M/s Valley Extraction Pvt. Ltd., Shimla V. JCIT, Shimla

ITA 66/CHANDI/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8391 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SSSH KAPIL GOEL
• Keywords: Search and seizure; Reasonable cause; Tax effect
• Section: 273B; 143(3); 115JB; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 66/CHD/2013 ASSESSMENT YEAR: 2006-07 M/S VALLEY EXTRACTION PVT. LTD., VS. THE JCIT, RAN GE, SHIMLA SHIMLA PAN NO. AABCV2161K (APPELLANT) (RESPONDENT ) APPELLANT BY : SS/SH. KAPIL GOEL & PARIKSHIT AGGARW AL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 12.01.2016 DATE OF PRONOUNCEMENT : 08.03.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A), SHIMLA DATED 19.12.2012 IN CONFIRMING THE PENALTY O F RS. 30,26,000/- LEVIED U/S 271D OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT '). 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LI MITED COMPANY ENGAGED IN THE MANUFACTURING OF CEDAR OIL. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2006-07, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE HAD RECEIVED A SUM OF RS. 30, 26,000/- IN CASH AS SHARE APPLICATION MONEY FROM SHRI TEJINDER SINGH, ONE OF THE DIRECTORS OF THE COMPANY. AS PER THE ASSESSING OFFICER, ALL THE CASH TRANSACTIONS EXCEEDED RS. 20,000/-EACH AND THE ASSESSING OFFICER TOOK THE VIE W THAT PROVISIONS OF SECTION 269SS OF THE INCOME-TAX ACT HAVE BEEN VIOLATED AND CONSEQUENTLY PENALTY 2 PROCEEDINGS U/S 271D OF THE ACT WERE INITIATED AGA INST THE ASSESSEE COMPANY. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE STATING THAT AS TO WHY PENALTY U/S 271D OF THE ACT SHOULD NOT BE IM POSED. IN RESPONSE TO THE ABOVE NOTICE, THE ASSESSEE SUBMITTED A DETAILED RE PLY ON 26.6.2009 BUT THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND IMPOSED A PENALTY OF RS. 30,26,000/- EQUAL TO THE DEPOSIT I.E RS. 30,26,000/-. 3. ON APPEAL, THE CIT(A) CONFIRMED THE PENALTY FOR THE REASONS STATED IN PARA 4 OF THE IMPUGNED ORDER AND, HENCE, THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 4. SHRI PARIKSHIT AGGARWAL, LD. COUNSEL FOR THE ASS ESSEE VEHEMENTLY ARGUED THAT WHILE PASSING THE IMPUGNED ORDER, THE JT. CIT, SHIMLA TREATED THE CASH RECEIPTS IN THE NATURE OF CASH DEPOSITS OR LOANS, W HICH IS NOT CORRECT. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THE CASH WAS CONTR IBUTED BY SHRI TEJINDER SINGH, ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY TOWARDS THE SHARE APPLICATION MONEY AS PER THE BOARDS RESOLUTION. IT IS STATED THAT THE SOURCE OF SUCH MONEY WAS COMPLETELY FROM EXPLAINED SOURCES, T HE EVIDENCE OF WHICH WAS PROVIDED TO THE LOWER AUTHORITIES. HE FURTHER POINT ED OUT THAT THE MONEY WHICH WAS ADVANCED FOR ALLOTMENT OF SHARES IN A CLOSELY HELD COMPANY AND THAT TOO ON OCCASIONS WHEN MONEY WAS URGENTLY REQUIRED BY THE A SSESSEE AT ITS WORK SITE WHICH DID NOT HAVE BANKING FACILITIES, CANNOT BE TR EATED AS LOAN OR DEPOSIT TO COME INTO THE MISCHIEF U/S 269SS. 5. WITHOUT PREJUDICE TO ABOVE AND AS A ALTERNATIVE SUBMISSIONS, SHRI PARIKSHIT AGGARWAL, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THERE WAS A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT AND, THEREFORE, NO PENALTY IS LEVIABLE U/S 271D OF THE ACT. ACCORD ING TO LD. COUNSEL FOR THE 3 ASSESSEE EVEN IF IT IS ASSUMED FOR THE ARGUMENTS SA KE THAT THE AMOUNT OF RS. 30,26,000/- WAS NOT IN THE NATURE OF SHARE APPLICAT ION MONEY, EVEN THEN IF TRANSACTIONS ARE BETWEEN THE COMPANY AND ITS DIRECT ORS DUE TO BUSINESS EXPEDIENCY AND ARE BONA FIDE TRANSACTIONS (NOT AIME D TO AVOID TAX LIABILITY / AND OF IN THE NATURE OF TECHNICAL / VENIAL BREACH), THE SAME COULD BE HELD A REASONABLE CAUSE U/S 273B OF THE ACT, NO PENALTY U /S 271D OF THE ACT IS LEVIABLE. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE , LEVY OF PENALTY ON BONA FIDE TRANSACTION IS NOTHING BUT TAX ON TAX. HE, TH EREFORE, SUBMITTED THAT THE IMPUGNED PENALTY DESERVES TO BE CANCELLED / DELETED . 6. SHRI MANJIT SINGH, LD. DR STOUTLY DEFENDED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED THE ORDER LOWER AUTHORITIES AND DECISIONS / JUDGMENTS RELIED UPON BY THE PARTIES. IN THIS CASE THE ACIT, CIRCLE SHIMLA (IN SHORT ASSESSING O FFICER) FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT ON 28.12.2008. PAR A 6 OF THE ORDER READS AS UNDER:- 6. AS PER LEDGER ACCOUNT OF THE COMPANY, THE ASSESSEE COMPANY HAD RECEIVED A SUM OF RS. 30,26,000/- IN CASH AS SH ARE APPLICATION MONEY FROM SHRI TEJINDER SINGH ONE OF THE DIRECTORS OF THE COMPANY. SINCE CASH TRANSACTION IN SHARE APPLICATIO N MONEY EXCEEDING RS. 20,000/- IS IN CONTRAVENTION OF SECTI ON 269SS OF I.T. ACT, 1961, PENALTY PROCEEDINGS US/ 271D OF THE IL.T . ACT, 1961 ARE INITIATED SEPARATELY. BASED UPON THE ABOVE FACTS OF THE CASE, ASSESSMENT IS COMPLETED AS UNDER:- INCOME RETURNED RS. 7,89,508/- ADD: AS DISCUSSED IN PARA 3 ABOVE RS. 2,00,000 4 AS DISCUSSED IN PARA 4 ABOVE RS. 14,350/- AS DISCUSSED IN PARA 5 ABOVE RS. 2,962/- RS. 2,17,312/- RS. 2,17,312/- TOTAL INCOME ASSESSED FOR THE YEAR RS. 10,06,820/ - LOSS ASSESSED U/S 143(3) RS. 12,91,952/- FOR THE ASSESSMENT YEAR 2005-06 LESS: B/F LOSSES OF RS. 10,06,820/- OF AY 2005-06 SET OFF AGAINST THE PROFIT LOSS TO BE CARRIED FORWARD RS. 2,85,137/- BOOK PROFIT DECLARED U/S 115JB RS. 10,31,982/- ASSESSED AS ABOVE, ISSUE REQUISITE DOCUMENTS. ISSU E PENALTY NOTICE U/S 271D OF THE I.T. ACT, 1961. 8. ON A PERUSAL OF THE ABOVE, IT IS CLEAR THAT THE ASSESSING OFFICER TREATED THE AMOUNT OF RS. 30,26,000/- RECEIVED BY THE ASSESSEE COMPANY AS SHARE APPLICATION MONEY FROM SH. TEJINDER SINGH, ONE OF T HE DIRECTORS OF THE COMPANY. IT IS OBSERVED THAT WHILE LEVYING THE PENALTY U/S 2 71D OF THE ACT, THE JT.CIT, SHIMLA RANGE, SHIMLA HELD THAT THE AMOUNT OF RS. 30 ,26,000/- HAS BEEN RECEIVED BY THE COMPANY IN CASH IN SHARE APPLICATION ACCOUNT AND NOT IN THE CURRENT ACCOUNT. HE THEREFORE, RELYING ON THE JUDGEMENT OF THE HON'BLE JHARKHAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD V CIT (2005) 275 ITR 399 (JHARKHAND) HELD THAT MONEY RECEIVED FOR SHARE APPLICATION PART AKES THE NATURE OF DEPOSIT. ACCORDINGLY, THE JOINT CIT, SHIM LA HELD THAT THE ASSESSEE HAD ACTED IN CONTRAVENTION OF SECTION 269SS OF THE ACT, FOR WHICH PENALTY U/S 271D OF THE ACT IS LEVIABLE. IN THE AFORESAID CASE, THE HON'BLE JHARKHAND HIGH COURT HAS OBSERVED AS UNDER;- 10. WHAT WILL HAPPEN IF SHARES ARE ULTIMATELY ALLO TTED TO THE APPLICANT ? WHAT IS THE NATURE OF THE AMOUNT IN THE HANDS OF THE COMPANY UNTIL THE SHARES ARE ALLOTTED ? THE AMO UNT CANNOT BE A LOAN. BUT AT THE SAME TIME, THERE IS AN OBLIGATION 5 ON THE COMPANY TO RETURN THE MONEY TO THE APPLICANT OR FOR ALLOTTING THE SHARES APPLIED FOR. UNTIL EITHER OF T HESE HAPPENS, THE AMOUNT CANNOT BE CONSIDERED TO BE A LO AN IN THE HANDS OF THE COMPANY. BUT IT APPEARS TO US THAT IT WILL PARTAKE OF THE CHARACTER OF A DEPOSIT IN THE HANDS OF THE C OMPANY ATTRACTING THE PROHIBITION CONTAINED IN SECTION 269 SS OF THE ACT. 11. THE QUESTION HAS TO BE CONSIDERED IN THE CONTEX T OF THE PURPOSE SOUGHT TO BE ACHIEVED BY THE INSERTION OF S ECTION 269SS IN THE ACT. OBVIOUSLY, IT WAS DONE WITH A VIE W TO PREVENT TRANSACTIONS IN BLACK MONEY AND TO ENSURE T HAT PAYMENTS OF RS. 20,000 AND ABOVE, ARE TRACEABLE TO TRANSACTIONS THROUGH A BANK. IF THE MISCHIEF THAT I S SOUGHT TO BE AVERTED IS KEPT IN MIND, IT WILL BE APPROPRIATE TO HOLD THAT ANY PAYMENT OF RS. 20,000 OR ABOVE, MADE TO A COMPA NY AS SHARE APPLICATION MONEY, SHOULD BE AS PROVIDED IN S ECTION 269SS OF THE ACT. 12. THEREFORE, EVEN IF SHARE APPLICATION MONEY CANN OT BE CONSIDERED AS A LOAN WITHIN THE MEANING OF SECTION 269SS OF THE ACT, WE ARE OF THE VIEW THAT IT PARTAKES OF THE CHARACTER OF A DEPOSIT, SINCE IT IS REPAYABLE IN SPECIE ON REFUS AL TO ALLOT SHARES AND IS REPAYABLE IF RECALLED BY THE APPLICAN T, BEFORE ALLOTMENT OF SHARES AND THE CONCLUSION OF THE CONTR ACT. 13. IN THIS SITUATION, WE ANSWER THE QUESTION REFER RED TO US IN THE AFFIRMATIVE, IN FAVOUR OF THE REVENUE AND AGAIN ST THE ASSESSEE. 9. IT IS CLEAR THAT IN VIEW OF THE JUDGEMENT OF HON 'BLE HIGH COURT, THE JCIT SHIMLA TOOK THE VIEW THAT THE MONEY RECEIVED FOR SH ARE APPLICATION PARTAKES OF THE CHARACTER OF DEPOSITS. WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A), THE LD. CIT(A) HAS GIVEN A FINDING THAT THE CASH WAS NO T CONTRIBUTED BY SHRI TEJINDER SINGH TOWARDS THE SHARE APPLICATION MONEY AS PER PARAS 4.1 TO 4.5 OF THE IMPUGNED ORDER. ACCORDING TO LD. CIT(A), THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO SUPPORT ITS CLAIM THAT DURING THE YEAR UNDER 6 CONSIDERATION, IT WAS DECIDED BY THE COMPANY TO INC REASE THE SHARE CAPITAL OF THE COMPANY AND THAT THE SAID RESOLUTION OF BOARD WAS C OMMUNICATED TO THE REGISTRAR OF THE COMPANIES. THE CIT(A) FURTHER OBSE RVED THAT THERE IS NO MENTION OF ANY SUCH BOARDS RESOLUTION MADE BY THE ASSESSEE COMPANY, IN THE BALANCE SHEET PREPARED AS PER SCHEDULE VI OF THE CO MPANIES ACT. THE ASSESSEE FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE I.E BOAR D RESOLUTION CONFIRMING THE ACCEPTANCE OF SHARE APPLICATION MONEY FROM SHRI TEJINDER SINGH. THE CI T(A) NOTED THAT FOR ALL PRACTICAL PURPOSES, SHRI TEJINDE R SINGH HIMSELF WAS MANAGING THE BUSINESS AFFAIRS OF THE ASSESSEE COMPANY. AS PE R THE CIT(A), THE AUTHORIZED AND SUBSCRIBED SHARE CAPITAL OF THE COMPANY WAS SHO WN AT 12,50,000 SHARES @ RS. 10 EACH , OUT OF WHICH 12,49,990 SHARES WERE SU BSCRIBED BY SHRI TEJINDER SINGH AMOUNTING TO RS. 12,49,900/-. THE OTHER SHARE HOLDERS WAS ONE SHRI S. PASRICHA IN WHOSE NAME ONLY 10 SHARES WORTH RS. 100 /- WERE SHOWN SUBSCRIBED. THE CIT(A) TOOK THE VIEW THAT THE SHARE CAPITAL CO NTRIBUTION OF ONLY RS. 100/- OUT OF TOTAL SHARE CAPITAL OF RS. 1,25,00,000/- IN THE NAME OF SHRI PASRICHA WAS PRIMA FACIE ONLY A WINDOW DRESSING TO GIVE SEMBLANC E OF GENUINENESS TO THE AFFAIRS OF THE COMPANY. THE LD. CIT(A) HAS POINTED OUT THAT EVEN THE UNSECURED LOANS TO THE COMPANY WAS IN THE NAME OF SHRI TEJIND ER SINGH ONLY AMOUNTING TO RS. 28,53,948/-. THE CIT(A) CONCLUDED THAT IN THE A BOVE CIRCUMSTANCES, IT WAS NOT DIFFICULT FOR SHRI TEJINDER SINGH TO PRESENT TH E ACCOUNTS OF THE COMPANY IN ANY MANNER TO SUIT HIS OWN CONVENIENCE. ACCORDINGL Y, HE DEPOSITED A SUM OF RS. 30,26,000/- AS SHARE APPLICATION MONEY. THE CI T(A) OBSERVED THAT THE ACCOUNTS OF THE COMPANY WERE NOT PREPARED AND PRESE NTED IN AN AUTHENTIC MANNER. THE LD. CIT(A) CATEGORICALLY HELD THAT COM PANY WAS NOT HAVING AUTHORIZED SHARE CAPITAL AND THE CASH HAS NOT BEEN CONTRIBUTED BY SHRI TEJINDER SINGH TOWARDS THE SHARE APPLICATION MONEY. AFTER AN ALYZING THE FINDINGS OF LOWER AUTHORITIES, IT WOULD BE CLEAR THAT ASSESSIN G OFFICER TREATED THE AMOUNT OF RS. 30,26,000/- AS SHARE APPLICATION MONEY RECEIVED FROM SHRI TEJINDER SINGH AS PER PARA 6 OF THE ASSESSMENT ORDER PASSED U/S 143( 3) OF THE ACT. THE JT. CIT 7 SHIMLA RELYING ON THE JUDGEMENT OF THE HON'BLE JHAR KHAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD V CIT (S UPRA) HELD THAT MONEY IN QUESTION RECEIVED BY THE COMPANY FOR SHARE APPLICAT ION PARTAKES THE NATURE OF DEPOSIT. WHEN THE MATTER CAME BEFORE THE CIT(A) I N APPEAL, THE CIT(A) TOOK A DIFFERENT VIEW IN HOLDING THAT THE AMOUNT IN QUESTI ON WAS NOT CONTRIBUTED BY SHRI TEJINDER SINGH TOWARDS THE SHARE APPLICATION M ONEY. ALTERNATIVELY, THE LD. CIT(A) AGREED WITH THE JT.CIT TO HOLD THAT THE SHAR E APPLICATION MONEY PARTAKES CHARACTER OF DEPOSIT AND, THEREFORE, THE PROVISIONS OF SECTION 269 SS OF THE ACT WERE APPLICABLE TO THE FACTS OF THE PRESENT CASE. H OWEVER, THE LD. CIT(A) HELD THAT THE ASSESSEE FAILED TO SHOW ANY REASONABLE CAU SE WITHIN THE MEANING OF SECTION 273B OF THE ACT, ON THE BASIS OF WHICH IT C AN BE SAID THAT THE PENALTY WAS NOT LEVIABLE IN THE CASE OF THE ASSESSEE. 10. IT IS OBSERVED THAT THE JT.CIT AND CIT(A) HAD R EFERRED TO THE DECISION OF THE HON'BLE JHARKHAND HIGH COURT IN THE CASE OF BHA LOTIA ENGINEERING WORKS (P) LTD V CIT (2005) 271 ITR 399, WHEREIN IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT THE SHARE APPLICATION MONEY PARTAKES THE CHARACTER OF DEPOSITS. THERE ARE CONTRARY DECISIONS OF OTHER HIGH COURTS, WHEREI N IT HAS BEEN HELD THAT THE AMOUNT RECEIVED IN CASH FOR ALLOTMENT OF SHARES DID NOT AMOUNT TO EITHER LOAN OR DEPOSIT WITHIN THE MEANING OF SECTION 269SS, HENCE, NO PENALTY CAN BE LEVIED U/S 271D OF THE ACT. THESE DECISIONS ARE AS UNDER: - CIT V I.P. INDIA (P) LTD (2012) 343 ITR 353 (DELHI) CIT V RUGMINI RAM RAGAV SPINNERS P. LTD. (2008) 30 4 ITR 417 (MAD.) CIT V M/S IQBAL INN & HOTELS LTD IN ITA NO. 256 OF 2014 JUDGMENT DATED 21.9.2015 (P&H) 11. IN THE CASE OF M/S IQBAL INN & HOTELS LTD. (SUP RA), THE HON'BLE HIGH COURT DID NOT AGREE WITH THE VIEW TAKEN BY THE HON'BLE JH ARKHAND HIGH COURT IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD V CIT ( SUPRA) AND HELD THAT THE 8 AMOUNTS RECEIVED BY THE ASSESSEE TOWARDS SHARE APPL ICATION MONEY WOULD NOT FALL UNDER LOAN OR DEPOSIT AS PROVIDED U/S 269SS OF THE ACT. ACCORDINGLY, THE HON'BLE HIGH COURT HELD THAT PENALTY U/S 271D WAS NOT LEVIABLE. IN OUR VIEW, THE ISSUE AS TO WHETHER THE SHARE APPLICATION MONEY RECEIVED IN CASH WOULD BE EXEMPT FROM THE PROVISIONS OF SECTION 269SS OF THE ACT OR NOT IS A DEBATABLE ISSUE AND THERE ARE CONTRARY DECISIONS OF HON'BLE H IGH COURTS ON THIS ISSUE AND THERE IS NOT DIRECT DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS POINT. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF VEGE TABLE PRODUCTS LTD (1973) 88 ITR 192 (SC) HELD THAT IF THE COURT FINDS THAT L ANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE, THEN THE COURT HAS TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSSE, MOR E PARTICULARLY SO WHERE THE PROVISION RELATES TO THE IMPOSITION OF A PENALTY. IT IS ALSO RELEVANT TO POINT OUT HERE THAT THE ASSESSING OFFICER HIMSELF HAS ADMITTE D IN PARA 6 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAD RECEIVED A SUM OF RS. 30,26,000/- IN CASH AS A SHARE APPLICATION MONEY FROM SHRI TEJINDER SIN GH, ONE OF THE DIRECTORS OF THE COMPANY. IT APPEARS THAT THE LD. CIT(A) DID NO T ACCEPT THE CONTENTION OF THE ASSESSING OFFICER THAT THE MONEY RECEIVED BY THE A SSESSEE FROM SHRI TEJINDAR SINGH WAS TOWARDS SHARE APPLICATION MONEY. THUS, I T IS OBSERVED THAT THERE IS NO UNANIMITY ABOUT THE ISSUE INVOLVED IN THIS CASE AMONGST THE REVENUE AUTHORITIES. THE NEXT QUESTION IS AS TO WHETHER IN THE ABSENCE OF BOARDS RESOLUTION, THE ASSESSEE COMPANY COULD HAVE INCREAS ED THE AUTHORIZED SHARE CAPITAL OR NOT? IN OUR OPINION, THIS ISSUE IS ALSO NOT FREE FROM DEBATE. THEREFORE, IF THE ISSUE BECOMES SO DEBATABLE AND IS CAPABLE OF MORE MEANINGS THAN ONE, NO PENALTY SHOULD BE IMPOSED. 12. WITHOUT PREJUDICE TO ABOVE, AS AN ALTERNATIVE C ONTENTION, IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT IF THE AMOUNT IN QUESTION IS NOT ACCEPTED AS SHARE APPLICATION MONEY THEN THERE WAS A REASONABLE CAUSE FOR THE ALLEGED VIOLATION OF SECTION 269SS OF THE ACT. SEC TION 269SS OF THE ACT 9 (APPLICABLE AT THE RELEVANT PERIOD) PROVIDES THAT NO PERSON SHALL, AFTER 30.6.1984, TAKE OR ACCEPT FROM ANY OTHER PERSON ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DR AFT, IF (A) THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMOUNT OF SUC H LOAN OR DEPOSIT; OR (B) ON THE DATE OF TAKING OR ACCEPTING SUCH LOAN OR DEPOSI T, ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARLIER BY SUCH PERSON FROM THE DEPOSITOR IS REMAINING UNPAID (WHETHER REPAYMENT HAS FALLEN DUE OR NOT), THE AMOUNT OR THE AGGREGATE AMOUNT REMAINING UNPAID; OR C) THE AMOUNT OR THE AGGREGATE AMOUNT R EFERRED TO IN CLAUSE (A) TOGETHER WITH AMOUNT OR THE AGGREGATE AMOUNT REFER RED TO IN CLAUSE (B) IS RS. 20,000/- OR MORE W.E.F. 1.4.1989. FOR FAILURE TO C OMPLY WITH THE PROVISIONS OF SECTION 269SS, THE PENALTY IS LEVIABLE U/S 271D OF THE ACT WHICH EMPOWERS THE JT. CIT TO IMPOSE PENALTY TO ANY PERSON WHO TAKES O R ACCEPT ANY LOAN OR DEPOSIT IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269 S S OF THE ACT. THE PENALTY UNDER THIS SECTION IS LEVIABLE IN A SUM EQUAL TO TH E AMOUNT OR LOAN OR DEPOSIT SO TAKEN OR ACCEPTED. THE HON'BLE SUPREME COURT IN THE CASE OF ASST. DIRECTOR OF INSPECTION (INVESTIGATION) VS. KUM. A.B. SHANTHI ( 2002) 255 ITR 258 (SC) HAS OBSERVED THE OBJECT OF INTRODUCING OF SECTION 269 S S OF THE ACT, WHICH READS AS UNDER:- THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENSU RE THAT A TAXPAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION F OR HIS UNACCOUNTED MONEY, OR IF HE MAKES SOME FALSE ENTRIE S, HE SHALL NOT ESCAPE BY GIVING FALSE EXPLANATION FOR TH E SAME. DURING SEARCH AND SEIZURES, UNACCOUNTED MONEY IS UN EARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE EXPLANATION THAT HE HAD BORROWED OR RECEIVED DEPOSITS FROM HIS RELATIVE S OR FRIENDS AND IT IS EASY FOR THE SO-CALLED LENDER ALS O TO MANIPULATE HIS RECORDS TO SUIT THE PLEA OF THE TAXP AYER. THE MAIN OBJECT OF SECTION 269SS WAS TO CURB THIS MENAC E OF MAKING FALSE ENTRIES IN THE ACCOUNT BOOKS AND LATER GIVING AN EXPLANATION FOR THE SAME. 10 13. THE HON'BLE SUPREME COURT FURTHER OBSERVED THA T SECTION 273B OF THE ACT FURTHER PROVIDES THAT IF THERE IS A GENUINE AND BON AFIDE TRANSACTIONS AND THE TAX PAYER COULD NOT GET A LOAN OR DEPOSIT BY ACCOUNT PA YEE CHEQUE OR DEMAND DRAFT FOR SOME BONAFIDE REASON, THE AUTHORITY VESTED WITH THE POWER TO IMPOSE PENALTY HAS A DISCRETIONARY POWER NOT TO LEVY PENALTY. S ECTION 273B OF THE ACT PROVIDES THAT IF ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE, THE ASSESSEE IS NOT SUBJECT TO LEVY OF PENALTY. FOR THE ARGUMENT SAKE, IN THIS CASE IF IT IS ACCEPTED THAT ASSESSEE DID NOT RECEIVE THE SHARE AP PLICATION MONEY BUT IT WAS A DEPOSIT WITHIN THE MEANING OF SECTION 269SS OF THE ACT, THEREFORE, THE QUESTION ARISES AS TO WHETHER THERE WAS A REASONABLE CAUSE I N ACCEPTING THE DEPOSITS IN CONTRAVENTION OF PROVISIONS OF SECTION 269SS OF THE ACT. IT IS OBSERVED THAT THE CASH WAS DEPOSITED BY SHRI TEJINDER SINGH, ONE OF T HE DIRECTORS OF THE COMPANY WHO WAS HAVING 99.9% SHARE IN THE COMPANY. THERE IS NO DISPUTE THAT THE SOURCE OF SUCH MONEY WAS COMPLETELY FROM EXPLAINED SOURCES , THE EVIDENCE OF WHICH WAS FURNISHED BEFORE THE ASSESSING OFFICER. THE SA ID EVIDENCE WAS ALSO VERIFIED BY THE ASSESSING OFFICER. THE CONTENTION OF THE ASS ESSEE IS THAT THE MONEY IN CASH WAS INTRODUCED IN THE COMPANY WHEN IT WAS URGE NTLY REQUIRED BY THE COMPANY AT ITS WORK SITE WHICH DID NOT HAVE BANKING FACILITIES. IT IS STATED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURIN G OF CEDAR OIL FROM THE ROOTS OF DEVDAR TREES AND WHICH WAS SUSTAINING LOSS ES SINCE A LONG TIME. IT IS FURTHER CLAIMED THAT THE ASSESSEE WAS INCURRING HUG E LOSSES AND THE CASH FLOW POSITION HAD CRIPPLED DURING THAT TIME. FURTHER, BE CAUSE OF BUSINESS EXIGENCIES WARRANTING IMMEDIATE DISCHARGE OF CERTAIN LIABILITI ES, ON THE SPOT A DECISION WAS TAKEN BY THE PROMOTER TO INTRODUCE FUNDS WHICH WERE DEPOSITED BY THE DIRECTOR OF THE COMPANY. IT IS ALSO STATED BY THE ASSESSEE T HAT THE MONEY WAS REQUIRED BY IT AT ITS WORK SITE WHICH IS SITUATED IN VILLAGE SN ARLI, TEHSIL KARSOG, DISTRICT MANDI, A NOTIFIED BACKWARD AREA IN THE INTERIORS OF KARSOG IN HIMACHAL PRADESH. THE REVENUE HAS NOT DOUBTED THE SOURCE OF DEPOSITS MADE BY SHRI TEJINDER SINGH ONE OF THE DIRECTORS OF THE COMPANY. THIS AMOUNT HAS NOT BEEN 11 TREATED AS CASH CREDITS U/S 68 OF THE ACT. THE AMOU NT INVESTED BY SHRI TEJINDER SINGH STANDS DULY VERIFIED AND EXPLAINED. FURTHERMO RE, SHRI TEJINDER SINGH IS ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY HAS IN TRODUCED MONEY IN AN ALMOST 99.9% OF COMPANY OWNED BY HIM. THERE IS NO MATERIAL ON RECORD TO DOUBT THE EXPLANATION OFFERED BY THE ASSESSEE. FROM THE FACTS OF THE PRESENT CASE, IT IS CLEAR THAT THE TRANSACTIONS MADE BETWEEN THE COMPAN Y AND ITS DIRECTORS CANNOT BE DOUBTED BY ANY STRETCH OF IMAGINATION. IN OTHER WOR DS, THE TRANSACTIONS ARE GENUINE. IN THE CASE OF CIT VS. SUNIL KUMAR GOEL (2009) 315 ITR 163 (P&H), IT WAS HELD THAT CASH TRANSACTIONS WITH SISTER CONC ERN WHICH HAD NO TAX EFFECT, ESTABLISHED REASONABLE CAUSE U/S 273B OF THE ACT. THEREFORE, NO PENALTY U/S 271D AND 271E IS LEVIABLE. THE RELEVANT OBSERVATIO NS MADE BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE ABOVE CASE ARE A S UNDER:- FURTHERMORE, THERE IS NO DISPUTE ABOUT THE FACT TH AT THE INSTANT CASH TRANSACTIONS OF THE RESPONDENT ASSESSE E 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, BAS ED ON AN ACT OF CASUALNESS, SPECIALLY IN A CASE WHERE THE DI SCLOSURE THEREOF IS CONTAINED IN THE COMPILATION OF ACCOUNTS AND WHICH HAS NO TAX EFFECT, IN OUR VIEW ESTABLISHES ' REASON ABLE CAUSE' UNDER SECTION 273B OF THE ACT. SINCE THE RESPONDENT ASSESSEE HAD SATISFACTORILY ESTABLISHED ' REASONABLE CAUSE' UNDER SECTION 273B OF THE ACT HE MUST BE DEEMED TO HAVE ESTABLISHED SUFFICIENT CAUSE FOR NOT INVOKING THE P ENAL PROVISIONS (SECTIONS 271D AND 271E OF THE ACT) AGAI NST HIM. SIMILARLY, IN THE CASE OF CIT VS. MAHESWARI NIRMAN UDYOG (2008) 302 ITR 201 (RAJ.), THE ASSESSEE WAS A CONTRACTOR DOING BUSINES S IN A REMOTE AREA OF NOKHA TEHSIL. THE ASSESSEE COMPANY WAS REQUIRED TO MAKE S POT PAYMENTS TO THE LABOURERS ETC. AND FOR THAT THE COMPANY NEEDED CASH . THE COMPANY BORROWED MONEY FROM ITS SISTER CONCERN AT THE WORK SITE. TH E ASSESSING OFFICER LEVIED THE PENALTY U/S 271D OF THE ACT FOR VIOLATING THE PROVI SIONS OF SECTION 269SS OF THE 12 ACT. THE HON'BLE RAJASTHAN HIGH COURT CONFIRMED TH E ORDER OF THE TRIBUNAL IN DELETING THE PENALTY LEVIED U/S 271-D OF THE ACT HO LDING THAT THE SISTER CONCERN OF THE ASSESSEE WAS OWNED BY THE SAME FAMILY GROUP OF PEOPLE WITH A COMMON MANAGING PARTNER WITH CENTRALIZED ACCOUNTS UNDER TH E SAME ROOF AND THEREFORE, THE TRANSACTIONS INTER SE BETWEEN THE SISTER CONCER N AND THE ASSESSEE COULD NOT PARTAKE THE NATURE OF EITHER DEPOSIT OR LOAN TH OUGH INTEREST MIGHT HAVE BEEN PAID ON THE SAME. THE HON'BLE HIGH COURT FURTHER HE LD THAT THE TRIBUNAL HAS CORRECTLY HELD THAT THE TRANSACTIONS WERE GENUINE A ND THEREFORE, EXPLANATION GIVEN BY THE ASSESSEE WAS REASONABLE FOR RECEIVING PAYMENTS IN CASH. 14. IN THE INSTANT CASE, THE ASSESSEE COMPANY WAS I NCURRING HUGE LOSSES AND THE CASH FLOW POSITION HAD CRIPPLED DURING THE RELE VANT PERIOD. AT THE RELEVANT TIME, THE ASSESSEE WAS IN WANT OF FUNDS IN ORDER TO IMMEDIATE DISCHARGE OF CERTAIN LIABILITIES, AND THEREFORE, THE DECISIONS WERE TAKEN BY THE PROMOTERS TO INFUSE FUNDS WHICH WERE DEPOSITED BY SHRI TEJINDER SINGH FOR PROPER AND EFFECTIVE CHANNELIZATION OF FUNDS TO AVOID MISUSE O F THE SAME AS LATEST CBS BRANCH SET UP WAS NOT AVAILABLE AT THE WORK SITE OF THE COMPANY WHICH IS A NOTIFIED BACKWARD AREA IN THE INTERIORS OF KARSOG TEHSIL IN HIMACHAL PRADESH. THE REVENUE HAS NOT DOUBTED THE SOURCE OF DEPOSITS. IT IS AN ADMITTED FACT THAT SH. TEJINDER SINGH HAD MADE THE DEPOSITS, THOUGH IN CASH. IN VIEW OF THE DECISIONS REFERRED TO ABOVE, IN OUR CONSIDERED VIEW , THERE IS NO VIOLATION OF THE PROVISIONS OF SEC. 269SS OF THE ACT, IN AS MUCH AS THE TRANSACTIONS HAVE DULY BEEN RECORDED IN THE ACCOUNTS OF THE COMPANY. THERE IS NO DISPUTE THAT SINCE THE COMPANY WAS IN URGENT NEED OF MONEY, CONSIDERING TH E URGENCY, SH TEJINDER SINGH, ONE OF THE DIRECTORS OF THE COMPANY INTRODUC ED THE MONEY WITH THE ASSESSEE COMPANY. AS WE HAVE ALREADY OBSERVED HEREI N ABOVE THAT THE OBJECT OF INTRODUCING SEC. 269SS IS TO ENSURE THAT A TAX PAYE R IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY, OR IF HE MAK ES ANY FALSE ENTRY, HE SHALL HAVE NO ESCAPE BY GIVING FALSE EXPLANATION TO THE S AME. IN THE INSTANT CASE, IT IS CLEAR THAT THE CASH TRANSACTIONS OF THE ASSES SEE WERE WITH THE DIRECTOR OF THE 13 COMPANY, AND DUE TO BUSINESS EXPEDIENCY. NOBODY HAS DOUBTED THE GENUINENESS OF THE TRANSACTIONS. IT IS AN ADMITTED FACT THAT TH E MONEY WAS DEPOSITED BY SHRI TEJINDER SINGH, ONE OF THE DIRECTORS OF THE COMPANY IN THE BANK ACCOUNT OF THE ASSESSEE COMPANY. RULE 2(B)(IX) OF THE COMPANIES (A CCEPTANCE OF DEPOSITS) RULES, 1975 EXEMPTS ANY AMOUNT RECEIVED FROM A PERS ON WHO AT THE TIME OF RECEIPT OF THE AMOUNT WAS A DIRECTOR OF THE COMPAN Y, OR ANY AMOUNT RECEIVED FROM ITS SHAREHOLDERS BY A PRIVATE COMPANY, OR BY A PRIVATE COMPANY WHICH HAS BECOME A PUBLIC COMPANY. IN THE INSTANT CASE, THE A MOUNT WAS DEPOSITED BY THE DIRECTOR / SHARE HOLDER OF THE ASSESSEE COMPANY. T HEREFORE, IN VIEW OF THE PROVISIONS OF RULE 2(B)(IX) OF THE COMPANIES (ACCEP TANCE OF DEPOSITS) RULES, 1975, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY H AS VIOLATED THE PROVISIONS OF SECTION 269SS OF THE ACT. THUS, THE ASSESSEE HAS P ROVED THROUGHOUT BEYOND ANY SHADOW OF DOUBT THAT TRANSACTIONS ARE GENUINE AND T HERE IS A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT WHICH PROVIDES THAT NO PENALTY SHALL BE IMPOSED ON THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN SECTION 269SS OF THE ACT, I F HE / ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE FOR FAILURE TO TAKE A LOAN OR DEPOSIT OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT THEN THE PENALTY SHOULD NOT BE LEVIED. 15. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, NO PENALTY U/S 2 71D OF THE ACT CAN BE VALIDLY LEVIED IN THIS CASE. ACCORDINGLY, WE CANCEL THE PEN ALTY LEVIED U/S 271D OF THE ACT. 16. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.03.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 8 TH FEBRUARY, 2016 RKK 14 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 15