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2016 (4) TMI 378 - ITAT CHANDIGARH

2016 (4) TMI 378 - ITAT CHANDIGARH - TMI - Penalty u/s 271D - whether there was a reasonable cause in accepting the deposits in contravention of provisions of section 269SS of the Act? - Held that:- The cash transactions of the assessee were with the directors and share holders of the company due to business expediency. Nobody has doubted the genuineness of the transactions. In my opinion, the assessee has proved throughout without any shadow of doubt that the transactions are genuine and there .....

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quently, the impugned penalty levied u/s 271D of the Act is cancelled. - Decided in favour of assessee - ITA No. 776/Chd/2015 - Dated:- 29-2-2016 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT For The Appel lant : Sh. Sudhir Sehgal For The Respondent : Sh. S.S.Mittal This appeal filed by the assessee is directed against the order of CIT(A), Patiala dated 3.9.2015 in confirming the penalty of ₹ 5 lakhs imposed u/s 271D of the Income-tax Act, 1961 (in short 'the Act') for the assessmen .....

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on 30th March 2010. However, the case was selected for scrutiny as per CASS. Statutory notices were issued to the assessee and in response to the notice, the assessee submitted the requisite information with relevant documentary evidence. The Assessing officer while examining the balance sheet as on 31.3.2008, noticed that there was increase in the amount of share capital. The share capital as on 31.3.2008 was ₹ 35 lakhs against ₹ 30 lakhs as on 31.3.2007. As per Schedule 'A' .....

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received during the year from the following three persons:- S.No. Name Amt. (Rs.) date 1 Smt. Anju Chawla 2,00,000/- 21.5.2007 2 Mrs Reeva Chawla 1,00,000/- 21.5.2007 3 Mrs. Asha Chawla 2,00,000/- 15.2.2008 The Assessing officer noticed that the aforesaid share application money was received in cash and all the above persons are directors / share holders of the company. According to Assessing officer, as per the information submitted by the assessee company to the Registrar of companies for the .....

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ompany during the year under consideration under the head 'share application' should not be treated as unexplained deposits received from these persons and be not considered for levy of penalty u/s 271D of the Act, since the amount in question has been received in cash exceeding the limit of ₹ 20,000/- from each person, in violation of provisions of section 269SS of the Act attracting the levy of penalty u/s 271D of the Act. In response to the show cause notice issued for levy of p .....

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e company and the amount in question was returned to the parties through account payee cheuqes in the subsequent years. Alternatively, it was contended on behalf of the assessee that the transactions in question were just family transactions between the independent assessees, and such genuine transaction does not attract penalty u/s 271D of the Act . For this proposition the assessee he relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Sunil Kumar Go .....

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provisions of section 269SS of the Act. The assessee relied on the decision of the Hon'ble High Court of Madras in the case of CIT Vs. Idhayan Publication Limited. [2006] 285 ITR 221 (Mad.) wherein the Hon'ble High Court observed that as per the Companies Act (Acceptance of Deposits) Rules, 1975 under Rule 2(b)(ix), deposits does not include any amount received from a director or a share holder of a private limited company. The Hon'ble High Court ruled that the transactions between t .....

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hancement of authorized capital was ever sought to be made by the assessee before the Registrar of the Companies. The Assessing officer took the view that the assessee had violated the provisions of section 269SS of the Act by receiving aforesaid amount of ₹ 5 lakhs in cash and, thus was liable for penalty u/s 271D of the Act. Consequently, the Assessing officer imposed penalty of ₹ 5 lakhs u/s 271D of the Act being the amount equal of loan /deposit received in cash by the assessee i .....

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e in accepting the loan or deposit in cash. Accordingly, the CIT(A) dismissed the appeal of the assessee. 4. Now the assessee is in appeal against the order of CIT(A) before this Bench of the Tribunal. I have heard Shri Sudhir Sengal, Ld. Counsel for the assessee and Shri S.K. Mittal the Ld. DR at length and have also perused the materials available on record. Shri Sudhir Sehgal Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. It is apparent from the rec .....

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sha Chawla is wife of Sh. Madan Chawla, who is director of the company is also a share holder of the assessee company. At this stage, I may refer to the decision of Hon'ble Jharkhand High Court in the case of Bhalot ia Engineering Works (P) Ltd v CIT (2005) 275 ITR 399 (Jharkhand), wherein it has been held by the Hon'ble Jharkhand High Court that the share application money partakes the character of deposits. There are contrary decisions of other High Courts, wherein it has been held tha .....

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the share application money received in cash would be exempt from the provisions of section 269SS of the Act or not is a debatable issue and there are contrary decisions of various Hon'ble High Courts on this issue. The next question also arises as to whether in the absence of Board's Resolution, the assessee company has increased authorized share capital or not? In my opinion, this issue is not free from debate. Without prejudice to above, as an alternative contention, Shri Sudhir Sehg .....

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sit or the aggregate amount of such loan or 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 clause (a) together with amount or the aggregate amount referred to in clause (b) is ₹ 20,000/- or more w.e.f. 1.4.1989. For .....

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255 ITR 258 (SC) has observed the object of introducing of sect ion 269 SS of the Act, which reads as under :- "The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received depos .....

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unt payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy penalty. Section 273B of the Act provides that if assessee proves that there was a reasonable cause, the assessee is not subject to levy of penalty. For the argument sake, in this case if it is accepted that assessee did not receive the share application money but it was a deposit within the meaning of section 269SS of the Act, therefore, the que .....

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ssessing officer. It is also apparent from the records that the evidence furnished by the company was also verified by the Assessing officer. The contention of Shri Sudhir Sehgal, Ld. Counsel for the assessee is that the money in cash was introduced in the company as the company was incurring huge losses and was not in a position to bear the burden of interest. This fact is apparent from the assessment order itself that the assessee submitted its return of income on 29.9.2008 declaring a loss of .....

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, one of the directors of the company. Similarly, the Revenue has also not doubted the deposits made by Smt. Anju Chawla W/o Shri Rakesh Chawla, Director of the company and Smt. Asha Chawla W/o Shri Madan Lal Chawla another Director of the company. It is also relevant to state here that Smt. Anju Chawla and Smt. Asha Chawla are share holders of the assessee company. The amount of ₹ 5 lakhs introduced by the above three persons has not been treated as cash credits u/s 68 of the Act. In othe .....

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erns which had no tax effect, established 'reasonable cause' u/s 273B of the Act. Therefore, no penalty u/s 271D and 271E is leviable. The relevant observations made by the Hon'ble Punjab & Haryana High Court in the above case are as under:- "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 transa .....

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ons 271D and 271E of the Act) against him." 8. Similarly, in the case of CIT Vs. Maheswari Nirman Udyog (2008) 302 ITR 201 (Raj . ), the assessee was a Contractor doing business in a remote area of Nokha Tehsil. The assessee company was required to make spot payments to the labourers etc. and for that the company needed cash. The company borrowed money from its sister concern at the work site. The Assessing officer levied the penalty u/s 271D of the Act for violating the provisions of secti .....

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ve been paid on the same. The Hon'ble High Court further held that the Tribunal has correctly held that the transactions were genuine and therefore, explanation given by the assessee was reasonable for receiving payments in cash. 9. Shri Sudhir Sengal, Ld. Counsel for the assessee submitted that penalty u/s 271D is not leviable in respect of the deposits received by the company through bank from its director. In the case of CIT v Idhayam Publications Ltd (supra) the Hon'ble Madras High C .....

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he Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of section 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 dated September 29, 1997, and in that letter he explained that the amount received from Mr. S. V. S. Manian had been shown as "unsecured loan from directors" in the balance-sheet. As per the .....

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not fall within the meaning of loan or advance, there is no violation of section 269SS of the Income-tax Act. We find no error in the order of the Tribunal and the same requires no interference. Hence, no substantial question of law arises for consideration of this court. Accordingly, we dismiss the above tax case. No costs." Similarly, the Hon'ble Chhattisgarh High Court in the case of Preeti Fuels & Flames (P) Ltd. (2011) 330 ITR 129 held as under:- 6. A perusal of the above quote .....

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e company which has become a public company. Rule 2(b)(ix) of the Rules, 1975, is relevant here and quoted below : "2. Definitions.- (a) 'Act' means the Companies Act, 1956 (1of 1956) ; (b) 'deposit' means any deposit of money with, and includes any amount borrowed by, a company, but does not include- ….. (ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from its shareholders, by .....

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