Income Tax Appellate Tribunal (ITAT) Delhi in a recent judgment has quashed penalty u/s 271D for accepting share application money in cash. ITAT opined that on the subject, there was a clear difference of judicial opinion and following the judgement of the Apex Court, the view beneficial to the assessee should be adopted.

Case Details:
ITA No. 855-856-857-785-786/Del/2014 AY 2005-06 to 2009-10
Global Realty Heritage Venture (Cochin) (P.) Ltd, Kaila Devi Real Estate Ltd, Gagan Buildwell (P) Ltd, Fortune Developers International (P) Ltd (Appellants) vs Addl CIT (Respondent)
Date of Order: 16-10-2015

Brief Facts of the Case:
In all the five appeals above, arguments on facts and law were identical where Assessing Officer had held that the assessee had accepted share application money in cash  in violation of section 269SS and accordingly penalty u/s 271D was imposed relying upon the decision of the Hon’ble Jharkhand High Court in Bhalotia Engineering Works (P.) Ltd. vs CIT (2005) 275 ITR 399.

In ITA-855 the penalty u/s 271E was levied for alleged violation of section 269T for repayment of loan to sister concern in cash

Contention of the Assessee:
Assessing officer in the order u/s 143(3) has not made any addition u/s 68 on facts and the receipt of the amount in cash from a sister concern received as share application money has been accepted by the AO. In these facts, it was stated that the genuineness and the bonafide of the assessee stand explained and addressed. Thus the penalty it was submitted has wrongly been invoked Reliance was placed on number of judgments- 1. ITO vs M/s Avadh Rubber Ltd. [ITA no.-1853/Kol/2008] Order dated 28.05.2010 (ITAT, Kolkata Bench); 2. CIT vs I.P.India Ltd. 343 ITR 353 (Delhi High Court); 3. CIT vs Samora Hotels (P.) Ltd. [ITA No.313/2006] order dated 23.02.2012 (Delhi High Court); 4. ITO vs M/s Homeland City Projects Ltd.[ITA No.-2043/Del/2012] order dated 08.10.2012 (ITAT, Delhi Bench); 5. JCIT vs M/s Ellora Mercantile (P.) Ltd.[ITA No.1664/Kol/2012] order dated 18.04.2013 (ITAT, Kolkata Bench); 6. ITO vs M/s Goldman Properties (P.) Ltd, New Delhi [ITA No.724/Del/2012] order dated 24.01.2013 (ITAT, Delhi Bench); 7. ITO vs M/s Nandlala Securities (P.) Ltd. [ITA no.3043/Del/2013] order dated 07.01.2015 (ITAT, Delhi Bench);; 8. CIT vs Raugmini Ram Raghav Spinners (P.) Ltd 304 ITR 417 (2008) (Mad.); 9. CIT vs Speedways Rubber (P.) Ltd. 326 ITR 31 (Punjab& Haryana High Court); 10. CIT vs Kardah Lexoplast (P.) Ltd. [ITA No.-184/99] (Allahabad High Court)

It was also contended that since there was a difference of opinion among various High Courts, the judgement of the Apex Court in the case of CIT vs Vegetables Products Ltd. 88 ITR 192 (SC) the benefit of decisions in favour of the assessee should have been given by the tax authorities.

It was argued that the above said proposition had been upheld by the Hon’ble Delhi High Court in the case of CIT vs I.P.India P.Ltd. 343 ITR 353 (Del.) and it was cited before the CIT(A) and in judicial propriety it should have been followed as being the decision of the Jurisdictional High Court it was binding on the tax authorities. The CIT(A) it was submitted by not following the said decision had committed a judicial improprietary. In support of the said submission reliance was placed on the case Agarwal Warehousing Leasing Ltd. vs CIT (2002) 124 Taxman 440 (M.P) It was further submitted that  Commissioner has committed judicial indiscipline in terms of the decision of the Apex Court in the case of Union of India vs Kamlakshi Finance Corpn. Ltd. [1992] 7 AIR S.C. 11 Reliance was placed upon K.N.Agarwal vs CIT 189 ITR 769.

It was submitted that in these facts and circumstances, the assessee was under bonafide belief that borrowing cash from a sister concern under financial urgency/ commercial expediency which would be adjusted by allotting shares, does not amount to said violation.

Excerpts from the ITAT Order:
Thus having addressed the facts of the case in the context of the stand of the parties thereon where the Ld. Sr. DR has heavily relied upon the decision of the Hon’ble Jharkhand High Court in Bhalotia Engineering Works Ltd. (cited supra) and the Ld.AR has relied upon I.P. India Ltd. amongst others of the Jurisdictional High Court (cited supra); CIT vs Raugmini Ram Raghav Spinners (P.) Ltd. (cited supra) and CIT vs Speedways Rubber (P.) Ltd. (cited supra) of the Hon’ble Allahabad High Court. On a consideration of the aforesaid decisions in the facts and considering the view expressed by the Hon’ble Delhi High Court in the case of CIT vs I.P. India Ltd. (cited supra). I find that there is no doubt that there is a cleavage of judicial opinion on the point of reasonable cause u/s 273B thus following the judicial precedent by applying the judgement of the Hon’ble Supreme Court in the case of CIT vs Vegetables Products Ltd. (cited supra), I am of the view that the penalty imposed in each of these cases deserves to be quashed. Nothing has been brought on record by the Revenue to show that the assessee as a result of his business and interactions with the department in the earlier years had been made aware that accepting and repaying in cash to sister concerns in order to tide over financial emergencies were in violation of the provision of the Act. In the absence of any such evidence the plea of bonafide belief in the peculiar circumstances cannot be discarded. It is seen that the assessee has consistently canvassed that there was a bonafide belief that the amount taken from the sister concern in cash is not a violation of any provision. Similarly ....... the return of loan by cash to the sister concern under a bonafide belief that the transaction with sister concerns is not in violation for similar reasons in the absence of any evidence to the contrary cannot be disbelieved. It is seen that the genuineness of the transactions have not been questioned despite the fact that the group company has been searched accordingly since nothing has been brought on record to canvass that reasonable cause is not constituted and considering the judicial precedent cited the appeals of the assessee, I find have to be allowed.

Before parting it is necessary to address the decision of the Hon’ble Jharkhand High Court relied upon by the Revenue. On consideration thereof it is seen that on facts the said decision is entirely distinguishable as the cash in the facts therein had been obtained from 10 persons and not from identified assessee’s like sister concerns of the assessee as is a fact in the present proceedings.

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