TaxTMI 
TaxTMI 
2016 (4) TMI 378
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.... the notice, the assessee submitted the requisite information with relevant documentary evidence. The Assessing officer while examining the balance sheet as on 31.3.2008, noticed that there was increase in the amount of share capital. The share capital as on 31.3.2008 was Rs. 35 lakhs against Rs. 30 lakhs as on 31.3.2007. As per Schedule 'A' of the balance sheet as on 31.3.2008, the company had authorized share capital of Rs. 30 lakhs comprising of 30,000 equity shares of Rs. 100/- each. The Assessing officer further noticed that the issued, subscribed and paid up share capital was also Rs. 30 lakhs comprising of 30000 equity shares of Rs. 100 each. According to Assessing officer, the authorized share capital was fully subscribed. However, share application money amounting to Rs. 5 lakhs has also been shown as received during the year from the following three persons:- S.No. Name Amt. (Rs.) date 1 Smt. Anju Chawla 2,00,000/- 21.5.2007 2 Mrs Reeva Chawla 1,00,000/- 21.5.2007 3 Mrs. Asha Chawla 2,00,000/- 15.2.2008 The Assessing officer noticed that the aforesaid share application money was received in cash and all the above persons are directors / sh....
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....f a private limited company. Accordingly, it was submitted by the assessee that the cash transactions between the assessee and directors / share holders were not a 'loan' or 'deposit', and there was no violation of the provisions of section 269SS of the Act. The assessee relied on the decision of the Hon'ble High Court of Madras in the case of CIT Vs. Idhayan Publication Limited. [2006] 285 ITR 221 (Mad.) wherein the Hon'ble High Court observed that as per the Companies Act (Acceptance of Deposits) Rules, 1975 under Rule 2(b)(ix), deposits does not include any amount received from a director or a share holder of a private limited company. The Hon'ble High Court ruled that the transactions between the assessee and director-cum-share holder was not a 'loan' or 'deposit' and it was only current account in nature and no interest being charged in the above transactions. The Hon'ble High Court concluded that thus there was no violation of provisions of section 269SS of the Act. The Assessing officer did not accept the reply / explanation of the assessee on the ground that the amount of Rs. 5 lakhs was received in cash, no shares were allott....
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....y partakes the character of deposits. There are contrary decisions of other High Courts, wherein it has been held that the amount received in cash for allotment of share did not amount to either 'loan' or' deposit' within the meaning of section 269SS, and therefore, no penalty can be levied u/s 271D of the Act. These decisions are as under:- CIT v I.P. India (P) Ltd (2012) 343 ITR 353 (Delhi ) CIT v Rugmini Ram Ragav Spinners P. Ltd. (2008) 304 ITR 417 (Mad. ) CIT v M/s Iqbal Inn & Hotels Ltd in ITA No. 256 of 2014 judgment dated 21.9.2015 (P&H) 5. In my opinion, the issue as to whether the share application money received in cash would be exempt from the provisions of section 269SS of the Act or not is a debatable issue and there are contrary decisions of various Hon'ble High Courts on this issue. The next question also arises as to whether in the absence of Board's Resolution, the assessee company has increased authorized share capital or not? In my opinion, this issue is not free from debate. Without prejudice to above, as an alternative contention, Shri Sudhir Sehgal, Ld. Counsel for the assessee submitted that if the amount in question is not accept....
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....ount payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy penalty. Section 273B of the Act provides that if assessee proves that there was a reasonable cause, the assessee is not subject to levy of penalty. For the argument sake, in this case if it is accepted that assessee did not receive the share application money but it was a deposit within the meaning of section 269SS of the Act, therefore, the question arises as to whether there was a reasonable cause in accepting the deposits in contravention of provisions of section 269SS of the Act? 7. It is an admitted fact that the cash was deposited by three persons. Smt. Reeva Chawla is one of the directors of the company. Smt. Anju Chawla and Smt. Asha Chawla are share holders of the company. There is no dispute that the sources of the amount of Rs. 5 lakhs is completely from explained sources, the evidence of which was furnished before the Assessing officer. It is also apparent from the records that the evidence furnished by the company was also verified by the Assessing officer. The contention of Shri Sudhir Sehgal, Ld. Counsel for the as....
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....is contained in the compilation of accounts and which has no tax effect, in our view establishes " reasonable cause" under section 273B of the Act. Since the respondent 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 penal provisions (sections 271D and 271E of the Act) against him." 8. Similarly, in the case of CIT Vs. Maheswari Nirman Udyog (2008) 302 ITR 201 (Raj . ), the assessee was a Contractor doing business in a remote area of Nokha Tehsil. The assessee company was required to make spot payments to the labourers etc. and for that the company needed cash. The company borrowed money from its sister concern at the work site. The Assessing officer levied the penalty u/s 271D of the Act for violating the provisions of section 269SS of the Act. The Hon'ble Rajasthan High Court confirmed the order of the Tribunal in deleting the penalty levied u/s 271-D of the Act holding that the sister concern of the assessee was owned by the same family group of people with a common managing partner with centralized accounts under the same roof and therefore, the transaction....
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....of this court. Accordingly, we dismiss the above tax case. No costs." Similarly, the Hon'ble Chhattisgarh High Court in the case of Preeti Fuels & Flames (P) Ltd. (2011) 330 ITR 129 held as under:- "6. A perusal of the above quoted provisions would show that section 269SS shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by any banking company, post office savings bank or co-operative bank. 7. Further, rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, exempts any amounts received from a person who at the time of the receipt of the amount was a director of the company, or any amount received from its shareholders, by a private company, or by a private company which has become a public company. Rule 2(b)(ix) of the Rules, 1975, is relevant here and quoted below : "2. Definitions.- (a) 'Act' means the Companies Act, 1956 (1of 1956) ; (b) 'deposit' means any deposit of money with, and includes any amount borrowed by, a company, but does not include- ..... (ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amou....