Eqbal Inn & Hotels Ltd. v. Joint Commissioner of Income-tax

ORDER

T.R. Sood, Accountant Member - These appeals filed by the assessee are directed against the common order dt. 27th Aug., 2013 of learned CIT(A), Patiala.

2. In all these appeals, identical issue regarding confirmation of penalty under s. 27ID 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 read as under :

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 and 4 : After hearing both the parties, we find that ITO, Ward No, 1, Patiala intimated the Jt. CIT, Patiala Range that assessee has accepted share application money in cash from Shri Kamalpreet Singh proprietor M/s Saran Enterprises, Patiala, Shri Balwinder Singh, proprietor M/s M.P. Traders, Patiala and Smt. Pritam Raur, proprietor M/s Jaimal Sons Enterprises. It was further intimated that this is in violation of provisions of s. 269SS particularly in view of the decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engg. Works (P.) Ltd. v. CIT [2005] 275 ITR 399 . In view of this information, Jt. CIT, Patiala issued a show-cause notice to the assessee for imposition of penalty under s. 27ID of the Act. In response to the notice, it was, mainly submitted that facts in the case of Bhalotia Engg. Works (P.) Ltd. (supra) are distinguishable because assessee has 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 AO after scrutiny assessment. It was further submitted that share application money is not governed by the definition of deposit as per r. 2(b)(ix) of.the Companies (Acceptance of Deposit) Rules, 1975, because it clearly 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 Commissioner Of Income-Tax v. Idhayam Publications Ltd. [2006] 285 ITR 221/[2007] 163 Taxman 265 deleted the penalty by observing that share application money cannot be included in the definition of deposit. In any case the money as 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 Commissioner Of Income-Tax v. Maheshwari Nirman Udyog [2008] 302 ITR 201/170 Taxman 502 and Hon'ble Punjab & Haryana High Court in the case of CIT v. Sunil Kumar Goel [2009] 315 ITR 163/183 Taxman 53 . Reliance was also placed on various Tribunal decisions that penalty cannot be levied in these circumstances. Finally, 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 Motilal Padampat Sugar Mills Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC).

5. The Jt. CIT examined these submissions and did not find much force in the same. He observed that there was explanation provided for receipt in s. 269SS and the nature of transaction envisaged in a different statute cannot be imported to the nature of transaction envisaged in the IT Act. He further observed that in case of Bhalotia Engg. Works (P) 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 clearly 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 initially credited to the respective current accounts and assessee-company repeatedly received money in cash over a period of six years in several trances at times on daily basis or weekly 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-up capital, share application money and observed that from asst. yrs. 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 ROC. 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 asst. yr. 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 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. Simply 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 s. 269SS are applicable even if it was a case of genuine loans. In this background, he levied a penalty of Rs. 4,15,440 for asst. yr. 2003-04, Rs. 1,07,49,200 for asst. yr. 2005-06, and Rs. 29,33,000 for asst. yr. 2006-07 and Rs. 66,50,000 for asst. yr. 2007-08 under s. 271D of the Act.

7. Aggrieved by the above order, the assessee filed an appeal before the CIT(A). Before CIT(A), written submissions were filed which, according to first appellate authority, the assessee has largely resubmitted the submissions made before the Jt. CIT. 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 initially 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 only 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 application money" account on 31st March was not an after thought, even then the applicability of s. 269SS has to be seen at the point of time when money is actually 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 the 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 normally no shares can be allotted beyond the authorized share capital. He also referred to Circular No. 387, dt. 6th July, 1984 [(1984) 43 CTR (TLT) 3] and Circular No. 345, dt. 28th June, 1982 [(1983) 34 CTR (TLT) 1] and observed that there was no force in the submissions and if the transaction was genuine then penalty 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 penalty under 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 learned.CIT(A) confirmed the levy of penalty.

8. Before us, learned counsel for the assessee carried us through the penalty order pointing out various facts. He submitted that Jt. CIT has levied the penalty mainly on the basis of decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. (supra). First of all, this decision is totally distinguishable because in that case money was received from outsiders. The share 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 only. 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 v. I.P. India (P) Ltd. [2012] 343 ITR 353/204 Taxman 368/[2011] 16 taxmann.com 407 . In Similar circumstances, it was held that share application money would not constitute "loans" or "deposits" for the purpose of s. 269SS. Further, the Hon'ble Punjab & Haryana High Court in the case of CIT v. Speedways Rubber (P.) Ltd. [2010] 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 favourable 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 CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC) .

9. The learned 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. Initially, 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 lying 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 Sunil Kumar Goel (supra) wherein it was clearly held that a family 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 Maheshwari Nirman Udyog (supra) and decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Saini Medical Store [2005] 276 ITR 79 . He also submitted that money received in current account can also not constitute loan or deposits for the purpose of levy of penalty under s. 271D and in this regard relied on the decision of Hon'ble Madras High Court in the case of Idhayam Publications Ltd. (supra).

10. He also submitted that share application money has been held to be genuine because assessment has been framed under s. 147 r/w s. 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 IT Act and this would also lead to conclusion that there was bona fide belief and reasonable cause for accepting the share application money in cash. He pointed out that observation of the AO 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 Jt. CIT also observed that initially money was credited to the current account and later on it was transferred to share application money account, that itself would not attract the penalty provision of s. 27ID because even current account with a director would not amount to deposit. He submitted that observation of the Jt. CIT that share application money has exceeded the authorized capital from asst. yr. 2005-06 is of no consequence. The only 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 Jt. CIT has also observed that 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 only after five years is of no consequence because there is no time-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 Jt. CIT 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 learned Departmental Representative strongly supported the penalty order of Jt. CIT as well as the order of CIT(A). He referred to various observations made by Jt. CIT. 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 learned Departmental Representative further submitted that it was stated by the learned counsel that shares have been issued at premium but no permission seems to have been taken from any authority for issuing the shares at premium. He contended that case was squarely covered by the decision of Hon'ble Jharkhanad High Court in the case of Bhalotia Engg. Works (P) Ltd. (supra).

12. We have considered the rival submissions carefully. Sec. 269SS 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,—

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,—

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, —

13. The above provision clearly shows that w.e.f. 30th 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 obviously the assessee is not covered by those exceptions. However, it is worth noting that cl. (iii) of the Explanation to this section has defined loan or deposit as "loan or deposits" means loans or deposit of money'. This means practically no definition has been given for the expression "loan and deposit".

14. Sec. 271D simply provides that if a person takes or accepts any loan or deposit in contravention of provisions of s. 269SS, he shall be liable to pay by way of penalty a sum equivalent to the amount of loan or deposit so taken or accepted. Therefore, once s. 269SS is contravened, then that would invite penal consequences. However, s. 27ID is subject to the provisions of s. 273B, which reads as under :

"273B- Penalty not to be imposed in certain cases—Notwithstanding anything contained in the provisions of cl. (b) of sub-s. (1) of s. 271, s. 271A, s. 271AA, s. 271B, s. 271BA, s. 271BB, s. 271C, s. 271CA, s. 271D, s. 271E, s. 271F, s. 271FA, s. 271FB, s. 271G, cl. (c) or cl. (d) of sub-s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or s. 272B or sub-s. (1) or sub-s. (1A) of s. 272BB or sub-s. (1) of s. 272BBB or cl. (b) of sub-s. (1) or cl. (b) or cl. (c) of sub-s. (2) of s. 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 penalty under s. 27ID may not be leviable.

15. Now the first question arises whether the assessee has contravened the provisions of s. 269SS. As observed earlier, no definition has been given clearly 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 security etc. Similarly, the word 'deposit' would connote a transaction in which the depositor gives to another person generally 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 predefined 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 Engg. Works (P.) Ltd. (supra) has opined that even share application money would amount to deposit. However, the Hon'blc Delhi High Court in the case of I.P. India (P) Ltd. (supra) differed from this view. The Hon'blc High Court in this case observed at para 8 that in case of Baidya Nath Plastic Industries (P.) Ltd. v. K.L. Anand, ITO [1998] 230 ITR 522/[2000] 113 Taxman 412 (Delhi) , the learned Single Judge of this Court pointed out that distinction between a loan and a deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money, according to the agreement, while in the case of a deposit it is generally the duty of the depositor to go to the banker or to the-depositee as the case may be, and make the demand for it. The High Court further noted that this observation was approved later by Division Bench in the case of DIT v. Acme Educational Society [2010] 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.

16. This issue also came up for consideration before the Hon'ble Madras High Court in the case of Commissioner Of Income-Tax v. Rugmini Ram Ragav Spinners P. Ltd. [2008] 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 fully or partly. The Court observed that money retained by the company was neither deposit nor loan, but it was only share capital advance. Therefore, penal provisions under 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 s. 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 ss. 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 provisions of ss. 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 ss. 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 s. 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 s. 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 s. 27IE 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 ss. 271E and 269T as well as the provisions of s. 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 preverse one."

17. The issue was also discussed by Hon'ble Madras High Court in another decision in the case of 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 penalty under s. 271E, 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. CIT and penalty was levied. Penalty was ultimately deleted by the Tribunal. On appeal filed by the Revenue, the Hon'ble High Court adjudicated the issue vide paras 4 and 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 s. 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 dt. 29th Sept., 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 r. 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 s. 269SS of the IT 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."

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 consequently the penal provisions under s. 27ID would not be attracted.

18. There is another aspect of the case i.e. whether the penalty is mandatory or if reasonable cause is given, then such penalty is not leviable. This situation has been discussed by Hon'ble Punjab & Haryana High Court in the case of Sunil Kumar Goel (supra). In that case, the assessee had accepted cash loans on various dates exceeding Rs. 20,000 and, therefore, the penalty under s. 27IE was levied. When the issue travelled 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 s. 273B of the Act. Since the assessee had satisfactorily established 'reasonable cause' under s. 273B of the Act, he must be deemed to have established sufficient cause for not invoking the penal provisions of ss. 27ID and 27IE 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 CIT v. Saini Medical Store [2005] 277 ITR 420/[2006] 150 Taxman 246 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 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 s. 273B for not invoking the provisions of s. 271E of the Act. The impugned order of penalty is cancelled.

The findings of the CIT(A) have been confirmed in appeal by the Tribunal. Therefore, the findings recorded by the CIT(A) and the Tribunal that the assessee had shown reasonable cause for the failure to comply with the provisions of s. 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 Tribunal was right in recording its conclusion that a 'reasonable cause' had been shown by the respondent-assessee. The 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 s. 273B of the Act. Since the respondent-assessee had satisfactorily established 'reasonable cause' under s. 273B of the Act he must be deemed to have established sufficient cause for not invoking the penal jpjovisions (ss. 27ID and 27IE of the Act) against him."

19. In case of Maheshwari Nirman Udyog (supra), the Hon'ble Rajasthan High Court also deleted the penalty where the cash loan was accepted from a director for making urgent payment to the labourers because the same was held to be a reasonable cause. Similarly, the Hon'ble Punjab & Haryana High Court in the case of Saini Medical Store (supra) where the assessee had accepted the cash loan of Rs.50,000 and the penalty has been imposed under s. 27ID by the Dy. CIT the penalty was deleted by the CIT(A). When the matter travelled to the High Court, it was held as under :

"Held, that in the present case the CIT(A) in his order dt. 18th Jan., 1999, whereby the penalty under s. 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 CIT(A) 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 initially credited to the current account of various directors and later on transferred to the share application money account. The relevant copies of account read as under:

Eqbal Inn & Hotels Ltd.

SST Nagar, Rajpura Road, Patiala

Share Application Money A/c

Ledger Account —1st April, 2001 to 31st March, 2002

1st April, 2002 to 31st March, 2003

1st April, 2003 to 31st March, 2004

1st April, 2004 to 31st March, 2005

1st April, 2005 to 31st March, 2006

1st April, 2006 to 31st March, 2007

1st April, 2007 to 31st March, 2008

1st April, 2008 to 31st March, 2009

1st April, 2009 to 31st March, 2010

Kamalpreet Singh Sethi's A/c

Ledger account 1st April, 2001 to 31st March, 2002

1st April, 2002 to 31st March, 2003

1st April, 2003 to 31st March, 2004

1st April, 2004 to 31st March, 2005

1st April, 2004 to 31st March, 2005

1st April, 2005 to 31 st March, 2006

1st April, 2006 to 31st March, 2007

Kamalpreet Singh-Current A/c

Ledger account—1st April, 2006 to 31st March, 2007

1st April, 2007 to 31st March, 2008

Saran Kaur's A/c

Ledger account—1st April, 2004 to 31st March, 2005

Pritam Kaur A/c

Ledger account —1st April, 2004 to 31st March, 2005

Balwinder Singh

Ledger account —1st April, 2006 to 31st March, 2007

1st April, 2007 to 31st March, 2008

1st April, 2008 to 31st March, 2009

21. First of all reading of the account of Shri K.M Sethi who is a director clearly shows that money has not come only 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 Jt. CIT 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 Shri Kamalpreet Singh, Smt. Pritam Kaur and Shri 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 s. 269SS 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 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 applicability of s. 27ID 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 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 s. 269SS. In that decision it has been further emphasized that as per Companies (Acceptance and Deposit) Rules, 1975 deposit would not include any amount received from the director or, shareholder of the company, therefore, this amount cannot be termed as loan or deposit for the purpose of s. 269SS r/w s. 27ID 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 Rugmini Ham Ragav Spinners (P) Ltd. (supra). Definitely, Hon'ble Jharkhand High Court in the case of Bhalotia Engg. Works (P.) Ltd. (supra) has taken a different view. Here though the contention of the learned counsel for the assessee was that a view favourable 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 Vegetable Products Ltd. (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 (P) Ltd. (supra) has taken the similar view. In that case the assessee had received share application money of Rs. 20,000 in cash. The penalty was levied under s. 27ID 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 Engg. Works (P.)Ltd. (supra) and held that transaction was bona fide and default was of technical nature which did not justify the levy of penalty.

23. The Jt. CIT has given one more finding that share application money along with paid-up capital has exceeded the authorized capital from asst. yr. 2005-06. We do not find anything 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 only bar is that paid-up capital cannot be more than the authorized capital. Consequently, the shares have been issued on 1st April, 2011 as per Form No. 2 of the allotment filed with the RoC, copy of the same has been placed at pp. 74 to 78 of the paper book. The allotment form clearly shows that shares have been issued at a premium of Rs. 90. In fact 2,35,284 equity shares were allotted on 1st April, 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 and paid-up capital in the written submissions before CIT(A).

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 learned 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 used to sanction the premium which could be charged by the companies. However, this was applicable only 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 presently there is no restriction on charging of premium by private companies as well as listed companies. Further, there was no restriction even under IT Act regarding premium received on share application. A proviso was added to s. 68 by Finance Act, 2012 w.e.f. 1st April, 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-

The above clearly shows that need of justification of premium etc. came in the statute only from asst. yr. 2013-14 onwards. It was also alleged by the Jt. CIT that share capital was issued only after five years which is also not fully 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. Further, share capital amounting to Rs. 1,64,20,000 was allotted in financial year 2004-05. The balance of share capital has been issued on 1st April, 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 under s. 148/143(3) of the Act. It seems that notice under s. 148 was issued because assessee had not filed any return of income for asst. yr. 2003-04 and later years. The assessments were completed later on. This becomes clear from the assessment orders filed at pp. 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 learned 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 bona fide 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 (P) Ltd. (supra). In that case it is clearly held that if transaction was bona fide 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 bona fide 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 cause 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 learned CIT(A) and delete the penalties levied under s. 271D in all the years.

27. In the result, all the appeals of the assessee are partly allowed.

USP