1995 (11) TMI 119 - AT - Income Tax

Summary

Issues Involved:
1. Violation of provisions of Section 269SS of the IT Act.
2. Levy of penalty under Section 271D of the IT Act.
3. Nature of book adjustments and their classification as loans or deposits.

Summary:

Violation of Provisions of Section 269SS of the IT Act:
The assessee, a subsidiary of M/s Lallubhai Amichand Ltd., purchased goods from its holding company and made partial payments by account payee cheques. The remaining amounts were transferred to the Sarafi account by book adjustments. The Assessing Officer (AO) observed these transfers as acceptance of deposits in violation of Section 269SS of the IT Act, which mandates that loans or deposits must be accepted through account payee cheques or drafts.

Levy of Penalty under Section 271D of the IT Act:
The Dy. CIT levied a penalty of Rs. 23 lakhs u/s 271D for the alleged violation of Section 269SS. The assessee contended that the transactions were mere book adjustments and not actual loans or deposits involving the transfer of money. The CIT(A) upheld the penalty, reasoning that the book adjustments constituted constructive receipts, thereby violating Section 269SS.

Nature of Book Adjustments and Their Classification as Loans or Deposits:
The assessee argued that the book adjustments were not loans or deposits as defined u/s 269SS, which requires the involvement of money. The Tribunal noted that the provisions of Section 269SS aim to prevent tax avoidance and the introduction of unaccounted cash. The Tribunal found no evidence suggesting that the book adjustments were part of any tax planning or evasion scheme. It was concluded that the book adjustments did not involve the transfer of money and thus did not fall within the mischief of Section 269SS.

Conclusion:
The Tribunal held that the book adjustments from the goods purchase account to the Sarafi account did not constitute loans or deposits involving the transfer of money as required by Section 269SS. Consequently, the penalty u/s 271D was unjustified. The appeal was allowed, and the penalty order was reversed.