05 July 2010
As per section 269SS of Income tax act company can accept deposit upto Rs.20000 in cash.
Bhalotia Engineering Works Pvt. Ltd. v. CIT [2005] 275 ITR 399 (Jharkhand) In the given case it was held that till allotment of shares, share application money can be treated as deposits and attract section 269SS. The share application money was treated as deposit, as the amount were liable to be refunded to the applicants if it was decided not to allot shares to them. Therefore the provisions of section 269SS were violated when the assessee accepted the share application money in cash amounting to Rs.20000 or more
CIT v Rugmini Ram Ragav Spinners P. Ltd. (2008) 304 ITR 417 (Mad), An appeal is filed under Section 260A of the Income Tax Act, 1961 by the Revenue, against the order of the Income Tax Appellate Tribunal, Bench 'A', Madras.
The Court admitted the appeal and formulated the following substantial questions of law:-
1.Whether in the facts and under the circumstances of the case, the Appellate Tribunal was right in holding that cash payments made by the assessee pertains to refund of share application money and not repayment of deposit or loan?
2. Whether in the facts and under the circumstances of the case, the Appellate Tribunal was right in holding that penalty under Section 271E is not leviable?"
Facts: The assessee is closely-held company in which the public are not substantially interested. The relevant assessment year is 1990-91. During the year of account, the assessee had repaid some of the share application money which it had received earlier in cash contravening the provisions under Section 271E of the Act. Hence, the Assessing Officer initiated penalty proceedings under Section 271E and levied a penalty of Rs.5, 90, 416/-. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income-tax (Appeals) ("CIT(A)" in short). The CIT(A) allowed the appeal and deleted the penalty levied under Section 271E of the Act. Aggrieved, the Revenue filed an appeal to the Income-tax Appellate Tribunal ("Tribunal" in short). The Tribunal dismissed the Revenue's appeal and confirmed the order of the CIT(A). Hence the present tax case by the Revenue.
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. A reasonable cause has to be established by the assessee. The rationale behind the provisions of Section 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 Section 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. 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 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.
CAclubindia
