2014 (12) TMI 848 - HC - Income Tax

Deletion of penalty u/s 271D Revenue was of the view that assessee had taken unsecured loan of ₹ 8,52,71,500/- from M/s Oswal Agro Mills Ltd., otherwise than by an account payee cheque or bank draft in violation of Section 269SS Whether Section 269SS is violated if there is a book entry through journal and when there is no actual payment in cash - Held that - Bona fides of the transactions and book entries were accepted by the Revenue the provision would not be violated mere book entries would not result in violation of Section 269SS and accordingly penalty u/s 271D cannot be sustained - there were mere book entries which had resulted in an amount becoming due and payable by the assessee to M/s Oswal Agro Mills ltd. - M/s Oswal Agro Mills Ltd. had not given any loan or deposit in cash or by way of money to the assessee - M/s Oswal Agro Mills Ltd. had made payments to third party creditors of the assessee - in view of the payments to the creditors, book entries were made in the journal of the assessee, acknowledging their liability to pay the amount to M/s Oswal Agro Mills Ltd. Decided against revenue.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in deleting the penalty imposed under Section 271D of the Income Tax Act, 1961.
2. Interpretation of Section 269SS in cases involving journal entries and no actual cash payments.

Analysis:
1. The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 regarding the deletion of a penalty under Section 271D. The penalty was imposed due to the respondent assessee allegedly taking an unsecured loan without using an account payee cheque or bank draft, violating Section 269SS of the Act. However, the transactions were made through book entries, with no actual cash payments involved. The Tribunal deleted the penalty, and the High Court upheld the decision based on previous judgments stating that mere book entries without actual cash transactions do not violate Section 269SS.

2. The Tribunal's decision was supported by a recent case where it was held that Section 269SS is not violated if there are only book entries and no actual cash payments. The court referred to previous judgments emphasizing that book entries alone do not constitute a violation of Section 269SS. In the present case, the transactions were made through book entries, with the respondent assessee acknowledging the liability to pay the amount without any cash transactions involved. As a result, the court ruled in favor of the respondent assessee, stating that the penalty under Section 271D cannot be sustained when there are only book entries and no actual cash payments.

Overall, the judgment focused on the interpretation of tax laws regarding penalties imposed for violations related to unsecured loans and transactions made through book entries without actual cash payments. The court emphasized that in cases where there are only book entries and no cash transactions, the penalty under Section 271D cannot be upheld, as it does not constitute a violation of Section 269SS.