TaxTMI 
TaxTMI 
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?
Violation of Sec269SS
12 Sep 2009 
2 Replies 
1502 Views Asked by
Share application money in cash risks recharacterisation as loan or deposit unless genuineness and source are proven.
Acceptance of share application money in cash is not per se a violation of the prohibition on cash receipts; the legal effect depends on factual proof of genuineness and source. Documentary and transactional safeguards-such as allotment, issuance of share certificates, and demonstrable source-support treatment as share capital rather than loan or deposit. Cash receipt followed by refund, inadequate explanation, or lack of reasonable cause exposes the receipt to recharacterisation and possible penalty. Advisable practice is to collect by account-payee cheques and preserve evidence to avoid adverse treatment. (AI Summary)
Acceptance of share application money in cash is not per se a violation of the prohibition on cash receipts; the legal effect depends on factual proof of genuineness and source. Documentary and transactional safeguards-such as allotment, issuance of share certificates, and demonstrable source-support treatment as share capital rather than loan or deposit. Cash receipt followed by refund, inadequate explanation, or lack of reasonable cause exposes the receipt to recharacterisation and possible penalty. Advisable practice is to collect by account-payee cheques and preserve evidence to avoid adverse treatment. (AI Summary)