Sections 269SS have no application in respect of Share Application Money Received in cash

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 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.

(2008) 304 ITR 417 (Mad)

IN THE HIGH COURT OF MADRAS

Commissioner Of Income-Tax.

Vs.

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