Sec. 269SS not violated in accepting share application money or deposit in cash

Hon’ble Chandigarh bench has in the case of M/s Eqbal Inn & Hotels Ltd.  has held that Share Application Money or deposit in the current account cannot be included in the definition of deposit so as to trigger provisions of sec 269SS of the Income Tax Act,1961. Brief facts of the case were that the assessee company was in the business of construct ion 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 opt ion but to contribute money towards construct ion of such hotel .

Initially, money was received by the company in the cur rent account and since the loans were not forthcoming it was decided to transfer the credit balance lying in the current account at the end of the year to Share Application account. Hon’ble Tribunal observed that there was no violation of provision of sec 269SS by observing that the money was accepted to meet the requirement of funds for construct ion 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 CIT Vs Speedways Rubber Pvt. Ltd. 326 ITR 31  In that case it is clearly 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 cur rent account cannot be included in the definition of deposit but in any case even if it is assumed otherwise then the defect is only 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 penalty. A reasonable cause was also explained that assessee Company was constructing a hotel for which bank loans were not sanctioned and, therefore, directors had to contribute the money towards construct ion of the hotel . The payment was generally required for labour payments and other cash items, therefore, i t is a reasonable case for accepting the cash from directors and relatives and even on this basis also penalty is not leviable.