TMI Blog2016 (4) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany in the bank account of the assessee company. Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 exempts any amount received from a person who at the time of receipt of the amount was a director of the company, or any amount received from its shareholders by a private company, or by a private company which has become a public company. In the instant case, the amount was deposited by the director / share holder of the assessee company. Therefore, in view of the provisions of Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, it cannot be said that the assessee company has violated the provisions of section 269SS of the Act. Thus, the assessee has proved throughout beyond any shadow of doubt that transactions are genuine and there is a reasonable cause within the meaning of section 273B of the Act which provides that no penalty shall be imposed on the person or the assessee, as the case may be, for any failure referred to in section 269SS of the Act, if he / assessee proves that there was a reasonable cause for failure to take a 'loan' or 'deposit' otherwise than by account payee cheque or account payee bank draft then the penalty should not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of shares in a closely held company and that too on occasions when money was urgently required by the assessee at its work site which did not have banking facilities, cannot be treated as loan or deposit to come into the mischief u/s 269SS. 5. Without prejudice to above and as a alternative submissions, Shri Parikshit Aggarwal, Ld. Counsel for the assessee submitted that there was a reasonable cause within the meaning of section 273B of the Act and, therefore, no penalty is leviable u/s 271D of the Act. According to Ld. Counsel for the assessee even if it is assumed for the arguments sake that the amount of ₹ 30,26,000/- was not in the nature of share application money, even then if transactions are between the company and its directors due to business expediency and are bona fide transactions (not aimed to avoid tax liability / and of in the nature of technical / venial breach), the same could be held a reasonable cause u/s 273B of the Act, no penalty u/s 271D of the Act is leviable. According to Ld. Counsel for the assessee, levy of penalty on bona fide transaction is nothing but tax on tax. He, therefore, submitted that the impugned penalty deserves to be cancelled/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer treated the amount of ₹ 30,26,000/- received by the assessee company as share application money from Sh. Tejinder Singh, one of the directors of the company. It is observed that while levying the penalty u/s 271D of the Act, the Jt.CIT, Shimla Range, Shimla held that the amount of ₹ 30,26,000/- has been received by the company in cash in share application account and not in the current account. He therefore, relying on the judgment of the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering works (P) Ltd v CIT (2005) 275 ITR 399 (Jharkhand) held that money received for share application partakes the nature of deposit. Accordingly, the Joint CIT, Shimla held that the assessee had acted in contravention of Section 269SS of the Act, for which penalty u/s 271D of the Act is leviable. In the aforesaid case, the Hon'ble Jharkhand High Court has observed as under:- 10. What will happen if shares are ultimately allotted to the applicant ? What is the nature of the amount in the hands of the company until the shares are allotted ? The amount cannot be a loan. But at the same time, there is an obligation on the company to return the money to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share application money from Shri Tejinder Singh. The CIT(A) noted that for all practical purposes, Shri Tejinder Singh himself was managing the business affairs of the assessee company. As per the CIT(A), the authorized and subscribed share capital of the company was shown at 12,50,000 shares @ ₹ 10 each, out of which 12,49,990 shares were subscribed by Shri Tejinder Singh amounting to ₹ 12,49,900/-. The other share holders was one Shri S. Pasricha in whose name only 10 shares worth ₹ 100/- were shown subscribed. The CIT(A) took the view that the share capital contribution of only ₹ 100/-out of total share capital of ₹ 1,25,00,000/- in the name of Shri Pasricha was prima facie only a window dressing to give semblance of genuineness to the affairs of the company. The Ld. CIT(A) has pointed out that even the unsecured loans to the company was in the name of Shri Tejinder Singh only amounting to ₹ 28,53,948/-. The CIT(A) concluded that in the above circumstances, it was not difficult for Shri Tejinder Singh to present the accounts of the company in any manner to suit his own convenience. Accordingly, he deposited a sum of ₹ 30,26,000/- as sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court did not agree with the view taken by the Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd v CIT (supra) and held that the amounts received by the assessee towards share application money would not fall under loan or deposit as provided u/s 269SS of the Act. Accordingly, the Hon'ble High Court held that penalty u/s 271D was not leviable. In our view, the issue as to whether 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 Hon'ble High Courts on this issue and there is not direct decision of the Jurisdictional High Court on this point. The Hon'ble Supreme Court of India in the case of Vegetable Products Ltd (1973) 88 ITR 192 (SC) held that if the Court finds that language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of a penalty. It is also relevant to point out here that the Assessing officer himself has admitted in para 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved the object of introducing of section 269SS 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 deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. 13. The Hon'ble Supreme Court further observed that section 273B of the Act further provides that if there is a genuine and bona fide transactions and the tax payer could not get a loan or deposit by account 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT Vs. Sunil Kumar Goel (2009) 315 ITR 163 (P H), it was held that cash transactions with sister concern 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 transaction, between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof is contained in the compilation of accounts and which has no tax effect, in our view establishes reasonable cause under section 273B of the Act. Since the respondent assessee had satisfactorily established reasonable cause under section 273B of the Act he must be deemed to have established sufficient cause for not invoking the penal provisions (sections 271D and 271E of the Act) against him. Similarly, in the case of CIT Vs. Maheswari Nirman Udyog (2008) 302 ITR 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to give false explanation for his unaccounted money, or if he makes any false entry, he shall have no escape by giving false explanation to the same. In the instant case, it is clear that the cash transactions of the assessee were with the director of the company, and due to business expediency. Nobody has doubted the genuineness of the transactions. It is an admitted fact that the money was deposited by Shri Tejinder Singh, one of the directors of the company in the bank account of the assessee company. Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975 exempts any amount received from a person who at the time of receipt of the amount was a director of the company, or any amount received from its shareholders by a private company, or by a private company which has become a public company. In the instant case, the amount was deposited by the director / share holder of the assessee company. Therefore, in view of the provisions of Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, it cannot be said that the assessee company has violated the provisions of section 269SS of the Act. Thus, the assessee has proved throughout beyond any shadow of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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