Commissioner Of Income Tax, Central-Iii, Kolkata v. M/S. Vamshi Chemicals Ltd

O-28 ITA/68/2012 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE A.F.R. COMMISSIONER OF INCOME TAX, CENTRAL-III, KOLKATAVERSUSM/S. VAMSHI CHEMICALS LTD. BEFORE :THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIANDTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 6 May, 2024. Appearance:Mr. Om Narayan Rai, Adv.Mr. Prithu Dudheria, Adv.… for the appellant. 1.Heard Sri Om Narayan Rai,, learned senior standing counsel assisted bySri Prithu Dueheria, learned advocate for the appellant. None appears forthe respondent. 2.This appeal was admitted by this Court by order dated 25.6.2012 on the following substantial question of law: “Whether the Learned Tribunal below committed substantialerror of law in holding that the amount received on account ofshare application money and repayment of the same did notviolate the provisions of Sections 269SS and 269T of the Actrespectively attacking penalty under Sections 271D and 271Erespectively of the Act ?” 3.This appeal arises out the impugned order of the Income Tax AppellateTribunal, “E” Bench, Kolkata dated 12.01.2012 in ITA No.1940/Kol/2009(A.Y.2004-05), No.1941/Kol/2009 (A.Y.2005-06), No.1942/Kol/2009(A.Y.2006-07), No.1943/Kol/2009 (A.Y.2007-08), No.1952/Kol/2009(A.Y.2004-05), No.1953/Kol/2009 (A.Y.2005-06), No.1954/Kol/2009(A.Y.2006-07) and No.1955/Kol/2009 (A.Y.2007-08). All the above-notedeight appeals were filed by the assessee involving identical questionregarding levy of penalty under Sections 271D or Section 271E of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act, 1961’), whichhave been decided by the impugned common order of the ITAT.Tribunal, “E” Bench, Kolkata dated 12.01.2012 in ITA No.1940/Kol/2009(A.Y.2004-05), No.1941/Kol/2009 (A.Y.2005-06), No.1942/Kol/2009(A.Y.2006-07), No.1943/Kol/2009 (A.Y.2007-08), No.1952/Kol/2009(A.Y.2004-05), No.1953/Kol/2009 (A.Y.2005-06), No.1954/Kol/2009(A.Y.2006-07) and No.1955/Kol/2009 (A.Y.2007-08). All the above-notedeight appeals were filed by the assessee involving identical questionregarding levy of penalty under Sections 271D or Section 271E of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act, 1961’), whichhave been decided by the impugned common order of the ITAT. 4.Briefly stated facts of the present case are that during the assessmentyears in question, the respondent/assessee company received shareapplication money for preference shares amounting to Rs.20,000/- ormore from persons otherwise than by an account payee cheque or byaccount payee bank draft. The assessing officer issued a show causenotice for penalty under Section 271D/271E on the ground that theassessee has violated the provisions of Section 269SS. The AdditionalCommissioner imposed penalty under Section 271D for assessment years2005-06, 2006-07 and 2007-08 and also imposed penalty under Section271E of the Act, 1961 for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08. Aggrieved with the order of the CIT(A), the assessee filedeight appeals before Income Tax Appellate Tribunal, E Bench, Kolkata which has been allowed by the impugned order. Aggrieved with theimpugned order of the ITAT, the revenue has filed the present appeal. Discussion & Findings : 5.Before we proceed to examine the merits of the case, it would beappropriate to reproduce the relevant provisions of the Act, namely,Sections 269SS, 269T, 271D and 271E of the Act, 1961:appropriate to reproduce the relevant provisions of the Act, namely,Sections 269SS, 269T, 271D and 271E of the Act, 1961: “269SS.No person shall, after the 30th day of June, 1984, take oraccept from any other person (hereafter in this section referredto as the depositor),accept from any other person (hereafter in this section referredto as the depositor),any loan or deposit otherwise than by an account payee cheque or accountpayee bank draft if-payee bank draft if- (a) the amount of such loan or deposit or the aggregate amount ofloan and deposit; orloan and deposit; or Discussion & Findings : 5.Before we proceed to examine the merits of the case, it would beappropriate to reproduce the relevant provisions of the Act, namely,Sections 269SS, 269T, 271D and 271E of the Act, 1961:appropriate to reproduce the relevant provisions of the Act, namely,Sections 269SS, 269T, 271D and 271E of the Act, 1961: “269SS.No person shall, after the 30th day of June, 1984, take oraccept from any other person (hereafter in this section referredto as the depositor),accept from any other person (hereafter in this section referredto as the depositor),any loan or deposit otherwise than by an account payee cheque or accountpayee bank draft if-payee bank draft if- (a) the amount of such loan or deposit or the aggregate amount ofloan and deposit; orloan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loanor accepted earlier by taken such person from the deposit isremaining unpaid (whether repayment has fallen due or not), theamount or the aggregate amount remaining unpaid; oror accepted earlier by taken such person from the deposit isremaining unpaid (whether repayment has fallen due or not), theamount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a)together with the amount or the aggregate amount referred to inclausetogether with the amount or the aggregate amount referred to inclause is [twenty] thousand rupees or more: Provided that the provisions of this section shall not apply to any loan ordeposit taken or accepted from, or any loan or deposit taken or acceptedby.- (a) Government; (b) any banking company, post office savings bank or co-operativebank; (c) any corporation established by a Central, State or Provincial Act;d) any Government company25 as defined in section 617 of theCompanies Act, 1956 (1 of 1956); (e) such other institution, association or body or class of institutionsassociations or bodies which the Central Government may, for re sonsto be recorded in writing, notify in this behalf in the Official Gazette: [Provided further that the provisions of this section shall not apply to anyloan or deposit where the person from whom the loan ог and the person bywhom the loan or deposit is taken or accepted are both has deposit istaken or accepted agricultural income and neither of them has any incomechargeable to tax under this Act.] Explanation.- For the purposes of this section,- [(i) "banking company" means a company to which the BankingRegula- tion Act, 1949 (10 of 1949), applies and includes any bankor banking institution referred to in section 51 of that Act:]Regula- tion Act, 1949 (10 of 1949), applies and includes any bankor banking institution referred to in section 51 of that Act:] (ii) "co-operative bank" shall have the meaning assigned to it in Part Vof the Banking Regulation Act, 1949 (10 of 1949):of the Banking Regulation Act, 1949 (10 of 1949): (iii) "loan or deposit means loan or deposit of money.] 269T. No branch of a banking company or a co-operative bank and noother company or co-operative society and no firm or other personshall repay any loan or deposit made with it otherwise thanby an account payee cheque or account payee bank draftdrawn in the name of the person who has made the loan or depositif-other company or co-operative society and no firm or other personshall repay any loan or deposit made with it otherwise thanby an account payee cheque or account payee bank draftdrawn in the name of the person who has made the loan or depositif- (a) the amount of the loan or deposit together with the interest, if any,payable thereon, orpayable thereon, or (iii) "loan or deposit means loan or deposit of money.] 269T. No branch of a banking company or a co-operative bank and noother company or co-operative society and no firm or other personshall repay any loan or deposit made with it otherwise thanby an account payee cheque or account payee bank draftdrawn in the name of the person who has made the loan or depositif-other company or co-operative society and no firm or other personshall repay any loan or deposit made with it otherwise thanby an account payee cheque or account payee bank draftdrawn in the name of the person who has made the loan or depositif- (a) the amount of the loan or deposit together with the interest, if any,payable thereon, orpayable thereon, or (b) the aggregate amount of the loans or deposits held by such person withthe branch of the banking company or co-operative bank or, as thecase may be, the other company or co-operative society or the firm, orother person either in his own name or jointly with any other person onthe date of such repayment together with the interest, if any, payableon such loans or deposits,the branch of the banking company or co-operative bank or, as thecase may be, the other company or co-operative society or the firm, orother person either in his own name or jointly with any other person onthe date of such repayment together with the interest, if any, payableon such loans or deposits, is twenty thousand rupees or more: Provided that where the repayment is by a branch of a banking companyor co-operative bank, such repayment may also be made by crediting theamount of such loan or deposit to the savings bank account or the currentaccount (if any) with such branch of the person to whom such loan ordeposit has to be repaid: Provided further that nothing contained in this section shall apply torepayment of any loan or deposit taken or accepted from- (i) Government; (ii) any banking company, post office savings bank or co-operative bank; (iii) any corporation established by a Central, State or Provincial Act; (iv) any Government company as defined in section 617 of the CompaniesAct, 1956 (1 of 1956);Act, 1956 (1 of 1956); (v) such other institution, association or body or class of institutions,associations or bodies which the Central Government may, b reasons tobe recorded in writing, notify in this behalf in the Official Gazette.]associations or bodies which the Central Government may, b reasons tobe recorded in writing, notify in this behalf in the Official Gazette.] Explanation. For the purposes of this section,- (i) "banking company" shall have the meaning assigned to it in clause( of the Explanation to section 269SS;( of the Explanation to section 269SS; (ii) "co-operative bank" shall have the meaning assigned to it in Part Vof the Banking Regulation Act, 1949 (10 of 1949);of the Banking Regulation Act, 1949 (10 of 1949); (iii) "loan or deposit means any loan or deposit of money whichis repayable after notice or repayable after a period and,in the case of a person other than a company, includesloan or deposit of any nature)is repayable after notice or repayable after a period and,in the case of a person other than a company, includesloan or deposit of any nature) 271D. [(1) If a person takes or accepts any loan or deposit incontravention of the provisions of section 269SS, he shall beliable to pay, by way of penalty, a sum equal to the amount of the loanor deposit so taken or accepted.]contravention of the provisions of section 269SS, he shall beliable to pay, by way of penalty, a sum equal to the amount of the loanor deposit so taken or accepted.] (2) Any penalty imposable under sub-section (1) shall be imposed bythe [Joint] Commissioner.]the [Joint] Commissioner.] 271D. [(1) If a person takes or accepts any loan or deposit incontravention of the provisions of section 269SS, he shall beliable to pay, by way of penalty, a sum equal to the amount of the loanor deposit so taken or accepted.]contravention of the provisions of section 269SS, he shall beliable to pay, by way of penalty, a sum equal to the amount of the loanor deposit so taken or accepted.] (2) Any penalty imposable under sub-section (1) shall be imposed bythe [Joint] Commissioner.]the [Joint] Commissioner.] 271E. [(1) If a person repays any [loan or] deposit referred to in section269T 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 amountof the [loan or] deposit so repaid.]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 amountof the [loan or] deposit so repaid.] [(2) Any penalty imposable under sub-section (1) shall be imposed bythe [Joint] Commissioner.]”the [Joint] Commissioner.]” 6.The object of Section 269SS has been well explained by the Hon’ble Supreme Court in the case of Assistant Director of Inspection Investigation Vs. A. B. Shanthi (2002) 6 SCC 259 (paragraphs 8 and 10),as under : “8. The contention of the appellant’s counsel has no force.The object of introducing Section 269SS is toensure that a taxpayer is not allowed to give falseexplanation for his unaccounted money, or if hehas given some false entries in his accounts, heshall not escape by giving false explanation for thesame. During search and seizures, unaccounted moneyis unearthed and the taxpayer would usually give theexplanation that he had borrowed or received depositsfrom his relatives or friends and it is easy for the socalled lender also to manipulate his records later to suitthe plea of the tax payer. The main object of Section269SS was to curb this menace. As regards the taxlegislations, it is a policy matter, and it is for Parliamentto decide in which manner the legislation should bemade. Of course, it should stand the test of constitutionalvalidity.The object of introducing Section 269SS is toensure that a taxpayer is not allowed to give falseexplanation for his unaccounted money, or if hehas given some false entries in his accounts, heshall not escape by giving false explanation for thesame. During search and seizures, unaccounted moneyis unearthed and the taxpayer would usually give theexplanation that he had borrowed or received depositsfrom his relatives or friends and it is easy for the socalled lender also to manipulate his records later to suitthe plea of the tax payer. The main object of Section269SS was to curb this menace. As regards the taxlegislations, it is a policy matter, and it is for Parliamentto decide in which manner the legislation should bemade. Of course, it should stand the test of constitutionalvalidity. * * * * * * * * 10. The above dictum applies in full force as regards thepresent case. The object sought to be achieved was toeradicate the evil practice of making of falseentries in the account books and later givingexplanation for the same. To a great extent, theproblem could be solved by the impugned provision.”present case. The object sought to be achieved was toeradicate the evil practice of making of falseentries in the account books and later givingexplanation for the same. To a great extent, theproblem could be solved by the impugned provision.” 7.Section 269SS prohibits any person to take or accept from any otherperson any loan or deposit otherwise than by an account payee cheque orperson any loan or deposit otherwise than by an account payee cheque or by account payee bank draft, if the amount or aggregate amount referredto in clause (a) together with the amount or the aggregate amount referredto in clause (b) is twenty thousand rupees or more. If a person violatesSection 269SS then he is liable to penalty under Section 271D of the Act. 7.Section 269SS prohibits any person to take or accept from any otherperson any loan or deposit otherwise than by an account payee cheque orperson any loan or deposit otherwise than by an account payee cheque or by account payee bank draft, if the amount or aggregate amount referredto in clause (a) together with the amount or the aggregate amount referredto in clause (b) is twenty thousand rupees or more. If a person violatesSection 269SS then he is liable to penalty under Section 271D of the Act. 8.Section 269T provides that no branch of a banking company or a co-operative bank and no other company or co-operative society and no firmor other person shall repay any loan or deposit made with it otherwisethan by an account payee cheque or by account payee bank draftdrawn in the name of the person who has made the loan or deposittogether with interest, if it exceeds rupees twenty thousand. Explanation-(iii) to Section 269T defines the words “loan or deposit” to mean any loanor deposit of money which is repayable after notice or repayable after aperiod and, in the case of a person other than a company, include loan ordeposit of any nature. 9.The main controversy involved in the present appeal is as to whethershare application money received by the respondent/assessee and itsrepayment in excess of Rs.20,000/- otherwise than by way of an accountpayee cheque or by account payee bank draft would fall within the phrase“loan or deposit”. 10.In the Concise Oxford English Dictionary (South Asia Edition), (12[th]Edition) the word “loan” has been defined as “a thing that is borrowed,especially a sum of money that is expected to be paid back with interest.” As per New International Webster’s Comprehensive Dictionary(Delux Encyclopaedic Edition) “loan” means “something lent, especially a sumof money lent at interest”. According to the Concise Oxford English Dictionary, (South Asia Edition),“deposit” means “1.a sum of moneyplaced in a bank or other account; 2.a sum payable as a first instalmentor as a pledge, a returnable sum paid to cover possible loss or damage.” Inthe aforesaid Webster’s Comprehensive Dictionary, the meaning of theword “deposit” is ‘1. To give in trust or for safekeeping, 2. To give as partpayment or as security,” 11.In Commissioner of Income Tax Vs. Bazpur Cooperative Sugar Factory Ltd.,(1988) 3 SCC 553 (para 15) the Hon’ble Supreme Court has held that theessence of ‘deposit’ is that there must be a liability to return it to the partyby whom and on whose behalf it is made on the fulfilment of certainconditions. In Keshavlal Kemchand and Sons Pvt. Ltd. Vs. Union of India(2015) 4 SCC 770 (para 29) the Hon’ble Supreme Court has held that theexpression ‘loan’ is the act of advancing money by one person to anotherunder an agreement by which the recipient of money agrees to repay theamount on agreed terms. 12.We find that the words loan or deposit has been defined in Explanation-(iii) to Section 269T which is not an expansive definition. It provides that“loan or deposit” mean any loan or deposit of money which is repayableafter notice or repayable after a period and, in case of a person other than(iii) to Section 269T which is not an expansive definition. It provides that“loan or deposit” mean any loan or deposit of money which is repayableafter notice or repayable after a period and, in case of a person other than a company including loan or deposit of any nature. Share applicationmoney is neither repayable after notice nor repayable after a period. It isfor participation in the capital of the company. Therefore, neither as perthe definition of the words “loan or deposit” as given in the Explanation-(iii) to Section 269T of the Act, 1961 nor in ordinary sense, shareapplication money can be said to be a loan or deposit. Once shareapplication money is neither loan nor deposit, then neither Section 269SSnor 269T shall attract. Consequently, no penalty either under Section271D or under Section 271E could be imposed. a company including loan or deposit of any nature. Share applicationmoney is neither repayable after notice nor repayable after a period. It isfor participation in the capital of the company. Therefore, neither as perthe definition of the words “loan or deposit” as given in the Explanation-(iii) to Section 269T of the Act, 1961 nor in ordinary sense, shareapplication money can be said to be a loan or deposit. Once shareapplication money is neither loan nor deposit, then neither Section 269SSnor 269T shall attract. Consequently, no penalty either under Section271D or under Section 271E could be imposed. 13.In case of loan it is ordinarily the duty of the debtor to seek the creditorand to repay the money according to the agreement. In other words, aloan grants temporary use of money or temporary accommodation oncertain conditions. Thus loan is an act of advancing money by one personto another under an agreement by which the recipient of money agrees torepay the amount on agreed terms. In case of a deposit, it is generallythe duty of the depositor to go to the banker or to the depositee, as thecase may be, and make a demand for it. The essence of a deposit is thatthere must be a liability to return it to the party by whom or on whosebehalf deposit has been accepted on fulfilment of certain conditions.Share application money is for participation in capital of a companywhich is neither a loan nor a deposit. Once the share applicationmoney is neither a loan nor deposit, the provisions of Section 269SS or 269T shall not attract. Consequently, no penalty under Section 271D or271E of the Act, 1961, as the case may be, could be imposed. The ITAThas referred to several judgments of different High Courts and took a viewthat share application money or its repayment is neither a loan nor adeposit and as such, provisions of Section 269SS or 269T are notattracted and consequently no penalty could be imposed under Sections271D or 271E. Looking into the object and purpose of Section 269SS and269T of the Act, 1961 read with the Explanation defining the words “loanand deposit”, the share application money can neither be said to be loannor a deposit, and accordingly, the provisions of Section 269SS or Section269T or the consequential penalty provisions under Sections 271D orSection 271E shall have no application on facts and circumstances of thepresent case. Thus, we do not find any illegality in the impugned order ofthe Tribunal. 14.For all the reasons afore-stated, we do not find any merit in this appeal.Consequently, the appeal (ITA/68/2012) is dismissed and substantialquestion of law is answered in negative i.e., in favour of the assessee andagainst the revenue.Consequently, the appeal (ITA/68/2012) is dismissed and substantialquestion of law is answered in negative i.e., in favour of the assessee andagainst the revenue. (SURYA PRAKASH KESARWANI, J.) I agree. As (RAJARSHI BHARADWAJ, J.)