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2025 (4) TMI 203 - AT - Income TaxPenalty order u/s 271D - violation of Section 269SS - as argued AO treated the journal entry reflecting the loan as contravening the provisions of Section 269SS despite the fact that the loan amount was routed through banking channels and duly confirmed by the NBFC - HELD THAT - We find that there is no dispute regarding the fact that the amount of Rs. 15 lakh was paid through banking channels and was duly confirmed by both the NBFC and the concerned party. The loan amount of Rs. 15 lakh was disbursed directly to the said party. We note that the balance amount of Rs. 10 lakh was paid by the assessee to the same party towards film promotion and other incidental charges. In its books of accounts the assessee recorded the said transaction through a journal entry recognizing the liability as a loan. Since the assessee is responsible for repaying the said amount the loan is duly reflected in its books of accounts. A plain reading of Section 269SS reveals that the provision applies to transactions where a deposit or loan is accepted by an assessee otherwise than by an account payee cheque an account payee draft or other prescribed banking modes. The scope of this provision is restricted to transactions involving the acceptance of money and does not extend to cases where a debt or liability arises merely due to book entries. The legislative intent behind Section 269SS is to prevent cash transactions as is evident from clause (iii) of the Explanation to the section which defines a loan or deposit as a loan or deposit of money. Consequently a liability recorded in the books of accounts through journal entries such as crediting the account of a party to whom money is payable or debiting the account of a party from whom money is receivable falls outside the purview of Section 269SS as such entries do not involve the actual acceptance of a loan or deposit in monetary form. The imposition of penalty u/s 271D in relation to Section 269SS is therefore not justified particularly in light in the case of Triumph International Finance (I) Ltd. 2012 (6) TMI 358 - BOMBAY HIGH COURT and Worldwide Township Projects Ltd 2014 (6) TMI 47 - DELHI HIGH COURT AR has further placed reliance on the decision in Noida Toll Bridge Co. Ltd. 2003 (1) TMI 46 - DELHI HIGH COURT wherein has categorically held that the provisions of Section 269SS do not apply to transactions recorded through journal adjustments. The transaction entered into by the assessee is outside the ambit of Section 269SS. Consequently the penalty levied by the AO under Section 271D amounting to Rs. 15 lakhs is liable to be deleted. The issue was also agitated before the CIT(A) where it was argued that in the absence of any material evidence indicating that the assessee had engaged in any cash transaction no adverse inference could be drawn under Section 273B - CIT(A) rejected the assessee s contention. Furthermore the Ld. DR was unable to rebut any of the submissions advanced by the Ld. AR with any contrary judicial precedents. Accordingly following the binding decisions we hold that the penalty imposed u/s 271D stands deleted. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Validity of Penalty under Section 271D for Violation of Section 269SS Relevant Legal Framework and Precedents: Section 269SS prohibits accepting loans or deposits of Rs. 20,000 or more otherwise than by an account payee cheque, draft, or electronic clearing system through a bank. Section 271D imposes a penalty for contravention of Section 269SS. Judicial precedents, such as the judgments of the Hon'ble Delhi High Court in Noida Toll Bridge Co. Ltd. and Worldwide Township Projects Ltd., have held that journal entries do not constitute a violation of Section 269SS. Court's Interpretation and Reasoning: The Court interpreted that Section 269SS aims to prevent cash transactions and applies to the acceptance of loans or deposits in monetary form. The provision does not extend to liabilities arising from journal entries, which do not involve the actual receipt of money. Key Evidence and Findings: The assessee recorded a loan of Rs. 15 lakh from an NBFC through a journal entry, with the amount paid directly to a third party through banking channels. This was confirmed by the NBFC and the concerned party. Application of Law to Facts: The Court applied the legal principle that journal entries do not constitute acceptance of loans or deposits in cash, thus falling outside the scope of Section 269SS. The transaction was through banking channels and did not involve cash. Treatment of Competing Arguments: The assessee argued that the transaction was legitimate and outside the purview of Section 269SS. The revenue authorities contended that the journal entry violated Section 269SS. The Court favored the assessee's argument, citing judicial precedents. Conclusions: The Court concluded that the penalty under Section 271D was not justified, as the transaction did not violate Section 269SS. 2. Timeliness of Penalty Imposition Legal Framework: The Income Tax Act prescribes time limits for imposing penalties. The assessee argued that the penalty was time-barred. Findings: The Court did not find the penalty to be time-barred, as the proceedings were initiated within the permissible period. 3. Satisfaction of Assessing Officer for Initiating Penalty Legal Requirement: The Assessing Officer must record satisfaction that there is a violation of Section 269SS before initiating penalty proceedings under Section 271D. Findings: The Court noted that the Assessing Officer did not adequately record satisfaction regarding the violation, which is a procedural lapse. SIGNIFICANT HOLDINGS The Tribunal held that:
Verbatim Quote: "The legislative intent behind Section 269SS is to prevent cash transactions... a liability recorded in the books of accounts through journal entries falls outside the purview of Section 269SS." The Tribunal's decision aligns with precedents set by the Hon'ble Delhi High Court and the Hon'ble Bombay High Court, reinforcing the principle that journal entries do not trigger Section 269SS penalties.
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