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2015 (12) TMI 1074 - PUNJAB AND HARYANA HIGH COURT

2015 (12) TMI 1074 - PUNJAB AND HARYANA HIGH COURT - TMI - Penalties under section 271D - violation of Sections 269SS - ITAT deleted penalty - Held that:- The amount received by the assessee towards share application money would not fall under loan or deposit under section 269SS of the Act. Consequently, the penalty under Section 271D of the Act was not leviable. The Tribunal was right in deleting the penalty. - Decided in favour of assessee. - ITA No. 256 of 2014 - Dated:- 21-9-2015 - MR. AJAY .....

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n 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 30.1.2014, Annexure A.3 passed by the Income Tax Appellate Tribunal Chandigarh Bench 'B', Chandigarh (in short, the Tribunal) in ITA No.878/Chd/2013 for the assessment year 2006-07, claiming following substantial questions of law:- i) In the facts and circumstances of the case, whether the ITAT was right in law in not sustaining the action of the JCIT/CIT(A) in imposing/upholding the penalties under section 2 .....

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acts 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 ac .....

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assessment years 2003-04, 2005-06 to 2007-08 respectively in cash aggregating to ₹ 2,07,47,640/- in violation of the provisions of section 269SS of the Act. The Joint commissioner of Income Tax, Patiala Range, Patiala vide consolidated order dated 28.9.2011, Annexure A.1 imposed penalty under section 271D of the Act amounting to ₹ 4,15,440/- for the assessment year 2003-04, ₹ 1,07,49,200/- for the assessment year 2005-06, ₹ 29,33,000/- for the assessment year 2006-07 and .....

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that when the money had been received in a current account,it cannot be covered under the definition of loan or deposit and consequently penal provisions under section 271D of the Act would not be attracted and that the money contributed by the various directors and their relatives was to be treated as share capital. Hence the instant appeal by the revenue. 4. We have heard learned counsel for the parties. 5. The issue herein is whether the amount paid towards share application money by various .....

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ived by way of subscriptions to any shares, 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 fr .....

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mpany 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 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft or use of electronic clea .....

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amount referred to in clause (b), is twenty thousand rupees or more : Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government ; (b) any banking company, post office savings bank or cooperative bank ; (c) any corporation established by a Central, State or Provincial Act ; (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; (e) such other insti .....

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ble to tax under this Act.] Explanation.-For the purposes of this section,- (i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act ;] (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (iii) "loan or deposit" means loan or deposit of money. Section 271D of the Act 27 .....

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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 acco .....

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rious years under section 148/143(3) of the Act. It seems that notice under section 148 was issued because assessee had not filed any return of income for assessment year 2003-04 and later years. The assessments were completed later on. This becomes clear from the assessment orders filed at pages 61 to 68 of the paper book. No additions have been made on account of share application money which clearly means that sources of the share capital were found to be genuine. It was pleaded by learned co .....

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is clearly held that if transaction was bonafide and default was of technical nature,then the penalty should not be justified. In the case before us, there is no default because the share application money or deposit in the current account cannot be included in the definition of deposit but in any case even if it is 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, .....

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ty is not leviable. Learned counsel for the appellant-revenue was unable to point out any illegality or perversity in the findings recorded by the Tribunal. 8. We proceed to examine the judgments relied upon by the learned 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/refun .....

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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 case, the money retained by the company was neither deposit nor loan, but it is only s .....

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of deposits or loans. When it is neither deposit nor loan, the provisions of Sections 269SS and 269T have no application at all. Even if there is repayment by cash it could not be said to attract the levy of penalty automatically, under Section 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons. It is also seen from the records that assessee had not paid any interest at all .....

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ic, and a bona fide belief to the effect that the receipt of advances against allotment of shares would not be termed as loans or deposits, would be sufficient to drop the penalty leviable, unless and until the material on record positively shows that money received is only a deposit or loan. There is no dispute that the impugned advances were only against allotment of shares and not by way of loans or deposits. 9. In CIT vs. I.P.India P. Limited, (2012) 343 ITR 353 (Del.), the assessee a privat .....

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pt 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 th .....

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e CIT(A) and the Tribunal, is that share application monies received by a company, pending allotment of shares, do not amount to loan or deposit. 8. On a careful consideration of the matter, we find that the AO has relied on the judgment of the Jharkhand High Court (supra) and referred the issue of levying penalty to the Additional CIT. He did not examine whether the share application monies can be treated as "loan" or "deposit" within the meaning of Section 269SS. The Additi .....

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ath Plastic Industries (P) Ltd. and Ors vs K.L. Anand (1998) 230 ITR 522, a learned Single Judge of this court pointed out that the distinction between a loan and a deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement while in the case of a deposit it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This judgment was .....

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that the receipt of share application monies from the three private limited companies for allotment of shares in the assesseecompany cannot be treated as receipt of loan or deposit. In any case, the Tribunal has rightly noticed the cleavage of judicial opinion on the point and held that in that situation there was reasonable cause u/s 273B, applying the judgment of the Supreme Court in Vegetable Products (supra). 10. Similarly, in CIT vs. Sunil Kmar Goel, (2009) 315 ITR 163 (P&H), a family t .....

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m. 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 .....

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section 273B for not invoking the provisions of section 271E of the Act. The impugned order of penalty is cancelled. The findings of the Commissioner of Income tax (Appeals) have been confirmed in appeal by the Tribunal. Therefore, the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal that the assessee had shown reasonable cause for the failure to comply with the provisions of section 269T of the Act is a finding of fact based on appreciation of material on record. I .....

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no prejudice was caused to the Revenue, in the instant action of the respondent-assessee inasmuch as, the respondentassessee did not attempt by the impugned act to avoid any tax liability. Furthermore, there is no dispute about the fact, that the instant cash transactions of the respondent-assessee were with the sister concern, and that, these transactions were between the family, and due to business exigency. A family transaction, between two independent assessees, based on an act of casualnes .....

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was taken by the Jharkhand High Court in Bholotia Engineering Works Pvt. 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 sha .....

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es 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, it appears to us that there cannot be much difficulty in holding that the amount paid in support of an application for shares must be considered to be a deposit till the allotment of shares or refund of the money on rejection o .....

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