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TaxTMI 
TaxTMI 
TaxTMI 
2012 (2) TMI 355
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....eet Diwan & Mrs Urmil Diwan - promoter directors) by way of unsecured loans. What is significant is that, out of the said amount of Rs. 66.50 lakhs, a sum of Rs. 23.25 lakhs was received by the assessee from the said three persons (Mr Rajinder Diwan - Rs. 5,00,000/-, Mr Puneet Diwan - Rs. 9,95,000/- & Mrs Urmil Diwan - Rs. 8,30,000/-) in cash / bearer cheques in excess of the limit of Rs. 20,000/- laid down in section 269SS of the Income Tax Act, 1961 (hereinafter referred to as 'the said Act'). Inasmuch as the Assessing Officer felt that loans to the extent of Rs. 23.25 lakhs had been received and accepted by the assessee company in a manner prohibited by section 269SS of the said Act, he initiated penalty proceedings under section 271D of the said Act. 4. In the penalty proceedings, it was submitted on behalf of the assessee company that a hotel was being set up by it at Shimla and for the purpose of construction of the said hotel, funds were contributed by its directors / shareholders in the form of loans, as and when required. It was also submitted that the said amount was actually contributed by them towards share capital and the same being in the nature of share capital mone....
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....submissions made on behalf of the assessee company, however, did not find favour with the CIT (A) and he confirmed the penalty imposed by the Assessing Officer under section 271D. The CIT (A), inter alia, held that no evidence had been produced to show that the said sum had been received as share application money. According to the CIT (A), the story of share application money was an after-thought, once the assessee realized that the unsecured loans taken in cash / bearer cheques clearly violated section 269SS of the said Act. 6. Thereafter, the assessee preferred the appeal before the Tribunal which culminated in the order dated 29.07.2005 which is impugned before us by the revenue. 7. Before the Tribunal, the assessee raised the plea that the amounts in question were actually contributed by the concerned directors/ shareholders of the assessee company towards share application money and that such amounts having been finally adjusted against the share capital subsequently in the year 2003, the provisions of section 269SS were not attracted. But, this plea was rejected by the Tribunal inasmuch as it was of the view that, as the authorized share capital of the assessee company dur....
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....na fide belief coupled with the fact that the said loans were genuine and were also accepted in the regular course of business constituted a reasonable cause for its failure to accept the loans in question from its directors shareholders by account payee cheque/ drafts in compliance with the requirement of section 269SS. In that view of the matter, we find no justification in the impugned order of learned CIT(A) confirming the penalty imposed by the Assessing Officer u/s 271D and reversing the same, we cancel the penalty so imposed." (emphasis supplied) 10. It is in this backdrop that the question posed has arisen in this appeal under section 260A of the said Act. The learned counsel for the revenue contended that there was a clear violation of the provisions of section 269SS inasmuch as loans had been accepted in excess of the sum of rupees twenty thousand in cash/ bearer cheques whereas the said provision strictly required the same to be through account payee cheques or account payee bank drafts. It was contended that the Tribunal misdirected itself in law in construing the action on the part of the assessee company to be bona fide and/or to be excusable under the "reasonable c....
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....aving agricultural income and neither of them has any income chargeable to tax under this Act. Explanation.--For the purposes of this section,-- (i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act ; (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (iii) "loan or deposit" means loan or deposit of money." "271D. Penalty for failure to comply with the provisions of section 269SS.-- (1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner." "273B. Penalty not to be imposed in certain cases.-- Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271B, section 271BB, section 271C, section 271D, section 271E, section 271F, clause (c) or clause (d) of subs....
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....r that the story of share application money was itself an after thought and was rightly rejected by all the authorities below. At the same time, there was no belief what to speak of "bona fide belief" that the loans taken from directors/ shareholders were not within the ambit of section 269SS. 14. This is the appropriate point to refer to the Madras High Court decision in Idhayam Publications (supra), a decision relied upon by the learned counsel for the assessee. In that decision, the Madras High Court observed as under:- "Companies (Acceptance of Deposits) Rules, 1975, under rule 2(b)(ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore the transaction between the appellant and the director cum shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction." 15. In the case at hand, as already pointed out above, the stand of the assessee was entirely different. It had contended that the amounts in question represented share application money. In any event, Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 would have....
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....ing contained in the provisions of section 271D, no penalty shall be imposable on the assessee for any failure referred to in section 271D if he proves that there was "reasonable cause" for the said failure. 20. The Supreme Court in Asst. Director of Inspection (Investigation) v. Kum. A.B. Shanthi: 255 ITR 258 (SC), while upholding the constitutional validity of sections 269SS and 271D, held as under: "The new section 271D provides only for fine equal to the amount of loan or deposit taken or accepted. It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona....