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proceedings are continuation of assessment proceedings as it has been held so in Omprakash Bagaria 287 ITR 523 (MP). Hence as appeal proceedings were pending in this case, it can not be said that no proceedings were pending at the time of initiation of penalty u/s. 271D of the I. T. Act. Hence this contention of the A. R. is rejected.

4. As regards merits, the ld. CIT(A) cancelled the penalty holding as under:

3.2. The AR of the appellant, during the course of appellate proceedings submitted that there was no breach of section 271D r. w. s. 269SS of the Act as the said accounts of the Directors were neither deposit accounts nor loan accounts but were current accounts and this fact has not been contradicted by the Addl. CIT. The Addl. CIT according to the A. R. has not disputed the facts of the letters dated 13-3-2006 & 28-3-2008 filed by the appellant and has not controverted the fact that those accounts were current accounts as claimed by the appellant. The A R. also submitted that the company and the Directors are one and the same person and not third parties and since the accounts were current accounts, the appellant bonafidely believed that provisions of Sec. 269SS were not applicable in its case and this was a reasonable cause. Hence, the A. R. submitted that penalty levied u/s. 271D was illegal and be canceled. For the contention that the company and the Directors are one and the same person and hence receipt from a director cannot be considered as a deposit or loan u/s.269SS, th8e A. R. relied upon the following decisions:

It was submitted that there was no finding in the order that the explanation offered by the appellant was false of not bonafide and there was also no finding in the order that those accounts were either deposit accounts or loan accounts and there was breach of provisions of Sec. 269SS r. w. s. 271D of the Act. In support of this contention, the A. R. relied upon the decision of Motilal & Co. V. ITO reported in 102 Taxman 108 (Ahd). The AR therefore, contended that the appellant had not committed any default or violation of sec. 269SS, which attracts levy of penalty u/s. 271D of the Act and therefore, the penalty levied may be deleted.

3.3 I have carefully considered the facts of the case as well as the submissions of the A. R. of the appellant and the various case laws relied upon. It is a fact that the appellant received amounts on various dates from three Directors. However, as explained by the A. R. of the appellant, there was no other course of action than to withdraw the money from the individual account of the Director with HDFC Bank at Ahmedabad and deposit the same in his account at Delhi branch, so as to open a branch at Delhi, as there was no provision with HDFC Bank in the case of the company for transferring the amounts from Ahmedabad to Delhi. It is further seen that the other amounts received from the directors were on various dates in small amounts for meeting the expenses for staff at Nagpur, Bombay and Goa offices. Further, the appellant has also furnished the details of amounts received from other two Directors on various dates. I find force in the contention of the appellant that the accounts maintained by the Directors are current accounts and the advances received are not loans/deposits so as to attract provisions of section 269SS of the I. T. Act. Further the appellant had bonafide belief that provisions of section 271D are not applicable. By following the case laws, relied upon by the A. R., I am of the view that there was a reasonable cause in accepting amounts other than by a/c. payee cheque/draft, and the appellant had bonafide belief that the provisions of Sec. 271D are not applicable, because the amounts have been received by the company from the Directors by withdrawing the same from their accounts maintained with HDFC Bank, Delhi. Further the default if any is Softouch Hygiene Products (Mkt.) Ltd.

In the light of aforesaid distinction between loan and deposit, especially when there is nothing to suggest the aforesaid transactions are in the nature of loan or deposit, we are of the opinion that provisions of sec. 269SS are not attracted in this case.

5.2 We find that Hon'ble Madras High Court in similar circumstances, held as under:

"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.