TaxTMI 
TaxTMI 
2025 (6) TMI 257
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....rease the Authorised Share Capital has been passed on 14.12.2011 i.e. a day after the order dated 13.12.2011 barring the allotment of shares and the fact that transactions had recurred on 05.04.2011, 28.08.2011 and 26.09.2011 i.e. before the said resolution to enhance authorized share capital. 3. Briefly the facts of the case are that the assessee filed its return of income on 14/09/2012 declaring income at NIL. The case of the assessee was selected for scrutiny and notice under section 143(2) and 142(1) were issued calling for the necessary information and documentation. 3.1 During the course of assessment proceedings, the AO observed that there are huge cash deposits as reflected in the bank statement furnished by the assessee and the assessee was asked to explain the nature and source of said cash deposit. In response, the assessee submitted that these cash deposits were received from share holders / Director namely Shri Haravtar Singh Arora and Shri Ajmair Singh Bhullar. It was submitted that these two persons have paid money out of sale proceeds of the property and copy of the sale agreement were also furnished. The assessment proceedings were completed whereby the returned ....
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.... financial requirements of the company. It was further submitted that during the assessment proceedings, the assessee company explained the sources of cash deposit received from directors/shareholders as share application money of Rs. 175 lacs and the Ld. A.O. has dully accepted the explanation of sources of cash deposit given by the assessee company. Further, the assessee company had explained during the assessment proceedings that the cash from shareholders during the financial year 2011-12 was received as share application money. However, the. Ld. AO. has initiated the penalty proceedings u/s 271D of l.T. Act by holding that the assessee has violated the provisions of section 269SS of I. T. Act as the assessee has received the same in cash. Regarding the same, it was submitted that the amount received was on account of share application money and not the loans or deposits as there was no liability to repay it on demand or otherwise and no interest on this amount was to be paid. The company had duly passed a special resolution for issuing the 10% optionally convertible non cumulative redeemable preference shares. A copy of which is enclosed herewith. However, because of order pas....
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.... cash by a company towards allotment of shares, was neither a loan nor a deposit. Further, reliance was placed in the case of M/s Iqbal Inn and Hotels Ltd vs JClT (ITA no. 876 to 879/Chd/2013) pronounced on 30.01.2015 wherein the Chandigarh Bench of the Tribunal has held that the share application money or deposit in current account cannot be included in the definition of deposit so as to trigger the provision of section 269SS of A.T. Act. Further, Hon'ble Punjab and Haryana High Court in the case of CIT vs Speedways Rubber Pvt Ltd 326 ITR 31 (P&H) clearly held that if the transaction was bonafide and default was of technical nature, then, the penalty is not justified because of share application money or deposit in current account cannot be included in the definition of deposit but in any case, even assumed otherwise, then, the defect is only of technical nature and there was a bonafide belief on the part of the assessee that this is not in contravention of provisions of the Act and does not call for levy of penalty. It was submitted that the majority of the judicial pronouncements particularly of the jurisdictional High Court and also the ITAT are in favour of the assessee on....
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....ions Ltd (Madras High Court) 285 ITR 221 (iv) CIT vs Speedways Rubbers Pvt Ltd 326 ITR 31 (P&H) The contention of the assessee further substantiated from the facts that the assessee Co. during the relevant year increased its Authorized Capital by Rs. 38.00 crore to became authorized for issue the shores of Rs. 37.50 crore from the Share Application Money. Thus the presumption that the amount received is not a share application money is not correct at all. Thus taking into consideration the facts and circumstances of the case and also the judicial pronouncements it is clear that since the amounts received were not in the nature of loan or deposits accordingly these is no violation of sec. 269SS of the l.T. Act." 6. The submissions so filed by the assessee were considered but not found acceptable to the Ld. Addl. CIT, Range-2, Chandigarh and he held that the assessee has contravened the provisions of 269SS of the Act and levied the penalty under section 271D amounting to Rs. 1.75 Crores equal to the amount accepted in cash otherwise than by account payee cheque and the relevant findings of the Ld. Add.CIT read as under: "5. I have gone through the submissions made. The sum &....
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....essee has further argued, vide written submission filed on 12.10.15, that on 14.12.2011 a meeting of the share holders of the company was held wherein a special resolution vide item no 3 was passed for making allotment of 37514000 no. of 10% optionally convertible non cumulative redeemable preference shares to the director/share holders The submissions of the assessee in this regard are considered but are not acceptable. It is seen from the minutes of the meeting of share holders held on 14.12.11, furnished by the AR during the course of proceedings before the undersigned, that the Special Resolution No 1 on the said date was to 'INCREASE IN AUTHORISED SHARE CAPITAL AND CONSEQUENT AMENDMENT IN THE MEMORANDUM OF ASSOCIATION'. As per the said resolution the Authorised capital of the assessee was proposed to be increased from Rs 14,00,00,000/- to Rs 52,00.00,000/-. The submissions in this regard have to be seen in the light of order dated 13.12.11 i.e. a day before vide which Hon'ble Company Law Board. New Delhi Bench vide order dated 13.12.11 has barred the Company from making allotment of 37514000 shares in order to protect the interest of 40% public shareholders who are....
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....ey was accepted in cash. Even otherwise, there were regular commitments on account of various expenses which were to be met out and since the routine cash inflow with the assessee company was not sufficient to meet these exigencies. Thus, there was a reasonable cause with the assessee company to accept the share application money in cash. In this regard, please find enclosed the copies of cash book of the respective dates whish duly substantiates the contention of the assessee company, Even otherwise, the Act does not prohibit the acceptance of share application money in cash. The Counsel of the assessee vide the above referred submission has again tried to justify the cash deposits by saying that the cash deposits are share application money and were to be utilized for the purpose of repayment of loan on the schedule date to avoid any delay in the repayment. Further, he has also submitted that there were some regular commitment on account of various expenses which were to be met and since the routine cash inflow with the assessee company was not sufficient to meet these exigencies. The assessee's arguments about the cash deposits as being share application money have been di....
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.... and was passed subsequently in circumstances as discussed before, despite there apparently being an ongoing dispute amongst the shareholders. Further, it is respectfully submitted that it is gathered that the said order of the Hon ITAT has not been accepted by the department and an appeal has been filed before Hon P&H High Court. In view of the foregoing discussion, and without prejudice to the discussion forming part of earlier paragraphs, it is again emphasized that no exception to the provisions of Sec 269SS to receive sums in cash a s share- application money can be accepted when none exists in the Act. 9. Therefore, it is clear that the assessee has contravened the provisions of section 269SS of the Income Tax Act, 1961 by accepting loan/deposits of Rs. 1,75,00,000 in cash which is much more than the threshold limit of Rs. 20,000/- prescribed u/s 269SS from Haravtar Singh Arora of Rs. 70.00,000/- and Sh. Ajmair Singh Bhullar of Rs. 70,00,000/- and Rs. 35,00,000/- in cash. 10. In view of the facts as discussed above, it is clear that the assessee was unable to bring on record any reasonable cause with regard to these loans/deposits amounting to Rs. 1,75,00,000/- accepted....
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....ceipt of share application money in cash. The assessment for assessment year 2012-13 u/s 143(3) of Income Tax Act was completed by AO vide her order dated 31.03.2015. During the assessment proceedings, the AO has observed that the Company has accepted cash from the following Directors/shareholders, Sh. Avtar Singh Arora - Rs. 70 Lacs and Sh. Ajmair Singh Bhullar Rs. 105 Lacs. The assessee company was asked to explain the source of cash deposited and the credit worthiness of these two Directors. Submissions made by the assessee company in this regard were accepted by the AO and no adverse inference as to the source of cash accepted and credit worthiness of the Directors / shareholders was drawn by the AO. Necessary details including confirmations from the persons who had contributed the amount towards the share capital of the company was submitted and no faults have been found with such explanation. The AO had also enquired regarding the violation of section 269SS of Income Tax Act. It was submitted by the assessee company that promoter Directors of the Company during the financial year 2011-12 had deposited the cash towards share application money and provisions of section 269SS ar....
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....hare Application Money and treated the amount as Unsecured Loans. 8.1 It was further submitted that the provisions of Income Tax are required to be interpreted in the strict possible manner. Even if there was some irregularity from Companies Act point of view, although in the opinion of the assessee there was no irregularity about the issue of share capital or enhancement of authorized share capital because these issues were being conducted in accordance with regulations by the SEBI due to the disturbed financial status of the company, no adverse inferences can be drawn while judging the genuineness of the transaction from the prespective of income tax, especially when even the AO has accepted the transaction as genuine under the provisions of section 68 of the Income Tax Act which means that identity of the person, creditworthiness of the persons contributing the money and genuineness of the transactions has been duly accepted in the regular assessment proceedings. 8.2 It was submitted that the nature of transaction which was admittedly the share application money between the transacting parties cannot be reclassified as loan and advances as has been done by the Ld. AO in the As....
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....ts order dated 13.12.2011, upon complaint made by some minority shareholders had allowed the Company to increase the Authorized Share Capital, however, stayed the allotment of Optionally Convertible Preference Shares, till further orders. All these documents in support of the contention of the assessee company, that these amounts were received on account of share application money and not towards the Unsecured Loan, as alleged by the Additional CIT in his penalty order, were duly filed and are again enclosed for your honour's ready reference and records. 8.5 It was further submitted that whether the transaction is share application money or loans and advances can at best be subject to some debate and judicial interpretation. It is settled law that when there are two possible interpretation in a taxing statute then an interpretation which helps the taxpayer is required to be adopted. Reliance is being placed upon Hon'ble Supreme Court Order in the case of CIT vs. Vegetable Products Limited (1973) 88 ITR 192 (SC) wherein it was held that if the Court finds that tax provision or penalty provision can give rise to two meanings, then it should adopt that meaning which favors as....
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....ore, levied penalty u/s 271D of Rs, 1,75,00,000/- i.e. equal to the amount accepted in cash otherwise than by account payee cheque. 7.3 The appellant has submitted that the provisions of section 269SS are applicable only to the transactions of loans and advances; that the amount received towards allotment of shares which has been duly reflected as such as share application money in the audited accounts of the assessee in Note No. 1.3, by no stretch of imagine can be equated with the loans and advances within the meaning of section 269SS of the Act; that the balance sheet of the assessee was audited and signed by the auditors as well as Directors of the company on 03.08.2012 and assessment proceedings were being undertaken in March 2015; that even if there was some irregularity from Companies Act point of view, although in the opinion of the assessee there was no irregularity about the issue of share capital or enhancement of authorized share capital because these issues were being conducted in accordance with regulations by the SEBI due to the disturbed financial status of the company, no adverse inferences can be drawn while judging the genuineness of the transaction from the pr....
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.... of the Act and consequently, the penalty u/s. 271D of the Act was not leviable. The judgment of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt Ltd (supra), relied by the Additional CIT, has been considered and distinguished by Hon'ble P&H High Court in the above case. 7.4 In view of the above discussion and following the above decision of the jurisdictional Hon'ble Punjab and Haryana High Court, it is held that amount of Rs. 1,75,00,000/- received towards share application money would not fall under loan or deposit u/s. 269SS of the Act and consequently, the penalty u/s. 271D of the Act was not leviable. The AO is, therefore, directed to delete the penalty of Rs. 1,75,00,000/-levied u/s. 271D of the Act. The ground no.3 is, accordingly, allowed." 11. Now, coming to the contentions advanced by both the parties. During the course of hearing, the matter was argued at length by both the parties and written submissions were filed. In the following paragraphs, we refer to the contentions so advanced as found mention in the written submissions so filed by both the parties. 12. In his submissions, the Ld. AR has submitted that the assessee compa....
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....ved in cash. 12.5 It was submitted that the Ld. AO had completed the assessment u/s 143(3) of the Act for assessment year 2012-13 vide order dated 31.03.2015 and observed that assessee has violated the provisions of Sec 269SS of the Income Tax Act, on account of receipt of share application money in cash and treated the same as deposits. Thus, Ld. AO initiated the penalty proceedings u/s 271D of Income Tax Act and accordingly the matter was referred to JOT, Range II, Chandigarh. 12.6 It was submitted that the ld. Additional CIT, Range II, Chandigarh issued a penalty notice u/s 271D of the Act on 29.06.2015 against which the Assessee Company had filed the requisite details. Thereafter, the Learned Additional CIT has passed the penalty order u/s 271D of the Act on 20.11.2015 levying a penalty of Rs. 1,75,00,000/- by treating the share application money received in cash in contravention to the provisions of section 269SS of Income Tax Act. In doing so the learned Assessing Officer and later on learned Additional Commissioner of Income Tax has reclassified the transaction of share application money as "loans or deposits" for the purposes of section 269SS of the Income Tax Act. 12.7 ....
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....a 'loan or deposit' as erroneously alleged and treated by the Ld. AO/Additional CIT. 12.9 It was submitted that as per the Rule 2(b) of the Companies Rules, 2014, any amount received by way of subscriptions of shares and pending for allotment of the said shares is not a deposit which reads as under: "Rule 2(b): deposit means any deposit of money with, any includes any amount borrowed by, a company, but does not include- (i) to (vi) (vii) any amount received by way of subscriptions to any shares, stock, bonds, debentures such bonds or debentures as are covered by sub clause. (x) pending the allotment of the said shares, stock, bonds or debentures any any amount received by way of calls in advance on shares, in accordance with the articles of association of company so long as such amount is not repayable to the members under the articles of Association of the company." 12.10 It was submitted that the cash received from the Directors/ shareholders as share application money is not a 'loan or deposit' as per the provision of Rule 2(b) of the Companies Rule, 2014, accordingly the provision of Sec 27 ID of the Act is not applicable on the transaction of cash rec....
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....ve redeemable preference shares on preferential basis. (Refer Pg. No. 89-91 of PB) D. It appears that after receipt of these notices, certain shareholders filed complaint against the company/directors that such optionally convertible non-cumulative redeemable preference shares are being allotted to give an all undue advantage/favour to the directors/shareholders. {Refer Pg. No. 92- 96 of PB) E. On 13.12.2011, the Hon'ble Company Law Board (CLB) passed an interim order for keeping in abeyance the resolution vide Item No. 3 i.e. allotment or preference shares (Refer Pg. No. 92-96 of PB). F. On 14.12.2011, a meeting of the shareholders of the company was held for which notice had already been on 14.10.2011 & against on 1.11.2011 wherein a special resolution vide Item No. 1 to Item No. 3 was passed. However, since CLB order came to light in the meeting so accordingly it was decided in the meeting to keep in abeyance the implementation of resolution vide Item no. 3. i.e. allotment of 37514000 no of 10% optionally convertible non-cumulative redeemable preference shares to these director/ share holder. (For the copy of the minutes of the meeting of shareholders kindly refer Pg. ....
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....d not 'loans or deposit' as has been made out by Ld. AO/Ld. Add. CIT. This evidence supports the argument that the company had a clear intention to issue shares against the amounts received from shareholders/directors, thus the amount is share applicable money and not as 'loan or deposit'. Therefore, the Ld. Addl. CIT allegation that showing the share application money against the amount received from the shareholders/directors is an after thought is not correct and erroneous. 12.15 It was further submitted that there is no prohibition in the Companies Act, 1956 that the share application money cannot be received in cash by the assessee company. Further, there is also no prohibition that share application money cannot be received without having sufficient authorized capital. The only requirement under the Companies Act, 1956 is that the shares cannot be issued/allotted unless and until the Company has sufficient authorized capital. Relevant extract of the Company Act, 2013 is reproduced herein below for your reference. "As per Section 2(8) of the Companies Act, 2013 "authorised capital" or "nominal capital" means such capital as is authorised by the memorandum of....
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.... the share application money between the transacting parties cannot be reclassified as loan and advances as has been done by the Ld. AO in the Assessment Order and lateron by the Hon'ble Additional CIT who has passed the penalty order. The AO has no powers to reclassify the transaction from share application money to loans and advances. This proposition has been laid down by Hon'ble ITAT in the case of Dhruv Chaudhary v/s ADIT 2019-TII-261-ITAT-Delhi-TP. In the aforesaid case also, the Ld. Transfer Pricing Officer and thereafter the Ld. AO changed the nature of transaction from share application money and treated it as loan on which notional interest was computed. Hon'ble ITAT held that AO has no power to reclassify the transaction from the share application money to loan. 12.18 It was further submitted that while levying the penalty, Additional CIT has relied upon the judgment of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt Ltd vs. CIT (2005) 275 ITR 399 Jharkhand. The said judgment of Hon'ble Jharkhand High Court has been distinguished by Hon'ble Delhi High Court in the case of CIT vs. LP. India Pvt Ltd (2012) 343 ITR 353 (De....
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.... deposit. Once share application money is neither loan nor deposit, then neither section 269SS nor 269T shall attract. Consequently, no penalty either under section 271D or under section 271E could be imposed. " 12.22 It was submitted that the CIT(A) after considering the assessee's submission decided the appeal in favour of the assessee and deleted the penalty u/s 271D of the Act by following the jurisdictional Hon'ble Punjab and Haryana Court [(2014) ITA No. 256 (Punjab and Haryana)] and held that amount of Rs. 1,75,00,000/- received towards share application money would not fall under the preview of 'loan or deposit' u/s 269SS of the Act and consequently the penalty u/s 271D of the Act was not leviable. 12.23 It was accordingly submitted that based on the above submissions, judicial pronouncements and facts on record, the order of the ld CIT(A) be affirmed and the appeal of the Revenue be dismissed as this is not a case of receipt of 'loan or deposit' and the transaction of the share application money received, would not fall under the preview of loan or deposit u/s 269SS of the Act and consequently, the penalty u/s 27 ID of the Act would not be leviabl....
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....e taken was 14.12.2011 (kindly refer to assesse's Paperbook page no. 89). The meeting was convened on 14.12.2011 wherein it was agreed to enhance the authorized share capital from Rs. 14 crores to Rs. 52 crores (kindly refer to pages 97 and 98 of assessee's Paperbook). Further, it is important to note that in the wake of certain disputes going on with Securities Exchange Board of India (SEBI), the assessee had been specifically prohibited by the Hon'ble Company Law Board (CLB) to issue any new/fresh shares vide the Company Law Board proceedings dt. 13.12.2011 (kindly refer to pages 93 to 96 of assessee's Paper Book). Thus, it is very clear that the assessee has raised an amount of Rs. 1,75,00,000/- in cash on 05.04.2011, 28.08.2011 and 26.09.2011 where as it was not authorized to raise any fresh share application money prior to 14.12.2011. 13.3 It was submitted that the Ld. CIT(A) has woefully failed to appreciate the above incapacity of the assessee to raise any amount as share application money prior to 14.12.2011. He has also failed to appreciate that the assessee company has been specifically debarred from raising any fresh share capital by the SEBI /CLB in ord....
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....09.2016 2. Hon'ble High Court of Jharkhand Bhalotia Engineering Works (P) Ltd. Vs. CIT [2005] 275 ITR 399 (Jharkhand) 24.08.2004 3. Hon'ble ITAT Delh Bench ITO, Ward 13(1). New Delhi Vs. Nandi Promoters (P) Ltd. [2011] 13 taxmann.com 213 (Delhi) 21.04.2011 13.5 It was submitted that the ld. counsel for the assessee has tried to argue that the Ld. CIT(A) has correctly given him relief by following the decision of the jurisdictional Hon'ble Punjab & Haryana High Court in the case of M/s Eqbal Inn & Hotels Limited, wherein the Hon'ble High Court has duly taken into account the judgement rendered by the Hon'ble High Court of Jharkhand in the case of Bhalotia Engineering Works (P) Ltd. Vs. CIT. However, this contention of the Ld. Counsel is misplaced since the facts and circumstances in the case of M / s Eqbal Inn & Hotels Limited are clearly distinguishable and differentiable from the instant case. In this case, as already discussed above, the assessee has raised fresh share application money without first increasing its authorized share capital. Therefore, the amount or the deposits received by the assessee can at best be categorized as deposits and not as....
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....nguishable are factually incorrect, it is respectfully submitted. Copy of Judgement of Hon'ble ITAT, Chandigarh in the case of M/s Eqbal Inn & Hotels Ltd. v. JCIT [ITA No. 876 to 879/CHD/2013] enclosed as Annexure -1 for your ready reference and records. It was this judgement of Hon'ble ITAT which the Ld. Addl. CIT who passed the impugned penalty order did not opt to follow due to the reasons amongst others, that departmental appeal is pending against the said judgment before the Hon'ble HC. However, judgement of Hon'ble HC is also now available, a copy of which has been filed in the PB filed by the assessee at Page No 74 to 88. 2. Against, the submissions filed by the Ld. CIT (DR-2) before your honour on 25.06.2024, in continuation of our earlier synopsis dt. 18.06.2024, the appellant's para wise rejoinder is as below for your kind perusal. Para No. 1 of CIT (DR) Submissions Ld. CIT (DR) has reproduced the facts under the Para No. 1. Hence, these facts are not disputed. Para 2 of Ld. CIT(DR) Submissions The Ld. CIT-DR has submitted that CIT(A) wrongly agreed that there was no bar in the Companies Act, 1956 to raise share application money without havi....
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....increase of authorized share capital. CLB order is available at PB 93- 96 of PB filed by the assessee from where aforesaid facts can be verified. Notice dated 01.11.2011 in continuation of earlier notice dated 14.10.2011 was issued to the shareholders for seeking approval on 3 items. Item No. 1 - Increase of authorized share capital, Item No. 2 - Alter the Article of Association and Item No. 3 - Issue/allotment of shares to director against which company had received share application money (refer page no 89 to 91 of the assessee's PB). What was kept in abeyance by the CLB was item no 03(refer page no 92 to 93 of assessee's PB). Hence Ld. CIT DR's contention that CLB debarred assessee from receiving the authorized share capital is not correct, it is respectfully submitted. Para 3 & 4 of the CIT DR Submission Ld. CIT (DR) Observation/Submissions Ld. CIT (DR) has submitted that that as per the provision of Companies Act, no company is authorized to raise share application money more than its authorized share capital. Thus, the assessee company was not competent to raise the fresh share application money without increasing its authorized share capital. Thus, the am....
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....as Rs 52 Crore's. (Refer page no 20 of assessee's PB) Here it would be appropriate to refer to the judgment of Hon'ble Chandigarh ITAT, wherein identical facts were involved the issue has been specially addressed by the Hon'ble Chandigarh ITAT in the case of M/s Eqbal Inn & Hotels Ltd. v. JCIT [ITA No. 876 to 879/CHD/2013]. The above order of the Hon'ble Chandigarh ITAT has been upheld by the jurisdictional Hon'ble Punjab and Haryana Court in the case of Eqbal Inn & Hotels Limited [(2014) ITA No. 256 (Punjab and Haryana) - Refer Pg. No. 74-88 of PB It would be seen that in the aforesaid judgments of Eqbal Inn & Hotel Ltd, the authorized share capital was increased after 5 years and allotment was made. However, assessee's facts are much stronger as opposed to Eqbal Inn because the authorized share capital was increased during the same financial year in which such share application was received, as evidenced from audited Balance Sheet (Refer page no 20 of PB). However, special resolution No 03 was also passed for allotment of shares in the shareholders meeting on 14.12.2011, yet allotment of shares was kept in abeyance on account of CLB order dated 1....
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....in the case of CIT vs. LP. India Pvt Ltd (2012) 343 ITR 353 (Delhi) (Refer Pg. No. 65-68 of PB) as also by Hon'ble P&H High Court, which opted not to follow this judgment, wherein the above judgment of Jharkhand High Court was distinguished and was held that provisions of section 269SS of Income Tax Act will not be applicable in respect of share application money received by the assessee in cash and the same would not account either to a loan or a deposit within the meaning of section 269SS of Income Tax Act. (Refer page no 86-88 of assessee's PB) 3. Hon'ble ITAT Delhi Bench ITO, Ward 13(1), New Delhi vs. Nandi promoters (P) Ltd. [2011] 13 taxmann.com 213 (Delhi) 21.04.2011 Under this case, the assessee has not increased the authorised share capital till the date of passing the assessment order. This case pertains to AY 2005-06 and the assessee company has not increased its authorized share capital till the date of assessment order i.e. 17.12.2007. However, the assessee company has increased the authorized share capital almost immediately after receiving the share application money within same financial year, therefore the facts of this case is clearly distinguishab....
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....he Hon'ble ITAT in the case of Eqbal Inn had also noted various judgements both in favour of the assessee as well as against the assessee on this issue and has finally concluded in Para-22 of the said judgement that when there are contradictory judgements of various High Courts and there is no judgement of the jurisdictional High Court then as per the settled legal propositions the view which favours the assessee requires to be adopted as has been held by the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) 88 ITR 192 (SC). However, at that stage of rendering the judgement by the Hon'ble ITAT, there was no judgement available of the jurisdictional High Court. But now this judgement of Hon'ble ITAT has been upheld by Hon'ble Punjab & Haryana High Court and therefore it is prayed that the judgement of Hon'ble Punjab & Haryana in the case of Eqbal Inn (supra) is directly applicable to the facts of the assessee's case and the same is prayed to be followed by dismissing the appeal of the Department Para 6 of the CIT DR Submissions The LD. CIT DR has observed that assessee has raised fresh share application money without first increas....
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....d on 28/08/2011 in cash Rs. 14,74,20,000/- has been received from Ajmair Singh Bhullar, out of which Rs. 1,05,00,000/- has been received in cash whereby Rs. 70,00,000/- has been received on 05/04/2011 and Rs. 35,00,000/- has been received on 26/09/2011 Rs. 1,61,00,000/- has been received from Shri Ajit Pal Singh and Rs. 22,07,000/- has been received from Shri Paramjit Singh, totaling to Rs. 29,48,40,000/-. Taking into consideration the share application money pending allotment as on the beginning of the year amounting to Rs. 8,03,00,000/-, the total share application money pending allotment as on the close of the financial year comes to Rs. 37,51,40,000/- as so accounted for in the books of account of the assessee company and duly reflected under the head "share application money pending allotment". 16. With regard to issue and allotment of shares, the assessee company issued a notice on 14/10/2011 through book post to its shareholders/members for seeking the necessary approval by way of voting through postal ballot pursuant to Section 192A of the Companies Act, 1956. Thereafter, as per the postal ballot Rules, 2011 which requires the issue of notice by registered post, a fresh no....
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....als, permissions, sanctions and consents as may be necessary from the regulatory and other appropriate authorities and subject to such conditions, modifications or alterations as may be prescribed by the regulatory and other appropriate authorities which may be agreed to by the Board of Directors of the company, which term shall be deemed to include any Committee thereof authorized to exercise the power of the Board, consent of the members of the Company be and is hereby accorded to the Board to offer, issue and allot 3,75,14,000 10% Optionally Convertible Non Cumulative Redeemable Preference Shares of the face value of Rs. 10/-(Rupees Ten) each for cash at par, on one or more tranches to the following promoters of the company:- Name of the Proposed Allottee No. of Preference Shares Mr. Ajmair Singh Bhullar 1,87,57,000 Mr. Haravtar Singh Arora 1,69,26,300 Mr. Ajit Pal Singh 16,10,000 Mr. Paramjit Singh 2,20,700 Total 3,75,14,000 RESOLVED FURTHER THAT the holders of 10% Optionally Convertible Non- Cumulative Redeemable Preference Shares of the face value of Rs. 10/- (Rupees Ten) each shall be entitled to apply for conversion of the said preference shares or any part th....
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....on deem necessary or desirable without being required to seek any further consent for approval of the members or otherwise with the intent that the members shall be deemed to have given their approval thereto expressly by the authority of this resolution. RESOLVED FURTHER THAT the Board be and is hereby authorized to delegate all or any of the powers herein conferred to any committee of Directors to give effects to the resolution." 18. Before the said resolutions could be considered and passed in terms of the postal ballots, on petitions filed by certain aggrieved persons, apparently certain shareholders of the assessee company, the Company Law Board passed an interim order on 13/12/2011 to keep resolution on Item No. 3 passed through postal ballot in abeyance and the contents of the said order read as under: "Respondents have raised preliminary objections to the maintainability of the CP. The Respondents are allowed to file a Company Application, if any, within two weeks on the maintainability of the CP. The Petitioners (112 in number) (2 petitioners who are supposed to be filing the CP. are also included in the consenter's list and there are other objections as well). Co....
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....g the year amounting to Rs. 29,48,40,000/- Rs. 37,51,40,000/- was shown pending allotment of shares and duly reflected under the head "share application money pending allotment" as on the close of the financial year as per the audited financial statements of the assessee company. 20. During the course of assessment proceedings, the AO observed that there were huge cash deposits amounting to Rs 175 lacs as reflected in assessee's bank statement and the assessee was asked to explain nature and source of such cash deposits. In response, the assessee submitted that the amount has been received from the share holders/ Directors as share application money whereby Rs 70,00,000/- has been received from Shri Haravtar Singh Arora on 28/08/2011, Rs 70,00,000/- and Rs 35,00,000/- has been received from Shri Ajmer Singh Bhullar on 5/04/2011 and 26/09/2011 and the said amount has been paid by them out of sale proceeds of the property sold by them. Though the AO did not record any adverse findings regarding the nature and source of such deposits received from the share holders and their creditworthiness, at the same time, given the fact that the amount has been received in cash, the AO held that....
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....and penalty u/s 271D is very much attracted. On perusal of the findings of the ld Add.CIT, we find that he has laid great emphasis on the fact that inspite of the interim order passed by the Company Law Board barring the allotment of shares, the assessee company went ahead and passed the special resolution to increase the authorized share capital and that too, within a day of passing of the interim order of the Company law Board. Secondly, the Add.CIT has held that the special resolution to increase the authorized share capital was passed after the receipt of money by the company and therefore, the amount so received from the share holders prior to the decision to increase the authorized share capital is in nature of loans/deposits and not in nature of share application money as so claimed by the assessee company. Further, he has referred to disputes pending before SEBI and CLB and he went ahead and reclassified the share application money as loans/deposits and levied the penalty u/s 271D of the Act. 22. We have carefully gone through the interim order dated 13/12/2011 so passed by the Company Law Board, the contents thereof have been referred supra and find that the Company Law B....
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....t having sufficient authorized capital. In this regard, useful reference can be drawn to Section 2(8) of the Companies Act, 2013 which defines the "authorised capital" or "nominal capital" to mean such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company and as per Section 2(64) of the Companies Act, 2013, "paid-up share capital" or "share capital paid-up" has been defined to mean such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called. Therefore, as per the above definition of 'authorised share capital' and 'paid-up share capital' under the Companies Act, 2013, there is no restriction in the Companies Act for receiving the share application money in excess of authorized share capital and the only restriction is that paid up capital cannot be more than the authorized share capital. 24. We find that similar findings were recorded by the JCIT while levyin....
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....D was not leviable. The said decision of the Hon'ble Jurisdictional High Court thus supports the case of the assessee and has rightly been followed by the ld CIT(A) wherein he has rejected the reclassification of share application money as loans/deposits as so done by the Add.CIT. 26. Further, nothing has been brought on record by the Revenue as to the nature of disputes pending before SEBI and any findings/orders so passed by SEBI and more so, any bearing thereof on the issue of receipt of share application money by the assessee company. As far as matter before the Company Law Board is concerned, as we have noted above, it is only the issue and allotment of shares that has been directed to be kept in abeyance and the said directions have been followed by the assessee company as the amount so received as share application money continued to be shown and reflected as share application money pending allotment at the end of the financial year. 27. The fact that issue and allotment of shares has been directed to be kept in abeyance cannot be read and understood and more so, empower the Revenue authorities, in context of taxing statue and more so, penalty proceedings which have to be ....