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M/s Valley Extraction Pvt. Ltd. Versus The JCIT, Range, Shimla

2016 (4) TMI 902 - ITAT CHANDIGARH

Penalty levied u/s 271D - volition of sec 269SS - Held that:- It is an admitted fact that Sh. Tejinder Singh had made the deposits, though in cash. there is no violation of the provisions of sec. 269SS of the Act, in as much as the transactions have duly been recorded in the accounts of the company. There is no dispute that since the company was in urgent need of money, considering the urgency, Sh Tejinder Singh, one of the directors of the company introduced the money with the assessee company. .....

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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 depos .....

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e 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 be levied. - Decided in favour of assessee - ITA No. 66/Chd/2013 - Dated:- 8-3-2016 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER For The Appellant : Ss/Sh. Kapil Goe .....

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the Assessing officer that assessee had received a sum of ₹ 30,26,000/- in cash as share application money from Shri Tejinder Singh, one of the directors of the Company. As per the Assessing officer, all the cash transactions exceeded ₹ 20,000/-each and the Assessing officer took the view that provisions of section 269SS of the Income-tax Act have been violated and consequently penalty proceedings u/s 271D of the Act were initiated against the assessee company. The Assessing officer .....

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appeal before the Tribunal. 4. Shri Parikshit Aggarwal, Ld. Counsel for the assessee vehemently argued that while passing the impugned order, the Jt. CIT, Shimla treated the cash receipts in the nature of cash deposits or loans, which is not correct. According to Ld. Counsel for the assessee, the cash was contributed by Shri Tejinder Singh, one of the directors of the assessee company towards the share application money as per the Board's resolution. It is stated that the source of such mone .....

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l, 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 av .....

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s and have also perused the order lower authorities and decisions / judgments relied upon by the parties. In this case the ACIT, Circle Shimla (in short 'Assessing officer') framed the assessment u/s 143(3) of the Act on 28.12.2008. Para 6 of the order reads as under:- 6. As per ledger account of the company, the assessee company had received a sum of ₹ 30,26,000/- in cash as share application money from Shri Tejinder Singh one of the Directors of the company. Since cash transactio .....

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or the year ₹ 10,06,820/- Loss assessed u/s 143(3) ₹ 12,91,952/- For the assessment year 2005-06 Less: B/F losses of ₹ 10,06,820/- of AY 2005-06 Set off against the profit Loss to be carried forward ₹ 2,85,137/- Book profit declared u/s 115JB ₹ 10,31,982/- Assessed as above, Issue requisite documents. Issue penalty notice u/s 271D of the I.T. Act, 1961." 8. On a perusal of the above, it is clear that the Assessing officer treated the amount of ₹ 30,26,000 .....

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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 u .....

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idered in the context of the purpose sought to be achieved by the insertion of section 269SS in the Act. Obviously, it was done with a view to prevent transactions in black money and to ensure that payments of ₹ 20,000 and above, are traceable to transactions through a bank. If the mischief that is sought to be averted is kept in mind, it will be appropriate to hold that any payment of ₹ 20,000 or above, made to a company as share application money, should be as provided in section 2 .....

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assessee. 9. It is clear that in view of the judgment of Hon'ble High Court, the JCIT Shimla took the view that the money received for share application partakes of the character of deposits. When the matter went in appeal before the CIT(A), the Ld. CIT(A) has given a finding that the cash was not contributed by Shri Tejinder Singh towards the share application money as per paras 4.1 to 4.5 of the impugned order. According to Ld. CIT(A), the assessee failed to produce any documentary eviden .....

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firming the acceptance of 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 .....

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uded 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 share application money. The CIT(A) observed that the accounts of the company were not prepared and presented in an authentic manner. The Ld. CIT(A) categorically held that company was not having authorized share capital and the cash has not been contributed by Shri Tejinder S .....

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ompany for share application partakes the nature of deposit. When the matter came before the CIT(A) in appeal, the CIT(A) took a different view in holding that the amount in question was not contributed by Shri Tejinder Singh towards the share application money. Alternatively, the Ld. CIT(A) agreed with the Jt.CIT to hold that the share application money partakes character of deposit and, therefore, the provisions of section 269SS of the Act were applicable to the facts of the present case. Howe .....

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n money partakes the character of deposits. There are contrary decisions of other High Courts, wherein it has been held that the amount received in cash for allotment of shares did not amount to either loan or deposit within the meaning of section 269SS, hence, no penalty can be levied u/s 271D of the Act. These decisions are as under:- CIT v I.P. India (P) Ltd (2012) 343 ITR 353 (Delhi ) CIT v Rugmini Ram Ragav Spinners P. Ltd. (2008) 304 ITR 417 (Mad. ) CIT v M/s Iqbal Inn & Hotels Ltd in .....

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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 p .....

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any. It appears that the Ld. CIT(A) did not accept the contention of the Assessing officer that the money received by the assessee from Shri Tejinder Singh was towards share application money. Thus, it is observed that there is no unanimity about the issue involved in this case amongst the Revenue authorities. The next question is as to whether in the absence of Board's Resolution, the assessee company could have increased the authorized share capital or not? In our opinion, this issue is al .....

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person shall, after 30.6.1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee draft, if (a) the amount of such loan or deposit 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 unp .....

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n a sum equal to the amount or loan or deposit so taken or accepted. The Hon'ble Supreme Court in the case of Asst. Director of Inspection (Investigation) Vs. Kum. A.B. Shanthi (2002) 255 ITR 258 (SC) has observed 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 fa .....

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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 was a reasonable cause, the assessee is not subject to levy of penalty. For the argument sake, in .....

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such money was completely from explained sources, the evidence of which was furnished before the Assessing officer. The said evidence was also verified by the Assessing officer. The contention of the assessee is that the money in cash was introduced in the company when it was urgently required by the company at its work site which did not have banking facilities. It is stated that the assessee company is engaged in the manufacturing of Cedar Oil from the roots of Devdar trees and which was sust .....

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l Karsog, District Mandi, a notified backward area in the interiors of Karsog in Himachal Pradesh. The Revenue has not doubted the source of deposits made by Shri Tejinder Singh one of the directors of the company. This amount has not been treated as cash credits u/s 68 of the Act. The amount invested by Shri Tejinder Singh stands duly verified and explained. Furthermore, Shri Tejinder Singh is one of the directors of the assessee company has introduced money in an almost 99.9% of company owned .....

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. 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 w .....

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yog (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 section 269SS of the Act. The Hon'ble Rajasthan High Court confirmed the order of the Tribunal in deleting t .....

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the transactions were genuine and therefore, explanation given by the assessee was reasonable for receiving payments in cash. 14. In the instant case, the assessee company was incurring huge losses and the cash flow position had crippled during the relevant period. At the relevant time, the assessee was in want of funds in order to immediate discharge of certain liabilities, and therefore, the decisions were taken by the promoters to infuse funds which were deposited by Shri Tejinder Singh for .....

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of the Act, in as much as the transactions have duly been recorded in the accounts of the company. There is no dispute that since the company was in urgent need of money, considering the urgency, Sh Tejinder Singh, one of the directors of the company introduced the money with the assessee company. As we have already observed herein above that the object of introducing sec. 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he makes any f .....

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