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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SMT. DIVA SINGH & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal has arisen by the judgment dated 15/03/2012 of the Hon’ble High Court of Delhi in of 2011, wherein the Hon’ble High Court remitted the matter to the Tribunal to decide the appeal afresh after recording factual findings, thereafter apply the decision of the Hon’ble High Court in ITA No. 1192/2011.
The facts in brief of the case are that the assessee company filed its return declaring income of Rs. 7,190/- on 31/12/2006. In the course of assessment proceedings, the Assessing Officer observed that the assessee company was engaged in the business of providing financial services. He further observed from the records that the assessee company received share application money of Rs. 21,97,500/- from Sh. Pradeep Aggarwal and Smt Kaveri Aggarwal. Out of the said share application money, amount of Rs. 10.70 Lakhs was received in cash on various dates as under: Sh. Pradee Kumar Aggarwal 28/04/05 Rs. 270000/- 14/11/05 Rs. 155000/- 16/11/05 Rs. 260000/- 22/11/05 Rs. 90000/- 22/11/05 Rs. 80000/- Smt. Kaveri Aggarwal 28/09/05 Rs. 215000/- 3. The Assessing Officer further observed that no shares were allotted against the said share application money either in the previous year or in the year in which the assessment proceeding were in progress. It was also observed that the authorised share capital of the assessee company was merely Rs. 1 lakh whereas the share application money stated to be received was more than Rs. 21 lakhs. The Assessing Officer referred the matter to the Additional Commissioner of Income- tax for considering initiation of penalty under section 271D of the Act because of infringement of the provisions of section 269SS of the Act. The Additional Commissioner of Income tax, initiated the penalty through a show cause notice issued on 10/11/2008. Before the learned Additional Commissioner of Income Tax, it was contended by the assessee that the money received was neither loan nor deposit, thus section 269SS was not applicable. The assessee placed reliance on the decision of Supreme Court in the case of CIT Vs. Bajpur Cooperative Sugar Factory, (1988) 172 ITR 321 and the decision of the Tribunal, Jaipur Bench in the case of M/s. Sharad Holding Leasing Private Limited Vs. ACIT, (95) ITD 336. However, the learned Additional Commissioner of Income Tax did not agree with the assessee. The contention of the assessee, to grant immunity from penalty invoking section 273B of the Act, on the ground that the assessee company was under bonafide belief that the provision of section 269SS did not prohibit accepting the share application money in cash exceeding Rs. 20,000/-, was also not accepted by the learned Additional Commissioner of Income Tax, as according to him there was no reasonable cause for the assessee to accept share application money in cash. The Ld. Additional Commissioner of Income Tax following the judgment of the Hon’ble Jharkhand High Court in the case of Bhalotia Engineering works Ltd Vs. Commissioner of Income Tax, 275 ITR 399, levied penalty of Rs. 10,70,000/- on 23/03/2009 under section 271D of the Act. On appeal, the learned Commissioner of Income-tax (Appeals), held that the assessee received the said amount under the guise of share application money but in fact that was loan received to attend the urgent business needs and the entries of the said amount in books of accounts as share application money was not determinative of the true character of the transaction and what was necessary to be considered is the true nature of the transaction as held in the case of Kadarnath Jute Manufacturing Company Limited Vs. CIT (1971) 82 ITR 363 (SC). The learned Commissioner of Income-tax (Appeals) also held that the reliance placed by the assessee on the decisions of the Tribunal in the case of Sharad Holding Leasing Private Limited, (2005) 95 ITD 336 (Pune) and in the case of Jagvijay Auto Finance Private Limited Vs. ACIT (1995) 52 ITD 504 (Jaipur) were not relevant as those decisions had been rendered before 24/08/2004, when the High Court of Jharkhand in the case Bhalotia Engineering Works Private Limited (supra) deliberated on the issue. Accordingly, the learned Commissioner of Income- tax (Appeals) in order dated 04/02/2010, upheld the penalty levied by the learned Additional Commissioner of Income Tax. Aggrieved, the assessee filed appeal before the Tribunal raising following grounds: i. On facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in law in upholding the Penalty of Rs. 10.70 lacs under section 271D of the Act. ii. On facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the scope of section 269SS which is not applicable to case of the assessee. iii. On fact and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in law in not giving immunity from penalty under Section 273B of the Act as there were reasonable causes for not complying with the provision of the section 269SS.
4. The Tribunal in its order dated 29/10/2010 allowed the appeal of the assessee with following observations: “4. We have considered the facts of the case and submissions made before us. A coordinate bench of the Tribunal has already taken the decision in the matter that at the time of receipt, there is no liability on the assessee to return the money. Such a liability arises only in case shares are not allotted to the depositor. Thus, it has been held that penalty is not leviable in such circumstances. Relying on this order, the penalty confirmed by the learned CIT(A) is deleted.”
5. Against the said decision of the Tribunal, the Revenue preferred appeal under section 260A of the Act before the Hon’ble High Court of Delhi, wherein following substantial question of law was framed: “Whether the Income Tax Appellate Tribunal was justified and right in allowing the appeal filed by the respondent- assessee in deleting the penalty under section 271D of the Income tax Act,, 1961 ?”
6. The Hon’ble High Court remitted the matter back to the Tribunal for deciding the appeal afresh with following observations: “8. Thus, the first and the foremost aspect, which has to be considered and examined is whether the amount received was loan or deposit. This aspect has not been considered and examined by the tribunal in spite of the specific findings recorded by the Assessing Officer and the Commissioner of Income Tax(Appeals). In these circumstances, we answer the aforesaid question of law in favour of the appellant and against the respondent- assessee. However, an order of remit is passed to the tribunal to decide the appeal afresh after recording factual findings and thereafter apply the decision of this Court in ITA No. 1192/2011. This order will not be construed as an order which decides the factual issue/question whichever arises for consideration on merits.” 7. In compliance to the above direction of the Hon’ble High Court, we have heard the parties on ground nos. 1 & 2 and Hon’ble High Court in ITA No. 1192/2011. The learned counsel of the assessee referred to the balance sheet of the assessee company as on 31/03/2006, which is available on page 4 of the assessee’s paper book and submitted that the share application money of Rs 21,97,500/- was appearing in balance-sheet, which included the sum of Rs. 10,70,000/- received in cash. He further submitted that said amount of share application money was neither loan nor deposits, therefore, the transaction would not come within the scope of section 269SS of the Act. The learned counsel reiterated its submission made before the learned Commissioner of Income-tax (Appeals), which are summarized by the learned Commissioner of Income-tax (Appeals) in paras 2.1 to 2.4 of his order. The learned counsel also submitted that the fact recorded by the learned Commissioner of Income-tax (Appeals) that the money was taken as a loan to attend urgent business needs, was not committed by the assessee before the learned Commissioner of Income-tax (Appeals) and the findings of learned Commissioner of Income-tax (Appeals) in this respect was factually incorrect. On being enquired by the bench, whether the shares were allotted against the share application money, the learned counsel submitted that entire share application money was returned as on 31/03/2009 and no shares were allotted to the subscribers of share application money. This fact is also evident from the balance sheet of the assessee company as on 31/03/2009 available on page 29 of the assessee’s paper book.
In reply to the submission of the learned counsel of the assessee, the learned Senior Departmental Representative submitted that the assessee could have rebutted the fact recorded by the learned Commissioner of Income Tax (Appeals) that the money was received as business need, by filing an affidavit before him under section 154 of the Act, however, no such affidavit was filed by the assessee. He further submitted that the amount received was utilized in giving loans and advances as reflected in the balance sheet dated 31/03/2006, which also establish that amount was utilized for business purpose.
He further submitted that the authorized share capital of the assessee company was only Rs. 1.00 lakhs as reflected in the balance sheet of the assessee company as on 31.03.2006, and there was no increase in the authorized share capital, thereafter, till 31/03/2009. He further submitted that the assessee was not authorized to receive the share application money as the authorized share capital was already fully paid and allotted. According to the learned Departmental Representative , the amount received was actually in the nature of the loan rather than share application money. He also submitted that facts of the instant case are different from the facts of the judgment of the Hon’ble High Court in in the case of I.P. India Private Limited, because in the instant case shares were not allotted to the subscribers of the share application money, whereas in the case of I.P. India Private Limited (supra), the shares were allotted subsequently to the subscribers against the share application money. The learned Departmental Representative accordingly, submitted that the penalty levied might be sustained.
We have heard the rival submissions and perused the material on record. In the case of I.P. India Private Limited (supra) also the assessee received share application money in cash from three private limited companies and shares in fact were subsequently allotted to those companies, who advanced the money to the assessee. The Hon’ble High Court observed that this aspect of allotment of shares was not examined either by the Assessing Officer or by the Additional Commissioner of Income Tax. The Hon’ble High Court relied on the judgment in the case of Baidya Nath Plastic Industries (P.) Ltd and Ors. Vs. K. L. Anand (1998) 230 ITR 522, and distinguished the loan from the deposits. The relevant part of the judgment is reproduced as under: “8. On a careful consideration of the matter, we find that the AO has relied on the judgment of the Jharkhand High Court (supra) and referred the issue of levying penalty to the Additional CIT. He did not examine whether the share application monies can be treated as "loan" or "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 the shares were subsequently allotted to the applicant- companies as shown by the form filed before the Registrar of Companies. Neither the AO nor the Additional CIT has taken the trouble to examine this 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 us to be misplaced. In Baidya Nath Plastic Industries (P) Ltd. and Ors vs K.L. Anand (1998)
230 ITR 522, a learned Single Judge of this court pointed out that the distinction between a loan and a deposit is that in the case of the former, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement while in the case of a deposit it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This judgment was approvingly cited by a Division Bench of this court in Director of Income Tax (Exemption) Vs. ACME Educational Society (2010) 326 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 or on whose behalf it has been made, on fulfillment of certain conditions. If these tests are applied to the 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 treated as receipt of loan or deposit. In any case, the Tribunal has rightly noticed the cleavage of judicial opinion on the point and held that in that situation there was reasonable cause u/S.273B, applying the judgment of the Supreme Court in Vegetable Products (supra).”
Thus, the Hon’ble High Court has laid down the test that if the amount is given for temporary use then it is in the nature of loan and it is in the nature of deposit, if there’s liability to return it to the party by whom or on whose behalf the amount was made. When we apply this test to the facts of the instant case, we find that the authorized share capital of the assessee was only Rs. 1 lakh as on 31/03/2006, which is evident from the Schedule-I of balance sheet of the assessee available on page - 6 of the assessee’s paper book. This authorized capital was fully paid up as on 31/03/2006 and, therefore, there was no scope with the assessee for receiving further share application money. The authorized share capital of the assessee company remained Rs. 1 lakh even upto 31/3/2009, which is evident from balance sheet of the assessee company dated 31/03/2009 available on page 31 of the assessee’s paper book. In such circumstances, no subscriber will give money as share application money to a company. Further, from the balance sheet dated 31/03/2009, it is manifest that entire amount of Rs. 21,97,500/-, which was appearing as a share application money in the balance sheet dated 31/03/2006, has been returned back to the subscribers. In the case of I.P. India (P) Ltd. (supra), the shares were allotted to the subscribers & hence the Hon’ble High Court held the amount received in cash as share application money, whereas in the case in hand, no shares have been allotted against the share application money and it was not even possible to do so without increasing the authorized share capital of the assessee. We also find from the balance sheet of the assessee company that this money was not kept separately for refund to the subscribers in case of non- allotment of the shares and the money was utilized for the purpose of business of the assessee. In such circumstances, it cannot be treated as share application money merely by making accounting entries in books of accounts. We agree with the findings of the learned Commissioner of Income- tax(Appeals) that entries in the books of account are not determinative of the true character of the transactions and what was necessary to consider the true nature of the Kedarnath Jute Manufacturing Company Limited Vs. Commissioner of Income Tax, (1971) 82 ITR 363 (SC). We may also like to refer to the decision of the Tribunal, Delhi bench in the case of ITO Vs. M/s. Nandi Promoters Private Limited in where in, similar circumstances the money received was not held to be share application money. The relevant findings of the Tribunal are reproduced as under:
“6. We have considered the submissions of the Ld. DR of the Revenue. We find that a clear finding is given by the Add.CIT, who has imposed the penalty in the present case u/s 271D that as per the AO, the receipt of this amount by the assessee company of Rs.134.75 lakh was not account of share application money although it is the nomenclature given by the assessee in its books of account. The reason and basis of this has also been pointed out by showing that the assessee company was having authorized share capital of Rs.1 lakh only which was continuing since its incorporation and there is no application made by the assessee company for increase in the authorized share capital. It is also noted that an amount of Rs.8.05 lakh was also received by the assessee company in earlier years towards share application money. Hence, there was no amount left in authorized share apical against which the assessee company could have received any share application money in the present year. In the light of these facts, it cannot be held that the amount in question received by the assessee company was in fact share application money. It is settled position by now that the nomenclature given by the assessee company in its books of account is not final and decisive as held by the Hon'ble Apex Court in the case of Kedar Nath Jute Manufacturing Co. vs. CIT as reported in 82 ITR 363. In view of these facts, we are of the considered opinion that this claim of the assessee cannot be accepted that the amount received Rs.134.75 lakhs from Shri Gian Gupta, Director of the assessee company was on account of share application money. Once, we hold that, the order of the CIT(A) cannot be sustained because there is no finding given by the CIT(A) as to how the receipt in the present case, it is receipt of share application money and not of loan as held by the AO. We, therefore, hold that in the facts of the present case, the cash of Rs.1 crore received by the assessee company was not on account of share application money because there is no authorized share capital at the time of such receipt and even after receipt of this amount, authorized share capital was not increased till the end of this year. Hence, none of the judgments followed by AO or by CIT(A) is applicable and the penalty is leviable u/s 271D for default u/s 269SS. We, therefore, reverse the order of the CIT(A) and restore the penalty order.”
In ground No. 3, the assessee has raised the issue of existence of reasonable cause for not complying with the provisions of section 269SS of the Act. 13.1 Before us, learned counsel of the assessee submitted that it was under bonafide belief that the provisions of section 269SS do not prohibit accepting the share application money in cash exceeding Rs. 20,000/- and that being a reasonable cause in terms of section 273B of the Act, no penalty should be levied under section 271D of the Act. 13.2 On the other hand, the learned Departmental Representative opposed the submission of the learned counsel and submitted that the assessee has failed to establish any emergency in accepting the money in cash despite both the subscriber and the company having bank accounts.