TMI Blog2014 (1) TMI 1683X X X X Extracts X X X X X X X X Extracts X X X X ..... ven on this basis also penalty is not leviable. We set aside the order of learned CIT(A) and delete the penalties levied under s. 271D in all the years - Decided in favour of assessee. - ITA Nos. 876 to 879/Chd/2013 - - - Dated:- 30-1-2014 - T.R. Sood, Accountant Member and Sushma Chowla, Judicial Member Tej Mohan Singh for the Appellant Akhilesh Gupta for the Respondent ORDER T.R. Sood, Accountant Member:- 1. These appeals filed by the assessee are directed against the common order dt. 27th Aug., 2013 of learned CIT(A), Patiala. 2. In all these appeals, identical issue regarding confirmation of penalty under s. 271D of the Act has been raised. Since the facts are identical in all these cases, therefore, by the consent of parties ITA No. 876/Chd/2013 was taken for detailed hearing. The grounds of appeal filed by the assessee read as under:- 1. That the learned CIT(A) has erred in law holding that the penalty notice issued and subsequent penalty order passed under s. 271D of the Act by the Jt. CIT was not barred by limitation which is illegal, arbitrary and unjustified. 2. That without prejudice to the above, the learned CIT(A) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of deposit. In any case the money was given by the directors for day to day construction of the hotel which was being constructed by the assessee company. The money was required because loans have not been sanctioned by the banks and construction could not be stopped and, therefore, there was urgent need of money and it was a reasonable cause. In this regard, reliance was placed on the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Maheshwari Nirman Udyog (2007) 211 CTR (Raj) 579: (2008) 302 ITR 201 (Raj) and Hon'ble Punjab and Haryana High Court in the case of CIT vs. Sunil Kumar Goel (2009) 21 DTR (PandH) 43 : (2009) 315 ITR 163 (PandH). Reliance was also placed on various Tribunal decisions that penalty cannot be levied in these circumstances. Finally, it was submitted that transactions are genuine and assessee was not knowing that assessee could not accept the share application money in cash and was ignorant of this provision. For this proposition, reliance was placed on the decision of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh and Ors. (1979) 118 ITR 326 (SC). 5. The Jt. CIT examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also surprising, according to him, that proprietary concern and company were having bank accounts while money was taken in cash. 6. On reasonable cause, he observed that assessee has not been able to give any reasonable cause for accepting the cash. Simply showing that hotel/building construction was in full swing and no loan from banks was sanctioned does not explain as to what was reasonable cause in accepting the money in cash. He also observed that provisions of s. 269SS are applicable even if it was a case of genuine loans. In this background, he levied a penalty of ₹ 4,15,440 for asst. yr. 2003-04, ₹ 1,07,49,200 for asst. yr. 2005-06. and ₹ 29,33,000 for asst. yr. 2006-07 and ₹ 66,50,000 for asst. yr. 2007-08 under s. 271D of the Act. 7. Aggrieved by the above order, the assessee filed an appeal before the CIT(A). Before CIT(A), written submissions were filed which, according to first appellate authority, the assessee has largely resubmitted the submissions made before the Jt. CIT. He did not find much force in these submissions and observed that cash has been received by the assessee on regular intervals and sometimes on consecutive days. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntant, it cannot be taken as a reasonable cause. In this background, the learned. CIT(A) confirmed the levy of penalty. 8. Before us, learned counsel for the assessee carried us through the penalty order pointing out various facts. He submitted that Jt. CIT has levied the penalty mainly on the basis of decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. (supra). First of all, this decision is totally distinguishable because in that case money was received from outsiders. The share application money was received from 10 persons who were neither directors nor relatives. In the case before us, the share application money has been received from the directors only. In any case the decision of the Hon'ble Jharkhand High Court has already been distinguished by the Hon'ble Delhi High Court in the case of CIT vs. I.P. India (P) Ltd. (2012) 70 DTR (Del) 452 : (2012) 343 ITR 353 (Del). In similar circumstances, it was held that share application money would not constitute loans or deposits for the purpose of s. 269SS. Further, the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Speedways Rubber (P) Ltd. (2010) 326 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting the share application money in cash. He pointed out that observation of the AO that money paid to a company along with an application for share is a deposit of money in the company which is repayable by it after the period for allotment of shares or decision is taken regarding the allotment of shares is not correct because under the Companies Act no time-limit has been prescribed for the allotment of shares. Further, the Jt. CIT also observed that initially money was credited to the current account and later on it was transferred to share application money account, that itself would not attract the penalty provision of s. 271D because even current account with a director would not amount to deposit. He submitted that observation of the Jt. CIT that share application money has exceeded the authorized capital from asst. yr. 2005-06 is of no consequence. The only restriction in the Companies Act is that shares cannot be allotted i.e. paid-up capital cannot exceed the authorized capital but there is no restriction with regard to acceptance of share application money. In any case, the shares have been allotted at the premium of ₹ 90 per share and, therefore, at no stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under:- 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 if:- (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in cl. (a) together with the amount or the aggregate amount referred to in cl. (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 co-operative bank; (c) any corporation established by a Central, State or Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or s. 272B or sub-s. (1) or sub-s. (1A) of s. 272BB or sub-s. (1) of s. 272BBB or cl. (b) of sub-s. (1) or cl. (b) or cl. (c) of sub-s. (2) of s. 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. Therefore, if an assessee is able to show a reasonable cause then the penalty under s. 271D may not be leviable. 15. Now the first question arises whether the assessee has contravened the provisions of s. 269SS. As observed earlier, no definition has been given clearly for the expression loan or deposit . In the normal business world, a loan connotes a transaction in which borrower approaches the lender for a certain sum for a fixed period on the terms and conditions which may be agreed between borrower and lender which would include the rate of interest, tenure of the loan and other conditions regarding security etc. Similarly, the word 'deposit' would connote a transaction in which the depositor gives to another person generally a bank or some other person a deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved 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 share capital advance. Penalty under s. 271E is not automatic and to be levied only in the absence of a reasonable cause. No doubt a reasonable cause has to be established by the assessee. The rationale behind the provisions of ss. 269SS and 269T is to prevent tax evasion, i.e., the laundering of concealed income by parties in the guise of cash loans or deposits in or outside the accounts. The provisions of ss. 269SS and 269T therefore have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan, the provisions' of ss. 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 s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 271E, the assessee submitted that transaction between the assessee and Mr. S.V.S. Manian, proprietor of Manian Creation was a current account in nature and was not a loan or deposit. This explanation was not accepted by Dy. CIT and penalty was levied. Penalty was ultimately deleted by the Tribunal. On appeal filed by the Revenue, the Hon'ble High Court adjudicated the issue vide paras 4 and 5 which are as under:- We heard the arguments of learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr. S.V.S. Manian was one of the directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr. S.V.S. Manian. Mr. S.V. S. Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of s. 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dt. 29t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of ss. 271D and 271E of the Act against him. The deletion of penalty by the Tribunal was valid. While holding the above position, the Hon'ble Punjab and Haryana High Court had in turn relied on another decision of the same Court in the case of CIT vs. Saini Medical Store (2005) 277 ITR 420 (PandH) and the following observations has also been extracted at para 16:- As pointed out earlier, there is no doubt about the genuineness of the transactions which have been fully accepted in the assessment made for the year under consideration. Even if there is any ignorance, which resulted in the infraction of law, the default is technical and venial which did not prejudice the interests of the Revenue as no tax avoidance or tax evasion was involved. To my mind, bona fide belief coupled with the genuineness of the transactions would constitute reasonable cause under s. 273B for not invoking the provisions of s. 271E of the Act. The impugned order of penalty is cancelled. The findings of the CIT(A) have been confirmed in appeal by the Tribunal. Therefore, the findings recorded by the CIT(A) and the Tribunal that the assessee had shown reasonable cause for the failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the same was not with any intention to avoid or evade the tax. The findings of the CIT(A) had been confirmed in appeal by the Tribunal. The cancellation of penalty was valid. 20. Now let us examine the facts of the present case in the light of the above discussion on the legal position. In the present case, the assessee has received some cash payments which have been initially credited to the current account of various directors and later on transferred to the share application money account. The relevant copies of account read as under:- Eqbal Inn and Hotels Ltd. SST Nagar, Rajpura Road, Patiala Share Application Money A/c Ledger Account -ast April, 2001 to 31st March. 2002 Date Particulars Vch Type Vch No. Debit Credit 31-3-2002 Dr. (as per details) Kamalpreet Singh Sethi's A/c Dr. Saran Kaur's A/c 48,71,57247,560 Journal 49,19,132 Cr. closing balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,62,930 Cr. paid-up share capital Journal 1,64,20,000 Dr. Pritam Kaur A/c Journal 85,49,200 1,64,20,000 2,85,31,774 1,21,11,774 Cr. Closing balance 2,85,31,774 2,85,31,774 1st April. 2005 to 31st March, 2006 1-4-2005 Dr. Opening balance 1,21,1 1,774 31-3-2006 Dr. Kamal Preet Singh Sethi Share App. money of KPS Journal 29,33,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54,44,774 20-4-2008 Dr. Cash Receipt 5,00,000 Cash received from Saran Enterprises for Eqbal Inn and Hotels Ltd. 28-4-2008 Dr. Cash Receipt 5,00,000 Cash received from Saran Enterprises for Eqbal Inn and Hotels Ltd. 14-5-2008 Dr. Cash Receipt 4.00,000 Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. 21-5-2008 Dr. Cash Receipt 3,31,250 Cash received from Saran Enterprises Pta for electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. 31-3-2009 Dr. Balwinder Singh Journal 49.00.000 Cash received from Balwinder Singh Director 3,54,76,024 Cr. Closing balance 3,54,76,024 3,54,76,024 3,54,76,024 1st April, 2009 to 31st March, 2010 1-4-2009 Dr. Opening Balance 3.54.76,024 31-3-2010 Cr. Kamalpreet Singh Journal 733 1,49,47,716 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-5-2002 Dr. Improvement Trust, PTA. - Land payment to I.T. Pta through Ch. No. 149107 of saving A/c No. 39934 of KPS Sethi for II instalment Journal 29,18,520 29-10-2002 Dr. Improvement Trust, PTA. INTT. Payment of Intt. paid to I.T. Pta. by Ch. No. 484264 from saving A/c No. 9659 in PNB Leela Bhawan, Pta. of Kamalpreet Singh Sethi. Journal 9,38,887 Dr. Cost of site plan A/C Payment of site plan paid to I.T. Pta by Ch. No. 484265 from saving A/c No. 9659 in PNB, Leela Bhawan, Pta of Kamlpreet Singh Sethi Journal 3,38,242 23-11-2002 Dr. Improvement Trust, PTA. - Land payment to I.T. Pta. through Ch. No. 149111 of saving A/c No. 39934 of KPS Sethi for III Journal 29,18,520 instalment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, The Mall, Pta. Journal 5,62,930 27-11-2004 Dr. Architects Combine, New Delhi D.D No. 150438 of Punjab and Sind Bank issued from Saran Ent. as advance Journal 2,00,000 31-3-2005 Cr. Share application money A/c Journal 14,62,930 14,62,930 14,62,930 1st April, 2004 to 31st March, 2005 1-10-2004 Dr Cash Receipt 3,00,000 Cash received from Saran Enterprises 1-11-2004 Dr. Cash Cash received from Saran Enterprises Receipt 4.00.000 5 12- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh received from Saran Enterprises Receipt 2,00,000 1-9-2005 Dr. Cash Cash received from Saran Enterprises Receipt 2.00,000 19-9-2005 Dr. Cash Cash received from Saran Enterprises Receipt 4.00.000 12-2005 Dr. Cash Cash received from Saran Enterprises Pta Receipt 3.00.000 4-1-2006 Dr. Cash Cash received from Saran Enterprises Pta Receipt 5.00.000 13-2-2006 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Receipt 3.00.000 31-3-2006 Cr. Share application money A/c Share App. Money of KPS Journal 29,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Receipt 3,00,000 9-8-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 25-8-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 Carried over 33,50.000 Kamalpreet Singh-Current A/c Ledger account-1st April, 2006 to 31st March, 2007 Brought forward 5-9-2006 Dr. Cash Cash received from Saran Enterprises Receipt 1,00,000 5-10-2006 Dr. Cash Cash received from Saran Enterprises Receipt 2,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 16-4-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 5-5-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 7-5-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 3-6-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 16-7-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 4,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt 9,00,000 15-5-2004 Dr. Cash Cash received (withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta Receipt 5,00,000 17-5-2004 Dr. Cash Cash received (withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta 2,50,000 1-6-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) 10,00,000 15-6-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) Dr. Cash Cash received (from Jaimalson Ent. Pta) 2,15,000 3,85,000 17-6-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) 1,56,000 1-7-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) Dr. Cash Cash received (from Jaimalson Ent. Pta) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-3-2007 Cr. Share application money A/c Received from Balwinder Singh - Director Journal 4,00,000 4,00,000 4,00,000 1st April, 2007 to 31st March, 2008 1-8-2007 Dr. Cash Cash received from M.P Traders For Eqbal Inn and Hotels Receipt 2,00,000 7-10-2007 Dr. Cash Cash received from M.P. Traders Receipt 2,00,000 20-10-2007 Dr. Cash Cash from M.P. Traders For Hotel Eqbal Inn and Hotels Receipt 3,00,000 9-12-2007 Dr. Cash Cash from M.P Traders For Hotel Eqbal Inn and Hotels Receipt 3,00,000 26-12-2007 Dr. Cash Cash from M.P Traders For Hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15-2-2009 Dr. Cash Cash received from M.P. Traders For Eqbal Inn and Hotels Ltd. Receipt 5,00,000 27-3-2009 Dr. Cash Cash received from M.P. Traders For Eqbal Inn and Hotels Ltd. Receipt 4,00,000 31-3-2009 Cr. Share application money Cash received From Balwinder Singh Director Journal 49,00,000 49,00,000 49,00,000 21. First of all reading of the account of Shri K.M. Sethi who is a director clearly shows that money has not come only through cash but through cheques also on various dates. Money has been credited to the current accounts. The same findings have been given by the Jt. CIT at para 3.3., which reads as under:- 3.3 The perusal of account of Eqbal Inn and Hotels Ltd., Patiala in the books of Saran Enterprises reveal that it paid cash for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the director or shareholder of the company, therefore, this amount cannot be termed as loan or deposit for the purpose of s. 269SS r/w s. 271D and therefore, penalty could not have been imposed. If such situation is examined from another angle that if the money is accepted as share application money then the same cannot be construed again as loan or deposit as held by Hon'ble Delhi High Court in the case of I.P. India (P) Ltd. (supra). The same view has been taken by Hon'ble Madras High Court in the case of CIT vs. Rugmini Ram Ragav Spinners (P) Ltd. (supra). Definitely, Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (supra) has taken a different view. Here though the contention of the learned counsel for the assessee was that a view favourable to the assessee particularly in the case of penalty provisions should be adopted as per the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (supra). But in our opinion this does not require further discussion because Hon'ble Punjab and Haryana High Court itself in the case of Speedways Rubber (P) Ltd. (supra) has taken the similar view. In that case the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, provisions of the Companies Act were not violated. 24. The learned Departmental Representative had also raised doubts regarding premium charged by the company. Again, there is no restriction in the Companies Act, 1956 for charging of premium on the issuance of shares. There used to be restriction for charging of the premium and a particular agency known as controller of capital issue of shares which used to sanction the premium which could be charged by the companies. However, this was applicable only in the case of listed companies. The controller of capital issue was also abolished somewhere in 1994 when liberalization measures were taken by the Government and presently there is no restriction on charging of premium by private companies as well as listed companies. Further, there was no restriction even under IT Act regarding premium received on share application. A proviso was added to s. 68 by Finance Act, 2012 w.e.f. 1st April, 2013 which reads as under:- Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical 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 bona fide belief on the part of the assessee that this is not in contravention of provisions of the Act, therefore, it is of technical nature and does not call for levy of penalty. In any case, a reasonable cause was also explained that assessee company was constructing a hotel for which bank loans were not sanctioned and, therefore, directors had to contribute the money towards construction of the hotel. The payment was generally required for labour payments and other cash items, therefore, it is a reasonable cause for accepting the cash from directors and relatives and even on this basis also penalty is not leviable. 26. In these circumstances, we set aside the order of learned CIT(A) and delete the penalties levied under s. 271D in all the years. 27. In the result, all the appeals of the assessee are partly allowed. - - TaxTMI - TMITax - Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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