TaxTMI 
TaxTMI 
2025 (6) TMI 257
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....ase, has erred in ignoring the fact that Special resolution to increase 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 furn....
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....was submitted that the assessee company has received share application money to meet the debt equity ratio requirement of lending bankers as well as to meet the 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 resolu....
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.... from the directors of shareholders of the company. Further in CIT vs Rugmini Ram Ragav Spinners Pvt (2008) (Madras) 304 ITR 417, it has been held that the money in 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....
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.... (i) M/s Iqbal Inn and Hotels Ltd vs JCIT ITA no. 876 to 879/Chd/2013 pronounced on 30 01.2014. (ii) CIT vs Rugmini Ram Ragav Spinners Pvt Ltd (2008) (Madras) 304ITR 417 (iii) CIT vs Idhayam Publications 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 pena....
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.... argument that there was outstanding balance of share application money of Rs. 803 lacs as on 1.04. 2011 and Rs. 2948.40 lacs was received during the F.Y. 2011-12, out of this amount an amount of Rs. 175 lacs was received in cash from directors/shareholders. The assessee 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 t....
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....ount of the company was with State Bank of India, Commercial Branch, Sector-17, Chandigarh and the bank accounts of the directors were different banks/branches and there was a scheduled date of repayment of loan from State Bank Of lndia thus, to avoid any delay in the repayment, the money 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 t....
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....oing on and no loans had been sanctioned by the Banks which is not the case even remotely in the case of the assessee. Further, the special resolution to increase the authorized share capital was not even passed in this Public Ltd. Company to increase the Authorized share capital when the sums were received 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 fro....
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....ent adjudication. 8. Coming to the merits of the case, during the appellate proceedings before the Ld. CIT(A), the assessee has submitted that the Additional CIT vide order dated 20.11.2015 had levied the penalty of Rs. 175 Lacs u/s 271D of Income Tax Act for alleged violation of section 269SS of Income Tax Act, on account of receipt 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 f....
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....essment Order about this transaction are nothing but just imagination of the Ld. AO and is based on conjectures and surmises which is prayed to be dismissed as such. While arriving at the conclusion, neither the AO nor the Additional CIT has brought to the record any conclusive evidence to deviate from the accounting treatment of Share 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 cont....
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....resented before the Additional CIT that Company had called for increase in authorized capital and allotment of Optionally Convertible Preference Shares against share application money received by the assessee company, through posted ballots to be received by the company on or before 12.12.2011. However, Company Law Board, New Delhi, vide its 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 he....
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....ision of the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd vs CIT (275 ITR 399) wherein it was held that the share application money will come within the definition of the deposits as defined u/s 269SS of the Act, the Addl. CIT held that the appellant has contravened the provisions of section 269SS of the Act and therefore, 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....
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....erences can be drawn while judging the genuineness of the transaction from the prospective of income tax. Further, the jurisdictional Hon'ble Punjab and Haryana High Court in the case of M/s. Eqbal Inn & Hotels Limited in ITA No. 256 of 2014 dated 21.09.2015 has held that amount 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 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....
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....st which, the assessee company submitted that promoter/directors of the company during the financial year 2011-12 had given the cash towards 'share application money' and not as 'loan or deposit'. Therefore, the provision of section 269SS are not applicable in the instant case. It was also explained that total share application received during the year amounts to Rs. 2,498 lacs out of which only Rs. 175 lacs was received 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 271....
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....ubmitted that the nature of amount received is clearly of share application money because if the intention was to receive them as loan or deposit, there must have some terms regarding their repayment, chargeability of interest etc., which are not there in the present case. Therefore, there was no reason to suspect the transaction in question; it unequivocally constitutes share application funds as reflected in the audited Balance Sheet, not 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 ....
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.... etc. is required to be disclosed etc. C. On 14.10.2011 & again on 01.11.2011, notices for voting though postal ballot was sent by company to members for approval of Item No. 1 to 3. Heading of the Item No. 1 to 3 are specified below for your reference. Item No. 1:- Increase in Authorized share capital and consequent amendment in the memorandum of association. Item No. 2:- Alteration of Articles of Association of Company Item No.3:- Issue of 10% optionally convertible non-cumulative 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 ....
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....e out. 12.14 It was further submitted that from the CLB order dt. 13.12.2011, that petitioner's requested for abeyance of the allotment of optionally convertible redeemable preference shares in order to safeguard the interests of the 40% shareholder indicates that at the time of filing the petition before the CLB, the petitioners were also aware that the company intended to issue preference shares to shareholders/directors. The natural conclusion is that amount received from shareholders was towards 'share application money' and 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 t....
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....if assessee had breached provisions of section 78(2) of Companies Act, 1956, it would be penalized by provisions of Companies Act and breach would never turn a capital receipt into revenue receipt or vice versa under the provision of Income Tax Act. " b) Hon'ble Delhi ITAT in the case of Serco India Pvt. Ltd [TS-363-ITAT- 2023(DEL)] has held that "it is also well settled that ratio decidendi of a case from one enactment, cannot be applied to an altogether different legislation." 12.17 It was further 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 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 a....
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....9T which is not an expansive definition. It provides that "loan or deposit" mean any loan or deposit of money which is repayable after notice or repayable after a period and, in case o f a person other than a company including loan or deposit of any nature. Share application money is neither repayable after notice nor repayable after a period. It is for participation in the capital of the company. Therefore, neither as per the definition of the words "loan or deposit" as given in the Explanation (iii) to section 269T nor in ordinary sense, share application money can be said to be a loan or 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 und....
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....raise fresh share application money. This is because the assessee's issued and paid up capital was already exceeding its authorized share capital, meaning thereby that the assessee was not competent to raise fresh share application money without increasing its authorized share capital. It is also pertinent to mention here that the assessee company issued a notice for voting through postal ballot dated 01.11.2011 to its shareholders/members whereby agenda Item No. 1 was to increase the authorized share capital of the company from Rs. 14 crores to 52 crores. The date fixed for this agenda item to be 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 t....
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....ch may kindly appreciate that there are decisions to the contrary also, wherein the Hon'ble Courts have held that share application money is in the nature of deposits only as defined u/s 269SS of the Income Tax Act. In this regard, reliance is placed on the three decisions of the Hon'ble ITAT Delhi Bench, Hon'ble High Court of Jharkhand and the Hon'ble Supreme Court of India in the below mentioned cases :- Name of the case Citation/Date of order 1. Hon'ble Supreme Court of India CIT, Chennai Vs. Object Frontier Software (P) Ltd. [2016] 75 taxmann.com 196 (SC) 09.09.2016 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&....
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....ed by the Hon'ble Punjab 8s Haryana High Court in the case of M/s Eqbal Inn and Hotels Ltd. 14. In his rejoinder, the Ld. AR has contested the submissions so made by the ld CIT/DR and has submitted as under: 1. "At the outset, it is reiterated that the case of the assessee is fully covered on all fours by the judgement of the Hon'ble Jurisdictional High Court in the- case of Eqbal Inn & Hotels Limited [(2014) ITA No. 256 (Punjab and Haryana)] as read with the Judgement of Hon'ble ITAT, Chandigarh in that case. The averments and submissions made by the Ld. CIT DR to the contrary that facts of the assessee's case are distinguishable 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 H....
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....der dt. 13.12.2011 merely barred the company for making allotment of 37514000 shares in order to protect the interest of 40% public shareholder other than the promoters (i.e. Item No. 3 of notice dated 01.11.2011). However, the increase of authorized share capital (i.e. Item No.l of notice dated 01.11.2011) had not been prohibited by the CLB. Similarly receiving of share application money was not prohibited as has been observed by the Ld. CIT-PR. Therefore, it is submitted that the inferences drawn by the Ld. CIT PR that the assessee was not authorized to raise any fresh share application money is erroneous and factually incorrect as the CLB order only barred the allotment of shares and not receiving of share application money or 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 ....
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....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. Authorized Share Capital can be increased at any time by any company after following the necessary guideline/rules/laws as per the Companies Act. In the instant case also, the assessee company has received the share capital money before increase of authorised share capital as the same is not barred under the provision of the Companies Act, 2013. However, the assessee company has increased the authorised share capital in the same financial year after the receipt of share application money. The Authorized Share Capital as on 01.04.2011 was 14 Crore's & as on 31.03.2012 was 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 Ch....
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.... Object Frontier Software (P) Ltd. [2016] 75 taxmann.com 196 (SC) 09.09.2016 In this case, the Hon'ble Supreme Court has indeed merely admitted the revenue's appeal in SLP filed by the department. It is important to note that the mere admission of the appeal by the Supreme Court should not be construed as sufficient grounds for rejecting the assessee's contention and concluding that the share application constitutes a loan or deposit. The Hon'ble Supreme Court has not stayed the judgment of Hon'ble Madras High Court. Hence, nothing turns on this SLP admission, it is respectfully submitted. 2. Hon'ble High Court of Jharkhand Bhalotia Engineering Works (P) Ltd. v. CIT [2005] 275 ITR 399 (Jharkhand) 24.08.2004 Said judgment of Hon'ble Jharkhand High court has clearly been distinguished by Hon'ble Delhi High Court 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....
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....as any bar on acceptance o f Share Application Money in excess o f authorized capital, he could not show any provision in the Companies Act. The Ld. DR further submitted that it was stated by the Ld. Counsel that shares have been issued at premium but no permission seems to have been taken from any authority for issuing the shares at premium. He contended that case was squarely covered by the decision of Hon 'ble Jharkhand High Court in the case of Bhalitia Engineering Works Pvt Ltd (supra)." However, the ITAT has disposed of these submissions of the learned CIT-DR in Para-23 of the said judgement which has already been reproduced in the earlier part of our submissions. Hence, it is prayed that the said arguments of the learned CIT-DR has nothing new and have already been considered and disposed of by the Hon'ble ITAT in the case of Eqbal Inn (supra). It would be noted that the 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....
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....mpanies Act and, 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 leviable." 15. We have heard the rival contentions and perused the material available on the record. The relevant facts as emerging from the records are that the assessee company is a public limited company engaged in the running Hotel Park Plaza in Section 17A, Chandigarh and its shares are listed on a stock exchange. As per the audited balance sheet for the financial year ended 31/03/2012, it has authorized share capital of Rs. 1400.00 lacs as on beginning of the financial year i.e. 01/04/2011 and subscribed capital (issued and paid up) of Rs. 800.00 lacs and share application money pending allotment of Rs. 803.00 lacs. During the financial year 2011-12, the assessee company has received Rs. 12,91,13,000/- from Shri Haravtar Singh Arora, out of which Rs. 70.00 lacs has been received 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 26/09/2....
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....IBLE NON CUMULATIVE REDEEMABLE PREFERENCE SHARES ON PREFERENTIAL BASIS "RESOLVED THAT pursuant to the provisions of Section 80,81(IA) and other applicable provisions, if any, of the Companies Act 1956 and all other applicable Acts(including any statutory modification(s) or re-enactment thereof for the time being on force) and in accordance with the provisions of the Memorandum and Articles of Association of the Company as amended, the Listing Agreement entered into by the Company with the stock exchange, where the shares of the Company are listed, Guidelines for Preferential Issue contained in Chapter of the SEBI (issue of capital and Disclosure Requirements) Regulation, 2009 as may be modified or re-enacted from time to time (hereinafter referred as "ICDR Regulations" ) the applicable rules notifications, guidelines issued by Government of India, Reserve Bank of India, provisions of Foreign Exchange Management Act, 1956 and subject to the approvals, 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 approp....
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.... RESOLVED FURTHER THAT for the purpose of giving effect to the aforesaid resolution(s),the Board be and is hereby authorized on behalf of the Company to take all such acts, deeds, matter and things as it may in its absolute discretion deem necessary proper or desirable for such purpose and to modify accept and give effect to any modifications in the terms and conditions of the issue or in the above proposal as may be suggested by the statutory, regulatory and other appropriate authorities (including but not limited SEBI, Corporate Debt Restructuring Empowered Group, Reserve Bank of India)and as may be agreed by the Board and to settle all questions difficulties or doubts that may arise in the proposed issue, pricing of the issue, offer and allotment of the said preference shares and equity shares arising there from, including utilization of the issue proceeds and to execute all such deeds, documents, writing, agreements, application in connection with the proposed issue as the Board may in its absolute discretion 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 ....
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....e special resolution for increase in the authorized share capital and consequent amendment in the MoA and AoA was passed. Similarly, special resolution for issue of 10% optionally convertible non cumulative redeemable preference shares on preferential basis was passed with 92.61% vote cast in its favour. At the same time, in view of the interim order passed by the Company Law Board on 13/12/2011, the implementation of special resolution for issue of such shares on preferential basis was kept in abeyance. Thereafter, the authorized share capital of the assessee company was increased from Rs. 14.00 Crores to Rs. 52.00 Crores after making necessary compliances before the Competent authority and payment of the requisite fee for increase in the authorized share capital amounting to Rs. 19.00 lacs as shown under the head "unamortized expenses". And as far as share application money was concerned, as against the opening share application money pending allotment of Rs. 8,03,00,000/-, after adding the share application money received during 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 m....
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.... share holders reached out to the Company Law Board and Company Law Board passed an interim order directing to keep the allotment of share in abeyance till further order, how the AO has arrived at such a finding is beyond our comprehension. We therefore find that the very basis of reference by the AO to the JCIT for initiation of penalty proceedings for violation of Section 269SS of the Act is wholly and solely guided by the fact that the amount of share application money has been received from the existing promoters/shareholders in cash. Similarly, we find that the JCIT while initiating the penalty proceedings has solely relied on the reference so received from the AO and without any independent application of money, has initiated the penalty proceedings and issued the penalty notice u/s 271D of the Act. 21. Now, coming to the findings of the Addl CIT wherein he has held that the assessee has contravened the provisions of section 269SS by accepting loans/deposits in cash beyond the prescribed threshold from shareholders/directors 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 in....
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.... in the memorandum and articles of the association. Therefore, reading anything further beyond what has been clearly stated in the interim order so passed by the Company Law Board is in the realm of assumptions and presumptions and the same cannot be sustained. 23. Regarding the findings of the Add.CIT that the special resolution to increase the authorized share capital was passed after the receipt of money by the company. The same is an admitted and undisputed fact and there is thus no denial as such on part of the assessee in this regard. However, the subsequent finding of the Add.CIT that 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, we find that the same has no legal legs to stand. The same has been rightly rejected by the ld CIT(A) wherein he has stated that there is no prohibition in the Companies Act that share application money cannot be received without having sufficient authorized capital. In this regard, useful reference can be drawn to Section 2(8) of the Companies Act, 2013 which defines the....
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....in respect of the Authorized Capital and Issued & paid up Capital in the written submissions before CIT(A). From the above it becomes clear that paid up capital never exceeded the authorized capital, therefore, provisions of the Companies Act were not violated." 25. The ld CIT(A) has therefore rightly followed the decision of the Coordinate Chandigarh Benches in the aforesaid case more so for the reason that the same has since been confirmed by the Hon'ble Punjab and Haryana High Court on appeal by the Revenue against the order so passed by the Coordinate Bench in case of M/s Eqbal Inn & Hotels Ltd (supra). In the said decision, the Hon'ble High Court has referred to Rule 2(b) of the Companies Rules, 2014 which interalia provides that deposit doesn't include any amount received by way of subscription to any shares and any amount received pending allotment of shares and has held that the amount received by the assessee towards share application money would not fall under loan or deposits u/s 269SS of the Act and consequently, the penalty u/s 271D was not leviable. The said decision of the Hon'ble Jurisdictional High Court thus supports the case of the assessee and has ri....