Tax Case (Appeal) No. 274 of 2004
Decided on July 12, 2007
The Judgment of the Court was delivered by
P.P.S Janarthana Raja, J.:— This appeal is filed under section 260A of the Income-tax Act, 1961, by the Revenue, against the order of the Income-tax Appellate Tribunal, Bench “A”, Madras in I.T.A No. 1195(Mds)/94 dated June 18, 2003. On June 22, 2004, this court admitted the appeal and formulated the following substantial questions of law:
“1. Whether, on the facts and under the circumstances of the case, the Appellate Tribunal was right in holding that cash payments made by the assessee pertains to refund of share application money and not repayment of deposit or loan?
2. Whether, on the facts and under the circumstances of the case, the Appellate Tribunal was right in holding that penalty under section 271E is not leviable ?”
2. The facts leading to the above substantial questions of law are as under:
3. The assessee is a closely-held company in which the public are not substantially interested. The relevant assessment year is 1990-91 and the corresponding accounting year ended on March 31, 1990. The assessee filed its return of income on December 31, 1990, admitting a total income of Rs. 5,59,760 Later, notice under section 143(2) of the Income-tax Act (“the Act” in short) was issued and subsequently the assessment was completed under section 143(3) of the Act determining the total income at Rs. 24,23,910. During the year of account, the assessee had repaid some of the share application money which it had received earlier in cash contravening the provisions under section 271E of the Act.
4. Hence, the Assessing Officer initiated the penalty proceedings under section 271E and levied a penalty of Rs. 5,90,416. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income-tax (Appeals) (“the CIT(A)” in short). The Commissioner of Income-tax (Appeals) allowed the appeal and deleted the penalty levied under section 271E of the Act. Aggrieved, the Revenue filed an appeal to the Income-tax Appellate Tribunal (“the Tribunal” in short). The Tribunal dismissed the Revenue's appeal and confirmed the order of the Commissioner of Income-tax (Appeals). Hence, the present tax case by the Revenue.
5. Learned senior standing counsel appearing for the Revenue submitted that the provisions are mandatory and hence there is no mens rea or evasion of tax needs to be proved before penalty is imposed. Further, it is submitted that the Tribunal has failed to note that the assessee did not have “reasonable cause” for repaying the share application money in cash and hence, levy of penalty under section 271E is automatic in cases of not complying with the provisions of section 269T. Further, it is contended that the assessee had availed of the loan and had repaid the same in cash under the guise of refund of share application money. Hence, the levying of penalty by the Assessing Officer is justified.
6. Learned counsel appearing for the assessee submitted that there is no repayment of loan involved in the present case and that the assessee has only returned the share application money. Hence, there is no violation of the provision of section 269T of the Act by the assessee and, therefore, the assessee is not subject to levy of penalty under section 271E of the Act.
7. 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 flowed from any undisclosed income of the asses-see 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 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.”
8. 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.”
9. 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
(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.”
10. The above section provides that no branch of a banking company, co-operative 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.”
11. 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 Commissioner Of Income Tax 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.
12. In view of the foregoing reasons, we answer the questions in favour of the assessee and against the Revenue. Accordingly, the tax case is dismissed. No costs.