This is an appeal filed· by the assessee directed against the order of the learned CIT(A)-XVI, New Delhi dt. 23rd Sept., 2010 pertaining to the asst. yr. 2006-07 on the following grounds.
2. Facts in brief: The assessee is a company and it filed its return of income on 29th Nov., 2006 declaring "nil" income. During the course of assessment proceedings the AO noticed that the assessee company has taken amounts from its Director Shri Vijay Singh Rana and Mrs. Manju Rana. Amounts were withdrawn from the capital account of the proprietary concern of Shri Vijay Singh Rana and remitted into the account of the assessee to the tune of Rs. 10,75,800. Similarly, Smt. Manju Rana, the other director, withdrew amounts from her capital account in her proprietary concern Mjs M.V.N.T.R. Industries and remitted the same to the assessee company to the tune of Rs. 4,12,500. The AO was of the View that the assessee Violated s. 269SS of the Act. The assessee was asked for the explanation. The assessee submitted that the amount was given as share application money and hence not a loan or deposit. It was also submitted that the transactions are bona fide. and genuine ones and all the cash was withdrawn by the directors from their respective proprietary concerns and that the amounts were received in cash owing to exigencies of the business. Not conVinced the AO rejected the explanation of the assessee and referred the matter to the Add!. CIT,
Range ] 3. New Delhi for considering initiation of penalty proceedings under s. 271D of the Act. The Add!. CIT passed an order under s. 271D on 21st June, 2009 levying penalty under s. 271D for Violation of s. 269SS of the Act. Aggrieved the assessee filed an appeal before the learned CIT(A) without success. Further aggrieved the assessee is in appeal before us.
3. The learned counsel for the assessee Mr. Piyush Kaushik submitted that: ~
(a) Contribution received by private company from a director cannot be treated as a loan or deposit for the purpose of s. 269S5. He relied on the following case la,ws :
(i) Lipcam Marketing (P) Ltd. us. Asstt. CIT (ITA No. 3629/Del/201O, dt. 14th Nov., 2011);
(ii) CIT us. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad);
(iii) Dillu Cine Enterprises (P) Ltd. us. Addl. CIT (2004) 87 TTJ (Hyd) 1098 : (2002) 80 ITD 484 (Hyd);
(b) That s. 269SS will not apply where contributions received have been converted into share capital by way of allotment of shares. He relied on the following case laws :
(i} CIT us. Sri Sidhdata Ispat (P) Ltd. 2012- TIOL-786-HC-Del;
(ii) CIT us. IP India (P) Ltd. (2012) 70 DTR (Del) 452 : 2011- TIOL-811-HCDel.
(c) That s. 269SS will not apply in case of bona fide disclosed transactions for bonaftde purpose in View of business exigencies and not involVing any tax evasion;
(i) CIT us. Lakshmi Trust Co. 2007-TIOL-HC-Mad-IT;
(ii) Director of IT (Exemption) us. All India Deaf & Dumb Society (2005) 198 CTR (Del) 376 : 2005 TIOL-103-HC-Del;
(iii) CIT us. Bombay Conductors & Electricals Ltd. (2008) 3 DTR (Guj) 200 : (2008) 301 ITR 328 (Guj).
4. The learned Departmental Representative on the other hand relied on the order of the first appellate authority and submitted that the penalty was rightly confirmed by the learned CIT(A). He submitted that the assessee has not demonstrated reasonable cause and the company diverted its own funds as loans and advances to other persons, while claiming that it was in dire necessity of funds.
5. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and orders of the authorities below, case laws cited, we hold as follows.
6. The learned CIT(A) has recorded that the assessee has placed reliance on the decision of the Hon'bIe Madras High Court in the case of CIT us. Idhyam Publications Ltd. (supra). Without giving any reason as to why he is not following this judgement. the first appellate authority went on to confirm the penalty. In our view this is wrong.
6.1. The Hon'ble Madras High Court in the case of Idhayam Publications Ltd. (supra) held as follows:
"The assessee is running a company in the name of Idhayam Publications· (P) Ltd. for publication of books. The relevant assessment year is 1992-93. In the assessment proceeding, the AO noted that the assessee had accepted a cash loan of Rs. 2,94,000 from Mis Manian Creations. a sister-concern, in violation of the provisions of s. 269SS of the Act. With the above information, the Dy. CIT initiated penal proceedings under s. 271D and issued a show-cause notice dt. 19th Sept.. 1997, to the assessee. In response. the assessee filed a letter dt. 27th Sept., 1997, stating that the transaction between the assessee and Mr. S.V.S. Manian, proprietor of Manian Creation, was current account in nature and was not a loan or deposit. The Dy. CIT rejected the contention and was of the view that there was a clear violation Df the provisions of s. 271D and levied a penalty of Rs. 2.94,000 under s. 271D of the Act.
Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) held that even though there was reasonable cause to hold that there was a violation of the provision under s. 269SS which attracted penalty under s. 271D. he has referred the Madras High Court judgment in the case of Kumari A.B. Shanthi (Alias) Vennira Adai Nirmala vs. Asstt. Director of Inspection (Investigation) (1992) 197 ITR 330 (Mad). which declared that s. 269SS is unconstitutional. Aggrieved by that order, the Revenue filed an appeal before the Tribunal and contended that the Supreme Court [Asstt. Director of Inspection (Investigation) vs. Kum. A.B. Shanthi (2002) 1 74 CTR (SC) 513 : (2002) 255 ITR 258 (SC)] has reversed the decision of the Madras High Court judgment in (1992) 197 ITR 330 (Mad) (supra) and held that s. 269SS is constitutionally valid and therefore, the penalty levied by the AO ought to be considered. The Tribunal, on hearing the arguments, held that, on the merits, the transaction does not fall within the meaning of loan or advance and hence there is no violation of s. 269SS .
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 nut 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 direhtor:-cum-sharehoWer 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. No costs."
6.1.1 This decision was followed by the Delhi "D" Bench of the Tribunal in the case of Lipcam Marketing (P) Ltd. (supra). As it is not disputed that the promoter-directors of the assessee company have contributed these amounts by withdrawing from the capital accounts in their respective proprietary concerns for the purpose of construction of building and purchase of machinery of the new company, it cannot be treated as a loan or deposit as contemplated under s. 269SS. Hence on this sole ground this penalty has to be deleted.
6.2. In any event shares were allocated by the company to the promoter directors for the amounts contributed. In such a situation the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Sri Sidhdata Ispat (P) Ltd. and CIT vs. IP India (P) Ltd. (supra) are applicable and no penalty can be levied. By applying the propositions laid down in the above case laws to the facts of the case on hand, we delete the penalty levied under s. 269SS (sic-271D) and allow the appeal of the assessee.
7. In the result the appeal of the assessee is allowed.