Share application money from directors may fall outside loan and deposit rules, with bona fide transactions protected by reasonable cause.

Cash received as share application money or share capital from directors was treated as distinct from a loan or deposit because there was no repayment obligation, interest, or other lending features. On that basis, section 269SS was not attracted and penalty under section 271D was not leviable. The commentary also notes that where the transactions were genuine, involved promoters or directors, and showed no tax-evasive intent, the bona fide nature of the receipt constituted reasonable cause under section 273B. In such circumstances, any procedural infraction was considered technical rather than mala fide, and the penalty cancellation was upheld.

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Issues: (i) Whether cash received as share application money or share capital from directors could be treated as loan or deposit so as to attract section 269SS and penalty under section 271D; (ii) Whether the assessee had reasonable cause under section 273B to escape penalty.

Issue (i): Whether cash received as share application money or share capital from directors could be treated as loan or deposit so as to attract section 269SS and penalty under section 271D.

Analysis: The amounts received were found to be share application money or share capital and not loans or deposits. No material showed any stipulation of repayment, interest, or other features ordinarily associated with a loan or deposit. The distinction between a loan and a deposit was applied, and the receipt of money for allotment of shares was treated as outside the scope of section 269SS. The reliance placed on the contrary view was held to be misplaced in the facts of the case.

Conclusion: Section 269SS was not attracted and penalty under section 271D was not leviable on this count.

Issue (ii): Whether the assessee had reasonable cause under section 273B to escape penalty.

Analysis: The transactions were genuine, involved promoters or directors, and were not shown to have any element of tax evasion or concealment. The statutory object of Chapter XXB was to counter cash transactions used to evade tax, and bona fide, genuine transactions were treated as constituting reasonable cause. On the facts, the infraction, if any, was technical and not attended by mala fides.

Conclusion: Reasonable cause was established and the penalty was not justified.

Final Conclusion: The penalty cancellation was upheld, and the revenue's appeal failed.

Ratio Decidendi: Cash received as genuine share application money or share capital, without characteristics of a loan or deposit, does not fall within section 269SS, and bona fide transactions lacking tax-evasive intent may be protected by section 273B.

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