Commissioner Of Income-Tax, Coimbatore v. M/S.rugmini Ram Ragav Spinners P Ltd.,Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.07.2007 CORAM : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.274 of 2004 Commissioner of Income-tax, Coimbatore. Vs. .. Appellant M/s.Rugmini Ram Ragav Spinners P Ltd.,Coimbatore. .. Respondent Appeal under Section 260A of the Income-tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Bench 'A', Madrasin I.T.A. No.1195(Mds)/94 dated 18.06.2003 for the assessment year1990-91 against the order of the Commissioner of Income Tax,Appeals Coimbatore for the assessment year of 1990-91 in I.T.Appeal No.900-C/93-94 dated 16.2.1994 and against the Assessmentorder of the Assistant Commissioner of Income Tax, Cent. Circle I,Coimbatore in PAN/GIR- CN-0982/ Cent. Circle-I, Coimbatore dated1.3.1993 respectively. For Appellant :Mr.N.Muralikumaran, Sr.Standing Counsel forIncome-tax Department For Respondent : Mr.N.Muthukumar JUDGMENT (Judgment of the Court was delivered byP.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 AppellateTribunal, Bench 'A', Madras in I.T.A. No.1195(Mds)/94 dated18.06.2003. On 22.06.2004, this Court admitted the appeal andformulated the following substantial questions of law:- "1. Whether in the facts and under thecircumstances of the case, the AppellateTribunal was right in holding that cashpayments made by the assessee pertains to https://hcservices.ecourts.gov.in/hcservices/ refund of share application money and notrepayment of deposit or loan?2. Whether in the facts and under thecircumstances of the case, the AppellateTribunal was right in holding that penaltyunder Section 271E is not leviable?" 2.The facts leading to the above substantial questions oflaw are as under:- The assessee is closely-held company in which the public arenot substantially interested. The relevant assessment year is1990-91 and the corresponding accounting year ended on 31.03.1990.The assessee filed its Return of income on 31.12.1990 admitting atotal income of Rs.5,59,760/-. Later, notice under Section 143(2)of the Income-tax Act ("Act" in short) was issued and subsequentlythe assessment was completed under Section 143(3) of the Actdetermining the total income at Rs.24,23,910/-. During the yearof account, the assessee had repaid some of the share applicationmoney which it had received earlier in cash contravening theprovisions under Section 271E of the Act. Hence, the AssessingOfficer initiated penalty proceedings under Section 271E andlevied a penalty of Rs.5,90,416/-. Aggrieved by the order, theassessee filed an appeal to the Commissioner of Income-tax(Appeals) ("CIT(A)" in short). The CIT(A) allowed the appeal anddeleted the penalty levied under Section 271E of the Act.Aggrieved, the Revenue filed an appeal to the Income-tax AppellateTribunal ("Tribunal" in short). The Tribunal dismissed theRevenue's appeal and confirmed the order of the CIT(A). Hence thepresent tax case by the Revenue. 3.Learned Senior Standing Counsel appearing for the Revenuesubmitted that the provisions are mandatory and hence there is nomens rea or evasion of tax needs to be proved before penalty isimposed. Further, it is submitted that the Tribunal has failed tonote that the assessee did not have "reasonable cause" forrepaying the share application money in cash and hence, levy ofpenalty under Section 271E is automatic in cases of not complyingwith the provisions of Section 269T. Further it is contended thatthe assessee had availed the loan and had repaid the same in cashunder the guise of refund of share application money. Hence thelevying of penalty by the Assessing Officer is justified. 3.Learned Senior Standing Counsel appearing for the Revenuesubmitted that the provisions are mandatory and hence there is nomens rea or evasion of tax needs to be proved before penalty isimposed. Further, it is submitted that the Tribunal has failed tonote that the assessee did not have "reasonable cause" forrepaying the share application money in cash and hence, levy ofpenalty under Section 271E is automatic in cases of not complyingwith the provisions of Section 269T. Further it is contended thatthe assessee had availed the loan and had repaid the same in cashunder the guise of refund of share application money. Hence thelevying of penalty by the Assessing Officer is justified. 4.Learned counsel appearing for the assessee submitted thatthat there is no repayment of loan involved in the present caseand that the assessee has only returned the share applicationmoney. Hence there is no violation of provision of Section 269Tof the Act by the assessee and therefore, the assessee is notsubject to levy of penalty under Section 271E of the Act. 5.Heard the counsel. The assessee had received cash over a https://hcservices.ecourts.gov.in/hcservices/ period of time, as advance towards allotment of shares from 16persons without stipulating any time frame towards return / refundof money without interest, in case of non-allotment of shareseither fully or partly. In this case, the money retained by thecompany was neither deposit nor loan, but it is only share capitaladvance. Penalty under Section 271E is not automatic and to belevied only in the absence of a reasonable cause. No doubt areasonable cause has to be established by the assessee. Therationale behind the provisions of Section 269SS and 269T is toprevent tax evasion, i.e., the laundering of concealed income byparties in the guise of cash loans or deposits in or outside theaccounts. The provision of Section 269SS and 269T therefore haveapplication only in a limited way in respect of deposits or loans.When it is neither deposit nor loan, the provisions of Sections269SS and 269T have no application at all. Even if there isrepayment by cash it could not be said to attract the levy ofpenalty automatically, under Section 271E of the Act. Theadvances of share application money or repayments of such advanceshave not flowed from any undisclosed income of the assessee or theconcerned persons. It is also seen from the records that assesseehad not paid any interest at all on any of the advances repaidafter quite some time. If the intention was to receive them asloans or deposits, then certainly the lenders would not have madethe advances gratuitously. It is also a factual finding given bythe authorities below that the assessee was not called upon toexplain the default under Section 269SS on receipt of the advancesin earlier years, which would show that the assessee's case wasnot governed by the said provisions. Penalty under Section 271Eis not automatic, and a bona fide belief to the effect that thereceipt of advances against allotment of shares would not betermed as loans or deposits, would be sufficient to drop thepenalty leviable, unless and until the material on recordpositively shows that money received is only a deposit or loan.There is no dispute that the impugned advances were only againstallotment of shares and not by way of loans or deposits. Theauthorities below have given a factual finding to the effect thatit is not a deposit or loan. The Tribunal, in Paragraph-3 of itsorder, held as under:- "The Departmental Representative could notbring on record any material that would go toshow that the assessee in fact wanted only loanor deposit but tried to show them as shareapplication money. Merely for the reason thatsome of the applications were rejected and insome of the applications the share allotmentswere not in full, it cannot be taken to meanthat it was not share application money.Upholding the order of the CIT(A) the appeal bythe Revenue is dismissed." Hence the factual finding by the authorities below is that theamount received is not a deposit or loan, but it is only shareapplication money, and the same is based on valid materials andevidence. The relevant provisions of law are Sections 269T, 271D,271E and 273B of the Act. In the present case, the AssessingOfficer levied penalty under Section 271E deals with 'penalty forfailure to comply with the provisions of section 269T'. Section271E, as on the relevant period, reads as follows:- "271E. (1) If a person repays any depositreferred to in section 269T otherwise than inaccordance with the provisions of that section,he shall be liable to pay, by way of penalty, asum equal to the amount of the deposit sorepaid.(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 repaysany deposit referred to in Section 269T otherwise than inaccordance with the provisions of that Section, he shall besubjected to levy of penalty. Section 269T deals with 'mode ofrepayment of certain deposits'. Section 269T, as on the relevantperiod, reads as follows:-"269T.(1) No company (including a bankingcompany), co-operative society or firm shallrepay to any person any deposit otherwise thanby an account payee cheque or account payeebank draft where the amount of the deposit, orwhere the amount of the deposit is to be repaidtogether with any interest, the aggregate ofthe amount of the deposit and such interest, isten thousand rupees or more: Provided that where the repayment is by abanking company or co-operative bank, suchrepayment may also be made by crediting theamount of such deposit to the account (if any)with such company or bank of the person to whomsuch deposit has to be repaid:Provided further that nothing in this sub-section shall apply to or in relation to therepayment of any deposit on or after the dateon which the Income-tax (Second Amendment) Act,1981, receives the assent of the President.(2) No branch of a banking company or aco-operative bank and no other company or co-operative society and no firm or other personshall repay any deposit made with it otherwisethan by an account payee cheque or accountpayee bank draft drawn in the name of theperson who has made the deposit if-(a) the amount of the deposit togetherwith interest, if any, payable thereon, or (b) the aggregate amount of deposits heldby such person with the branch of the bankingcompany or co-operative bank or, as the casemay be, the other company or co-operativesociety or the firm, either in his own name orjointly with any other person on the date ofsuch repayment together with the interest, ifany, payable on such deposits, is twenty thousand rupees or more: (b) the aggregate amount of deposits heldby such person with the branch of the bankingcompany or co-operative bank or, as the casemay be, the other company or co-operativesociety or the firm, either in his own name orjointly with any other person on the date ofsuch repayment together with the interest, ifany, payable on such deposits, is twenty thousand rupees or more: Provided that where the repayment is by abranch of a banking company or co-operativebank, such repayment may also be made bycrediting the amount of such deposit to thesavings bank account or the current account (ifany) with such branch of the person to whomsuch deposit has to be repaid:Provided further that nothing in this sub-section shall apply to or in relation to therepayment of any deposit before the date onwhich the Income-tax (Second Amendment) Act,1981, receives the assent of the President."The above section provides that no branch of a banking company,co-operative bank and no other company or co-operative society orpartnership firm or other person, can repay any deposit made withsuch entity otherwise than by an account payee cheque or anaccount payee draft drawn in the name of the person who has madethe deposit. The specific word used in the provision is 'deposit'.In this case, the finding is that there is no deposit. Section273B of the Act deals with 'penalty not to be imposed in certaincases'. Section 273B, as on the relevant period, reads as under:-"273B. Notwithstanding anything contained inthe 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 beimposable on the person or the assessee, as thecase may be, for any failure referred to in thesaid provisions if he proves that there wasreasonable cause for the said failure."The above section provides that if the assessee proves that thereis a reasonable cause, he is not subject to levy of penalty. Thecase of the assessee is that, the amount received by the assesseeis only for the purpose of allotment of shares and it is not adeposit or loan. In this case, the reasonable cause is that theassessee was under the bona fide belief that the money received isonly for the purpose of allotment of shares. Also, there is no https://hcservices.ecourts.gov.in/hcservices/ material or evidence or any compelling reason produced by theRevenue to prove that the money received is a deposit or loan.The first appellate authority as well as the Tribunal have come toa correct conclusion after accepting the explanation offered bythe assessee. It is a question of fact and the order of theTribunal is not a perverse one. The concurrent finding given byboth the authorities below is based on valid materials andevidence. In the case of Commissioner of Income-tax Vs.P.Mohanakala [2007] 291 ITR 278 (SC), the Supreme Court held thatwhenever there is a concurrent finding by the authorities below,no interference should be called for by the High Court. Underthese circumstances, we do not find any error or legal infirmityin the order of the Tribunal so as to warrant interference. 6.In view of the foregoing reasons, we answer the questionsin favour of the assessee and against the Revenue. Accordingly,the tax case is dismissed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.kmTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Bench 'A', Madras.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income-tax (Appeals), Coimbatore.4. The Assistant Commissioner of Income-tax, Central Circle-I, Coimbatore. 1 cc to Mr.N. Muralikumaran, Advocate, sr. 42542 6.In view of the foregoing reasons, we answer the questionsin favour of the assessee and against the Revenue. Accordingly,the tax case is dismissed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.kmTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Bench 'A', Madras.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income-tax (Appeals), Coimbatore.4. The Assistant Commissioner of Income-tax, Central Circle-I, Coimbatore. 1 cc to Mr.N. Muralikumaran, Advocate, sr. 42542 1 cc to M/s. Dr. Anita Sumanth, Advocate, sr. 42816 T.C.(A) No.274 of 2004 AD (CO)kk 6/8 https://hcservices.ecourts.gov.in/hcservices/