ITO, Ward - 7(1), Kolkata v. M/s. Avadh Rubber ltd., Kolkata

ITA 1853/KOL/2008 | 1999-2000
Pronouncement Date: 28-05-2010

Appeal Details

RSA Number 185323514 RSA 2008
Bench Kolkata
Appeal Number ITA 1853/KOL/2008
Duration Of Justice 1 year(s) 8 month(s) 3 day(s)
Appellant ITO, Ward - 7(1), Kolkata
Respondent M/s. Avadh Rubber ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 28-05-2010
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 28-05-2010
Date Of Final Hearing 20-05-2010
Next Hearing Date 20-05-2010
Assessment Year 1999-2000
Appeal Filed On 24-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C. D. RAO AM] I.T.A. NO.1853/KOL/2008 ASSESSMENT YEAR: 1999-2000 INCOME-TAX OFFICER WD-7(1) KOLKATA -VS- M/S. AVA DH RUBBER LTD. (PA NO.AABCA 0426 C) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI P. KOLHE RESPONDENT BY : SRI SOMNATH GHOSH O R D E R PER D. K. TYAGI JM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 18.7.2008 FOR ASSESSMENT YEAR 1999-2000 ON THE SOLE GROUND AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE CIT(A) HAS ERRED IN DELETING PENALTY IMPOSED UNDER SECTION 271D AGAINST THE VIEW OF THE JUDGMENT MADE IN THE CASE OF BHALOTI ENGG. WORKS PVT. LTD. VS- CIT (JHARKHAND) 619 CTR VOL. 196 WHERE IT WAS HELD THAT SHARE APPLICATION MONEY PER TAKES THE CHA RACTER OF DEPOSIT WITHIN THE MEANING OF SECTION 269SS OF THE INCOME TAX ACT 1961. 2. FACTS OF THE CASE IN BRIEF ARE THAT IN THE PENAL TY ORDER U/S. 271D OF THE I. T. ACT THE AO HAS OBSERVED AS UNDER : DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR TH E ASSESSMENT YEAR 1999-2000 IT WAS FOUND THAT THE ASSESSEE COMPANY HAS TAKEN LOA NS/DEPOSITS IN CASH EXCEEDING RS.20 000/- FROM VARIOUS PARTIES TO THE TUNE OF RS. 1 08 64 916/-. ACCORDINGLY PENALTY PROCEEDINGS U/S. 271D WERE INIT IATED BY THE UNDERSIGNED AND SHOW CAUSE NOTICE TO THIS EFFECT WAS ISSUED ON 10.09.200 2 FIXING THE DATE OF HEARING ON 18.09.2002. IN RESPONSE TO SAID SHOW CAUSE NOTICE ASSESSEES REPRESENTATIVE SHRI SANJAY TULSIAN ATTENDED AND SOUGHT ADJOURNMENT FOR 23.9.2002 ON WHICH DATE ASSESSEE FILED A WRITTEN REPLY. REPLY FILED BY THE ASSESSEE HAS BEEN DULY CONSIDERE D AND IT WAS FOUND THAT THE TWO AMOUNTS OF RS.3 00 000/- IN THE NAME OF SHRI ABHIS HEK SARAF & RS.7 88 250/- IN THE NAME OF SHRI NIWAS AGENCIES PVT. LTD. HAS NO EVIDE NCE IN SUPPORT OF HIS CONTENTION HENCE PENALTY IS LEVIABLE. IN VIEW OF ABOVE FACTS IT IS CLEAR THAT THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF SECTION 269SS OF THE I. T. ACT AND HE IS LIABLE FOR PENALTY U/S. 271D OF THE I. T. ACT. IN THIS ASE THE ASSES SEE HAS ACCEPTED LOANS/DEPOSITS IN CASH OTHERWISE THAN IN ACCORDANCE WITH PROVISIONS OF SE CTION 269SS TO THE TUNE OF RS.10 88 250/-. I THEREFORE IMPOSE A PENALTY OF RS.10 88 250/- WHICH IS THE SUM EQUAL TO THE LOANS/DEPOSITS SO ACCEPTED BY THE ASSESSEE I N CASH. 2 IN APPEAL THE LD. CIT(A) CANCELLED THE PENALTY OF RS.3 00 000/- AS IMPOSED BY THE AO. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US THE LD. DR SUB MITTED THAT THE ACTION OF THE LD. CIT(A) IN DELETING THE PENALTY U/S. 271D IS ERRONEO US AS HE HAS NOT CONSIDERED THE LAW LAID DOWN IN BHALOTIA ENGINEERING WORKS (P) LTD. -V S- CIT (2005) 275 ITR 399 (JHR) WHEREIN IT WAS OBSERVED THAT SECTION 269SS OF THE I NCOME TAX ACT 1961 WAS INSERTED WITH A VIEW TO PREVENT TRANSACTIONS IN BLACK MONEY AND TO ENSURE THAT PAYMENTS OF RS. 20 000/- AND ABOVE ARE TRACEABLE TO TRANSACTIONS TH ROUGH A BANK. IF THE MISCHIEF THAT IS SOUGHT TO BE AVERTED IS KEPT IN MIND IT WILL BE AP PROPRIATE TO HOLD THAT ANY PAYMENT OF RS. 20 000/- OR ABOVE MADE TO A COMPANY AS SHARE AP PLICATION MONEY SHOULD BE COVERED WITHIN THE AMBIT OF SECTION 269SS OF THE INCOME TAX ACT 1961. EVEN IF SHARE APPLICATION MONEY CANNOT BE CONSIDERED TO BE A LOAN WITHIN THE MEANING OF SECTION 269SS OF THE INCOME TAX ACT 1961 IT PARTAKES OF TH E 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 CONCL USION OF THE CONTRACT. HENCE THE ACCEPTANCE OF SHARE APPLICATION MONEY IN CASH AMOUN TING TO RS. 20 000/- OR MORE VIOLATES THE PROVISIONS OF SECTION 269SS. IT WAS HI S CONTENTION THAT THIS IS AN INTERPRETATION OF LAW WHICH IS IN FAVOUR OF THE REV ENUE AS CATEGORICALLY SETTLED BY THE HONBLE JHARKHAND HIGH COURT. HE FURTHER ARGUED THA T THERE IS NO DISPUTE THAT THE CONTRIBUTION TOWARDS SHARE APPLICATION MONEY BY SRI ABHISEK SARAF WAS RECEIVED BY THE ASSESSEE IN CASH AND AS SUCH THERE WAS CLEAR VIOLAT ION OF THE PROVISIONS OF S. 269SS AND IN SERIATIM THE PENALTY U/S. 271D WAS RIGHTLY IMPO SED UPON THE ASSESSEE WHICH WAS WRONGLY DELETED BY THE LD. CIT(A). IN SUPPORT OF HI S ARGUMENTS HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : I) J. J. FOAMS (P) LTD. -VS- CIT (2008) 299 ITR 590 (DEL) II) DHANIJI R. ZALTE -VS- ACIT (2004) 265 ITR 204 ( BOM) III) KASI CONSULTANT CORPORATION -VS- DCIT (2009) 3 11 ITR 419 (MAD) IV) THENAMAL CHHARJJER -VS- JCIT (2005) 96 ITD 210 (CHENNAI) V) ITO -VS- SUNIL M. KASLIWAL (2005) 94 ITD 281 (PU NE) (TM) VI) CIT -VS- SUNIL KUMAR GOEL (2005) 274 ITR 53 (P& H) VII) CHAUBEY OVERSEAS CORPORATION -VS- CIT (2008) 3 03 ITR 9 (ALL) VIII) CIT -VS- SHANTA ELECTRICAL INDUSTRIES (1986) 160 ITR 774 (DEL) IX) CIT -VS- CAPITAL ELECTRONICS (GARIAHAT) (2003) 261 ITR 4 (CAL) 3 HE FURTHER CONTENDED THAT FOR INTERPRETING THE PRO VISION MISCHIEF RULE IS REQUIRED TO BE APPLIED. IT WAS HIS SUBMISSION THAT THIS RULE IS REQUIRED TO BE INVOKED MORE PARTICULARLY IN THE INSTANT CASE AS THE PROVISION WAS ENACTED TO SUPPRESS A MISCHIEF AND TO IMPLEMENT THE OBJECT BEHIND THE ENACTMENT OF ANY PARTICULAR PROVISION IT WOULD BE RELEVANT TO UNDER THE OBJECT IN THE CORRECT PERSPEC TIVE. IN SUPPORT OF THIS CONTENTION HE RELIED ON THE DECISIONS IN THE CASES OF MYSORE SALE S INTERNATIONAL LTD. -VS- DCIT (2003) 185 CTR (KAR) 417 AND STATE OF BIHAR & ANOTHER -VS- CIT (1993) 202 ITR 535 (PAT) WHEREIN IT WAS HELD THAT WHEN AN AMENDMENT IS INTRO DUCED TO REMOVE A MISCHIEF COURT CAN NOT PROVIDE A BENEFICIAL CONSTRUCTION AND INTER PRETATION WHICH WILL INVITE CONSEQUENCES FOR SUCH MISCHIEF MUST BE ADOPTED. SUM MARIZING HIS ARGUMENTS HE URGED BEFORE THE BENCH TO REVERSE THE ORDER PASSED BY THE LD. CIT(A) OF DELETING THE PENALTY OF RS. 3 LACS AND THEREBY RESTORE THE ORDER IMPOSIN G PENALTY U/S. 271D PASSED BY THE ADDL. CIT. 4. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT NO DOUBT THE HONBLE JHARKHAND HIGH COURT HAS HELD THA T THAT ACCEPTANCE OF SHARE APPLICATION MONEY IN CASH AMOUNTING TO RS. 20 000/- OR MORE VIOLATES THE PROVISIONS OF S. 269SS OF THE ACT ATTRACTING PENALTY U/S. 271D. H OWEVER THIS VERY POINT IN NOT SETTLED. IT WAS HIS SUBMISSION THAT ON THIS POINT CATEGORICA LLY OPPOSITE VIEWS HAS BEEN EXPRESSED AND IS AVAILABLE. HE RELIED ON THE DECISION IN THE CASE OF CIT -VS- RUGMINI RAM RAGAV SPINNERS P. LTD. (2008) 304 ITR 417 (MAD) WHEREIN I T WAS HELD THAT CONTRIBUTION TOWARDS SHARE APPLICATION DOES NOT AMOUNT TO LOANS OR DEPOSITS AND AS SUCH ARE NOT COVERED U/S. 269SS OF THE ACT. HE FURTHER RELIED UP ON THE DECISION OF THE JAIPUR BENCH OF THE ITAT IN THE CASE OF JAGVIJAY AUTO FINANCE P. LTD. -VS- ACIT (1995) 52 ITD 504 WHEREIN IT WAS HELD THAT IT WOULD BE INCORRECT TO C ONSTRUE SHARE APPLICATION MONEY AS LOAN OR DEPOSIT FOR THE PURPOSES OF INTERPRETING S. 269SS OF THE ACT. THEREFORE THERE ARE CONFLICTING VIEWS WHICH WOULD RENDER THE PROVISIONS AMBIGUOUS AND AS SUCH CAPABLE OF PRODUCING MORE THAN ONE INTERPRETATION. ON SUCH SIT UATION IT WAS SUBMITTED BY THE LD. COUNSEL RELYING ON THE DECISION OF THE APEX COURT I N THE CASE OF CIT -VS- VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (S.C.) THAT IF THE COURT FINDS THAT THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPABLE OF MORE ME ANING THAN ONE THEN THE COURT HAS TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSE SSEE MORE PARTICULARLY SO WHERE THE PROVISION RELATES TO THE IMPOSITION OF PENALTY. HE EMPHASIZED THAT IN THE INSTANT CASE THERE ARE TWO CONFLICTING VIEWS OF TWO NON JURISDIC TIONAL HIGH COURTS AND AS SUCH THE 4 INTERPRETATION THAT THE CONTRIBUTION TO SHARE CAPIT AL COULD NOT BE TREATED AS LOANS OR DEPOSITS TO BE COVERED BY THE PROVISIONS IN S. 269S S OF THE ACT SHOULD BE ADOPTED IN THE LIGHT OF THE DECISION OF THE HONBLE APEX COURT. HE FURTHER RELIED ON THE DECISION OF THE DELHI I BENCH OF THE ITAT IN THE CASE OF VLS FOOD S (P) LTD. -VS- ADDL. CIT (2010) 128 TTJ (DEL) (UO) 1 WHEREIN AFTER CONSIDERING THE DECISIONS IN THE CASES OF BHALOTIA ENGINEERING WORKS (P) LTD. -VS- CIT (SUPRA) AND CIT -VS- RUGMINI RAM RAGAV SPINNERS P. LTD. (SUPRA) IT WAS HELD THAT THE SHAR E APPLICATION MONEY RECEIVED IS NEITHER LOAN NOR DEPOSIT. THEREFORE PENALTY U/S. 271D CANN OT BE LEVIED IN RESPECT OF THE AMOUNT RECEIVED BY THE ASSESSEE IN CASH ON ACCOUNT OF SHAR E APPLICATION MONEY. AS REGARDS THE DECISIONS RELIED ON BY THE LD. DR IT WAS THE CONTE NTION OF THE LD. COUNSEL THAT THE RATIOS IN THOSE DECISIONS ARE DISTINGUISHABLE ON FA CTS AND ALSO ON LAW. HE ALSO SUBMITTED THAT A PENAL PROVISION SUCH AS S. 269SS READ WITH S . 271D MUST BE CONSTRUED STRICTLY IN ACCORDANCE WITH THE CONDITIONS LAID DOWN THEREIN AN D CANNOT BE EXTENDED TO COVER SITUATIONS WHICH ARE NOT WITHIN ITS AMBIT. THE LD. COUNSEL FURTHER ELUCIDATED THAT TO ASCERTAIN THE TRUE INTENTION OF THE LEGISLATURE AS REGARDS THE APPLICATION OF THE PROVISIONS OF S. 269SS THE OBJECT OF ENACTMENT IS REQUIRED TO BE CONSIDERED. THE OBJECT OF INTRODUCING S. 269SS IS TO ENSURE THAT A TAX-PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY OR IF HE MAKE S SOME FALSE ENTRIES HE DOES NOT ESCAPE BY GIVING FALSE EXPLANATION FOR THE SAME DUR ING SEARCH AND SEIZURE OPERATIONS AS LAID DOWN IN THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF ADIT -VS- KUMARI A. B. SHANTI [2002] 255 ITR 487 (S.C.). HE A LSO SUBMITTED THAT THE CENTRAL BOARD OF DIRECT TAXES VIDE ITS CIRCULAR BEING NO. 3 87 DATED 06-09-1984 HAVE CLARIFIED THE EXTENT AND THE SCOPE OF OPERATION INCORPORATING THE LEGISLATIVE INTENT FOR THE INTRODUCTION OF THIS PROVISION AND ITS APPLICATION IS TO BE ASCERTAINED IN THE CONTEXT AS IN A SEARCH & SEIZURE OPERATION U/S. 132 OF THE ACT. T HEREFORE IT WAS HIS CONTENTION THAT THE PROVISION OF S. 269SS HAS NO APPLICATION IN THE FACTS OF THE INSTANT CASE WHICH RULES OUT THE APPLICABILITY OF PENALTY U/S. 271D AND AS S UCH HE URGED BEFORE THE BENCH TO UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 5. AFTER HEARING THE RIVAL SUBMISSIONS CAREFULLY P ERUSING THE MATERIAL ON RECORD AND CASE LAWS CITED BY BOTH THE PARTIES WE FIND THAT T HE 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 WITH IN THE MEANING OF S. 269SS IN ORDER TO APPLY THE PROVISIONS OF S. 271D. BEFORE WE EMBARK O N THE CONTROVERSY INVOLVED IN THE 5 ONLY ISSUE IT IS APPOSITE TO CONSIDER THE PROVISIO NS WHICH LED TO THE DISPUTE. THE PROVISIONS OF S. 271D READS AS UNDER: PENALTY FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 269SS. 271D. (1) IF A PERSON TAKES OR ACCEPTS ANY LOAN OR DEPO SIT IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS HE SHALL BE LIABLE TO PAY BY WAY OF PENALTY A SUM EQUAL TO THE AMOUNT OF THE LOAN OR DEPOSIT SO T AKEN OR ACCEPTED. (2) ANY PENALTY IMPOSABLE UNDER SUB-SECTION (1) SH ALL BE IMPOSED BY THE JOINT COMMISSIONER. THEREFORE THE CONDITIONS PRECEDENT FOR IMPOSING PEN ALTY U/S. 271D ARE SATISFIED ONLY WHEN THE ASSESSEE ACCEPTS LOANS OR DEPOSITS IN INFR INGEMENT OF THE PROVISIONS OF S. 269SS AND NOT OTHERWISE. THE PROVISIONS OF S. 269SS READ AS UNDER: MODE OF TAKING OR ACCEPTING CERTAIN LOANS AND DEPOS ITS. 269SS. NO PERSONS SHALL AFTER THE 30 TH DAY OF JUNE 1984 TAKE OR ACCEPT FROM ANY OTHER PERSON (HEREAFTER IN THIS SECTION REFERRE D TO AS THE DEPOSITOR) ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQU E OR ACCOUNT PAYEE BANK DRAFT IF - (A) THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMOUNT OF SUCH LOAN AND DEPOSIT; OR (B) ON THE DATE OF TAKING OR ACCEPTING SUCH LOAN OR DEP OSIT ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARLIER BY SUCH PERSON FR OM THE DEPOSITOR IS REMAINING UNPAID (WHETHER REPAYMENT HAS FALLEN DUE OR NOT) THE AMOUNT OR THE AGGREGATE AMOUNT REMAINING UNPAID; OR (C) THE AMOUNT OR THE AGGREGATE AMOUNT REFERRED TO IN C LAUSE (A) TOGETHER WITH THE AMOUNT OR THE AGGREGATE AMOUNT REFERRED TO IN CLAUSE (B) IS [TWENTY] THOUSAND RUPEES OR MORE: PROVIDED THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y TO ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED FROM OR ANY LOAN OR DEPOSIT TAKE N OR ACCEPTED BY - (A) GOVERNMENT; (B) ANY BANKING COMPANY POST OFFICE SAVINGS BANK OR CO -OPERATIVE BANK; (C) ANY CORPORATION ESTABLISHED BY A CENTRAL STATE OR PROVINCIAL ACT; (D) ANY GOVERNMENT COMPANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT 1956 (1 O0F 1956); (E) SUCH OTHER INSTITUTION ASSOCIATION OR BODY OR CLAS S OF INSTITUTIONS ASSOCIATIONS OR BODIES WHICH THE CENTRAL GOVERNMENT MAY FOR REASONS TO BE RECORDED IN WRITING NOTIFY IN THIS BEHALF IN TH E OFFICIAL GAZETTE: PROVIDED FURTHER THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y TO ANY LOAN OR DEPOSIT WHERE THE PERSON FROM WHOM THE LOAN OR DEPO SIT IS TAKEN OR ACCEPTED AND THE PERSON BY WHOM THE LOAN OR DEPOSIT IS TAKEN OR ACCEPTED ARE BOTH HAVING AGRICULTURAL INCOME AND NEITHER OR THEM HAS ANY INC OME CHARGEABLE TO TAX UNDER THIS ACT. EXPLANATION. FOR THE PURPOSE OF THIS SECTION - (I) BANKING COMPANY MEANS A COMPANY TO WHICH THE BANK ING REGULATION ACT 1949 (10 OF 1949) APPLIES AND INCLUDES ANY BA NK OF BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT; 6 (II) CO-OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT 1949 (10 OF 1949); (III) LOAN OR DEPOSIT MEANS LOAN OR DEPOSIT OF MONEY. IN ORDER TO ASCERTAIN THE OBJECT OF THE ENACTMENT WE ARE OF THE CONSIDERED OPINION THAT THE RATIONALE BEHIND THE PROVISION IS REQUIRED TO B E UNDERSTOOD IN THE CORRECT PERSPECTIVE. THE HONBLE APEX COURT IN THE CASE OF ADIT -VS- KUM ARI 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 ENSU RE THAT A TAXPAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNT ED MONEY OR IF HE MAKES SOME FALSE ENTRIES HE SHALL NOT ESCAPE BY GIVING F ALSE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZURES UNACCOUNTED MONEY IS UN EARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE EXPLANATION THAT HE HAD BORR OWED OR RECEIVED DEPOSITS FROM HIS RELATIVES OR FRIENDS AND IT IS EASY FOR TH E SO-CALLED LENDER ALSO TO MANIPULATE HIS RECORDS TO SUIT THE PLEA OF THE TAXP AYER. THE MAIN OBJECT OF SECTION 269SS WAS TO CURB THIS MENACE OF MAKING FAL SE ENTRIES IN THE ACCOUNT BOOKS AND LATER GIVING AN EXPLANATION FOR THE SAME. THE CENTRAL BOARD OF DIRECT TAXES IN CIRCULAR NO. 3 87 DATED 06-07-1984 HAS IN EXPLANATORY NOTES ISSUED AFTER THE FINANCE ACT 198 4 HAS CONSIDERED THE SAME AS UNDER: 32.1 UNACCOUNTED CASH FOUND IN THE COURSE OF SEARCHES CA RRIED OUT BY THE INCOME TAX DEPARTMENT IS OFTEN EXPLAINED BY TAX PAYERS AS REPRESENTING LOANS TAKEN FROM OR DEPOSITS MADE BY VARIOUS PERSON S. 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 LET TERS 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 DEPOSI TS THE FINANCE ACT HAS INSERTED A NEW SECTION 269SS IN THE INCOME TAX ACT DEBARRING PERSONS FROM TAKING OR ACCEPTING AFTER 30 TH JUNE 1984 FROM ANY OTHER PERSON ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE O R ACCOUNT PAYEE BANK DRAFT IF THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREG ATE AMOUNT OF SUCH LOAN AND DEPOSITS IS RS. 10 000/- OR MORE.. THEREFORE IN OUR CONSIDERED OPINION THE PROVISION W AS INTRODUCED TO ELIMINATE THE PROLIFERATION OF BLACK MONEY IN THE SOCIETY AT LARG E AND NOT OTHERWISE. IN THE INSTANT CASE THERE WAS NO VIOLATION OF THE LEGISLATIVE INT ENT 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 ARIS EN BECAUSE IN THE AUDIT REPORT U/S. 44AB OF THE INCOME TAX ACT 1961 SUCH AMOUNT WAS IN ADVERTENTLY INCLUDED IN THE SCHEDULE OF LOANS. HOWEVER IN THE COURSE OF PROC EEDINGS AGAINST THE ASSESSMENT ORDER BEFORE THE LD. CIT(A) SUCH MISTAKE WAS CORREC TED AND THE ADDITION WAS DELETED BY 7 THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE GENUINENESS OF THE AMOUNT RECEIVED A COPY OF SUCH ORDER IS ENCLOSED AT PAPER BOOK PAGE 2 4 WHICH WAS UPHELD BY THE ITAT D BENCH KOLKATA IN I.T.A. NO. 1767 /KOL/ 2003 DAT ED 27/04/2004 A COPY OF WHICH ORDER IS ENCLOSED AT PAPER BOOK PAGE 17. IT IS THER EFORE 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. 269 SS AND AS SUCH THERE IS NO MALAFIDE INTENTION IN THIS RESPECT. IT IS NOT IN DISPUTE THA T THE SHARE APPLICATION MONEY OF RS. 3 00 000/- RECEIVED FROM SHRI ABHISEK SARAF IS GENU INE AND THAT THERE WAS NO INTENTION TO DECEIVE THE REVENUE. THEREFORE IN OUR CONSIDERE D 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 R EVENUE THAT THE PROVISION OF S. 269SS HAS TO BE CONSTRUED BY GIVING EFFECT TO THE MISCHIE F 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 HONBLE 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 ST RICTLY IN ACCORDANCE WITH THE CONDITIONS LAID DOWN THEREIN. THEREFORE THE INTERP RETATION OF THE PROVISION OF S. 269SS READ WITH S. 271D SHOULD BE STRICTLY CONSTRUED AND THIS ARGUMENT OF THE LD. DR IS REJECTED. NOW COMING TO THE ISSUE AT HAND BOTH THE PARTIES HAVE RELIED UPON THE CATENA OF JUDGMENTS IN SUPPORT OF THEIR RESPECTIVE CLAIMS. THE LD. DR HAS RELIED ON THE FOLLOWING DECISIONS WHICH ARE DEALT WITH AS UNDER: I) J. J. FOAMS (P) LTD. -VS- CIT SUPRA IN THIS CASE THE ASSESSEE ITSELF HAD TREATED THE AMOUNTS RAISED BY IT AS DEPOSITS AND PAID INTEREST THEREUPON WITHOUT SHARES BEING AL LOTTED AND ON SUCH PREMISE IT WAS HELD THAT THE PROVISIONS OF S. 40A(8) WERE APPLICAB LE. IN THE INSTANT CASE THE ISSUE IS ONE OF PENALTY U/S. 271D READ WITH S. 269SS WHEREIN THE CONTRIBUTION IN CASH TOWARDS SHARE APPLICATION MONEY RECEIVED WHICH WAS CONSIDERED TO BE A DEPOSIT WITHIN THE MEANING OF THAT ENACTMENT. IN THE CASE BEFORE US THE SHARES H AD BEEN ALLOTTED TO THE APPLICANT AND AS SUCH THE FACTS AND THE ISSUES ARE ENTIRELY DIFFERE NT AND HENCE NOT APPLICABLE. 8 II) DHANIJI R. ZALTE -VS- ACIT SUPRA IN THIS CASE A SEARCH OPERATION WAS CARRIED OUT AT THE RESIDENTIAL AND OTHER PREMISES OF AN ADVOCATE ASSESSEE WHO WAS FOUND TO H AVE VIOLATED THE PROVISIONS OF S. 269SS AND 269T INASMUCH AS LOANS AND DEPOSITS WERE ACCEPTED AND REPAID IN CASH AND ON SUCH PREMISE PENALTIES IMPOSED U/S. 271D & E RES PECTIVELY WERE UPHELD. IN THE INSTANT CASE THE ISSUE IS REGARDING THE RECEIPT OF SHARE APPLICATION MONEY IN CASH WHICH WAS NOT A DEPOSIT AND AGAINST WHICH SHARES WERE ISS UED. THEREFORE THE FACTS IN THE CASE CITED ARE TOTALLY DISTINGUISHABLE AND HENCE NOT APP LICABLE IN THE INSTANT CASE. III) KASI CONSULTANT CORPORATION -VS- DCIT SUPRA IN THIS CASE THE ASSESSEE FIRM HAS ACCEPTED DEPOSI TS FROM PUBLIC FOR THE PURPOSE OF ITS BUSINESS. PENALTY PROCEEDING U/S. 271D WAS I NITIATED AS IT WAS FOUND THAT THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF S. 269SS AND AS IT HAD FAILED TO DEMONSTRATE THE SHORTAGE OF CASH IN THE BUSINESS WHICH MADE THE ASSESSEE ACCEPT THE CASH. IN SUCH CIRCUMSTANCES THE PENALTY WAS LEVIED AND UPHELD. W HEREAS IN THE INSTANT CASE THE ISSUE WAS ONE OF SHARE APPLICATION MONEY AGAINST WHICH SH ARES WERE ACTUALLY ISSUED AND THEREFORE THE FACTS HAVE NO RELEVANCE TO THE CASE BEFORE US. IV) THENAMAL CHHARJJER -VS- JCIT SUPRA IN THIS CASE IT WAS OBSERVED THAT THE ASSESSEE HAD NOT RECORDED THE CASH TRANSACTIONS IN ITS BOOKS OF ACCOUNTS AND THOSE TRA NSACTIONS SURFACED ONLY AFTER A SURVEY WAS CONDUCTED BY THE DEPARTMENT. THEREFORE THE FAC TS OF THE CASE ARE ALTOGETHER DIFFERENT FROM THE FACTS IN THE CASE UNDER APPEAL B EFORE US. V) ITO -VS- SUNIL M. KASLIWAL SUPRA IN THIS CASE IT WAS FOUND THAT THE ASSESSEE HAD AC CEPTED CASH LOAN FROM HIS MINOR CHILDREN WIFE AND TWO OTHER LADIES WHICH WERE IN C ONTRAVENTION OF S. 269SS AND AS SUCH PENALTY WAS IMPOSED U/S. 271D. IT WAS HELD THAT THE PENALTY COULD NOT BE MAINTAINED IN RESPECT OF THE LOANS TAKEN BY ASSESSEE FROM HIS MIN OR CHILDREN AND WIFE WHEREAS THE PENALTY WAS SUSTAINED IN RESPECT OF LOAN FROM TWO L ADIES IN ABSENCE OF REASONABLE CAUSE. IN THE CASE BEFORE US THE ISSUE IS ENTIRELY DIFFER ENT AND THE RATIO OF THE DECISION IN THE MATTER CITED IS NOT APPLICABLE AT ALL. VI) CIT -VS- SUNIL KUMAR GOEL SUPRA IN THIS CASE THE ISSUE DECIDED WAS THAT IT WAS THE DUTY OF AN APPELLATE AUTHORITY TO GIVE ITS REASONS IN THE ORDER AND THE CONCLUSION S REACHED THEREIN. IN THE INSTANT CASE THE ORDER OF THE LD. CIT(A) IS A VERY REASONED ORDE R AND HE HAS FOLLOWED THE DIRECTIONS 9 GIVEN BY THE ITAT C BENCH KOLKATA IN ITA NO. 48 7/KOL/2005 DATED 04/07/2005 IN TOTO. THEREFORE IN OUR CONSIDERED OPINION THERE W AS NO VIOLATION OF THE DICTUM OF SPEAKING ORDER SO THAT THE DECISION RELIED ON HAS N O RELEVANCE IN THE FACTS OF THE CASE. VII) CHAUBEY OVERSEAS CORPORATION -VS- CIT SUPRA IN THIS CASE THE ASSESSEE HAS RECEIVED CASH FOR SU PPLY OF SILK FABRIC WHICH COULD NOT BE EXECUTED IN TIME AND THE MONEY SO RECEIVED W AS TREATED TO BE A DEPOSIT AS THE ASSESSEE WAS UNDER OBLIGATION TO RETURN IT AND IN S UCH CIRCUMSTANCES THE PENALTY FOR CONTRAVENTION OF S. 269SS WAS LEVIED AND UPHELD. WH EREAS IN THE INSTANT CASE THE MONEY RECEIVED FROM SRI ABHISEK SARAF IN THE SUM OF RS. 3 00 000/- ON 31-03-1999 WAS FULLY ABSORBED AND SET OFF AGAINST THE ISSUE OF SHARES AN D AS SUCH THE VERY CONCEPTION OF DEPOSIT IS NOT APPLICABLE IN THIS CASE. VIII) CIT -VS- SHANTA ELECTRICAL INDUSTRIES SUPRA IN THIS CASE THE ISSUE INVOLVED WAS THE QUESTION O F APPLICATION OF THE PROVISIONS OF S. 271(1(A) CENTERING ON THE QUESTION OF REASON ABLE CAUSE. SINCE THE ISSUE OF REASONABLE CAUSE IS NOT RELEVANT IN THE CONTEXT OF THE INSTANT CASE THEREFORE THE RATIO OF SUCH JUDGMENT HAS NO APPLICATION. IX) CIT -VS- CAPITAL ELECTRONICS (GARIAHAT) SUPRA THE ISSUE INVOLVED IN THIS CASE WAS ALSO ONE OF R EASONABLE CAUSE FOR DEFAULT. SINCE IN THE APPEAL BEFORE US THE ISSUE OF REASONAB LE CAUSE HAS NO APPLICATION THE DECISION IS NOT APPLICABLE IN THE FACTS OF THE PRES ENT CASE. THUS THE RATIO AS LAID DOWN IN THE CASE LAWS RELI ED ON BY THE REVENUE IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE CASE LAWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE ARE DEALT WITH AS UNDER: I) CIT -VS- RUGMINI RAM RAGAV SPINNERS P. LTD. SUPRA IN THIS CASE THE ISSUE WAS REGARDING LEVY OF PENA LTY UNDER S. 271E FOR CASH PAYMENTS MADE BY THE ASSESSEE PERTAINING TO REFUND OF SHARE APPLICATION MONEY. WHILE DECIDING THIS ISSUE IT WAS HELD THAT THE MONEY RET AINED BY THE ASSESSEE COMPANY WAS NEITHER DEPOSIT NOR LOAN BECAUSE THE SAME WAS RECEI VED TOWARDS ALLOTMENT OF SHARES FROM SIXTEEN PERSONS. IT WAS ALSO HELD THAT THE PRO VISIONS OF SS. 269SS AND 269T HAVE APPLICATION ONLY IN LIMITED WAY IN RESPECT OF DEPOS ITS OR LOANS AND WHEN IT IS NEITHER DEPOSIT NOR LOAN THE PROVISIONS OF SS. 269SS AND 2 69T HAVE NO APPLICATION AT ALL. IT WAS 10 HELD THAT NO PENALTY CAN BE IMPOSED UNDER S. 271D A LSO BECAUSE ONCE IT IS HELD THAT THE RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT THE PROVISIONS OF SS. 269SS AND 271D ARE NOT ATTRACTED BECAUSE THESE PRO VISIONS ARE APPLICABLE ONLY WHEN THE ASSESSEE RECEIVES LOAN OR DEPOSIT IN CASH. II) JAGVIJAY AUTO FINANCE P. LTD. -VS- ACIT SUPRA IN THIS CASE THE ISSUE WAS THAT THE ASSESSEE RECE IVED CASH CONTRIBUTION TOWARDS SHARE APPLICATION MONEY AND IN SUCH SCENARIO IT WA S HELD THAT IT WOULD BE INCORRECT TO CONSTRUE SHARE APPLICATION MONEY AS LOAN OR DEPOSIT INASMUCH EVEN AFTER ENLARGEMENT OF MEANING OF DEPOSIT BY DIRECT TAX (AMENDMENT) ACT 1987 TO INCLUDE DEPOSIT OF ANY NATURE FOR THE PURPOSES OF INTERPRETING S. 269SS. III) CIT -VS- VEGETABLE PRODUCTS LTD. SUPRA IT WAS SETTLED THAT IF THE COURT FINDS THAT THE LA NGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPABLE OF MORE MEANING THAN ONE THEN THE COURT HAS TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSEE MORE PAR TICULARLY SO WHERE THE PROVISION RELATES TO THE IMPOSITION OF PENALTY. IV) VLS FOODS (P) LTD. -VS- ADDL. CIT SUPRA IN THIS CASE THE ISSUE IS MORE APPOSITE TO THE ON E AT HAND. IN FACT THE SAID DECISION HAS ALREADY BEEN TAKEN INTO CONSIDERATION IN THE RATIOS OF THE DECISIONS RENDERED IN THE CASES OF BHALOTIA ENGINEERING WORKS SUPRA RELIED ON BY THE REVENUE AND RUGMINI RAM RAGAV SUPRA RELIED ON BY THE ASSESSEE. IT WAS SO HELD AS UNDER: WE FIND THAT IT IS AN ADMITTED POSITION THAT IN T HE PRESENT CASE THE IMPUGNED AMOUNT OF RS. 8.55 LAKHS WAS RECEIVED BY THE ASSESSEE IN C ASH AS SHARE APPLICATION MONEY. IN THE CASE OF RUGMINI RAM RAGAV (SUPRA) THE ISSUE BE FORE HONBLE MADRAS HIGH COURT WAS REGARDING LEVY OF PENALTY UNDER S. 271E FOR CAS H PAYMENTS MADE BY THE ASSESSEE PERTAINING TO REFUND OF SHARE APPLICATION MONEY. WH ILE DECIDING THIS ISSUE IT WAS HELD BY HONBLE MADRAS HIGH COURT THAT THE MONEY RETAINE D BY THE ASSESSEE COMPANY WAS NEITHER DEPOSIT NOR LOAN BECAUSE THE SAME WAS RECEI VED TOWARDS ALLOTMENT OF SHARES FROM SIXTEEN PERSONS. IT WAS ALSO HELD THAT THE PRO VISIONS OF SS. 269SS AND 269T HAVE APPLICATION ONLY IN LIMITED WAY IN RESPECT OF DEPOS ITS OR LOANS AND WHEN IT IS NEITHER DEPOSIT NOR LOAN THE PROVISIONS OF SS. 269SS AND 2 69T HAVE NO APPLICATION AT ALL. AS PER THIS JUDGMENT OF HONBLE MADRAS HIGH COURT NO PENALTY CAN BE IMPOSED UNDER S. 271D ALSO BECAUSE ONCE IT IS HELD THAT THE RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT THE PROVISIONS OF SS. 269SS AND 2 71D ARE ALSO NOT APPLICABLE BECAUSE THESE PROVISIONS ARE APPLICABLE ONLY WHEN THE ASSES SEE RECEIVES LOAN OR DEPOSIT IN CASH. THE JUDGMENT OF HONBLE JHARKHAND HIGH COURT RENDER ED IN THE CASE OF BHALOTIA ENGINEERING WORKS (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 A RE APPLICABLE. UNDER THIS FACTUAL POSITION WE FIND THAT THERE ARE TWO JUDGMENTS OF T WO DIFFERENT HIGH COURTS AVAILABLE ON THIS ISSUE OUT OF WHICH ONE JUDGMENT OF HONBLE MAD RAS HIGH COURT IS IN FAVOUR OF THE ASSESSEE WHEREAS THE OTHER JUDGMENT OF HONBLE JHAR KHAND HIGH COURT IS AGAINST THE 11 ASSESSEE. UNDER THESE FACTS WE HAVE TO DECIDE AS T O WHICH JUDGMENT SHOULD BE FOLLOWED BY US. UNDER THIS SITUATION WE ARE GUIDED BY HONB LE APEX COURT AND AS PER THE JUDGMENT IN THE CASE OF VEGETABLE PRODUCTS LTD. (SU PRA) IT WAS HELD BY HONBLE APEX COURT THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAX ING PROVISION ARE POSSIBLE THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. RESPECTFULLY FOLLOWING THIS JUDGMENT OF HONBLE APEX COURT WE ARE OF THE CONSI DERED OPINION THAT WE ARE BOUND TO FOLLOW THE JUDGMENT OF HONBLE MADRAS HIGH COURT RE NDERED IN THE CASE OF RUGMINI RAM RAGAV (SUPRA) BECAUSE THIS JUDGMENT IS IN FAVOU R OF THE ASSESSEE AND NO JUDGMENT OF HONBLE APEX COURT OR OF HONBLE JURISDICTIONAL HIGH COURT ON THE ISSUE BEFORE US WAS BROUGHT TO OUR NOTICE. IT WAS HELD BY THE HONB LE MADRAS HIGH COURT THAT RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPO SIT. ONCE WE HOLD AND ACCEPT THAT RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT THE PROVISIONS OF SS. 269SS AND 271D ARE NOT APPLICABLE BECAUSE THE PROVI SIONS OF S. 269SS ARE IN CONNECTION WITH ACCEPTANCE OF THE LOAN AND DEPOSIT AND 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 LAKHS WAS RECEIVED B Y THE ASSESSEE IN CASH ON ACCOUNT OF SHARE APPLICATION MONEY PENALTY UNDER S. 271D CANN OT BE LEVIED BECAUSE THE RECEIPT OF SHARE APPLICATION MONEY IS NEITHER LOAN NOR DEPOSIT AND HENCE THE IMPUGNED RECEIPT OF RS. 8.55 LAKHS IS NOT GOVERNED BY S. 269SS OF THE A CT. IN LIGHT OF THE FACTS OF THIS CASE AND THE LEGAL PO SITION ON THIS ISSUE AND IN ABSENCE OF ANY JUDGMENT OF HONBLE APEX COURT OR OF HONBLE JURISD ICTIONAL HIGH COURT ON THE ISSUE BEFORE US WE ARE OF THE CONSIDERED OPINION THAT TH E 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 EXPRESSI ON 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 IN THE CIRCUMSTANCES OF THE CASE AND AFTER DUE DELIBERATIO N WE ARE INCLINED TO UPHOLD THE SAME. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. 7. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28. 5.10 SD/- SD/- (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28TH MAY 2010 COPY TO : 1. ITO WARD-7(1) KOLKATA. 2. M/S. AVADH RUBBER LTD. 32 GANESH CHANDRA AVENUE KOLKATA-13 3. CIT(A) KOLKATA. 4. CIT KOLKATA. 5. D.R. ITAT KOLKATA. TRUE COPY BY ORDER DEPUTY REGISTRAR JD.(SR.P.S.) I.T.AT. KOLKATA