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TMI Blog2015 (12) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, 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 271D of the Income Tax Act, 1961 on the ground that the amount was received in the current account, even though the section itself does not provide any exception that the loan or deposit received in the current account of the assessee would be exempt from the provisions of Section 269SS of the Act? ii) In the facts and circumstances of the case, whether the ITAT was right in holding that receipt of share application money in cash would be exempt from the provisions of section 269SS? iii) In the facts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refer to the relevant statutory provisions. Rule 2(b) (vii) and (ix) of the Companies (Acceptance of deposits) Rules, 1975 (in short, the Rules ) reads thus:- Rule 2(b): deposit means any deposit of money with, and includes any amount borrowed by, a company, but does not include- (i) to (vi) xx xxx xxxx xx xx xx xx (vii) any amount received 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 from a person who, at the time of the receipt of the amount,was a director, relative of director or member: Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes 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 271D. (1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner. 7. In order to impose penalty under section 271D of the Act, the revenue has to establish that what was received by the assessee, was a loan or deposit within the meaning of section 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 constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the hotel. The payment was generally required for labour payments and other cash items, therefore, it is a reasonable case for accepting the cash from directors and relatives and even on this basis also penalty 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/refund of money without interest, in case of non allotment of shares either fully or partly. It was held by the Madras High Court that the money retained by the company was neither deposit nor loan,it was only share capital advance. The advances of share application money or repayments of such advances had not flowed from any undisclosed income of the assessee or the concerned persons. The assessee had not paid any interest at all on any of the advances repaid after some time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 private company received share application monies in cash from three private limited companies. The Assessing Officer was of the view that the assessee was liable to be proceeded against for levy of penalty under section 271D of the Act on the ground that the provisions of section 269SS of the Act were attracted to the receipt of monies in cash. The assessee contended that there was no violation of the provisions of section 269SS of the Act as it had not accepted any loan or deposit in cash. The receipt 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 the Delhi High Court read thus:- 7. Section 269SS prohibits any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be seen 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 transaction between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof was contained in the compilation of accounts and which had no tax effect, established reasonable cause under section 273B of the Act. Since the 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 penalty provisions of Sections 271D and 271E of the Act against him. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 11. However, contrary view 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 share application money in cash amounting to ₹ 20,000/- or more was held to be violating the provisions of section 269SS of the Act. It was observed as under:- 9. If we take recourse to the explanation in Section 269T of the Act, deposit means a deposit of money which is repayable after notice or repayabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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