Income Tax Appellate Tribunal - Kolkata
J.A. Cotton Mills (P) Ltd., Kolkata vs Assessee
आयकर अपीलीय अधीकरण, Ûयायपीठ - " िस" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय एवं/and ौी, सी.डȣ.राव लेखा सदःय)
[Before Hon'ble Sri Mahavir Singh, JM & Hon'ble Shri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A Nos. 141 & 142/Kol/2011
िनधॉरण वषॅ/Assessment Years: 2006-07 & 2007-08
J. A. Cotton Mills (P) Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 5988 L) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 143 to 145/Kol/2011
िनधॉरण वषॅ/Assessment Years: 2005-06 to 2007-08
Jane Alam Food Product Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 5990 N) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 146 & 147/Kol/2011
िनधॉरण वषॅ/Assessment Years: 2006-07 & 2007-08
J. A. Export India (P) Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 6440 P) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A No. 148/Kol/2011
िनधॉरण वषॅ/Assessment Year: 2006-07
J. A. Music World (P) Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AACCJ 0494 N) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 149 to 151/Kol/2011
िनधॉरण वषॅ/Assessment Years: 2004-05, 2006-07 & 2007-08
AFI Finance & Investment Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AAECA 6206 F) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
2 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
आयकर अपील संÉया / I.T.A Nos. 152 to 154/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2005-06 to 2007-08
J. A. Drug India Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AACCJ 0518 P) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 155 & 156/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2006-07 & 2007-08
J. A. Iron & Steel (P) Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 6439 L) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 157 & 158/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2005-06 & 2006-07
&
आयकर अपील संÉया / I.T.A Nos. 159 to 160/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2006-07 & 2007-08
Jane Alam Film Production Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 5987 F) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 161 & 162/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2005-06 & 2006-07
&
आयकर अपील संÉया / I.T.A Nos. 163 & 164/Kol/2011
िनधॉरण वषॅ/Assessment Years : 2006-07 & 2007-08
J.A.M Motors Ltd. Vs. Addl. Commissioner of Income-tax,
(PAN - AABCJ 5989 M) Range-V, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
For the Appellant: Shri Jane Alam Molla, Director
For the Respondent: Shri S. K. Malakar
3 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
आदे श/ORDER
Per Bench:
All these appeals by assessee are arising out of the orders of CIT(A)-III, Kolkata in different Appeal Nos. and different dates. Assessments were framed by ACIT, CC-XXIII, Kolkata for various Assessment Years, vide different dates u/s.153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The penalties in dispute were levied by Addl.CIT, Range-5, Kolkata u/s 271D and 271E of the Act vide his orders on different dates.
2. The only common issue involved in ITA Nos. 141 to 144/K/2011, 146 to 150/K/2011, 152 & 153/K/2011, 155 to 158/K/2011, 161 & 162/K/2011 of the assessee is against the order of CIT(A) upholding the penalty levied by Addl. CIT u/s. 271D of the Act in respect of receipt of share application money in cash fall within the ambit of section 269SS of the Act. In all the aforesaid appeals, the grounds are exactly identical except the quantum of penalty, hence, for the sake of convenience, we reproduce the grounds of appeal raised by the assessee in ITA No.141/K/2011 in J.A. Cotton Mills (P) Ltd.'s case.
"1. The Ld. CIT(A) has erred in law as well in facts in upholding the penalty of Rs.24,00,000/- imposed by the Addl. CIT u/s. 271D of the I. T. Act, 1961.
2. The Ld. CIT(A) has erred in law as well in facts in upholding that the receipt of share application money in cash fall within the ambit of section 269SS of the I. T. Act, 1961."
3. The only common issue involved in ITA Nos.145,151,154/K/2011, 159 & 160/K/2011, 163 & 164/K/2011 of the assessee is against the order of CIT(A) upholding the penalty levied by Addl. CIT u/s. 271E of the Act in respect of refund of share application money in cash fall within the ambit of section 269T of the Act. In all the aforesaid appeals, the grounds are exactly identical except the quantum of penalty, hence, for the sake of convenience, we reproduce the grounds of appeal raised by the assessee in ITA No.145/K/2011 in Jane Alam Food Product Ltd.'s case.
"1. The Ld. CUIT(A) has erred in law as well in facts in upholding the penalty of Rs.27,55,000/- imposed by the Additional CIT u/s. 271E of the I. T. Act, 1961.
2. The Ld. CIT(A) has erred in law as well in facts in upholding that the refund of share application money in cash fall within the ambit of section 269T of the I. T. Act, 1961."
4. Since the issue is common and facts are exactly identical, we will decide this issue by this consolidated order.
4 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
5. Brief facts are that during the course of assessment proceedings, the Assessing Officer initiated penalty proceedings under sections 271D and 271E of the Act for violation of provisions of section 269SS and 269T of the Act for accepting monies on account of shares/ debentures valuing 20,000 rupees or more from various persons otherwise than by account payee cheque or account payee Bank Draft in the years under appeals. The Additional Commissioner of Income Tax, Range-V, Central, Kolkata after hearing the assessee had levied penalty under sections 271D and 271E of the Act for accepting monies and repayment of monies.
6. The CIT(Appeals) confirmed levies of penalty under sections 271D and 271E of the Act exactly on the findings of the AO and also noted the definition of loans and deposits by following the decisions of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. Vs. CIT (2005) 275 ITR 399 (JH). Aggrieved, now assessee is in second appeal before the Tribunal.
7. Ld. counsel on behalf of assessee stated that the issue is squarely covered in favour of the assessee by the decision of -
(i) M/s. Pravez Constructions (P) Ltd. Vs. The Addl. CIT, Circle-2, Siliguri in ITA No. 1206/Kol./2005 (AY 2002-03) order dated 08.09.2006;
(ii) VLS Foods (P) Ltd. Vs. ACIT (2010) 128 TTJ 1N (TDEL);
(iii) CIT Vs. Rugmini Ram Ragav Spinners (P) Ltd. (2008) 304 ITR 417 (Mad);
(iv) Pradip J. Mehta Vs. CIT (2008) 300 ITR 231 (SC);
(v) ITO, Ward-7(1), Kolkata Vs. M/s. Avadh Rubber Ltd. (ITAT, Kolkata) in
ITA No. 1853/Kol./2008 (AY 1999-2000) order dated 28.05.2010;
(vi) CIT Vs. Speedways Rubber Pvt. Ltd. (2010) 326 ITR 31 (P&H);
(vii) ITO Vs. Cookme (Spice) Pvt. Ltd. in ITA No. 599/Kol./2009 & 42/Kol./2010 order dated 16.11.2010;
(viii) Basil Express Ltd. Vs. DCIT in ITA Nos. 1912 to 1914/Kol./2009 order dated 21.01.2011.
8. On the other hand, the ld. D.R. Shri S. K. Malakar relied on the decision of the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. (supra).
9. We have heard rival parties and gone through the facts and circumstances of the case. Admitted facts are that the assessee has accepted monies on account of preference shares/ 5 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
debentures of Rs.20,000/- or more and also repaid monies received on account of preference shares/ debentures from various persons otherwise than by account payee cheques or account payee Bank Drafts during the year under appeals. Now the question arises whether the amount received on account of share application money and the repayment of the same violates the provisions of section 269SS and 269T of the Act attracting penalty under section 271D and 271E of the Act. As the case law of the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt. Ltd.(Supra) relied by ld. D.R., wherein Hon'ble High Court held that the acceptance of share application money amounting to Rs.20,000/- or more violates the provisions of section 269SS of the Act. On the other hand, the decision relied by the ld. counsel in the case of Rugmini Ram Ragav Spinners Pvt. Ltd. (Supra) of Hon'ble Madras High Court, wherein it is held that the provisions of section 269SS and 269T of the Act have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan, Hon'ble Court held that the provisions of sections 269SS and 269T of the Act have no application at all. The Court further held that even if there is repayment by cash, it could not be said to attract the levy of penalty automatically under section 271E of the Act. The advances of share application money or repayments of such advances have not flown from any undisclosed income of the assessee or the concerned persons. In the present case also, the assessee was searched and these share application monies were never the subject matter of addition in the case of the assessee and accordingly the share application money and repayment of the same have not flown from any undisclosed income of the assessee. We find from the records that the assessee has not paid any interest on any of the share application monies till repayment, which is quite after sometime. If the intention was to receive these share application monies as loans or deposits, then certainly the lenders would not have made the advances gratuitously. We further find that even the penalty under section 271D and 271E is not automatic on the issue as argued by the ld. Counsel, there is bonafide belief to the effect that the receipt of advances against allotment of shares and repayment of share money would not be termed as loans or deposits, which would be sufficient to drop the penalty levied in the present case. Here the revenue is unable to substantiate that the money received is only a loan or deposit rather there is no dispute that the advances or repayments were only against allotment of shares and not by way of loans or deposits. We further note that the revenue could not bring on record any material that would go to show that the assessee in fact wanted only loan or deposit but tried to show them as share application money and merely for the reason that for some of the applications monies were returned and in some of the applications the share allotments were not in full, it cannot be taken into account that this is no share application money. Hence, we are of the view, in view of the factual findings by the lower authorities that the amount received 6 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
by way of deposit or loan is only share application money. We further find that the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt. Ltd. (supra) has decided the issue as under :-
"If we take recourse to the Explanation in section 269T of the Act, deposit means a deposit of money which is repayable after notice or repayable after a period. Money paid to a company in support of an application for shares is a deposit of money in the company which is repayable by the company after the period for allotment of shares comes to an end, or a decision is taken regarding the allotment of shares. Thereafter, the amount is repayable to the person who paid the money, even without a demand in that behalf. In the case of refusal of shares the amount has to be returned in specie. In that context, it appears to us that there cannot be much difficulty in holding that the amount paid in support of an application for shares must be considered to be a deposit till the allotment of shares or refund of the money on rejection of the application.
What will happen if shares are ultimately 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 shares applied for. Until either of these happens, the amount cannot be considered 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 company attracting the prohibition contained in section 269SS of the Act.
The question has to be considered in the context of the purpose sought to be achieved by the insertion of section 269SS in the Act. Obviously, it was done with a view to prevent transactions in black money and to ensure that payments of Rs. 20,000 and above, are traceable to transactions through a bank. If the mischief that is sought to be averted is kept 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 section 269SS of the Act.
Therefore, even if share application money cannot be considered as a loan within the meaning of section 269SS of the 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 repayable if recalled by the applicant, before allotment of shares and the conclusion of the contract."
But on this very similar issue, Hon'ble Madras High Court in the case of CIT Vs Rugmini Ram Ragav Spinners P. Ltd. (Supra) has held as under:
"Heard counsel. The assessee had received cash over a period of time, as advance towards allotment of shares from 16 persons without stipulating any time frame towards return/refund of money without interest, in case of non-allotment of shares either fully or partly. In this case, the money retained by the company was neither deposit nor loan, but it is only share capital advance. Penalty under section 271E is not automatic and to be levied only in the absence of a reasonable cause. No doubt a reasonable cause has to be established by the assessee. The rationale behind the provisions of sections 269SS and 269T is to prevent tax evasion, i.e., the laundering of concealed income by parties in the guise of cash loans or deposits in or outside the accounts. The provision of sections 269SS and 269T therefore have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan, the provisions of sections 269SS and 269T have no application at all. Even if there is repayment by cash it could not be said to attract the levy of penalty automatically, under section 271E of the Act. The advances of share application money or repayments of such advances have not flown from any undisclosed income of the assessee or the concerned persons. It is also seen from the records that the assessee had not paid any interest at all on any of the advances repaid after quite some time. If the intention was to receive them as loans or deposits, then certainly the lenders would not have made the advances gratuitously. It is also a factual finding given by the authorities below that the assessee was not called upon to explain the default under section 269SS on
7 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
receipt of the advances in earlier years, which would show that the assessee's case was not governed by the said provisions. Penalty under section 271E is not automatic, and a bona fide belief to the effect that the receipt of advances against allotment of shares would not be termed as loans or deposits, would be sufficient to drop the penalty leviable, unless and until the material on record positively shows that money received is only a deposit or loan. There is no dispute that the impugned advances were only against allotment of shares and not by way of loans or deposits. The authorities below have given a factual finding to the effect that it is not a deposit or loan. The Tribunal, in paragraph 3 of its order, held as under:
"The Departmental representative could not bring on record any material that would go to show that the assessee in fact wanted only loan or deposit but tried to show them as share application money. Merely for the reason that some of the applications were rejected and in some of the applications the share allotments were not in full, it cannot be taken to mean that it was not share application money. Upholding the order of the Commissioner of Income-tax (Appeals) the appeal by the Revenue is dismissed."
Hence, the factual finding by the authorities below is that the amount received is not a deposit or loan, but it is only share application money, and the same is based on valid materials and evidence. The relevant provisions of law are sections 269T, 271D, 271E and 273B of the Act. In the present case, the Assessing Officer levied penalty under section 271E deals with "penalty for failure to comply with the provisions of section 269T". Section 271E, as on the relevant period, reads as follows:
"271E. (1) If a person repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the deposit so repaid.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Deputy Commissioner."
From a reading of the above, it is clear that if a person repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be subjected to levy of penalty. Section 269T deals with "mode of repayment of certain deposits". Section 269T, as on the relevant period, reads as follows:
"269T.(1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more :
Provided that where the repayment is by a banking company or co-operative bank, such repayment may also be made by crediting the amount of such deposit to the account (if any) with such company or bank of the person to whom such deposit has to be repaid :
Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President.
(2) No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit if--
(a) the amount of the deposit together with interest, if any, payable thereon, or
8 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
(b) the aggregate amount of deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such deposits, is twenty thousand rupees or more :
Provided that where the repayment is by a branch of a banking company or co- operative bank, such repayment may also be made by crediting the amount of such deposit to the savings bank account or the current account (if any) with such branch of the person to whom such deposit has to be repaid :
Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit before the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President."
The above section provides that no branch of a banking company, cooperative bank and no other company or co-operative society or partnership firm or other person, can repay any deposit made with such entity otherwise than by an account payee cheque or an account payee draft drawn in the name of the person who has made the deposit. The specific word used in the provision is "deposit". In this case, the finding is that there is no deposit. Section 273B of the Act deals with "penalty not to be imposed in certain cases". Section 273B, as on the relevant period, reads as under:
"273B. Notwithstanding anything contained in the provisions of clause (b) of sub- section (1) of section 271, section 271A, section 271B, section 271BB, section 271C, section 271D, section 271E, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or sub-section (1) of section 272BB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure."
The above section provides that if the assessee proves that there is a reasonable cause, he is not subject to levy of penalty. The case of the assessee is that, the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan. In this case, the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares. Also, there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan. The first appellate authority as well as the Tribunal have come to a correct conclusion after accepting the explanation offered by the assessee. It is a question of fact and the order of the Tribunal is not a perverse one. The concurrent finding given by both the authorities below is based on valid materials and evidence. In the case of CIT v. P. Mohanakala [2007] 291 ITR 278, the Supreme Court held that whenever there is a concurrent finding by the authorities below, no interference should be called for by the High Court. Under these circumstances, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference."
10. In view of the above two judgments of two Hon'ble High Courts, where conflicting views are taken, the view in favour of the assessee, interpreting the provisions should be adopted in view of the decision of the Hon'ble Supreme Court in the case of CIT Vs Vegetable Products (1973) 88 ITR 195 (SC), wherein Hon'ble Apex Court has held as under:-
"There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language 9 ITA 141-164/K/2011 JA Cotton Mills (P) Ltd. & Ors.
is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty."
11. In view of the above discussion, case laws relied by both the sides, we are of the considered view that on receipt of share application money and repayment thereof will not violate the provisions of section 269SS and 269T, which attracts levy of penalty under section 271D and 271E of the Act. Accordingly, these appeals of the assessee are allowed.
12. In the result, all the appeals filed by the assessee are allowed.
13. Order pronounced in open court.
Sd/- Sd/-
सी.डȣ
सी डȣ.राव
डȣ राव लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(C. D. Rao) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated 19th day of April, 2011
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - ACIT, Circle-4, Kolkata.
2 ू×यथȸ/ Respondent, M/s. Mida & Co. (P) Ltd., P-15/2/1, Southern Avenue,
Kolkata-700 020.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.