TaxTMI 
TaxTMI 
2004 (3) TMI 398
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....nitially was in Venus Eye Vision Ltd., a flagship company of the group. A search under s. 132 of the Act was carried out on 11th Jan., 1996 to 13th Jan., 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 s. 158BC was framed on 21st Jan., 1997. During the course of block assessment proceedings, the AO noticed that on 11th Jan., 1996, the assessee had issued share capital of Rs. lakh 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 AO 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 were repaid in cash in excess of Rs. 20,000. According to the AO, this was in violation of s. 269SS and s. 269T. The AO referred the matter to the Dy. CIT, Range 1, Nashik, who issued show-cause notices on 10th April, 1997, to the assessee requiring it to explain as to why penalty under s. 271D for ....
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....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 were not aware of the fact that the alleged authorised share capital was to the extent of Rs. 1 lakh only. The parties from whom share application money were alleged to have been received were as under: Rs. (a) Shri Babulal R. Deshmukh 30,000 (b) Dr. Sharad Patil 4,22,500 (c) Shri Suresh R. Patil 30,000 (d) Shri Raghunath S. Patil 30,000 (e) Shri Suhas B. Barot 25,000 (f) Shri Vikas Damu Mahajan 30,000 (g) Shri Dilip Vitthal Mahajan 1,50,000 (h) Shri Ramesh Baliram Patil 95,000 (i) Shri Sunil Baliram Patil 90,000 (j) Shri Kisan B. Mhaske 40,000 (k) Venus Corneal 3,90,000 Amount claimed to be returned back: (a) Dr. Sharad R. Patil 3,90,000 Thus, the CIT opined that no enquiries/investigations were done by the Dy. CIT before dropping penalty proceedings. According to him, dropping of penalty....
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.... this observation itself leads to only a technical breach. It was contended that the assessee had accepted the money innocently and under bona fide belief that provisions of ss. 269SS and 269T were not applicable. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). It was also submitted by the assessee that the share application money was not accepted in cash deliberately. The assessee was under bona fide belief that provisions of ss. 269SS and 269T were not applicable in case of the transactions of share application money. Reliance was also placed on the decision of the Tribunal Bench in the case of Bombay Conductors & Electricals Ltd. vs. Dy. CIT (1996) 56 TTJ (Ahd) 580. Without prejudice to the above submissions, it was also submitted that the assessee-company had not allotted its shares and the money was kept as share application money pending allotment. It was stated that the assessee being a private limited company, there was no time-limit for allotment. In the assessment order, the AO has admitted that the amount so received by the assessee was share application money. In the au....
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.... proceedings were initiated by the Dy. CIT by notices dt. 10th April, 1997, and orders dropping the penalties were passed on 28th April, 1997, which was within six months of initiation of action for imposition of penalty. The CIT has also observed that in view of the provisions contained in sub-s. (ii) of cl. (a) of Explanation to sub-s. (1) of s. 263, the orders passed by the Dy. CIT (now Jt. CIT) in exercise of powers vested in him under the statute, such as powers under, ss. 271D, 271E, 271BB, etc., are also covered by the revisionary provisions of s. 263. He, therefore, rejected this contention of the assessee that the CIT has no power to revise the orders passed by the Dy. CIT (now Jt. CIT) under ss. 271D and 271E of the Act. The CIT has further observed that in the instant case the Dy. CIT has merely gone by what was stated by the assessee without subjecting such arguments to further scrutiny/enquiries. According to him, no evidence was produced by the assessee before the Dy. CIT to show that there was a reasonable cause within the meaning of s. 273B of the Act. It was also pointed out by the CIT that even if it is assumed that the transactions were genuine, still the provisi....
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....ny Law Board which could have enabled the assessee to call for applications for issue of further shares. He, therefore, took the view that the money received from the alleged subscribers can be considered as deposits and as such provisions of ss. 269SS and 269T were applicable. No further enquiry in this regard was done by the officer before dropping penalty proceedings. The CIT concluded that the amount received by the assessee in cash was designated as share application money; however, the amount in reality was deposit. As regards the amount of Rs. 3,90,000, the CIT directed the officer to verify the claim after proper enquiries whether the same was refund of advance made to Venus Corneal Research Centre Ltd. The CIT set aside the penalty orders under s. 271D passed by the Dy. CIT for asst. yrs. 1995-96 and 1996-97 and order under s. 271E for the asst. yr. 1996-97, and the matter was restored to the file of the Dy. CIT (now Jt. CIT) for passing fresh orders after making further enquiries and after following provisions of s. 273B of the Act. 5. Before us, Shri K.A. Sathe, the learned counsel for the assessee, reiterated the submissions made before the authorities below. He furth....
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....cepted by the Dy. CIT while dropping penalty proceedings. Therefore, it cannot be said that the order of the Dy. CIT dropping the penalty proceedings was erroneous and prejudicial to the interests of the Revenue. He also relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), wherein it has been held that "Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." Shri K.A. Sathe, the learned counsel for the assessee, submitted that in the instant case proper enquiries were made by the Dy. CIT and he had duly noted them. Otherwise also, the view taken by the Dy. CIT was based on the decision of the Tribunal, Jaipur Bench, in the case of Jagvijay Auto Finance (P) Ltd.. It w....
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....e interpretation of the AO with reference to the transactions involved, the Dy. CIT made no enquiry or effort to ascertain the true facts relating to these transactions. According to him, these transactions were examined only from the angle of cash credits at the level of the AO and that no examination was done as far as the provisions of ss. 271D and 271E are concerned. He also submitted that as per the balance sheet as on 31st March, 1993, the subscribed capital was Rs. 18,500 while share application money was Rs. 2,14,000. He further pointed out that the said balance sheet also shows that investment of Rs. 2,14,000 was made in Venus Eye Vision Ltd. It was also brought to our notice that as per balance sheet as on 31st March, 1994, the share application money was at Rs. 2,14,000 but subscribed capital increased to Rs. 92,500. According to the learned Departmental Representative, this fact alone shows that no shares were allotted from the pending share application money of Rs. 2,14,000 but that fresh inflow of funds was used for such allotment. This raises fundamental queries and doubts regarding the assessee's assertion that this money was indeed of the nature as it was purported....
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....e dropping the penalties had not made any enquiry to ascertain the exact nature of the transactions. He further submitted that merely the book entries are not sufficient to prove the nature of receipt or expenditure and that the same need to be substantiated. As regards the office note written by the Dy. CIT dropping the penalty proceedings, the learned Departmental Representative submitted that there is nothing to show that the Dy. CIT has gone into details of the case, studied the relevant records, examined the exact nature of the transactions or raised any query as to why the amounts were received in cash. It was submitted that the Dy. CIT has dropped the penalty proceedings merely on the basis of submissions given by the assessee and certain observations made by the AO during the course of assessment proceedings. In view of the above, it was submitted that the orders of the Dy. CIT dropping the penalties were erroneous and prejudicial to the interests of the Revenue and the CIT had rightly set aside the same. In the end, it was urged by the learned Departmental Representative that the order of the CIT may be upheld. Reliance was placed on the following decisions: (1) Maddi V....
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....and two instances in financial year 1995-96. It was also noticed that Rs. 3,90,000 were repaid in cash in excess of Rs. 20,000. The AO took the view that the assessee had contravened the provisions of ss. 269SS and 269T of the Act. The matter was referred to the Dy. CIT for imposing penalty under s. 271D and 271E of the Act. The Dy. CIT initiated the penalty proceedings under ss. 271D r/w s. 269SS for the asst. yrs. 1995-96 and 1996-97 and under s. 271E r/w s. 269T for the asst. yr. 1996-97. In response to the show-cause notice issued by the Dy. CIT, it was submitted that "The company had to raise the share capital and in the processes collected the share application moneys. The amount so collected has been duly accounted in the books under the account head namely 'share application money'." The assessee had also filed details of share applicants and the amounts paid by them in cash towards share application money. The assessee also submitted before the CIT that the amount received by the assessee was not accepted either as loan or deposit. We find that in support of the above contention, the assessee has also referred to the decision of the Jaipur Bench of the Tribunal in the case....
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....of a loan, it is the borrower who is the prime mover. The other and more important distinction is in relation to the obligation to return the amount so received. In the case of a deposit which is payable on demand, the deposit would become payable when a demand is made. In the case of a loan, however, the obligation to repay the amount arises immediately on receipt of the loan. It is possible that in case of deposits which are for a fixed period or loans which are for a fixed period, the point of repayment may arise in a different manner. But by and large, the transaction of a loan and the transaction of making a deposit are not always considered identical." As explained by the Supreme Court in the case of CIT vs. Bazpur Co-op. Sugar Factory Ltd., 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. The 'liability to return' the money taken or accepted by a person from the other may arise in or from transactions of various types and characters. But such transactions only which have the character of 'loan' or 'deposit' would attract the provisions of s. 269SS. In a case ....
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.... be made to him. The amount of Rs. 34,000 thus had no character of a 'loan' or 'deposit' on 20th Feb., 1990, when it was received in cash. It is the well-settled proposition of law that where the breach of a provision in a statute is to cast a penal liability on the subject such provision should be construed strictly. Keeping that principle in mind it cannot be said in this case that provisions contained in s. 269SS were violated when the assessee-company took or accepted an amount of Rs. 34,000 on 20th Feb., 1990, from Sri Sunil Kumar by way of application money for purchase of shares of the assessee-company. That being so, the assessee-company committed no default under s. 269SS so as to be liable for penalty under s. 271D. The penalty imposed upon the assessee has thus to be cancelled." From the above decision, it would be clear that provisions of s. 269SS are not applicable for accepting share application money. In the above case also, no shares could be allotted to Sri Sunil Kumar and the amount was subsequently transferred to loan account. In the said case, it has been held that if the basic character of a receipt of money in cash in the sum of Rs. 20,000 or more is not that....
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....and the CIT merely because he did not agree with the view could not use his powers under s. 263. The Tribunal has also considered the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT. In the instant case also, the view taken by the Dy. CIT was duly supported by the decision of the Jaipur Bench of the Tribunal in the case of Jagvijay Auto Finance (P) Ltd., referred to above. In the facts and circumstances of the present case, it cannot be said that the Dy. CIT has not applied his mind or no enquiries were made before passing the orders. The orders of the Dy. CIT cannot be held erroneous and prejudicial to the interests of the Revenue, merely on suspicion and vague terms that no enquiries were made by the Dy. CIT on his own. In the instant case, the parties have given the monies to the assessee-company fully knowing that the amounts were being given towards share application money and, therefore, there was no question of loan or deposit as held by the CIT. It is an admitted fact that the share application money was reflected in the balance sheets of the company relevant to the assessment years under consideration. In our considered view, a bala....
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.... of authorised share capital would automatically cease to be share application money". From the said observation, it can be safely inferred that the CIT himself accepted that the money originally received was share application money, but as the authorised share capital was less than the share application money so received, the same would cease to be share application money. In our view, if the initial character of the money received is accepted as towards share capital, then certainly the transaction would not come within the scope of s. 269SS of the Act. In such cases, we have to see the purpose of receipt of money which will show the character of transaction. In the instant case, the parties have confirmed having given the money toward share capital and the AO has accepted this position. At the same time, the accounts of the company were audited by the auditors of the company. Even the auditors have not given any adverse remarks regarding the basic character of receipt of the money. In other words, it was accepted that the money was received towards share capital. We may also add here that in the case of a deposit, delivery of money is usually at the instance of the giver and it....
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....he has filed written submissions vide letter dt. 16th April, 1997, which were discussed and kept on record. He was heard. It was submitted by the assessee's representative that the assessee is a private limited company and for the purpose of raising share capital, money was collected from various persons towards share application. This fact has been brought to the notice of the AO during the proceedings for block assessments and the AO has not disputed the fact that the money repaid in cash over Rs. 20,000 was out of money received towards share application. The assessee's representative submitted that repayment of money by way of cash over Rs. 20,000 was out of money received earlier towards share application money. Therefore, it was argued that the amount of cash so repaid by the assessee-company was neither a loan nor a deposit. The various arguments and submissions of the assessee's representative were carefully considered and examined. It is an undisputed fact that the amounts which were repaid were out of the share application money. Even the AO in his abovementioned reference has observed that the said amounts were out of share application money. In my opinion, the moment ....