Case Law Details

Case Name : M/s Eqbal Inn & Hotels Ltd. Vs The JCIT (ITAT Chandigarh)
Appeal Number : ITA No. 876 to 879/CHD/2013
Date of Judgement/Order : 30/01/2014
Related Assessment Year :
Courts : All ITAT (4269) ITAT Chandigarh (105)
CA Prarthana Jalan
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.

Even Hon’ble Madras High Court as discussed earlier in the case of CIT v Idhayam Publications Ltd (supra) has clearly 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, penalty 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 CIT Vs Rugmini Ram Ragav Spinners P. Ltd. Definitely, 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 particularly in the case of penalty provisions should be adopted as per the decision of Hon’ble Supreme Court in the case of CIT 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 penalty was levied u/s 271D of the Act. The penalty was deleted by CIT(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 penalty.

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. 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 clearly 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 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 current 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. In any case, 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 construction 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.

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0 responses to “Sec. 269SS not violated in accepting share application money or deposit in cash”

  1. akash vajpai says:

    For any tax query you can mail me @akashvajpai24@gmail.com Answer will be given in 24 hours.

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