Violation of Sec269SS

[Kshitiz Chhawchharia]

A Pvt ltd co. has taken more than than Rs 20000/- as share application money in Cash. Will this tantamount to violation of Sec269SS and penalty proceeding u/s271D be initiated?

[Mukesh Kumar]

Share application money as such can not be treated as loan or deposit which is subject to the provisions of section 269SS or 269T. The issue is not of law but of factual positions. If the company is able to provide the genuinness of share application money and prove the source of such receipt, AO can not treat the same as subject to the provisions of 269SS and can not initiate penalty proceedings u/s 271D. For more details, you may refer to the decision of Delhi High Court reported in : 2009 - TMI - 32262 - DELHI HIGH COURT on this website.

[DEV KUMAR KOTHARI]

It is advisable to avoid share applications with cash payment when share issue and colection of share applications is not through bankers. However, a share application money received in cash and followed by allotment, return of allotment, issue of share certificate can provide suffecient safeguard in context of different provisions like s.68, and S 269 SS. In case of cash received and then refund of share application money ( even by a/c payee cheque), the matter can be viewed with suspecion and doubt by the A.O. and the theory of share application can be rejected by the A.O. and he can treat the same as loan or deposit. Besides there should be easonable cause of accepting cash to provide another safeguard. Advise cleints to be careful and deal through a/c payee cheques as much as possible.

AI Summary

Company Faces Potential Penalty for Cash Share Application Money Under Section 269SS; Experts Advise Bank Transactions A private limited company received more than Rs 20,000 as share application money in cash, raising concerns about violating Section 269SS and potential penalty under Section 271D. One respondent explained that share application money is not considered a loan or deposit under these sections, provided the company can prove the genuineness and source of the funds. Another respondent advised against cash transactions for share applications, suggesting that doing so through bank channels is safer. They noted that cash transactions could be scrutinized by the Assessing Officer, who might classify them as loans or deposits, potentially leading to penalties.