ACIT, New Delhi v. M/s Zestha Developers Ltd., New Delhi

ITA 3629/DEL/2011 | 2007-2008
Pronouncement Date: 04-11-2011 | Result: Dismissed

Appeal Details

RSA Number 362920114 RSA 2011
Assessee PAN AAACZ2395Q
Bench Delhi
Appeal Number ITA 3629/DEL/2011
Duration Of Justice 3 month(s) 13 day(s)
Appellant ACIT, New Delhi
Respondent M/s Zestha Developers Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 04-11-2011
Assessment Year 2007-2008
Appeal Filed On 22-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I : NEW DELHI BEFORE SMT. DIVA SINGH JUDICIAL MEMBER & SHRI B.C. MEENA ACCOUNTANT MEMBER I.T.A. NO.3629/DEL/2011 ASSESSMENT YEAR : 2007-08 A.C.I.T. CIRCLE-18(1) NEW DELHI. VS. M/S ZESTHA DEVELOPERS LIMITED C/O. RRA TAXINDIA D-28 SOUTH EXTENSION PART-I NEW DELHI. (PAN: AAACZ 2395 Q) [APPELLANT] [RESPONDEN T] APPELLANT BY : DR. B. R.R. KUMAR SR. D.R. RESPONDENT BY : DR. RAKESH GUPTA & SHRI TARUN KUMAR ADVOCATES DATE OF HEARING : 22.0 9.2011 DATE OF PRONOUNCEMENT : O R D E R PER DIVA SINGH JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 26.05.2011 OF CIT(A)XXI NEW DELHI PERTAINING TO 20 07-08 A.Y. WHEREIN VARIOUS GROUNDS HAVE BEEN RAISED BY THE REVENUE. H OWEVER ARGUMENTS WERE ADVANCED ONLY IN REGARD TO GROUND NOS.1 & 2. FOR READY REFERENCE THE SAME ARE REPRODUCED AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.19 56 250/- IMPOSED ON THE ASSESSEE UNDER SECTIO N 271D OF THE I.T. ACT BY NOT DECIDING ENTIRELY ON MERITS THE CONTENTIONS OF THE AO DISCUSSED IN DETAIL IN THE AS SESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED BY NOT APPRECIATING THAT THE D ECISION OF ITA NO.3629/DEL./2011 A.Y. 2007-08 2 THE HONBLE JHARKHAND HIGH COURT IN THE CASE OF BHA LOTIA ENGINEERING WORKS PVT. LTD. VS. CIT (2005) 275 ITR 399 WHEREIN IT WAS HELD THAT SHARE APPLICATION MONEY MA Y NOT BE CONSIDERED AS A LOAN BUT IT PARTAKES OF THE CHARACT ER OF DEPOSIT AND THE SAME THEREFORE COMES UNDER THE PURV IEW OF SECTION 271D OF THE I.T. ACT IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY. 2. THE RELEVANT FACTS OF THE CASE ARE THAT IN THE C OURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY TOTALING TO RS.19 56 250/- IN CASH FROM THE F OLLOWING PARTIES:- SL.NO. NAME OF THE PARTIES FROM WHOM CASH RECEIVED AMOUNT RECEIVED IN CASH RS. 1. AJAY AGARWAL 1 00 000/- 2. ANITA AGARWAL 50 000/- 3. BABITA AGARWAL 3 00 000/- 4. HIMANSU AGARWAL (HUF) 2 00 000/- 5. SATVIR SINGH 5 00 000/- 6. T.C. GUPTA 3 06 250/- 7. V.K. AGARWAL 5 00 000/- T O T A L : RS. 19 56 250/- 2.1. IN VIEW OF THE ABOVE THE ASSESSEE WAS PUT TO N OTICE SO AS TO EXPLAIN WHY PENALTY UNDER SECTION 271D OF THE ACT SHOULD N OT BE IMPOSED FOR VIOLATING THE PROVISIONS OF SECTION 269SS 2.2. SINCE NO REPLY WAS GIVEN BEFORE THE ACIT IT W AS CONCLUDED THAT ASSESSEE HAS NOTHING TO SAY EVEN ON REASONABLE CAUS E AS HE HAS NOT EVEN CARED TO EXPLAIN THE NECESSITY FOR RECEIVING SHAR E APPLICATION MONEY IN CASH. THUS NOTING THAT THE AMOUNTS WERE NOT MEAGER HE RELIED ON BHALOTIA ENGINEERING WORKS PVT. LTD. VS. CIT 275 ITR 399 (J HARKHAND) WHEREIN IT WAS HELD THAT THE RECEIPT OF SHARE APPLICATION MONE Y IN CASH IN EXCESS OF ITA NO.3629/DEL./2011 A.Y. 2007-08 3 RS.20 000/- IS A VIOLATION OF SECTION 269SS. ACCO RDINGLY PENALTY OF RS.19 56 250/- WAS IMPOSED. 3. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BE FORE THE CIT(A). 4. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY IT WAS AGITATED THAT THE PENALTY ORDER WAS PASSED WITHOUT GIVING THE ASSESSE E ADEQUATE OPPORTUNITY OF BEING HEARD; THE DATE OF HEARING WAS FIXED FO R 28.1.2010 AT 11.00 AM AND ON THE SAID DATE THE ASSESSEE SUBMITTED A REPLY DATED 8 TH MARCH 2010 STATING THAT IN RESPECT OF SHARE APPLICATION MONEY SECTION 269SS WAS NOT APPLICABLE; THEREAFTER THE SAID AUTHORITY FIXED T HE NEXT HEARING ON AT 11.00 A.M. AS PER THE NOTICE DATED 22.06.2010 WHICH WAS R ECEIVED BY THE ASSESSEE ON 26.06.2010 AT 3.00 P.M.; CONSEQUENT THERETO THE ASSESSEES AUTHORISED REPRESENTATIVE SHRI B L AGARWAL APPEARED AND HE WA S INFORMED THAT THE ORDER HAS ALREADY BEEN DESPATCHED. ON THE BASIS OF THESE FACTS IT WAS ARGUED THAT REASONABLE OPPORTUNITY TO EXPLAIN WAS NOT PROV IDED BY THE ACIT. 4.1. PENAL ACTION WAS ALSO ASSAILED ON MERIT RELYI NG ON THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF S. VELU PALA NDAR VS. DY.COMMERCIAL TAX OFFICER 83 ITR 683 (MADRAS) . 4.2. RELYING ON SECTION 273B IT WAS ARGUED THAT PE NALTY CANNOT BE AUTOMATICALLY IMPOSED THAT THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT MONEY RECEIVED IS ONLY FOR THE PURPOSE OF ALLOTMENT OF SHARES AND AS SUCH SINCE IT WAS NEITHER A LOAN NOR A DEPOSIT FROM ANY PARTY AS SUCH THERE WAS NO CONTRAVENTION OF SECTION 269SS OF THE ACT. IT WA S ALSO CONTENDED THAT SHARES WERE ISSUED BY THE ASSESSEE IN THE SAME YEAR TO ALL THE SUBSCRIBERS THE ASSESSEES ACTION IS BONAFIDE AND GENUINE. 4.3. IT WAS REITERATED THAT THE PENALTY ORDER HAS B EEN PASSED IN HASTE WITHOUT VERIFYING THE FACTS. NO EFFORTS WERE MADE TO EXAMINE THAT THE SHARE APPLICATION MONEY CANNOT BE EQUATED WITH A DEPOSIT OR A LOAN. THE FACT ITA NO.3629/DEL./2011 A.Y. 2007-08 4 THAT THE ASSESSEE HAS NOT PAID ANY INTEREST ON THE SAID AMOUNT HAS BEEN IGNORED SIMILARLY THE FACT THAT THE SHARES STOOD A LLOTTED WAS ALSO IGNORED. 4.4. THE JUDGEMENT OF THE JHARKHAND HIGH COURT I N THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. IT WAS ARGUED WAS DIST INGUISHABLE. RELYING ON VLS FOODS (P) LIMITED VS. ADDITIONAL COMMISSIONER O F INCOME TAX ITAT DELHI 5 TH JUNE 2009 28 TTJ 1 (DEL) IT WAS CONTENDED THAT THE SAID ORDER HAD AN OCCASION TO CONSIDER THE JUDGEMENT OF JHARKH AND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. AND IN STEAD HAS RELIED UPON CIT VS. RUGMINI RAM RAGHAV SPINNERS (P) LTD. 304 I TR 417 (MAD). 4.5. RELIANCE WAS ALSO PLACED UPON THE JUDGEMENT I N THE CASE OF SHIVALIK FUELS (P) LIMITED VS. CIT 276 ITR 638 (P&H) FARRU KHABAD INVESTMENT (I) LIMITED VS. JOINT CIT 80 TTJ (DEL) 82 CIT VS. SPE EDWAYS RUBBER (P) LTD. 326 ITR 31 (P&H) & SHARAD HOLDING LEASING (P) LIMIT ED VS. ASSTT. CIT 95 TTJ 336 (PUNE). 4.6. IN THE CONTEXT OF THE ABOVE POSITION OF LAW I T WAS SUMMARIZED THAT THE SHARE CAPITAL HAS BEEN RECEIVED FROM PERSONS WH O ARE ASSESSED TO TAX. THEY HAVE BEEN ALLOTTED PAN IN THEIR OWN INDIVIDUAL CAPACITY; THEY ARE REGULARLY FILING THEIR INCOME TAX RETURNS. THE ONL Y BONAFIDE FAULT THAT THEY HAVE DEPOSITED SHARE CAPITAL IN CASH CANNOT ATTRACT PENAL ACTION AS ADMITTEDLY THEIR IDENTITY IS ESTABLISHED; COPIES OF THEIR AFFI DAVITS WERE FILED WHEREIN THEY HAVE CONFIRMED MAKING PAYMENT AND HAVING RECEIVED A LLOTMENT OF SHARES. DETAILS OF EVIDENCES TO JUSTIFY THE GENUINENESS OF THE TRANSACTION AND ADDRESSING THE CREDITWORTHINESS AND IDENTITY WERE R ELIED UPON. 4.7. IT WAS ALSO ARGUED THE PENALTY SHOULD NOT BE LEVIED FOR MERE TECHNICAL OR VENIAL BREACH. FOR THE SAID PROPOSITION RELIAN CE WAS PLACED UPON HINDUSTAN STEELS VS. STATE OF ORISSA 83 ITR 26 (SC ) INDUSTRIAL ENTERPRISES VS. DCIT 73 ITD 252 (HYD) & ITO VS. RAJENDRA TRADI NG CO. 48 ITD 210 (CHD.). ITA NO.3629/DEL./2011 A.Y. 2007-08 5 5. CONSIDERING THE ABOVE FACTS AND ARGUMENT AND RE LYING UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF VLS FOODS PVT. LTD. VS. ACIT THE PENALTY WAS QUASHED OBSERVING AS UNDER :- 3.3. IN THIS REGARD RELIANCE ON THE CASE OF VLS F OODS PVT. LTD. VS ACIT REPORTED AT 128 TTJ-I (DEL) IS APPRECIATED WHEREIN IN PARA (6) OF THE ORDER HONBLE ITAT DELHI HAS DECIDED TH E ISSUE AS UNDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW AND THE JUDGEMENTS CITED BY THE LD.A.R. OF TH E ASSESSEE. WE FIND THAT IT IS AN ADMITTED POSITION THAT IN THE PRESENT CASE THE IMPUGNED AMOUNT OF RS. 8.55 LAKHS WAS RECEIVED BY THE ASSESS EE IN CASH AS SHARE APPLICATION MONEY. IN THE CASE OF RUGMINI RAM RAGA V (SUPRA) THE ISSUE BEFORE HONBLE MADRAS HIGH COURT WAS REGARDING LEVY OF PENALTY U/S 271E FOR CASH PAYMENTS MADE BY THE ASSESSEE PERTAI NING TO REFUND OF SHARE APPLICATION MONEY. IT WAS ALSO HELD THAT THE PROVISIONS OF S.269SS AND 269T HAVE APPLICATION ONLY IN LIMITED WAY IN RE SPECT OF DEPOSIT OR LOANS AND WHEN IT IS NEITHER DEPOSIT NOR LOAN THE PROVISIONS OF S.269SS AND 269T HAVE NO APPLICATION AT ALL. AS PER THIS J UDGEMENT OF HONBLE MADRAS HIGH COURT NO PENALTY CAN BE IMPOSED U/S 27 1D ALSO BECAUSE ONCE IT IS HELD THE RECEIPT OF SHARE APPLICATION MO NEY IS NEITHER LOAN NOR DEPOSIT THE PROVISIONS OF S. 269SS AND 271 ARE AL SO NOT APPLICABLE BECAUSE THESE PROVISIONS ARE APPLICABLE ONLY WHEN T HE ASSESSEE RECEIVES LOAN OR DEPOSIT IN CASH. THE JUDGEMENT OF HONBLE JHARKHAND HIGH COURT RENDERED IN THE CASE OF BALOTIA ENGINEERING W ORKS (SUPRA) IS AGAINST THE ASSESSEE. IN THIS CASE IT WAS HELD BY THE HONBLE JHARKHAND HIGH COURT THAT SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE IS A DEPOSIT AND HENCE THE PROVISIONS OF S.269SS ARE APP LICABLE. UNDER THIS FACTUAL POSITION WE FIND THAT THERE ARE TWO JUDGEM ENTS OF TWO DIFFERENT HIGH COURTS AVAILABLE ON THIS ISSUE OUT OF WHICH ON E JUDGEMENT OF HONBLE MADRAS HIGH COURT IS IN FAVOUR OF THE ASSES SEE WHEREAS THE OTHER JUDGEMENT OF THE HONBLE JHARKHAND HIGH COURT IS AGAINST THE ASSESSEE. UNDER THESE FACTS WE HAVE TO DECIDE AS TO WHICH JUDGEMENT SHOULD BE FOLLOWED BY US. UNDER THIS SITUATION WE ARE GUIDED BY HONBLE APEX COURT AND AS PER THE JUDGEMENT IN THE CASE OF VEGETABLE PRODUCTS LTD.(SUPRA) IT WAS HELD BY HONBLE APEX C OURT THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE APEX COURT WE ARE OF THE CONSIDERED OPINION THAT WE ARE BOUND TO FOLLOW THE JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF RUGMINI R AM RAGAV (SUPRA) BECAUSE THIS JUDGEMENT IS IN FAVOUR OF THE ASSESS EE AND NO JUDGEMENT OF HONBLE APEX COURT OR OF HONBLE JURISDICTIONAL HIG H COURT ON THE ISSUE BEFORE US WAS BROUGHT TO OUR NOTICE. IT WAS HELD BY THE HONBLE MADRAS HIGH COURT THAT RECEIPT OF SHARE APPLICATIO N MONEY IS NEITHER LOAN NOR DEPOSIT. ONCE WE HOLD AND ACCEPT THAT REC EIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT THE PROVISIONS OF S. 269SS ITA NO.3629/DEL./2011 A.Y. 2007-08 6 AND 271D ARE NOT APPLICABLE BECAUSE THE PROVISIONS OF S.271D ARE IN CONNECTION WITH VIOLATION OF S.269SS. WE THEREFOR E HOLD THAT SINCE IN THE PRESENT CASE THE ALLEGED AMOUNT OF RS. 8.55 LA KHS WAS RECEIVED BY THE ASSESSEE IN CASH ON ACCOUNT OF SHARE APPLICATIO N MONEY PENALTY U/S 271D CANNOT BE LEVIED BECAUSE THE RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT AND HENCE THE IMPUGNED REC EIPT OF RS.8.55 LAKHS IS NOT GOVERNED BY S.269SS OF THE ACT. WE T HEREFORE DELETE THE PENALTY. IN VIEW OF OUR DECISION ABOVE IN THE ABOVE PARAS WE DO NOT DISCUSS AND DECIDE VARIOUS OTHER ARGUMENTS WHICH WE RE RAISED BY THE LD.A.R. OF THE ASSESSEE BEFORE US. 3.4. IN THIS CASE HONBLE ITAT DELHI HAS RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS RUGMINI RAM RAGHAV SPINNERS P.LTD. REPORTED IN 304 ITR 417 WAS DISTINGUISHED TH E CASE OF BHALOTIA ENGINEERING WORKS P.LTD. VS CIT REPORTED AT 275 ITR 399 (JHARKHAND HIGH COURT) THE CASE WHICH WAS RELIED ON BY THE AO IN THE PENALTY ORDER. IN MY CONSIDERED OPINION JUDGEMENT OF HONB LE ITAT DELHI IN CASE OF VLS FOODS P.LTD. IS CLEARLY ATTRACTED IN TH E CASE AS IN THE INSTANT CASE SHARE APPLICATION MONEY AMOUNTING TO RS. 19 56 250/- CAN NOT BE HELD AS LOAN OR ADVANCE. FURTHERMORE SHARES WERE ALLOTTED TO THE SHARE APPLICANTS. SO IT CANNOT BE HELD AS LOAN OR DEPOS IT IN CASH SO IN MY CONSIDERED OPINION ACTION OF THE AO IS MISCONCEIVE D. THEREFORE PENALTY LEVIED BY AO AMOUNTING TO RS. 19 56 250/- U /S 271D IS DELETED. GROUND NOS. 1 2 3 AND 4 ARE ALLOWED. 6. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. 7. THE LD. D.R. HEAVILY RELIED UPON THE PENALTY ORD ER AND THE JUDGMENT OF THE JHARKHAND HIGH COURT WHICH HAS BEEN CONSIDER ED BY THE ACIT. EMPHASIS WAS LAID ON THE OBSERVATIONS OF HONBLE HI GH COURT WHICH ARE REPRODUCED IN THE PENALTY ORDER. FOR READY REFEREN CE THEY ARE REPRODUCED HEREUNDER : THE JHARKHAND HIGH COURT IN THE MATTER OF BHALOTIA ENGINEERING WORKS PVT.LTD. VS CIT (2005) 275 ITR 399 HELD THAT THE RECEIPT OF SHARE APPLICATION MONEY IN CASH IN EXCESS OF RS. 20 000/- IS IN CONTRAVENTION TO SECTION 269SS OF THE ACT. THE HON BLE COURT HAD OBSERVED THAT WHAT WILL HAPPEN IF SHARES ARE ULT IMATELY ALLOTTED TO THE APPLICANT? WHAT IS THE NATURE OF THE AMOUNT IN THE HANDS OF THE COMPANY UNTIL THE SHARES ARE ALLOTTED? THE AMOUNT CANNOT BE A LOAN. BUT AT THE SAME TIME THERE IS AN OBLIGATION ON THE COMPANY TO RETURN THE MONEY TO THE APPLICANT OR FOR ALLOTTING THE SHA RE APPLIED FOR. UNTIL EITHER OF THESE HAPPENS THE AMOUNT CANNOT BE CONSI DERED TO BE A LOAN IN THE HANDS OF THE COMPANY. BUT IT APPEARS TO US THAT IT WILL PARTAKE OF THE CHARACTER OF A DEPOSIT IN THE HANDS OF THE C OMPANY ATTRACTING THE PROHIBITION CONTAINED IN S. 269SS OF THE ACT. THE QUESTION HAS TO BE ITA NO.3629/DEL./2011 A.Y. 2007-08 7 CONSIDERED IN THE CONTEXT OF THE PURPOSE SOUGHT TO BE ACHIEVED BY THE INSERTION OF S.269SS OF THE ACT. OBVIOUSLY IT WAS DONE WITH A VIEW TO PREVENT TRANSACTIONS IN BLACK MONEY AND TO ENSURE T HAT PAYMENTS OF RS. 20 000/- AND ABOVE ARE TRACEABLE TO TRANSACTIO NS THROUGH A BANK. IF THE MISCHIEF THAT IS SOUGHT TO BE AVERTED IS KEP T IN MIND. IT WILL BE APPROPRIATE TO HOLD THAT ANY PAYMENT OF RS. 20 000/ - OR ABOVE MADE TO A COMPANY AS SHARE APPLICATION MONEY SHOULD BE AS PROVIDED IN S.269SS OF THE ACT. THEREFORE EVEN IF SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS A LOAN WITHIN THE MEANING OF S.269SS OF THE I.T. ACT WE ARE OF THE VIEW THAT IT PARTAKES OF THE CHARACTER OF A DEPOSIT SINCE IT IS REPAYABLE IN SPECIE ON REFUSAL TO ALLOT SHARES AND IS REPAYAB LE IF RECALLED BY THE APPLICANT BEFORE ALLOTMENT OF SHARES AND THE CONCL USION OF THE CONTRACT. 7.1. ON THE BASIS OF THE ABOVE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT THAT THE SHARE APPLICATION MONEY HAS BEEN IN CASH IN VIOLATION OF THE PROVISIONS OF SECTION 269SS IT WAS ARGUED THAT THE IMPUGNED ORDER DESERVES TO BE SET ASIDE AND THE PENALTY ORDER DESERVES TO B E UPHELD. IT WAS FURTHER ARGUED THAT THE JUDGMENT OF THE MADRAS HIGH COURT I N THE CASE OF CIT VS. RUGMINI RAM RAGHAV SPINNERS (P) LTD. 304 ITR 417 ( MAD) RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A) IS PERTAINING TO RE PAYMENT OF LOAN IN CASH AND THE JUDGEMENT OF APEX COURT IN THE CASE OF HIND USTAN STEELS VS. STATE OF ORISSA 83 ITR 26 (SC) IS IN THE CONTEXT OF A DE ALER IN SALES TAX. ACCORDINGLY IT WAS ARGUED THE PRINCIPLE LAID DOWN T HEREIN WOULD NOT APPLY TO THE PRESENT. IN THE LIGHT OF THE ABOVE FACTS AN D ARGUMENTS IT WAS CONTENDED THE IMPUGNED ORDER OF THE CIT(A) DESERVES TO BE SET ASIDE AND THE PENALTY ORDER SHOULD BE RESTORED. 8. LD. A.R. ON THE OTHER HAND CONTENDED THAT THE FACT THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY IN CASH ON ACC OUNT OF WHICH SHARES HAVE BEEN ALLOTTED IN THE YEAR IS A FACT ON RECORD AND ON A PERUSAL OF PAGE 4 OF THE ASSESSMENT ORDER IT WAS SUBMITTED IT WOULD BE EVIDENT THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF THE SAID AMOUNT TERMING THE ITA NO.3629/DEL./2011 A.Y. 2007-08 8 SAME AS UNDISCLOSED INCOME OF THE ASSESSEE. FOR RE ADY REFERENCE THE RELEVANT FINDING IS REPRODUCED AS UNDER :- IN THE LIGHT OF THESE FINDINGS IT IS HELD THAT THE WHOLE OF SHARE APPLICATION MONEY INTRODUCED DURING THE YEAR IS ACTUALLY ASSESS EES OWN MONEY. MOREOVER BEING CASH DEPOSITS IT IS COVERED BY THE PROVISIONS OF S.269SS OF THE ACT. HENCE THE TOTAL AMOUNT OF CASH DEPOSITED IN THE FORM OF SHARE APPLICATION MONEY RS. 19 56 250/- IS HEREBY DISALL OWED U/S 269SS OF THE ACT. 8.1. IN THE LIGHT OF THE ABOVE FINDING IT WAS ARGUE D THAT THE DEPARTMENT HAS TAKEN CONTRADICTORY STAND NAMELY: THE ASSESSEE HAS INTRODUCED ITS OWN MONEY THROUGH THE PERSONS MENTIONED AND AT THE SA ME TIME IT HAS BEEN CONCLUDED THAT THE ASSESSEE HAS ACCEPTED MONEY IN CASH FROM THE NAMED PERSONS IN VIOLATION OF THE PROVISIONS OF SECTION 269SS. IT WAS ARGUED THAT THE ASSESSEE CANNOT BE PUNISHED ON BOTH THE ACCOUNT S AND FOR THIS CONFUSION ALONE ON THE PART OF THE DEPARTMENT IT WAS HIS SUB MISSION THE PENALTY DESERVES TO BE QUASHED IN TERMS OF THE JUDGEMENTS O F THE DELHI HIGH COURT IN THE CASE OF I) CIT VS. STANDARD BRANDS LTD.285 ITR 299 (DELHI); AND II) DIWAN ENTERPRISES VS CIT & 246 ITR 571(DELHI). 8.2. IT WAS ALSO HIS ARGUMENT THAT THE PENALTY PROV ISIONS HAVE TO BE INTERPRETED STRICTLY. SECTION 269SS TALKS OF LOAN AND DEPOSIT AND DOES NOT REFER TO SHARE APPLICATION MONEY. IT WAS ARG UED THAT SHARE APPLICATION MONEY CANNOT BE TREATED AS LOAN OR A DEPOSIT. THE LANGUAGE OF THE PROVISION IT WAS ARGUED HAS TO BE INTERPRETED STRICTLY FOR P ENALTY PROCEEDINGS. FOR THE SAID PROPOSITION RELIANCE WAS PLACED UPON AC IT VS. VELIAPPA TEXTILES LTD. AND ANOTHER 263 ITR 550 (SC) CIT VS. TV SUND ARAM IYENGAR & SONS 101 ITR 764 (SC). IN THE SIMILAR CONTEXT RELIANCE WAS ALSO PLACED UPON ENGINEERS IMAGES P.LTD. 244 ITR 247 (DELHI). 8.3. SPECIFIC ATTENTION WAS INVITED TO THE ORDER OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF JAG VIJAY AUTO FINANCE PVT. LTD. VS. ACIT 52 ITD ITA NO.3629/DEL./2011 A.Y. 2007-08 9 504 (JP.) WHICH HAD BEEN RELIED UPON BEFORE THE CIT (A) ALSO. RELYING ON THE SAME IT WAS ARGUED IT HAS BEEN HELD THERE THAT SHAR E APPLICATION MONEY CANNOT BE TERMED EITHER A DEPOSIT NOR A LOAN AS SUC H THE IMPUGNED ORDER DESERVES TO BE UPHELD. 8.4. IN SUPPORT OF THE IMPUGNED ORDER RELIANCE WAS ALSO PLACED UPON CIT VS. RUKMINI RAM RAGAV SPINNERS P.LTD. 304 ITR 417 ( MAD.) CIT VS. SPEEDWAYS RUBBER P.LTD. 326 ITR 31 (P&H) AND CIT VS . INDORE PLASTICS P.LTD. 262 ITR 163 (MP). THE ORDER OF THE CO-ORDIN ATE BENCH IN THE CASE OF VLS FOODS PVT. LTD. (SUPRA) IT WAS SUBMITTED HAS C ONSIDERED THE JUDGEMENT RENDERED BY THE HONBLE JHARKAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. AND CHOSEN TO FOLLOW TH E JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF RUGMINI RAM RAGAV SPINNERS P.LTD. AND THIS JUDGEMENT WAS IN THE CONTEXT OF SHARE APPLICA TION MONEY. 8.5. ADDRESSING ARGUMENTS ON S.273B OF THE ACT IT W AS SUBMITTED THAT IT IS WELL SETTLED THAT THE MARGINAL NOTE TO THE SECTIO N MAY BE RELIED UPON TO CLEAR ANY DOUBT OR AMBIGUITY IN THE INTERPRETATION OF THE PROVISION AND TO DISCERN THE INTENT OF THE LEGISLATURE. THE MARGINAL NOTE TO SECTION 273B IT WAS EMPHASIZED READS PENALTY NOT TO BE IMPOSED IN CERT AIN CASES. FOR THE PROPOSITION THAT MARGINAL NOTE MAY BE LOOKED INTO RELIANCE WAS PLACED ON PRAKASH NATH KHANNA VS CIT 266 ITR 1 (SC). ARGUME NTS WERE ALSO ADVANCED REFERRING TO CIRCULAR NO.387 DATED 6.7.198 4 ADDRESSING THE OBJECTS FOR WHICH SECTION 269SS WAS INTRODUCED. IN THE CON TEXT OF SEC. 273B IT WAS SUBMITTED THAT THE PURPOSE FOR INTRODUCING THE SAI D SECTION WAS TO TAKE THE GENUINE TRANSACTION OUT OF THE AMBIT OF THE RIGORS OF THE SAID SECTION 271D AS HAS BEEN CONSIDERED BY VARIOUS COURTS SOME OF WHICH ARE ASSISTANT DIRECTOR OF INSPECTION (INVESTIGATION) VS. KUMARI A.B.SHANT HI 255 ITR 258 (SC). THE SAID JUDGEMENT IT WAS STATED HAS BEEN FOLLOWE D IN CIT VS. BHAGWATI PRASAD BAJORIA (HUF) 263 ITR 481 (GAUHATI) CIT VS . SPEEDWAYS RUBBER ITA NO.3629/DEL./2011 A.Y. 2007-08 10 P.LTD. 326 ITR 21 (P&H) & AND CIT VS. SUNIL KUMAR G OEL 315 ITR 163 (P&H). 8.6. IT WAS FURTHER SUBMITTED THAT MERE TECHNICAL BREACH SHOULD NOT INVITE PENAL CONSEQUENCE AS HAS BEEN HELD BY THE HONBLE S UPREME COURT IN THE CASE OF 83 ITR 26 (SC). 8.7. IN CIT VS. IDHAYAM PUBLISHERS 285 ITR 221 ( MAD) IT WAS ARGUED THAT IT HAS BEEN HELD THAT AMOUNT RECEIVED BY A PRI VATE COMPANY FROM A DIRECTOR IN CASH EXCEEDING THE RESTRICTED LIMIT IS NOT A DEPOSIT OR A LOAN. SIMILARLY IT WAS ARGUED THERE ARE OTHER CATEGORIES OF PERSONS FROM WHOM AMOUNTS RECEIVED ARE NOT BE TREATED AS DEPOSITS BY VIRTUE OF COMPANIES (ACCEPTANCE OF DEPOSIT) RULES 1975 DRAFTED UNDER S EC. 58A OF THE COMPANIES ACT NAMELY ANY AMOUNT RECEIVED BY WAY OF SUBSCRIPTIONS TO ANY SHARES ETC. PENDING ALLOTMENT CANNOT BE TREATED A DEPOSIT UNDER THE SAID RULES. 9. LD. D.R. IN REPLY CONTENDED THAT MERELY BECAUSE SHARES HAVE BEEN ALLOTTED IT CANNOT BE AGITATED PENALTY IS NOT LEVIA BLE. IT WAS HIS STAND THAT IN VIEW OF THE IRRELEVANT ARGUMENT THE ENDS DO NOT JUS TIFY THE MEANS. THE FACT REMAINS THAT THE SHARE APPLICATION MONEY HAS BEEN R ECEIVED IN CASH. THE JHARKHAND HIGH COURT HAS ALREADY CONSIDERED THE FAC T THAT SHARE APPLICATION MONEY HAVING BEEN RECEIVED IN CASH CAN REMAIN AS A DEPOSIT TILL SHARE APPLICATION ARE ALLOTTED AS SUCH AT THE TIME OF A CCEPTING SHARE APPLICATION MONEY IN CASH THERE IS A VIOLATION FOR WHICH PENALT Y IS ATTRACTED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME WE ARE OF THE VIEW THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES O F THE CASE THE DEPARTMENT GROUNDS DESERVE TO BE DISMISSED. IT IS SEEN THAT THE DEPARTMENT HAS HEAVILY RELIED UPON THE JUDGEMENT OF JHARKHAND HIGH COURT I N THE CASE OF BHALOTIA ENGINEERING WORKS P.LTD. VS CIT 275 ITR 399 WHICH H AD BEEN TAKEN INTO ITA NO.3629/DEL./2011 A.Y. 2007-08 11 CONSIDERATION IN THE CASE OF CIT VS. SPEEDWAYS RUBB ER P.LTD. 326 ITR 21 (P&H) AND THE LD.CIT(A) HAS RELIED UPON THE ORDER O F THE TRIBUNAL IN THE CASE OF VLS FOODS P.LTD. VS ACIT ITAT DELHI ORDER DT. 5 TH JUNE 2009 WHICH HAS SPECIFICALLY TAKEN THIS FACT INTO CONSID ERATION. THE CONSISTENT ARGUMENT ON BEHALF OF THE ASSESSEE THAT IT WAS UNDE R A BONAFIDE BELIEF THAT THERE WAS A VIOLATION HAS NOT BEEN REBUTTED. THE O BJECT OF INTRODUCING THE RELEVANT PROVISION AND THE DEFENSIVE MECHANISM PROV IDED TO THE ASSESSEE BY THE LEGISLATURE BY HAVING S.273B OF THE ACT ON THE STATUTE HAS ALSO BEEN VARIOUSLY CONSIDERED BY THE COURTS. ON A PERUSAL O F THE DECISIONS OF THE APEX COURT AND THE DIFFERENT HIGH COURTS IT IS SEEN THAT THE CRUX OF THESE JUDGEMENTS SHOW THAT WHERE THE ASSESSEE IS IN A POS ITION TO ESTABLISH A REASONABLE CAUSE FOR THE VIOLATION AND IS ABLE TO S HOW ITS BONAFIDE AND WHEN THE TRANSACTION IS GENUINE THE RIGORS OF THE PENAL ACTION IT HAS BEEN HELD ARE NOT ATTRACTED. THE COURTS HAVE HAD CONSISTENTLY SH OWN THAT FOR TECHNICAL OR VENIAL BREACH THE PENAL ACTION U/S 271D ARE NOT AUT OMATICALLY ATTRACTED AS HAS BEEN HELD IN: I. HINDUSTAN STEEL LTD. VS STATE OF ORISSA (1972) 8 3 ITR 26 (SC); II. CIT VS. KHARAITI LAL AND CO. (2004) 270 ITR 445 (P&H); III. CIT VS. MAHESHWARI NIRMAN UDYOG (2008) 302 IT R 201 (RAJ.); IV. CIT VS. LAKSHMI TRUST CO. (2008) 303 ITR 99 (MA D.); V. CIT VS. INDORE PLASTICS P.LTD. (2003) 262 ITR 1 63 (MP); VI. CIT VS. IDHAYAM PUBLICATIONS LTD. (2006) 258 IT R 221 (MAD.); AND VIII. CIT VS. BAZPUR COOPERATIVE SUGAR FACTORY LTD. (1988) 172 ITR 321(SC). 10.1 IT IS SEEN THAT SECTION 273B OF THE INCOME TA X ACT PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISION S OF SECTION 271D NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASS ESSEE AS THE CASE MAY BE FOR ANY FAILURE REFERRED TO IN THE PROVISIONS OF SE CTION 269 SS OF THE INCOME ITA NO.3629/DEL./2011 A.Y. 2007-08 12 TAX ACT IF THERE IS A REASONABLE CAUSE FOR SUCH FA ILURE AND IF THE ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE FOR FAILUR E TO TAKE A LOAN OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OF ACCOUNT PAYEE BANK DRAFT AND IN SUCH CIRCUMSTANCES THE PENALTY SHALL NOT BE LEVIED. IN VIEW OF THIS PROVISION IT IS APPARENT THAT THERE IS A DISCRETION LEFT WITH THE A UTHORITY CONCERNED WHETHER TO LEVY THE PENALTY OR NOT IN THE GIVEN CIRCUMSTAN CES IF THE ASSESSEE COMES AND PROVES A REASONABLE CAUSE FOR NOT ACCEPTING THE LOAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. AS SUCH ON FAC TS WE UPHOLD THE DISCRETION EXERCISED BY THE CIT(A) TO QUASH THE PE NALTY ORDER. AT THIS JUNCTURE WE CONSIDER IT APPROPRIATE TO REFER TO THE JUDGEMENT OF THE APEX COURT IN THE MATTER OF ASSISTANT DIRECTOR OF INSPEC TION (INVESTIGATION) V. KUMARI A.B.SHANTHI (2002) 255 ITR 258 HAS EXPLAINED THE OBJECT OF INTRODUCING SECTION 269SS AND SAID (PAGE 263) : THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENS URE THAT A TAX PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNT ED MONEY OR IF HE HAS GIVEN SOME FALSE ENTRIES IN HIS ACCOUNTS HE SHALL NOT ES CAPE BY GIVING FALSE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZUR ES UNACCOUNTED MONEY IS UNEARTHED AND THE TAX PAYER 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 LAT ER TO SUIT THE PLEA OF THE TAX PAYER. THE MAIN OBJECT OF SECTION 269 SS WAS TO CU RB THIS MENACE. AS REGARDS THE TAX LEGISLATIONS IT IS A POLICY MATTER AND IT IS FOR PARLIAMENT TO DECIDE IN WHICH MANNER THE LEGISLATION SHOULD BE MADE. OF CO URSE IT SHOULD STAND THE TEST OF CONSTITUTIONAL VALIDITY THE OBJECT SOUGHT TO BE ACHIEVED WAS TO ERADICATE THE EVIL PRACTICE OF MAKING OF FALSE ENTR IES IN THE ACCOUNT BOOKS AND LATER GIVING EXPLANATION FOR THE SAME. ITA NO.3629/DEL./2011 A.Y. 2007-08 13 11. ACCORDINGLY FOR THE REASONS GIVEN HEREINABOVE THE GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. 12. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER 2011. SD/- SD/- (B.C. MEENA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 4 TH NOVEMBER 2011 PBN/*MANGA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. D.R. ITAT BY ORDER DY. REGISTRAR ITAT DELHI BENCHES