Income Tax Appellate Tribunal - Chandigarh
Eqbal Inn & Hotels Ltd., Patiala vs Assessee on 21 November, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
MS. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No. 876 to 879/CHD/2013
Assessment Years: 2003-04, 2005-06, 2006-07 & 2007-08
M/s Eqbal Inn & Hotels Ltd., v The JCIT,
C/o Shri Tej Mohan Singh, Advocate, Patiala Range, Patiala
Chandigarh
PAN No. AABCE2887M
(Appellant) (Respondent)
Date of hearing : 21.11.2013
Date of Pronouncement : 30.01.2014
Appellant By : Shri Tej Mohan Singh
Respondent By : Shri Akhilesh Gupta
ORDER
PER T.R.SOOD, A.M.
These appeals filed by the assessee are directed against the common order dated 27.8.2013 of Ld. C IT(A), Patiala.
2. In all these appeals, identical issue regarding confirmation of penalt y u/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 reads as under:-
1. That the Ld. Commissioner of Income Tax(Appeals) has erred in law holding that the penalty notice issued and subsequent penalty order passed under section 271D of the Act 2 by the Joint Commissioner of Income Tax was not barred by limitation which is illegal, arbitrary and unjustified.
2. That without prejudice to the above, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the imposition of penalty of Rs. 4,15,440/- under section 271D of the Act which is arbitrary and unjustified.
3. That the Ld. Commissioner of Income tax (Appeals) has erred in law as well as on facts in holding that the provisions of Section 271D are attracted in respect of share application money received from directors which is illegal, arbitrary and unjustified.
4. That in any case, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the reasonable cause pleaded before him in the correct perspective and as such the order passed by him is arbitrary and unjustified. .
3. Out of the above, ground No.1 was not pressed and, therefore, the same is dismissed as not pressed.
4. Ground Nos. 2, 3 & 4: After hearing both the parties, we find that ITO, Ward No.1, Patiala intimated the JCIT, Patiala Range that assessee has accepted Share Application money in cash from Shri Kamalpreet Singh Prop. M/s Saran Enterprises, Patiala, Shri Balwinder Singh, Prop. M/s M.P. Traders, Patiala & Smt. Pritam Kaur Prop M/s Jaimal Sons Enterprises. It was further intimated that this is in violation of provisions of section 269SS particularl y in view of the decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt Ltd vs C IT 275 ITR 399. In view of this information, JCIT, Patiala issued a show cause notice to the assessee for imposition of penalt y u/s 271D of the Act. In response to the notice, it was mainl y submitted that facts in the case of Bhalotia Engineering Works Pvt Ltd (supra) are distinguishable because assessee has 3 accepted Share Application Money in cash from directors only and not from any outsiders. Further, the loans have been accepted as genuine even by the Assessing Officer after scrutiny assessment. It was further submitted that Share Application Money is not governed by the definition of deposit as per rule 2(b)(ix) of the Company's (Acceptance of Deposit) Rules, 1975, because it clearl y provides that deposits would not include any amount received from person who at the time of receipt was Director or relative to the Director or Member of a company. Further, it was submitted that Hon'ble Madras High Court in the case of CIT v Idhayam Publications Ltd 285 ITR 22 (Mad.) deleted the penalt y by observing that share application money cannot be included in the definition 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 v Maheshwari Nirman Udyog 302 ITR 201 and Hon'ble Punjab & Haryana High Court in the case of CIT v Sunil Kumar Goel 315 ITR 163. Reliance was also placed on various Tribunal decisions that penalt y cannot be levied in these circumstances. Finall y, 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 Moti Lal Padampat Sugar Mills Co Ltd Vs Vs State of Uttar Pradesh & Ors 118 ITR 326 (SC).
5. The JCIT examined these submissions and did not find much force in the same. He observed that there was explanation provided for receipt in section 269SS and the nature of transaction envisaged in a different statute cannot be 4 imported to the nature of transaction envisaged in the Income tax Act. He further observed that in case of Bhalotia Engineering Works Pvt Ltd. (supra) also, the explanation was that the share application money would not constitute a deposit was rejected by the Hon'ble Jharkhand High Court. He also observed that money paid to a company along with an application for shares is also a deposit of money in the company which is repayable by such company after the period for allotment of shares comes to an end or decision is taken regarding allotment of shares. Thereafter, the amount is repayable to the person who paid money even without demand in that behalf. In the case, before him the assessee has not allotted shares even after five years against the share applications received by it and later on started returning the money in specie which clearl y establishes that such share application money was in the nature of deposit. It was also observed that perusal of the books of account shows that the money was initiall y credited to the respective current accounts and Assessee Company repeatedly received money in cash over a period of six years in several tranches at times on dail y basis or weekl y basis. According to him, no company can keep on receiving the cash in garb of share application money for such a long span of time. He also examined the position regarding authorized capital, paid of capital, share application mone y and observed that from assessment years 2005-06 to 2010-11, paid up capital and share application exceeded authorized capital which is not possible. The company failed to give any documentary evidence to show that it has applied for enhancement of authorized capital with Registrar of Copanies. He also examined the books of account of various proprietary concerns and noted that cash was coming to the company from proprietary concerns of the various individuals. He also noted that assessee did not allot a single share in assessment year 2005-06. In financial year 2005-06, the sum total of paid up capital and share application money was Rs. 2,90,31,774/- which was quite in excess of the authorized capital. In later years, the assessee received further share application money. It was also 5 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. Simpl y 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 section 269SS are applicable even if it was a case of genuine loans. In this background, he levied a penalt y of Rs. 4,15,440/- for assessment year 2003-04, Rs. 1,07,49,200/- for assessment year 2005-06, and Rs. 29,33,000/- for assessment year 2006-07 and Rs. 66,50,000/- for assessment year 2007-08 u/s 271D of the Act.
7. Aggrieved by the above order, the assessee filed an appeal before the CIT(A). Before C IT(A), written submissions were filed which according to first appellate authorit y, the assessee has largel y resubmitted the submissions made before the JCIT. 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 was observed that initiall y amount received by the assessee was credited to the current account of the director, therefore, it was impossible to comprehend that public limited company would be raising capital on day to day basis. According to him, if the amounts were received towards share application money then the same would not have been credited to a current account of a principal director or a credit should have gone to share application money account, it is onl y at the end of the year that money has been transferred to share application money account. Therefore, according to him, the cash received on various dates was not on account of share application money. According to him, even if it was presumed that journal entry for transferring the money to "Share 6 Application Money" account on 31 s t March was not a after thought, even then the applicabilit y of section 269SS has to be seen at the point of time when money is actuall y received. It was pointed out that it was not in the shape of Share Application Money. He further observed that in case of Kamalpreet Singh, the total credit standing in his account was Rs. 76,07,169/-. The face value of the share of the Appellant company was Rs. 10/-. Therefore, the amount of Rs. 76,07,169/- could not be inferred to be Share Application Money because normally shares could not be issued in fractions. He also noted that authorized capital of the company was not sufficient to extent to which Share Application Money has been received. The assessee could not have received Share Application Money as the authorized capital of the company was not sufficient and normall y no shares can be allotted beyond the authorized share capital. He also referred to Circular No. 387 dated 6.7.1984 and circular No. 345 dated 26.8.1982 and observed that there was no force in the submissions and if the transaction was genuine then penalt y could not be levied because the very purpose of the provision was to plug the situation, where cash found during the search was later on explained by way of loans from various parties. He also did not find force in the submissions that default, if any, was technical and venial in nature because penalt y u/s 271D could be levied even on persons who were not assessed to tax and, therefore, where default was not pointed out by the Chartered Accountant, it cannot be taken as a reasonable cause. In this background, the Ld. C IT(A) confirmed the levy of penalt y.
8. Before us, Ld. Counsel for the assessee carried us through the penalt y order pointing out various facts. He submitted that JCIT has levied the penalt y mainly on the basis of decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt Ltd. (supra). First of all, this decision is totally distinguishable because in that case money was received from outsiders. The Share 7 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 onl y. 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 343 ITR 353(Delhi). In similar circumstances, it was held that Share Application Money would not constitute "loans" or "deposits" for the purpose of section 269SS. Further, the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Speedways Rubber Pvt. Limited 326 ITR 31 has taken a similar view. In any case, when different views have been taken by different High Courts, then the decision which is favorable to the assessee has to be adopted and for this proposition he relied on the decision of Hon'ble Supreme Court in the case of C IT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and Podar Cements (P) Ltd. (1997) 226 ITR 625 (SC).
9. The Ld. Counsel for the assessee also submitted that in any case there was a reasonable cause for accepting the cash from directors. The assessee company was in the business of construction of the hotel. The assessee company had applied for various loans but the loans were not sanctioned and, therefore, the directors were left with no option but to contribute money towards construction of such hotel. Initiall y, money was received by the company in the current account and since the loans were not forthcoming it was decided to transfer the credit balance l ying in the current account at the end of the year to Share Application account. According to him, this was a reasonable cause and in this regard he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of C IT v Sunil Kumar Goel (supra) wherein it was clearl y held that a famil y transfer between two independent assessees for business exigencies would constitute a reasonable cause. He also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs Maheshwari Nirman Udyog (supra) and decision of Hon'ble Punjab & Haryana 8 High Court in the case of C IT vs Saini Medical Store reported in 276 ITR 79 (P&H). He also submitted that money received in current account can also not constitute loan or deposits for the purpose of levy of penalt y u/s 271D and in this regard relied on the decision of Hon'ble Madras High Court in the case of CIT v Idhayam Publications Ltd (supra).
10. He also submitted that share application money has been held to be genuine because assessments has been framed u/s 147 read with section 143(3) of the Act and no addition has been made. The accounts were audited by the Chartered Accountant who never pointed out that there was any violation of any of the provisions of Income Tax Act and this would also lead to conclusion that there was bonafide belief and reasonable cause for accepting the Share Application Money in cash. He pointed out that observation of the Assessing Officer 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 JCIT also observed that initiall y money was credited to the current account and later on it was transferred to share application money account, that itself would not attract the penalt y provision of section 271D because even current account with a director would not amount to deposit. He submitted that observation of the JCIT that Share Application Money has exceeded the authorized capital from assessment year 2005-06 is to no consequence. The onl y 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 Rs. 90/- per share and, therefore, at no stage the share Application Money has exceeded the authorized capital. The JCIT has also observed that 9 money has been transferred from the proprietary concern of the individual to the company e.g. in case of Shri Kamalpreet Singh the proprietor of Saran Enterprises from where money has been transferred. He submitted that proprietary concern is owned by the individual and there is no bar in withdrawing the money from the proprietary concern for the purpose of making share application with the company. Further, there is observation that shares have been allotted onl y after five years is of no consequence because there is no tome limit fixed for allotment of shares from the date of receipt of share application money. Further, in the case of Shri Kamalpreet Singh, shares were allotted in financial year 2002-03 also which becomes clear from the copy of account. He also submitted that JCIT has also observed that when proprietary concern were also having bank account why money was not transferred through cheques is of no consequence because money was transferred for the construction of hotel as and when the same was required and most of the time money was required for payment of labour and some other cash items. Money has also been transferred through cheques on various accounts which is clear from the copy of the accounts.
11. On the other hand, the Ld. DR strongl y supported the penalty order of JCIT as well as the order of C IT(A). He referred to various observations made by JCIT. He submitted that Assessee Company has accepted Share Application Money exceeding the authorised capital, which is not possible. However, when the Bench put a specific query whether he can show any provision in Companies Act through which there was any bar on acceptance of Share Application Money in excess of authorized capital, he could not show any provision in the Companies Act. The Ld. DR further submitted that it was stated by the Ld. Counsel that shares have been issued at premium but no permission seems to have been taken from any authorit y for issuing the shares at premium. He contended that case was squarel y 10 covered by the decision of Hon'ble Jharkhanad High Court in the case of Bhalotia Engineering Works Pvt Ltd (supra).
12. We have considered the rival submissions carefull y. Section 269 SS of the Act reads 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 clause (a) together with the amount or the aggregate amount referred to in clause (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 Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ;
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette :
[Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] Explanation.--For the purposes of this section,--
[(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes 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.] 11
13. The above provision clearl y shows that w.e.f. 30 t h day of July 1984, no person can accept loan or deposit for a sum exceeding Rs. 20,000/- in cash. Some exceptions have been provided but obviousl y the assessee is not covered by those exceptions. However, it is worth noting that Clause (iii) of the Explanation to this section has defined loan or deposit as "Loan or deposits" means loans or deposit of money'. This means practicall y no definition has been given for the expression "loan and deposit".
14. Section 271-D simply provides that if a person takes or accepts any loan or deposit in contravention of provisions of section 269SS, he shall be liable to pay by way of penalt y a sum equivalent to the amount of loan or deposit so taken or accepted. Therefore, once section 269SS is contravened, then that would invite penal consequences. However, section 271D is subject to the provisions of section 273B, which reads as under:-
"273B - Penalty not to be imposed in certain cases Notwithstanding anything contained in the provisions of [clause (b) of sub- section (1) of] [section 271, section 271A, [section 271AA,] section 271B [, section 271BA], [section 271BB,] section 271C, [section 271CA,] section 271D, section 271E, [section 271F, [section 271FA,] [section 271FB,] [section 271G,]] clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA] or [section 272B or] [sub-section (1) [or sub-section (1A)] of section 272BB or] [sub-section (1) of section 272BBB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 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 penalt y u/s 271D may not be leviable.
15. Now the first question arises whether the assessee has contravened the provisions of section 269SS. As observed earlier, no definition has been given 12 clearl y 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 securit y etc. Similarl y, the word 'deposit' would connote a transaction in which the depositor gives to another person generall y a bank or some other person a deposit of his belongings which may be money also on certain terms and conditions e.g. in case of a bank the depositor would deposit the money to be refunded after certain period along with pre-defined interest. Deposits can also be made by person for assuring the other of the performance of a contract e.g. in case of bailment contracts. The Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works Pvt Ltd (supra) has opined that even Share Application money would amount to deposit. However, the Hon'ble Delhi High Court in the case of CIT Vs I.P. India P. Ltd (supra) differed from this view. The Hon'ble High Court in this case observed at para 8 that in case of Baidya Nath Plastic Industries (P) Ltd v K.L. Anand, ITO 230 ITR 572(Delhi), the Ld. single Judge of this Court pointed out that the distinction between a loan and a deposit is that in the case of the former it is ordinaril y the dut y of the debtor to seek out the creditor and to replay the money, according to the agreement, while in the case of a deposit it is generall y the dut y of the depositor to go to the banker or to the depositee as the case may be, and made the demand for it. The High Court further noted that this observation was approved later by Division Bench in the case of Director of Income Tax (Exemption ) vs ACME Education Societ y 326 ITR 146(Delhi). The Hon'ble High Court further observed that if these tests were applied then Share Application Money for allotment of shares in a company cannot be treated as a receipt of loan or deposit.
13
16. This issue also came up for consideration before the Hon'ble Madras High Court in the case of CIT Vs Rugmini Ram Ragav Spinners P. Ltd. 304 ITR 417. In that case, 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 full y or partl y. The Court observed that money retained by the company was neither deposit nor loan, but it was onl y Share Capital Advance. Therefore, penal provisions u/s 271E was not attracted. The relevant observations are made at para 6, which reads as under:-
"Heard counsel. 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. In this case, the money retained by the company was neither deposit nor loan, but it is only share capital advance. Penalty under section 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 sections 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 provision of sections 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 sections 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 section 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 or the concerned persons. It is also seen from the records that the assessee had not paid any interest at all on any of the advances repaid after quite some time. If the intention was to receive them as loans or deposits, then certainly the lenders would not have made the advances gratuitously. It is also a factual finding given by the authorities below that the assessee was not called upon to explain the default under section 269SS on receipt 14 of the advances in earlier years, which would show that the assessee's case was not governed by the said provisions. Penalty under section 271E is not automatic, and a bona fide belief to the effect that the receipt of advances against allotment of shares would not be termed as loans or deposits, would be sufficient to drop the penalty leviable, unless and until the material on record positively shows that money received is only a deposit or loan. There is no dispute that the impugned advances were only against allotment of shares and not by way of loans or deposits. The authorities below have given a factual finding to the effect that it is not a deposit or loan."
Thereafter, the Court discussed the provisions of section 271E and 269T as well as the provisions of section 273B and observed at para 1 as under:-
"The above section provides that if the assessee proves that there is a reasonable cause, he is not subject to levy of penalty. The case of the assessee is that, the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan. In this case, the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares. Also, there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan. The first appellate authority as well as the Tribunal have come to a correct conclusion after accepting the explanation offered by the assessee. It is a question of fact and the order of the Tribunal is not a perverse one.
17. The issue was also discussed by Hon'ble Madras High Court in another decision in the case of C IT v Idhayam Publications Ltd (supra). In that case, the assessee company had accepted a cash loan of Rs. 2,94,000/- from M/s Manian Creation, a sister concern. When a show cause notice was issued for levy of penalt y u/s 271-E, 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. 15 Commissioner and penalt y was levied. Penalt y was ultimatel y deleted by the Tribunal. On appeal filed by the Revenue, the Hon'ble High Court adjudicated the issue vide para 4 & 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 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 Companies Act, under the Companies (Acceptance of Deposits) Rules, 1975, under rule 2(b)(ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore the transaction between the appellant and the director cum shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction.
In the foregoing conclusions, we are of the view that since the said transaction does 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."16
From the above, it becomes clear that even when the money has been received in a current account, it cannot be covered under the definition of loan or deposit and consequentl y the penal provisions u/s 271-D would not be attracted.
18. There is another aspect of the case i.e. whether the penalt y is mandatory or if reasonable cause is given, then such penalt y is not leviable. This situation has been discussed by Hon'ble Punjab & Haryana High Court in the case of C IT v Sunil Kumar Goel (supra). In that case, the assessee had accepted cash loans on various dates exceeding Rs. 20,000/- and, therefore, the penalt y u/s 271-E was levied. When the issue traveled to the Hon'ble High Court, it was stated as under:-
"Held, that there was no dispute about the fact that the cash transactions of the assessee were with the sister concern and these transactions were within 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 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 penal provisions of sections 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 & Haryana High Court had in turn relied on another decision of the same Court in the case of Saini Medical Store (supra) 277 ITR 420 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 17 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 section 273B for not invoking the provisions of section 271E of the Act. The impugned order of penalty is cancelled.
The findings of the Commissioner of Income-tax (Appeals) have been confirmed in appeal by the Tribunal. Therefore, the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal that the assessee had shown reasonable cause for the failure to comply with the provisions of section 269T of the Act is a finding of fact based on appreciation of material on record. It does not give rise to any question of law, much less substantial question of law. Accordingly, the appeal is dismissed.
The Income-tax Appellate Tribunal was right in recording its conclusion that a "reasonable cause" had been shown by the respondent-assessee. The Income-tax Appellate Tribunal relied on the fact that the respondent - assessee had produced his cash books, depicting loans taken by him unilaterally before the Revenue. Another fact taken into consideration was that no prejudice was caused to the Revenue in the instant action of the respondent- assessee inasmuch as the respondent-assessee did not attempt by the impugned act to avoid any tax liability. 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 section273B 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."18
19. In case of C IT v Maheshwari Nirman Udyog (supra), the Hon'ble Rajasthan High Court also deleted the penalt y where the cash loans was accepted from a director for making urgent payment to the labourers because the same was held to be a reasonable cause. Similarl y, the Hon'ble Punjab & Haryana High Court in the case of C IT v Saini Medical Stores (supra) where the assessee had accepted the cash loan of Rs. 50,000/- and the penalty has been imposed u/s 271D by the Dy. Commissioner the penalt y was deleted by the CIT(A) when the matter traveled to the High Court, it was held as under:-
"Held, that in the present case the Commissioner (Appeals) in his order dated January 18, 1999, whereby the penalty under section 271D of the Act was deleted, had accepted the version given by the assessee that violation of the provisions of the Act was under a bona fide belief of the assessee and the same was not with any intention to avoid or evade the tax. The findings of the Commissioner (Appeals) 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 initiall y credited to the current account of various directors and later on transferred to the Share Application Money account. The relevant copies of account reads as under:-
EQBAL INN & HOTELS LIMITED SST NAGAR, RAJPURA ROAD, PATIALA SHARE APPLICATION MONEY A/C Ledger Account 1-Apr-2001 to 31-Mar-2002 Date Particulars Vch Type Vch No. Debit Credit 31-03-2002 Dr. (as per details) Journal 49,19,132.00 KAMALPREET SINGH SETHI'S A/C 48,71,572.00 Dr SARAN KAUR'S A/C 47,560.00 Dr. Cr. Closing Balance 49,19,132.00 49,19,132.00 49,19,132.00 49,19,132.00 19 1-Apr-2002 to 31-Mar-2003 Date Particulars Vch Type Vch No. Debit Credit 1-4-2002 Dr. Opening Balance 49,19,132.00 31-3-2003 Dr. KAMAL PREET SINGH SETHI'S A/C Journal 76,07,169.00 Cr. PAID UP SHARE CAPITAL A/C Journal 4,93,000.00 Trfd.
4,93,000.00 1,25,26,301.00
Cr. Closing Balance 1,20,33,301.00
1,25,26,301.00 1,25,26,301.00
1-Apr-2003 to 31-Mar-2004
Date Particulars Vch Type Vch No. Debit Credit
1-4-2003 Dr. Opening Balance 1,20,33,301.00
31-3-2004 Dr. KAMAL PREET SINGH SETHI'S A/C Journal 42,86,343.00
Trfd.
1,63,19,644.00
Cr. Closing Balance 1,63,19,644.00
1,63,19,644.00 1,63,19,644.00
1-Apr-2004 to 31-Mar-2005
Date Particulars Vch Type Vch No. Debit Credit
1-4-2004 Dr. Opening Balance 1,63,19,644.00
31-3-2005 Dr. Kamalpreet Singh Sethi's A/c Journal 22,00,000.00
Dr. Kamalpreet Sg. Sethi Journal 14,62,930.00
Cr. PAID-UP SHARE CAPITAL Journal 1,64,20,000.00
Dr. PRITAM KAUR A/C Journal 85,49,200.00
1,64,20,000.00 2,85,31,774.00
1,21,11,774.00
Cr. Closing Balance 2,85,31,774.00 2,85,31,774.00
1-Apr-2005 to 31-Mar-2006
Date Particulars Vch Type Vch No. Debit Credit
1-4-2005 Dr. Opening Balance 1,21,11,774.00
31-3-2006 Dr. KAMAL PREET SINGH SETHI Journal 29,33,000.00
Share App. Money of KPS
1,50,44,774.00
Cr. Closing Balance 1,50,44,774.00
1,50,44,774.00 1,50,44,774.00
1-Apr-2006 to 31-Mar-2007
Date Particulars Vch Type Vch No. Debit Credit
1-4-2006 Dr. Opening Balance 1,50,44,774.00
31-3-2007 Dr. Kamalpreet Singh Journal 62,50,000.00
Recd. from Kamalpreet Singh- Director
Dr. Balwinder Singh Journal 4,00,000.00
Recd. from Balwinder Singh- Director
2,16,94,774.00
Cr. Closing Balance 2,16,94,774.00
2,16,94,774.00 2,16,94,774.00
1-Apr-2007 to 31-Mar-2008
Date Particulars Vch Type Vch No. Debit Credit
1-4-2007 Dr. Opening Balance 2,16,94,774.00
31-3-2008 Dr. Balwinder Singh Journal 14,50,000.00
Recd. from Balwinder Singh- Director
Dr. Kamalpreet Singh Journal 23,00,000.00
20
Recd. from Kamalpreet Singh- Director
2,54,44,774.00
Cr. Closing Balance 2,54,44,774.00
2,54,44,774.00 2,54,44,774.00
1-Apr-2008 to 31-Mar-2009
Date Particulars Vch Type Vch No. Debit Credit
1-4-2008 Dr. Opening Balance 2,54,44,774.00
20-4-2008 Dr. Cash Receipt 5,00,000.00
Cash Received from Saran Enterprises for Eqbal Inn & Hotels Ltd.
28-4-2008 Dr. Cash Receipt 5,00,000.00 Cash Recd. from Saran Enterprises for Eqbal Inn & Hotels Ltd 14-5-2008 Dr. Cash Receipt 4,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
21-5-2008 Dr. Cash Receipt 3,31,250.00 Cash Received From Saran Enterprises Pta For Electricity Security 16-6-2008 Dr. Cash Receipt 6,00,000.00 Received From Saran Enterprises For Hotels Ltd.
24-7-2008 Dr. Cash Receipt 5,00,000.00 Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
11-8-2008 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
1-9-2008 Dr. Cash Receipt 5,00,000.00 Cash Received From Saran Enterprises for Eqbal Inn & Hotels Ltd.
22-9-2008 Dr. Cash Receipt 5,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
3-10-2008 Dr. Cash Receipt 5,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
21-1-2009 Dr. Cash Receipt 5,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
9-3-2009 Dr. Cash Receipt 1,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
31-3-2009 Dr. Balwinder Singh Journal 49,00,000.00 Cash Received From Balwinder Singh Director 3,54,76,024.00 Cr. Closing Balance 3,54,76,024.00 3,54,76,024.00 3,54,76,024.00 1-Apr-2009 to 31-Mar-2010 Date Particulars Vch Type Vch No. Debit Credit 1-4-2009 Dr. Opening Balance 3,54,76,024.00 31-3-2010 Cr. Kamalpreet Singh Journal 733 1,49,47,716.00 1,49,47,716.00 3,54,76,024.00 Cr. Closing Balance 2,05,28,308.00 3,54,76,024.00 3,54,76,024.00 21 KAMALPREET SINGH SETHI'S A/C Ledger Account 1-Apr-2001 to 31-Mar-2002 Date Particulars Vch Type Vch No. Debit Credit 21-11-2001 Dr. IMPROVEMENT TRUST, PATIALA Journal 20,00,000.00 Pay Orderby given to Imp. Trust from Saving A/c No. 39934 by Ch. No. 149101 of S. Kamalpreet Singh Sethi as down payment 22-11-2001 Dr. IMPROVEMENT TRUST, PATIALA Journal 28,71,572.00 Che. No. 149104 given to Imp. Trust from Saving A/c No. 39934 of S. Kamalpreet Singh Sethi upto ¼ Payment 31-3-2002 Cr SHARE APPLICATION MONEY A/C Journal 48,71,572.00 Amount paid by New Directors trfd. to Share App. Money.
48,71,572.00 48,71,572.00 1-Apr-2002 to 31-Mar-2003 Date Particulars Vch Type Vch No. Debit Credit 23-5-2002 Dr. IMPROVEMENT TRUST, PTA. - LAND Journal 29,18,520.00 Payment to I.T. Pta through Ch. No. 149107 of Saving A/c No. 39934 of KPS Sethi for II Instalment 29-10-2002 Dr. IMPROVEMENT TRUST, PTA.- INTT. Journal 9,38,887.00 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.
Dr. COST OF SITE PLAN A/C Journal 3,38,242.00 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 23-11-2002 Dr. IMPROVEMENT TRUST, PTA. - LAND Journal 29,18,520.00 Payment to I.T. Pta. through Ch. No. 149111 of Saving A/c No. 39934 of KPS Sethi for III Instalment 1-3-2003 Dr. REGISTRATION FEE FOR AUTH. CAP Journal 77,500.00 Dr. CASH Receipt 4,15,440.00 Cr. Share Application - K.P. Singh Journal 76,07,169.00 Dr. BANK CHARGES Journal 60.00 76,07,169.00 76,07,169.00 1-Apr-2003 to 31-Mar-2004 Date Particulars Vch Type Vch No. Debit Credit 23-5-2003 Dr. IMPROVEMENT TRUST, PTA. - LAND Journal 20,00,000.00 Payment to I.T. Pta. for part payment of IVth Installment by Ch. No. 149114 of Saving A/c of KPS Sethi (Dir.) 26-5-2003 Dr. IMPROVEMENT TRUST, PTA-LAND Journal 9,18,520.00 Payment to I.T. Pta. for full payment of IVth Installment by Ch. No. 149116 of Saving A/c of KPS Sethi(Dir) 3-10-2003 Dr. IMPROVEMENT TRUST, PTA. - LAND Journal 13,67,823.00 Payment to I.T. Pta. for full payment of ----- Installment by Ch. No. 866062 of Saving A/c of KPS Sethi (Dir) 31-3-2004 Cr. SHARE APPLICATION MONEY A/C Journal 42,86,343.00 Trfd.
42,86,343.00 42,86,343.00 22 1-Apr-2004 to 31-Mar-2005 Date Particulars Vch Type Vch No. Debit Credit 14-5-2004 Dr. SBOP, THE MALL, PTA A/C NO. 37512 Journal 7,00,000.00 Ch. No. 866104 recd. from Mr. Kamalpreet Singh Sethi(Dir.) from his Saving A/c No. 39934 of OBC, The Mall, Pta 20-5-2004 Dr. SBOP, THE MALL, PTA A/C NO. 37512 Journal 5,62,930.00 Ch. No. 866066 recd. from Mr. Kamalpreet Singh Sethi (Dir.) From his Saving A/c No. 39934 of OBC, The Mall, Pta.
27-11-2004 Dr. Architects Combine, New Delhi Journal 2,00,000.00
D.D No. 150438 Of Punjab & Sind Bank issued
From Saran Ent. As Advance
31-3-2005 Cr. SHARE APPLICATION MONEY A/C Journal 14,62,930.00
14,62,930.00 14,62,930.00
1-Apr-2004 to 31-Mar-2005
Date Particulars Vch Type Vch No. Debit Credit
1-10-2004 Dr Cash Receipt 3,00,000.00
Cash Received From Saran Enterprises
1-11-2004 Dr. Cash Receipt 4,00,000.00
Cash Received From Saran Enterprises
5-12-2004 Dr. Cash Receipt 5,00,000.00
Cash Received From Saran Enterprises
2-2005 Dr. Cash Receipt 5,00,000.00
Cash Recd. from Kamalpreet Singh Sethi- Director Entry from Saran Ent., Pta 3-2005 Dr. Cash Receipt 5,00,000.00 Cash Recd. from Kamalpreet Singh Sethi- Director Entry from Saran Ent. Pta 31-3-2005 Cr. Share Application Money- K.P. Singh Journal 22,00,000.00 trfd.
22,00,000.00 22,00,000.00
1-Apr-2005 to 31-Mar-2006
Date Particulars Vch Type Vch No. Debit Credit
6-5-2005 Dr Cash Receipt 1,00,000.00
Cash Received From Saran Enterprises
13-5-2005 Dr. Cash Receipt 1,00,000.00
Cash Received From M/s Saran Enterprises, Patiala 24-5-2005 Dr. Cash Receipt 1,00,000.00 Cash Received From Saran Enterprises 2-6-2005 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises 9-6-2005 Dr. Cash Receipt 1,00,000.00 Cash Received From Saran Enterprises 4-7-2005 Dr. Cash Receipt 1,00,000.00 Cash Received From Saran Enterprises 1-8-2005 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises 2-8-2005 Dr. Cash Receipt 1,33,000.00 Cash Received From Saran Enterprises 24-8-2005 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises 1-9-2005 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises 23 19-9-2005 Dr. Cash Receipt 4,00,000.00 Cash Received From Saran Enterprises 12-2005 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta 4-1-2006 Dr. Cash Receipt 5,00,000.00 Cash Received From Saran Enterprises Pta 13-2-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels 31-3-2006 Cr. SHARE APPLICATION MONEY A/C Journal 29,33,000.00 Share App. Money of KPS 29,33,000.00 29,33,000.00 1-Apr-2006 to 31-Mar-2007 Date Particulars Vch Type Vch No. Debit Credit 3-6-2006 Dr. Cash Receipt 1,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
4-6-2006 Dr. Cash Receipt 1,50,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
5-6-2006 Dr. Cash Receipt 4,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
8-6-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
22-6-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
4-7-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
15-7-2006 Dr. Cash Receipt 1,00,000.00
Cash Received From Saran Enterprises
17-7-2006 Dr. Cash Receipt 3,00,000.00
Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
28-7-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
30-7-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
3-8-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
9-8-2006 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
25-8-2006 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd.
Carried Over 3350000
KAMALPREET SINGH -Current A/c
Ledger Account
1-Apr-2006 to 31-Mar-2007
Brought Forward 3350000.00
5-9-2006 Dr. Cash Receipt 1,00,000.00
24
Cash Received From Saran Enterprises
5-10-2006 Dr. Cash Receipt 2,00,000.00
Cash Received From Saran Enterprises
18-10-2006 Dr. Cash Receipt 5,00,000.00
Cash Received From Saran Enterprises
19-10-2006 Dr. Cash Receipt 1,00,000.00
Cash Received From Saran Enterprises
9-11-2006 Dr. Cash Receipt 3,00,000.00
Cash Received From Saran Enterprises
23-11-2006 Dr. Cash Receipt 2,00,000.00
Cash Received From Saran Enterprises
29-12-2006 Dr. Cash Receipt 3,00,000.00
Cash Received From Saran Enterprises
5-2-2007 Dr. Cash Receipt 3,00,000.00
Cash Received From Saran Enterprises
27-7-2007 Dr. Cash Receipt 2,00,000.00
Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd 6-3-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd 12-3-2007 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd 21-3-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises Pta For Eqbal Inn & Hotels Ltd 31-3-2007 Cr. Share Application Money A/c Journal 62,50,000.00 62,50,000.00 62,50,000.00 1-Apr-2007 to 31-Mar-2008 Date Particulars Vch Type Vch No. Debit Credit 2-4-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
16-4-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
5-5-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
7-5-2007 Dr. Cash Receipt 3,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
3-6-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
16-7-2007 Dr. Cash Receipt 4,00,000.00 Cash Received From Saran Enterprises For Eqbal Inn & Hotels Ltd.
9-9-2007 Dr. Cash Receipt 3,00,000.00 Cash From Saran Enterprises For Hotel Eqbal Inn & Hotels 28-9-2007 Dr. Cash Receipt 3,00,000.00 Cash From Saran Enterprises For Hotel Eqbal Inn & Hotels 11-10-2007 Dr. Cash Receipt 2,00,000.00 Cash From Saran Enterprises For Hotel Eqbal Inn & Hotels 31-3-2008 Cr. Share Application Money A/c Journal 23,00,000.00 Received From Kamalpreet Singh Director 23,00,000.00 23,00,000.00 25 SARAN KAUR'S A/C Ledger Account 1-Apr-2004 to 31-Mar-2005 Date Particulars Vch Type Vch No. Debit Credit 21-11-2001 Dr CASH Receipt 47,560.00 31-3-2002 Cr. SHARE APPLICATION MONEY A/C Journal 47,560.00 Amount paid by New Directors trfd. to Share App. Money 47,560.00 47,560.00 PRITAM KAUR A/C Ledger Account 1-Apr-2004 to 31-Mar-2005 Date Particulars Vch Type Vch No. Debit Credit 1-4-2004 Dr Opening Balance 44,800.00 13-5-2004 Dr. Cash Receipt 9,00,000.00 Cash Recd. (Withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta 14-5-2004 Dr. Cash Receipt 9,00,000.00 Cash Recd. (Withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta 15-5-2004 Dr. Cash Receipt 5,00,000.00 Cash Recd. (Withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta 17-5-2004 Dr. Cash 2,50,000.00 Cash Recd. (Withdrawals from saving A/c) Sb A/c 43061 of OBC. Pta 1-6-2004 Dr Cash 10,00,000.00 Cash Recd. (From Jaimalson Ent. Pta) 15-6-2004 Dr Cash 2,15,000.00 Cash Recd. (From Jaimalson Ent. Pta) Dr Cash 3,85,000.00 Cash Recd. (From Jaimalson Ent. Pta) 17-6-2004 Dr Cash 1,56,000.00 Cash Recd. (From Jaimalson Ent. Pta) 1-7-2004 Dr Cash 7,00,000.00 Cash Recd. (From Jaimalson Ent. Pta) Dr Cash 1,47,000.00 Cash Recd. (From Jaimalson Ent. Pta) Dr Cash 10,00,000.00 Cash Recd. (From Jaimalson Ent. Pta) 13-7-2004 Dr Cash 1,45,000.00 Cash Recd. (From Jaimalson Ent. Pta) 29-7-2004 Dr Cash 2,07,000.00 Cash Recd. (From Jaimalson Ent. Pta) 1-8-2004 Dr Cash 9,00,000.00 Cash Recd. (From Jaimalson Ent. Pta) 17-8-2004 Dr Cash 29,400.00 Cash Recd. (From Jaimalson Ent. Pta) 27-8-2004 Dr Cash 1,50,000.00 Cash Recd. (From Jaimalson Ent. Pta) 9-9-2004 Dr Cash 62,000.00 Cash Recd. (From Jaimalson Ent. Pta) 8-10-2004 Dr Cash 58,000.00 Cash Recd. (From Jaimalson Ent. Pta) 3-1-2005 Dr. Cash 8,00,000.00 Cash Recd.
31-3-2005 Cr. Share Application Money- Pritam Kaur Journal 85,49,200.00 26 85,49,200.00 85,49,200.00 Balwinder Singh Ledger Account 1-Apr-2006 to 31-Mar-2007 Date Particulars Vch Type Vch No. Debit Credit 9-10-2006 Dr. Cash Receipt 4,00,000.00 Cash Received From M.P. Traders For Eqbal Inn & Hotels 31-3-2007 Cr. Share Application Money A/c Journal 4,00,000.00 Recd. from Balwinder Singh - Director 4,00,000.00 4,00,000.00 1-Apr-2007 to 31-Mar-2008 Date Particulars Vch Type Vch No. Debit Credit 1-8-2007 Dr Cash Receipt 2,00,000.00 Cash Received From M.P Traders For Eqbal Inn & Hotels 7-10-2007 Dr. Cash Receipt 2,00,000.00 Cash Received From M.P. Traders 20-10-2007 Dr. Cash Receipt 3,00,000.00 Cash From M.P. Traders For Hotel Eqbal Inn & Hotels 9-12-2007 Dr Cash Receipt 3,00,000.00 Cash From M.P Traders For Hotel Eqbal Inn & Hotels 26-12-2007 Dr Cash Receipt 3,00,000.00 Cash From M.P Traders For Hotel Eqbal Inn & Hotels 24-2-2008 Dr Cash Receipt 1,50,000.00 Cash From M.P Traders For Hotel Eqbal Inn & Hotels 31-3-2008 Cr. Share Application Money A/c Journal 14,50,000.00 Received From Balwinder Singh Director 14,50,000.00 14,50,000.00 1-Apr-2008 to 31-Mar-2009 Date Particulars Vch Type Vch No. Debit Credit 20-4-2008 Dr Cash Receipt 5,00,000.00 Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
28-4-2008 Dr Cash Receipt 5,00,000.00 Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
30-5-2008 Dr. Cash Receipt 6,00,000.00
Received From M.P. Traders For Hotel
9-7-2008 Dr. Cash Receipt 5,00,000.00
Received From M.P. Traders For Hotels Ltd.
8-8-2008 Dr. Cash Receipt 2,00,000.00
Cash From M.P. Traders For Eqbal Inn & Hotels Ltd.
9-9-2008 Dr Cash Receipt 5,00,000.00 Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
22-10-2008 Dr Cash Receipt 5,00,000.00 Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
14-11-2008 Dr. Cash Receipt 5,00,000.00
Cash Received From M.P. Traders
7-1-2009 Dr. Cash Receipt 2,00,000.00
Cash Received From M.P. Traders
15-2-2009 Dr Cash Receipt 5,00,000.00
Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
27-3-2009 Dr Cash Receipt 4,00,000.00 27 Cash Received From M.P. Traders For Eqbal Inn & Hotels Ltd.
31-3-2009 Cr Share Application Money Journal 49,00,000.00
Cash Received From Balwinder Singh
Director
49,00,000.00 49,00,000.00
21. First of all reading of the account of the Shri K.M. Sethi who is a director clearl y shows that money has not come onl y 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 JCIT at para 3.3. which reads as under:-
"3.3 The perusal of account of Eqbal Inn & Hotels Ltd., Patiala in the books of Saran Enterprises reveal that it paid cash for Eqbal Inn & Hotels without specifying the nature of these payments. In the books of Eqbal Inn & Hotels Ltd., there is frequent receipt of cash by the assessee in the current accounts of Sh. Kamalpreet Singh, Smt. Pritam Kaur and Sh. Balwinder Singh Sethi and at the end of the financial year, the entire sum has been shown as share application money which is quite inconsistent with the established accounting standards/principles. The assessee failed to produce any documentary evidence regarding share application money account. In other words, the assessee had been receiving cash from the proprietors of the concerns directly into its current running account which clearly establishes that the assessee had in substance violated the provisions of Section 269-SS as this clearly indicates that the assessee has tried to give colour of share application money to the unsecured loans received in cash from the persons as mentioned above. The nomenclature of a transaction as share application money does not alter the nature of transaction."
22. Therefore, first question arises whether the money has been received in current account. This has to be seen in the context that Assessee Company was constructing a hotel and loan has not been sanctioned by the financial institutions and banks. Naturally the assessee company would fall back to the sources of the directors for the construction of hotel. Now the money has been transferred at the 28 end of the every year to Share Application account which only shows that intention was very clear that the money contributed by the various directors and their relatives were to be treated as share capital. Assuming for the argument sake that applicabilit y of section 271D has to be seen at the precise moment of receipt even then the money has gone into current account. Now as per our observation earlier that money coming into current account also cannot be called loan or deposit. Even Hon'ble Madras High Court as discussed earlier in the case of C IT v Idhayam Publications Ltd (supra) has clearl y held that if money has come into current account and no interest was being charged for the same, then that would not be covered by the definition of loan and deposit as envisaged in section 269SS. In that decision it has been further emphasized that as per Companies (Acceptance and Deposit) Rule 1974 deposit would not include any amount received from the director or share holder of the company, therefore, this amount cannot be termed as loan or deposit for the purpose of section 269SS read with section 271-D and therefore, penalt y 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 C IT Vs Rugmini Ram Ragav Spinners P. Ltd. Definitel y, Hon'ble Jharkhand High Court in the case of Bhatonia Engineering Works (supra) has taken a different view. Here though the contention of the Ld. Counsel for the assessee was that a view favorable to the assessee particularl y in the case of penalty provisions should be adopted as per the decision of Hon'ble Supreme Court in the case of C IT v Vegetable Products (supra). But in our opinion this does not require further discussion because Hon'ble Punjab & Haryana High Court itself in the case of Speedways Rubber Pvt. Limited (supra) has taken the similar view. In that case the assessee had received Share Application of Money Rs. 20,000/- in cash. The penalt y was levied u/s 29 271D of the Act. The penalt y was deleted by C IT(A) which was upheld by the Tribunal. The Hon'ble High Court distinguished the decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (supra) and held that transaction was bonafide and default was of technical in nature which did not justify the levy of penalt y.
23. The JCIT has given one more finding that Share Application Money along with paid up capital has exceeded the authorized capital from assessment year 2005-06. We do not find any thing wrong with the same. First of all, there is no bar in the Companies Act for receiving Share Application Money in excess of authorized capital. The onl y bar is that paid up capital cannot be more then the authorized capital. Consequentl y, the shares have been issued on 1.4.2011 as per form No.2 of the allotment filed with the Registrar of Companies, copy of the same has been placed at pages 74 to 78 of the paper book. The allotment form clearl y shows that shares have been issued at a premium of Rs. 90/-. In fact 2,35,284 equit y shares were allotted on 1.4.2011 consisting of Rs. 10/- at a premium of Rs. 90/-, therefore, if this premium is excluded, then paid up capital would not exceed the authorized capital. The assessee had filed following chart in respect of the Authorized Capital and Issued & paid up Capital in the written submissions before CIT(A).
Financial Year ended Authorised Capital Issued & Paid up Capital 31.03.2001 Rs. 50 Lacs Rs. 7,000/-
31.03.2002 Rs. 50 Lacs Rs. 7,000/-
31.03.2003 Rs. 130 Lacs Rs. 5 Lacs 31.03.2004 Rs. 225 Lacs Rs. 5 Lacs 31.03.2005 Rs. 225 Lacs Rs. 169.20 Lacs 31.03.2006 Rs. 225 Lacs Rs. 169.20 Lacs 31.03.2007 Rs. 225 Lacs Rs. 169.20 Lacs 30 From the above it becomes clear that paid up capital never exceeded the authorized capital, therefore, provisions of the Companies Act were not violated.
24. The Ld. 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 use to sanction the premium which could be charged by the companies. However, this was applicable onl y 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 presentl y there is no restriction of charging of premium by private companies as well as listed companies. Further there was no restriction even under Income Tax Act regarding premium received on share application. A proviso was added to section 68 by Finance Act, 2012 w.e.f. 1.4.2013 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 premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless--
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory."
The above clearl y shows that need of justification of premium etc. came in the statute onl y from assessment year 2013-14 onwards. It was also alleged by the JCIT that Share Capital was issued onl y after five years which is also not full y correct. The perusal of the Share Application account would show that share capital has been first issued in financial year 2002-03 amounting to Rs. 4,93,000/-. 31 Further, share capital amounting to Rs. 1,64,20,000/- was allotted in financial year 2004-05. The balance of shares capital has been issued on 1.4.2011. In any case we find that there is no restriction in the Companies Act regarding time period for allotment of shares from the date of receipt of Share Application Money at the relevant point of time. Therefore, we find no force in these objections raised by the department.
25. We may also note that assessment orders have been passed for various years u/s 148 / 143(3) of the Act. It seems that notice u/s 148 was issued because assessee had not filed any return of income for assessment year 200-04 and later years. The assessments were complete later on. This become clear from the assessment orders filed at pages 61 to 68 of the paper book. No additions have been made on account of Share Application Money which clearl y means that sources of the share capital were found to be genuine. It was pleaded by Ld. Counsel for the assessee that even Chartered Accountant who has conducted the audit never pointed out any objection for receipt of Share Application Money in cash. The same was done to meet the requirement of funds for construction of the hotel and assessee was under the bonafide belief that no violation have taken place, therefore, the case becomes totally covered by the decision of the Hon'ble Punjab & Haryana High Court in the case of Speedways Rubber Pvt. Limited (supra). In that case it is clearl y held that if transaction was bonafide and default was of technical 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 onl y of technical nature and there was a bonafide 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 penalt y. In any case, a reasonable cause was also explained that assessee 32 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 generall y 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.
26. In these circumstances, we set aside the order of Ld. CIT(A) and delete the penalties levied u/s 271-D in all the years.
27. In the result, all the appeals of the assessee are partl y allowed.
Order Pronounced in the Open Court on 30.01.2014 Sd/- Sd/-
(SUSHMA CHOWLA) (T.R.SOOD)
JUDICIAL MEMBER ACCOUNTANT MEMER
Dated : 30 t h January, 2014
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
By order
Assistant Registrar,
ITAT, Chandigarh
33