TaxTMI 
TaxTMI 
2004 (3) TMI 384
X X X X Extracts X X X X
X X X X Extracts X X X X
....are the directors and promoters of the company. Substantial part of investment of the company initially was in Venus Eye Vision Ltd. a flagship company of the group. A search under section 182 of the Act was carried out on 11-1-1996 to 13-1-1996 at the business premises of Venus Eye Vision and Dr. Sharad Patil group. The assessee company was also covered in the search. In this case, block assessment under section 158BC was framed on 21-1-1997. During the course of block assessment proceeding, the Assessing Officer noticed that on 11-1-1996 the assessee had issued share capital of Rs, 1,00,000 and had received share application money pending allotment of Rs. 16,81,500, loans of Rs. 3,62,000 from Directors and Rs. 22,01,000 from friends and relatives. The Assessing Officer also noticed 11 instances of cash receipts above Rs. 20,000 towards share application money in financial year 1994-95 and two instances in financial year 1995-96. Thus the total came at Rs. 13,32,500; out of which, Rs. 3,90,000 was repaid in cash in excess of Rs. 20,000. According to the Assessing Officer, this was in violation of section 269SS and section 269T. The Assessing Officer referred the matter to the Dy. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the matter has not been enquired by the Dy. CIT. He further took the view that in any event the amount shown to be received in excess of the authorized share capital would automatically cease to be share application money and would assume the character of deposit. He had also noted that the amount was shown to have been received from close relatives of the directors or from companies in which the directors of the company or relatives of such directors were substantially interested. He also took the view that in such circumstances, it cannot be said that the persons allegedly remitting the money towards the share application money was not aware of the fact that the alleged authorized share capital was to the extent of Rs. 1 lakh only. The parties from whom share application money was alleged to have been received were as under: (a) Shri Babulal R. Deshmukh Rs. 30,000 (b) Dr. Sharad Patil Rs. 4,22,500 (c) Shri Suresh R. Patil ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions 271D and 271E after the date of completion of assessment were invalid as per section 275 of the Act. It was also claimed that in the instant case provisions of section 275(1)(c) were applicable for the purposes of limitation regarding imposition of penalty. The assessee also relied on Board's Circular No. 387, dated 6-7-1984 and Circular No. 345 dated 28-6-1982. It was also submitted that provisions of section 269SS of the Act are not applicable to the genuine and bona fide transactions. It was also submitted that the tax consultant of the assessee gave opinion that the transactions of acceptance of share application money in cash is outside the provisions of section 269SS of the Act. Alternatively, it was contended that even if it is assumed that the transactions of share application money are covered by the provisions of section 269SS of the Act, penalty under sections 271D and 271E was not leviable, since the assessee has, acted under bona fide belief on the basis of opinion of experts. As regards the contention of the CIT that the amount received in excess of authorized share capital would automatically cease to be share application money and would assume the character o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Hon'ble Supreme Court in the case of CIT v. Bazpur Co-op. Sugar Factory Ltd. [1988] 172 ITR 321. Alternatively, it was also contended by the assessee before the CIT that in the instant case there was a reasonable cause under section 273 of the Act and the matter should be seen from the angle of section 273B of the Act. As regards the receipt of money from M/s. Venus Corneal Research Centre Ltd. of Rs. 3,90,000 shown as share application money, it was submitted that the said amount was not share application money, but the same was refund of advance made to them. This refund was made by them. Accordingly, it was submitted that the amount cannot be held as repayment of deposit. In view of the above, it was submitted that proceedings initiated under section 263 of the Act may be dropped. 4. After considering the above submissions of the assessee, the CIT, vide para 7.1 of the order, held that he had power to revise orders passed by the Dy. CIT. He further held that in the instant case, the Dy. CIT had not made any enquiry. The assessee had also not produced any evidence before the Dy. CIT to establish that there was a reasonable cause for not complying with the prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the CIT that such a grievous error on the part of the Dy. CIT was likely to set a bad trend or pattern for similar such errors in future. He, therefore, held that such action of the Assessing Officer can be considered to be prejudicial to the interests of Revenue administration. It was one of the contentions of the assessee that as per the opinion given by the tax consultant, namely, Shri Mahesh Shah, C.A. the provisions of section 269SS are not applicable to the share application money. The CIT took a view that the said opinion was in the nature of self-serving evidence. While rejecting this contention of the assessee that the amount was received towards share application money, the CIT observed that in fact, no shares were allotted against the receipt of alleged share application money, part of which was returned after lapse of more than a year. According to him, there was no need to accept money more than the authorized capital if the transactions were really genuine. According to him, if the money was duly received in excess of the authorized share capital, the same should have been returned at the earliest opportunity. There was no authorized capital remaining to be subscri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epted share application money and on reaching the requisite target, it could have applied for increase in authorized capital by following the prescribed procedure. Accordingly, it was submitted that this genuine possibility was not considered by the CIT and he jumped to the conclusion that there was no share application money and it was loan or deposit only. The ld. counsel also submitted that the assessee-company was also planning to come out with own public issue and this must be one of the reasons for collecting share capital. It was contended that the authorized share capital of the company was to be increased only upon subscription of required capital mainly because to increase the authorized share capital, substantial fees is required to be paid to the Registrar of Companies. Meanwhile, there was a search under section 132 of the Act in the cases of Dr. Patil group including the company. For the said reason, the company could not come out with public issue. It was also brought to our notice that during the course of assessment proceedings, the Assessing Officer had made the necessary enquiries regarding the genuineness of the amounts received by the company. Statements of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court in the case of Bazpur Co-op. Sugar Factory Ltd. to the effect that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it is made on the fulfilment of certain conditions. According to him, at the time of acceptance of money, which is material for the purpose of section 269SS, there was no obligation to return the money. Reliance was also placed on the decision of this Bench of the Tribunal in the case of Jamnadas T. Mehta v. ITO [2002] 81 ITD 103 (Pune) (TM), wherein it has been held that the ambit of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. It was also held that the view taken by the Assessing Officer was a possible view. Shri K.A. Sathe, the Id. counsel for the assessee, submitted that in the instant case also the view taken by the Dy. CIT was a possible view, which was duly supported by the decision of the Jaipur Bench of the Tribunal referred to above. In fact, the Dy. CIT made necessary enquiries and after accepting the assessee's explanation dropped the penalty proceedings. In view of the above, it was submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ld. DR also submitted that it was one of the contentions of the ld. counsel for the assessee that if the company had recorded any transaction in the books of account and in the balance sheet as a transaction relating to share application money, the same was sufficient to prove that the amounts received were indeed share application money. If this contention of the ld. counsel is accepted, then the purpose of inserting sections 269SS and 269T is defeated as far as company cases are concerned, because the companies can accept the cash from different parties and record this in the books as share application money. It was also submitted that the decision of the ITAT, Jaipur Bench in the case of Jagvijay Auto Finance (P.) Ltd. relied upon by the ld. counsel for the assessee is not applicable to the facts of the present case. In the said case, there was no dispute regarding the nature of receipts. The ITAT Jaipur Bench was mainly concerned with the issue as to whether in a case where share application money was received by a company, the provisions of section 269SS would apply or not. The Tribunal held that in the case of share application money if the amounts were received in cash, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te that penalty orders or order dropping penalty proceedings can be subject-matter of revision under section 263 of the Act. It is the trite law that for assuming jurisdiction under section 263, the only requirement is that the CIT must consider that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The assessee-company was incorporated with the main object of carrying out business of the hire purchase and leasing etc. and to do the business of investment and holding company as envisaged in the Memorandum and Articles of Association of the Company. A search action under section 132 of the Act was carried out on 11-1-1996 to 13-1-1996 at the business premises of Venus Eye Vision Ltd. and Dr. Sharad Patil group. The assessee company was covered in the search. In this case assessment was framed under section 158BC vide order dated 21-1-1997. During the course of assessment proceedings, the Assessing Officer noticed that on 11-1-1996, the company had issued capital of Rs. 1 lakh and had received share application money of pending allotment of Rs. 16,81,500, loans of Rs. 3,62,000 from directors and of Rs. 22,01,000 from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ideration, in this case is whether the taking or accepting of the amount of Rs. 34,000 by the assessee company from Sri Sunil Kumar, admittedly by way of application money for purchase of the shares of the company, was of the character of 'loan' or 'deposit' contemplated in section 269SS. At page 5735 of Chaturvedi and Pithisaria's Income-tax Law, Fourth Edition, Vol. V, the meanings of the terms 'deposit' and 'loan' have been explained in the following manner: "Deposit" and "Loan" - These two are not identical in meaning. It is true that both in the case of a loan and in the case of a deposit there is a relationship of a debtor and a creditor between the party giving money and the party receiving money. But in the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money - the benefit normally being earning of interest from a party who customarily accepts deposits. Deposits could also be for safe keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 'deposit' at the time of taking or accepting the amount of the receipt by a company the provisions of section 269SS would not stand attracted. Our views, we think are fortified by the decisions of the Tribunal in the cases of Muthoot M. George Bankers v. ACIT [1993] 46 ITD 10 (Cochin), ITO v. Rajendra Trading Co. [1993] 48 ITD 210, Deccan Farms & Distilleries Ltd. v. Velabai Laxmidas Bhanji [1979] 49 Comp. Cas. 321 (Bom.) and Bazpur Co-op. Sugar Factory Ltd. In the instant case it is the admitted position that the amount of Rs. 34,000 was taken in cash on 20-2-1990 by the assessee-company from Shri Sunil Kumar by way of application money for the purchase of shares of the assessee-company. The said amount was deposited in bank on the same day and duly reflected to share application money account and cash book of the assessee-company. Since allotment of the shares could not be possible or made the said amount was transferred to the loan account of Sri Sunil Kumar. It may thus be noted that at the time of taking or accepting the amount of Rs. 34,000 on 20-2-1990 by the assessee company there was no obligation or liability on it to return the same to Sri Sunil Kumar as the same wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there was no obligation or liability on the assessee company to return the money to the parties. Similarly, till the date of allotment of the shares, there was no liability on the assessee company to return the amount in question. In the instant case, the Dy. CIT dropped the penalty proceedings mainly on the ground that there was no acceptance of loan or deposit. The above decision of the Jaipur Bench was referred to by the assessee before the Dy. CIT. After considering the explanation of the assessee, the Dy. CIT reached at the conclusion that in the instant case provision of sections 269SS and 269T were not attracted and, accordingly, he dropped the penalty proceedings. In view of the decision of the Jaipur Bench, it can be safely held that in the instant case also provisions of section 269SS are not applicable. At this juncture, we may also refer to the decision of this Bench of the Tribunal in the case of Jamnadas T. Mehta. In that case, the facts were almost similar. The Assessing Officer dropped the penalty proceedings under section 271(1)(c) of the Act, after being satisfied that the return was voluntarily filed by the assessee before detection of concealment. The CIT too....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the earliest opportunity, According to him, the assessee failed to do so. In our considered view, the CIT has lost sight of this vital fact that the assessee is a private limited company and one has to consider the genuine possibility that if it intended to expand its activity or wanted to go public, it could have accepted share application money and on reaching the requisite target, it could have applied for increase in authorized capital by following prescribed procedure. It seems that the CIT has without any basis held that the assessee company should not have accepted the money more than the authorized capital. Similarly, the CIT has also observed that the money received in excess of authorized share capital should have been returned at the earliest opportunity. These observations of the CIT are without any basis and not tenable. In the case of Jagvijay Auto Finance (P.) Ltd. also, shares were not allotted to Shri Sunil Kumar and the amount of Rs. 34,000 was transferred to the loan account of Shri Sunil Kumar. The Jaipur Bench of the Tribunal held that at the time of taking or accepting the amount of Rs. 34,000 on 20-2-1990 by the assessee company, there was no obligation or li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed under section 158BC read with section 143 of the Act. In view of the above, we are of the view that in the instant case provisions of section 271D read with section 269SS are not applicable. As regards the violation of provisions of section 269T, it was explained by the assessee that it had refunded a sum of Rs. 3,90,000 to Dr. Sharad R. Patil. It was also submitted that the payment constituted refund of share application money paid by him to the company. In fact, the assessee had received (Rs. 2,22,500 + Rs. 2,00,000) Rs. 4,22,500 from Dr. Sharad R. Patil towards share application money. The assessee company had refunded Rs. 3,90,000 out of the above amount. It seems that the Dy. CIT has verified this fact from the records and accepted the contention of the assessee. It is also noticed that the account extract of the said party was produced before the CIT. We also think it appropriate to reproduce the Office Note of the Dy. CIT, Range-1, Nashik dated 28-4-1997 (filed by the department) which reads as under: "Office Note: During the block assessment proceedings, the Assessing Officer noticed certain instances of cash repaid in excess of Rs. 20,000. He, therefore, vid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts of the present case. In that view of the matter, the CIT has committed glaring error of law directing the Dy. CIT (now Jt. CIT) to re-examine the issue. However, the CIT has not assigned any reason as to why this issue is required to be re-examined. On this score alone, the findings of the CIT are liable to be set aside. Furthermore, we have already held hereinabove that the Dy. CIT has already examined the issue and reached at the conclusion that the contention of the assessee was true and was supported by evidence. In that view of the matter also, the above direction of the CIT is not sustainable in law. Before parting with this case, we may also observe here that the CIT was of the view that the Dy. CIT has failed to ask for proof regarding reasonable cause for not following the provisions of sections 269SS and 269T as contemplated in section 273B of the Act. He further held that the assessee was required to prove that under what circumstances it had contravened the provisions of section 269SS of the Act. In our view, the above observations of the CIT are also without any basis; particularly when the basic issue before the Dy. CIT was that as to whether the provisions of ....