Income Tax Officer Vs. M/s. Avadh Rubber Ltd. (ITAT Kolkata)
I.T.A. No. 1853/Kol/2008
Dated : 28th May, 2010
Income Tax Appeal – Share Application Money Dispute | Abhisek Saraf’s Cash Contribution | ITAT Kolkata Decision | Penalty under s. 271D
Sole dispute is whether the contribution of Abhisek Saraf in cash towards share application money in the sum of Rs. 3 lacs should be construed to be a deposit within the meaning of s. 269SS in order to apply the provisions of s. 271D.
Conditions precedent for imposing penalty u/s. 271D are satisfied only when the assessee accepts loans or deposits in infringement of the provisions of s. 269SS and not otherwise.
The Honourable Apex Court in the case of ADIT Vs Kumari A. B. Shanti (supra), dealt with the object of introduction of the provision of s. 269SS as under:
“The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same.”
The Central Board of Direct Taxes in Circular No. 387 dated 06-07-1984 has in explanatory notes issued after the Finance Act, 1984 has considered the same as under:
“32.1 Unaccounted cash found in the course of searches carried out by the Income Tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
32.2 With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 269SS in the Income Tax Act debarring persons from taking or accepting, after 30th June, 1984 from any other person, any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposits is Rs. 10,000/- or more ”
Therefore in our considered opinion the provision was introduced to eliminate the proliferation of black money in the society at large and not otherwise. In the instant case, there was no violation of the Legislative intent behind the introduction of s. 269SS inasmuch as the transaction has duly been properly recorded in the accounts with proper narration. We find the only confusion may have arisen because in the audit report u/s. 44AB of the Income Tax Act, 1961 such amount was inadvertently included in the schedule of “Loans”. However, in the course of proceedings against the assessment order before the Ld. CIT(A) such mistake was corrected and the addition was deleted by the first appellate authority after considering the genuineness of the amount received, a copy of such order is enclosed at paper book page 24, which was upheld by the ITAT “D” Bench Kolkata in I.T.A. No. 1767 /Kol/ 2003 dated 27/04/2004, a copy of which order is enclosed at paper book page 17. It is therefore not in dispute that the Share Application Money did not partake of the character of evil which was sought to be rooted out by incorporating the provision of s. 269SS and as such there is no malafide intention in this respect. It is not in dispute that the Share Application Money of Rs. 3,00,000/- received from Shri Abhisek Saraf is genuine and that there was no intention to deceive the Revenue. Therefore, in our considered opinion, there is no contravention of the law if we read the facts of the case keeping in mind the intention of the Legislature. Further it was the contention of the Revenue that the provision of s. 269SS has to be construed by giving effect to the mischief rule and on such premise, reliance was placed on the decisions in the cases of Mysore Sales International Ltd. -Vs- DCIT supra and State of Bihar & Another -Vs- CIT supra. However, we find that the provisions of s. 269SS read with s. 271D are penal in nature. Therefore, in our considered opinion, the rule of strict construction will apply while interpreting a penal statute, which cannot cover cases not specifically included within its letter. This finding of ours is also fortified with the decision of the Honourable Jurisdictional High Court in the case of Ganesh Properties P. Ltd. -Vs- CIT (1993) 202 ITR 434 (CAL) wherein it was settled that a penal provision must be construed strictly in accordance with the conditions laid down therein. Therefore, the interpretation of the provision of s. 269SS read with s. 271D should be strictly construed and this argument of the Ld. DR is rejected.
We are of the considered opinion that the contribution towards share application money received in cash from Sri Abhisek Saraf in the sum of Rs 3 lacs does not come within the scope and ambit of the expression ‘deposit’ appearing in the provisions of s. 269SS in order to justify the levy penalty u/s. 271D and hence the Ld. CIT(A) was correct in law in deleting penalty u/s. 271D of Rs. 3 lacs.