2016 (10) TMI 636 - HC - Income Tax

Penalty u/s.271D - violation of Section 269SS - adjustments through journal entries - Held that - The assessee filed copies of account of three companies as appearing in the books to demonstrate that the amounts, which were transferred to these three companies were transferred by way of account payee cheques and, therefore, the Tribunal came to the conclusion that it could not be said that the assessee had accepted loan or deposit in contravention of the provisions of Section 269SS as no cash had been accepted by the assessee. Since there was no payment in cash either by the assessee or on its behalf it could not be said that there was any violation of Section 269SS of the Act. Therefore, the penalty has rightly been deleted by the Tribunal. See Commissioner of Income-Tax Versus Noida Toll Bridge Co. Ltd. 2003 (1) TMI 46 - DELHI High Court - Decided in favour of assessee.

Summary

Issues:
1. Appeal filed by the department under Section 260A of the Income Tax Act for the assessment year 2001-02.
2. Legality of confirming the order canceling the penalty under section 269SS imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur.

Issue 1:
The appeal was filed by the department under Section 260A of the Income Tax Act for the assessment year 2001-02. The substantial questions of law raised were whether the Income Tax Appellate Tribunal was legally justified in confirming the order of the Ld. CIT (Appeals) canceling the penalty amounting to ?2,61,98,500 imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur. The crux of the matter was whether there was a violation of section 269SS of the Income Tax Act due to money being accepted otherwise than by crossed cheque/bank drafts. The Tribunal considered the facts of the case where the assessee had to pay sums on account of transactions of shares to three companies. The Tribunal noted that the amounts transferred were done through account payee cheques, not in cash, leading to the conclusion that no loan or deposit was accepted in contravention of Section 269SS. The Tribunal also referred to a CBDT Circular and a decision of the Delhi High Court to support its conclusion that no violation had occurred.

Issue 2:
The second issue revolved around whether the Income Tax Appellate Tribunal was correct in confirming the order canceling the penalty imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur. The Tribunal's decision was based on the fact that no cash had been accepted by the assessee in the transactions under consideration. The Tribunal emphasized that the provisions of Section 269SS are not attracted when there is an acknowledgment of debt by passing entries in the books of account without the transfer of money in cash. Citing a decision of the Delhi High Court in a similar case, the Tribunal concluded that since there was no cash payment, there was no violation of Section 269SS. Consequently, the penalty was rightfully deleted by the Tribunal, and the questions of law were decided in favor of the assessee and against the department.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision to cancel the penalty under Section 269SS. The judgment highlighted the importance of transactions being conducted through proper banking channels to avoid violations of tax laws, specifically Section 269SS of the Income Tax Act.