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Shri K.C. Singhal, Judicial Member

1. This appeal is directed against the order of the CIT(A) sustaining the levy of penalty levied under section 271D pertaining to assessment year 1991-92. Three grounds have been raised by the assessee but the learned counsel for the assessee has restricted his arguments to ground No. 2 only which is as under :

"2. Without prejudice to ground No. 1 and assuming without admitting that proper opportunity is granted to the appellant to meet the case of the dept. the learned taxing authorities below had erred in law and on facts and circumstances given by the appellant in holding that the transaction is covered by mischief of provisions of section 269SS. On facts and circumstances prevailing in the case and as per provisos of law it be held that the case of the appellant is not covered by mischief or provisions of section 269SS and consequently by mischief of provisions of section 271D of the Act. The penalty so imposed be deleted."

3. The learned counsel for the assessee Shri C.V. Khandelwal drew our attention to the facts of the case which have already been narrated by us in the preceding paragraphs. He vehemently argued that finding of the Assessing Officer to the effect that Mr. Banthia had given a loan of Rs. 27.67 lakhs to the assessee, was based on surmises, inasmuch as no cash had been passed from Mr. Banthia to the assessee-company. He pointed out that the assessee had made a journal entry on 31-3-1991 in order to acknowledge the debt incurred in connection with the investment made in purchase of the plot on 20-11-1989. According to him, the 'on money' of Rs. 27.67 lakhs must have been paid by Mr. Banthia either on 20-11-1989 or on any date earlier to that. Therefore, the question of levying penalty in A.Y. 1991-92 did not arise. Secondly, it was argued by him that according to section 269SS, Explanation (iii) 'loan or deposit' means loan or deposit of money. Since no money had been taken by the assessee from Mr. Banthia, it cannot be said that the assessee had taken the loan of Rs. 27.67 lakhs and therefore, the provisions of section 269SS are not contravened. Entry by rectification cannot fall within the ambit of section 269SS. In support of his contention, he referred to the decision of the Ahmedabad Bench of the Tribunal in the case of Bombay Conductors & Electricals Ltd. v. CIT [ITA No. 1609 (Ahd.) of 1994 dated 30-11-1995], wherein it has been held that constructive loan could not come within the mischief of the provisions of section 269SS. He also relied on the decision of the Calcutta High Court reported in Jatia Investment Co. v. CIT and the decision of the Tribunal Cochin Bench at Muthoot M. George Bros. v. Asstt. CIT [1993] 47 TTJ (Coch.) 434.

4. On the other hand, the learned departmental representative Mr. Sanjay Prasad, strongly opposed the contention advanced on behalf of the assessee. Regarding the finding of the Assessing Officer to the effect that it had taken loan in cash, he referred to confirmation letter filed by the assessee in the course of assessment proceedings. He pointed out from the confirmation letter that Mr. Banthia had given in writing that the amount of Rs. 27.67 lakhs has been invested by him in cash out of the funds available in procuring plot No. 226 at Panvel in the name of Sunflower Builders Pvt. Ltd. According to him, this was the admission by Mr. Banthia to the effect that he had given loan to the assessee in cash. Therefore, he justified the finding given by the Assessing Officer. In addition to this, he raised a legal contention that the Legislature has used the word "accept" in section 269SS. According to him, even if it be held that the assessee had not received any amount in cash, the provisions of section 269SS can be applied to the facts of the case, inasmuch as, the assessee had accepted the fact of loan by passing the entries in its books of account. Therefore, such acceptance of loan was within the ambit of section 269SS. It was also submitted by him that the case law relied upon by the assessee's counsel are distinguishable on facts of the case. At this stage of argument, the learned Senior Departmental Representative Mr. Hari Krishan further supported the order of the CIT(A) by arguing that while interpreting section 269SS one should consider the purpose and intention of the Legislature. He submitted that these provisions were enacted in order to overcome the difficulty of the department to disprove the cash credit introduced by the assessee beyond doubt where the transactions were in cash. He submitted that the interpretation should be made in such a manner so as to make the provisions workable.

(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) 'loan or deposit' means loan or deposit of money."

The bare reading of the aforesaid section clearly shows that the words 'take or accept' has been used with reference to the words 'loan or deposit' respectively. The reason is obvious. In the case of loan, it is the borrower who goes to the lender for obtaining the loan and in the case of deposit, it is the depositor who goes to the person with whom he wants to deposit the money. This is the reason that the Legislature has used the word 'take' with reference to the word 'loan' and used the word 'accept' with reference to the word 'deposit'. Therefore, in our opinion, the legal contention raised by Mr. Prasad cannot be accepted. The Legislature has also defined the words 'loan or deposit' as 'loan or deposit of 'on money'. This clearly shows that this section can be applied only where money passes from one person to another by way of 'loan or deposit'. This provision cannot therefore, be applied where the money does not pass from one person to another but the debt is acknowledged by passing entry in the books of account, depending upon the facts of the case. If the contention of the learned departmental representative is accepted, then, it may result in absurdity. For example, a person may give the money to a vendor by way of advance against the supply of goods. Such transaction at the time of giving money would not come within the ambit of the words 'deposit or loan'. But on subsequent date the contract for supply of goods may be cancelled due to unforeseen circumstances and the parties may agree to treat the advance of money as loan. In such a situation, if the provisions of section 269SS are applied then the assessee cannot be penalised for no fault of his. Similarly, in the case of dissolution of the firm, the parties may agree that the amount standing to the credit of retiring partner may be treated as loan with the continuing partners. In such a situation also, only journal entries are made and no cash is transferred from one person to another. The application of section 269SS to such situation would create anomaly and absurdity. In our opinion, there cannot be the intention of the Legislature to penalise the innocent assessees. Therefore, we are of the opinion that the provisions of section 269SS cannot be applied where the assessee merely acknowledges the debt incurred earlier and there is no transfer of money from one person to another. The same view has been taken by the Tribunal, Ahmedabad Bench in the case of Bombay Conductors & Electricals Ltd. (supra) wherein it has been held that deposit/loan must be made through money and constructive loan or deposit could not come within the mischief of provisions of section 269SS. In that case, the assessee had purchased goods worth Rs. 23.00 lakhs from its subsidiary company and since it was not in a position to pay the said amount immediately, the holding company agreed to treat the amount as loan. The respective entries were made by the assessee in this regard. On these facts, the Tribunal held that the provisions of section 269SS could not be applied. For the benefit of our order, we may refer the following observations of the Hon'ble Supreme Court in the case of Bombay Steam Navigation Co. (1953)(P.) Ltd. v. CIT [1965] 56 ITR 52 at page 57 :