 269SS.

5.  That without prejudice penalty levied without recording any legally valid satisfaction of violation of s. 269SS, the initiation of penalty proceedings and consequently the penalty order is absolutely without jurisdiction.

6.  That without prejudice the amount received from the relatives cannot be covered within the ambit of s. 269SS.

7.  That the penalty order passed under s. 271 D is barred by limitation.

8. That without prejudice since no proceedings were pending at the time of initiation of proceedings by learned Addl. CIT, therefore, the initiation of proceedings under s. 271 D by learned Addl. CIT is without jurisdiction.”

3. Briefly stated, the facts are that in the present year, the assessee has received share application money in cash from four persons for total amount of Rs. 9.60 lakhs. Out of this amount, the amount of Rs. 1.05 lakhs received from two persons i.e., Vandana Sharma Rs. 40,000 and Shri Jitender Sharma Rs. 65,000 have been assessed to tax under s. 68 of the IT Act, 1961 and such addition under s. 68 has been upheld by the learned CIT(A) as noted by the learned CIT(A) in the present case on page No. 14 of his order. Although the AO imposed penalty under s. 271 D for the total amount of Rs. 9.60 lakhs, learned CIT(A) has deleted the penalty with regard to receipt of Rs. 1.05 lakhs for which addition was made by the AO under s. 68 of the Act and he confirmed the balance penalty of Rs. 8.55 lakhs in connection with receipt of share application money in cash at Rs. 8.30 lakhs from Shri Y.D. Sharma and Rs. 25,000 from Shri Pradeep Bhardwaj. Now, the assessee is in further appeal before us.

4. In the course of argument before us, learned Authorised Representative of the assessee has raised various arguments and the same are also furnished by him in the brief synopsis filed before us. One of the contentions raised is that s. 269SS is not applicable on receipt of share application money in cash. In support of this contention, reliance was placed by him on the judgment of Hon’ble Madras High Court rendered in the case of CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 220 CTR (Mad.) 520. It is also submitted by him that this judgment of Hon’ble Madras High Court is dt. 12th July, 2007. It was also pointed out by him that there is another judgment of Hon’ble Jharkhand High Court on this issue rendered in the case of Bhalotia Engineering Works (P.) Ltd. v. CIT [2005] 196 CTR (Jharkhand) 619 and this judgment is against the assessee but it is his contention that it is a settled law that interpretation favorable to the assessee should be followed and in this regard reliance was placed by him on the judgment of Hon’ble apex Court rendered in the ease of CIT v. Vegetable Products Ltd. [1973] 1973 CTR (SC) (SC) 177.

5.  Learned Departmental Representative of the Revenue supported the orders of the authorities below.

6.We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below and the judgments cited by the learned Authorised Representative of the assessee. We find that it is an admitted position that in the present ease, the impugned amount of Rs.8.55 lakhs was received by the assessee in cash as share application money. In the case of Rugmini Ram Ragav (supra), the issue before Hon’ble Madras High Court was regarding levy of penalty under s. 271 E for cash payments made by the assessee pertaining to refund of share application money. While deciding this issue, it was held by Hon’ble Madras High Court that the money retained by the assessee company was neither deposit nor loan because the same was received towards allotment of shares from sixteen persons. It was also held that the provisions of ss. 269SS and 269T have application only in limited way in respect of deposits or loans and when it is neither deposit nor loan, the provisions of ss. 269SS and 269T have no application at all. As per this judgment of Hon’ble Madras High Court, no penalty can be imposed under s. 271 D also because once it is held that the receipt of share application money is neither loan nor deposit, the provisions of ss. 269SS and 271 are, also not applicable because these provisions are applicable only when the assessee receives loan or deposit in cash. The judgment of Hon’ble Jharkhand High Court rendered in the case of Bhalotia Engineering Works (supra) is against the assessee. In this case, it. was held by the Hon’ble Jharkhand High Court that share application money received by the assessee is a deposit and hence the provisions of s. 269SS are applicable. Under this factual position, we find that there are two judgments of two different High Courts available on this issue out of which one judgment of Hon’ble Madras High Court is in favour of the assessee whereas the other Judgment of Hon’ble Jharkhand High Court is against the assessee. Under these facts, we have to decide as to which judgment should be followed by us, Under this situation, we are guided by Hon’ble apex Court and as per the judgment in the case of Vegetable Products Ltd. (supra), it was held by Hon’ble apex Court that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. Respectfully following this judgment of Hon’ble apex Court, we are of the considered opinion that we are bound to follow the judgment of Hon’ble Madras High Court rendered in the case of Rugmani Ram Raghav (supra) because this judgment is in favor of the assessee and no judgment of Hon’ble apex Court or of Hon’ble jurisdictional High Court on the issue before us was brought to our notice. It was held by the Hon’ble Madras High Court that receipt of share application money is neither loan nor deposit. Once we hold and accept that receipt of share application money is neither loan nor deposit, the provisions of ss. 269SS and 271 D are not applicable because the provisions of s. 269SS are in connection with acceptance of the loan and deposit and the provisions of s. 271 D are in connection with violation of s. 269SS. We, therefore, hold that since in the present case, the alleged amount of Rs. 8.55 lakhs was received by the assessee in cash on account of share application money, penalty under s. 271D cannot be levied because the receipt of share application money is neither loan nor deposit and hence the impugned receipt of Rs. 8.55 lakhs is not governed by s. 269SS of the Act. We therefore, delete the penalty. In view of our decision above in the above paras, we do not discuss and decide various other arguments which were raised by the learned Authorized Representative of the assessee before us.

7. In the result, the appeal of the assessee is allowed.

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