TaxTMI 
TaxTMI 
2015 (12) TMI 1074
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....ion of the JCIT/CIT(A) in imposing/upholding the penalties under section 271D of the Income Tax Act, 1961 on the ground that the amount was received in the current account, even though the section itself does not provide any exception that the loan or deposit received in the current account of the assessee would be exempt from the provisions of Section 269SS of the Act? ii) In the facts and circumstances of the case, whether the ITAT was right in holding that receipt of share application money in cash would be exempt from the provisions of section 269SS? iii) In the facts and circumstances of the case, whether the ITAT was right in treating the amounts received in cash over a period of 6 years, without allotment of shares, as share application money? iv) In the facts and circumstances of the case, whether the ITAT was right in holding that there was reasonable cause for receipt of cash by the assessee company from the directors, even though cash was received regularly and on consecutive dates and of large sums and both the payers and the receiver had bank accounts in the same city? 3. A few facts relevant for the decision of the controversy involved as narrated in the appeal....
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....stock, bonds or debentures such bonds or debentures as are covered by sub clause (x) pending the allotment of the said shares, stock,bonds or debentures and any amount received by way of calls in advance on shares, in accordance with the articles of Association of the company so long as such amount is not repayable to the members under the articles of Association of the company; (viii) xxxxx xx xx xx x x (ix) any amount received by a private company from a person who, at the time of the receipt of the amount,was a director, relative of director or member: Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others; Explanation - For the removal of doubts, it is hereby declared that any deposit received or renewed by a company before the commencement of the Companies (Acceptance of Deposits) Amendment Rules, 1978 shall continue to be governed by the rules applicable at the time of such deposit or renewal as the case may be." Section 269SS of the Act ....
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....le 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." 7. In order to impose penalty under section 271D of the Act, the revenue has to establish that what was received by the assessee, was a loan or deposit within the meaning of section 269SS of the Act. Under Rule 2(b) (ix) of the Rules, deposit does not include any amount received from a director, relative of director or member of a private limited company. The assessee company in the present case was constructing a hotel and loan had not been sanctioned by the financial institutions and banks. The assessee company received money from its directors for construction of hotel which had been transferred at the end of the every year to share application account i.e. current account which cannot be called loan or deposit. The Assessing officer held that the assessee had taken the loan in cash in the garb of share application money in violation of Sections 269SS of the Act and was liable to penalty under Section 271D of the Act. The CIT(A) while concurring with the findings recorded by the Assess....
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....earned counsel for the respondent-assessee. In CIT vs. Rugmini Ram Ragav Spinners P. Limited, (2008) 304 ITR 417 (Mad.), the assessee had received cash over a period of time as advance towards allotment of shares from 16 persons without stipulating any time frame towards return/refund of money without interest, in case of non allotment of shares either fully or partly. It was held by the Madras High Court that the money retained by the company was neither deposit nor loan,it was only share capital advance. The advances of share application money or repayments of such advances had not flowed from any undisclosed income of the assessee or the concerned persons. The assessee had not paid any interest at all on any of the advances repaid after some time. The advances were only against allotment of shares and not by way of loans or advances. The relevant findings recorded by the Madras High Court read thus:- "Heard the counsel. The assessee had received cash over a period of time, as advance towards allotment of shares from 16 persons without stipulating any time frame towards return / refund of money without interest, in case of non-allotment of shares either fully or partly. In this....
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....the receipt of monies in cash. The assessee contended that there was no violation of the provisions of section 269SS of the Act as it had not accepted any loan or deposit in cash. The receipt of share application monies in cash did not amount to acceptance of loan or deposit by the company. The Assessing Officer referred the matter to the Additional Commissioner who imposed penalty. The CIT(A) deleted the penalty. The Tribunal upheld the said view. The Delhi High Court held that receipt of share application monies from the three private limited companies for allotment of shares in the assessee could not be treated as receipt of loan or deposit. The relevant findings recorded by the Delhi High Court read thus:- "7. Section 269SS prohibits any person from accepting a loan or deposit in cash exceeding Rs. 20,000 in the aggregate in a year from a third person. If there is any violation, the person receiving the loan or deposit will be liable to penalty u/S.271D in an amount equal to the amount of the loan or deposit. A loan or deposit is defined in the Explanation below Sec.269SS as a "loan or deposit of money". The assessee's contention, accepted both by the CIT(A) and the Tribu....
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.... vs. Sunil Kmar Goel, (2009) 315 ITR 163 (P&H), a family transaction between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof was contained in the compilation of accounts and which had no tax effect, established reasonable cause under section 273B of the Act. Since the assessee had satisfactorily established reasonable cause under section 273B of the Act, he must be deemed to have established sufficient cause for not invoking the penalty provisions of Sections 271D and 271E of the Act against him. The deletion of penalty by the Tribunal was held to be valid. This Court recorded thus:- "Having given our thoughtful consideration to the submissions advanced by the learned counsel for the rival parties, we are of the view that the finding that there was reasonable cause shown by the respondent- assessee, is a finding of fact. This emerges from the decision rendered by this Court in Saini Medical Store's case (2005) 277 ITR 420, wherein, this Court has inter-alia held as under:- "As pointed out earlier, there is no doubt about the genuineness of the transactions which have been fully accepted in the assessment made for th....
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....t. Limted vs. Commissioner of Income Tax, (2005) 275 ITR 399, to the effect that even if share application money cannot be considered to be a loan within the meaning of section 269SS of the Act, it partakes the character of a deposit since it is repayable in specie on refusal to allot shares and is repayable if recalled by the applicant before allotment of shares and the conclusion of the contract. Hence the acceptance of share application money in cash amounting to Rs. 20,000/- or more was held to be violating the provisions of section 269SS of the Act. It was observed as under:- "9. If we take recourse to the explanation in Section 269T of the Act, deposit means a deposit of money which is repayable after notice or repayable after a period. Money paid to a company in support of an application for shares is a deposit of money in the company which is repayable by the company after the period for allotment of shares comes to an end, or a decision is taken regarding the allotment of shares. Thereafter, the amount is repayable to the person who paid the money, even without a demand in that behalf. In case of refusal of shares the amount has to be returned in specie. In that context,....