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i) It is a fact that the said loan is not taken/accepted by the assessee through account payee cheques or account payee bank draft, which is a clear violation of section 269SS.
ii) The assessee has claimed that it did not have a bank account.

The same cannot be an excuse to contravene the provision of section 269SS. These day's bank account is opened in a day or two. There is no contingency which prevented the assessee to have a bank account or to get into the hurried transactions. The ledger account shows transactions on various dates; which means that the assessee had consciously ignored the provision of section 269SS and the same is a lame excuse given as an aftermath in reply to the penalty notice.

Accordingly, the Addl. CIT, levied a penalty of ``14,32,57,724/- u/s 271D of the Act for accepting loan in contravention of provisions of section 269SS of the Act.

3. On appeal, the learned CIT(A) cancelled the penalty in the following terms:-

"4.2 I have carefully considered the penalty order and the submissions made by the Id. AR. As per the facts of this case, the appellant company was incorporated on 18.05.2006. As such, this is the first year of its operation. During the year under consideration, the appellant had executed a development agreement with the developer, M/s Duce Properties & Investment Pvt. Ltd. (subsequently known as M/s Jindal Realty Pvt. Ltd.) for developing of residential township at village Rathdhana in Sonepat. Under the said agreement, M/s Duce has provided necessary finances for purchase of land by the appellant company. The payment has been made by M/s Duce to the land-owners (farmers) directly by account payee cheques on behalf of the appellant company for purchase of the said land for the township project. The amount totaling Rs.14,32,57,724/- is shown in the books of the appellant as unsecured loan from M/s Duce for the year ending 31.03.2007. It is argued by the Id. AR that necessary disclosures in this regard have been made in the Balance Sheets of both the appellant company and M/s Duce for the year ending 31.03.2007. It is argued by the Id. AR that the appellant company did not maintain any bank account during the year under consideration and that the payments have been made by M/s Duce directly to the farmers vide account payee cheques and no cash loan whatsoever has been received by the appellant company from M/s Duce and hence section 269SS read with section 271D is not attracted. It is argued that the case is covered directly by the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260. The Id. AR has also relied upon the decisions in the case of Hamarashehar Co. Pvt. Ltd. v. Add!. CIT (2009) 319 ITR AT 437 (ITAT Hyderabad Bench), Omec Engineers v. CIT (2007) 294 ITR 599 (Jharkhand) and Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26, 29 (SC). It is also argued that the transactions in question are covered under reasonable cause as per provisions of section 273B of the Act as the appellant did not have any bank account and the payment was made by M/s Duce by account payee cheques directly to the farmers to ensure that the monies advanced under the agreement are utilized for the purpose of acquisition of land for the said project.

4.3 On careful consideration of the matter, I find that the above submissions had been duly made by the Id. AR before the AO during the penalty proceeding. The AO has not doubted the genuineness of the transactions and the fact that the payments to farmers was made by account payee cheques and that there was no cash loan involved in the above transactions. All the necessary evidences including copies of account payee cheques, copies of bank statement of M/s Duce with markings for each payment, copy of title deeds of land purchased, copy of audited Balance Sheets and statement of accounts of M/s Duce, copy of joint development agreement, reconciliation of land payments with the account of M/s Duce and confirmation from M/s Duce were urnished before the AO during the assessment and penalty proceedings. In fact, as argued by the Id. AR, the appellant and M/s Duce are associate companies belonging to the same group and the said transactions were done in bonafide and genuine manner under the joint development agreement in accordance with the Haryana Land Ceiling & Township Development Regulations. The payments made by M/s Duce for purchase of the above land ,to the farmers on behalf of the appellant has been duly shown by the appellant as unsecured loan as per book entry. In this regard, I find that section 269SS was introduced w.e.f. 01.04.1984 to curb introduction of black money in the form of cash through loans and deposits. The purpose of introduction of section 269SS by the Finance Act, 1984 w.e.f. 01.04.1984 as per the Board's Circular was to plug the loophole in cases where unaccounted cash found during search operation was sought to be explained by the taxpayers as representing cash loans/deposits taken from various parties and to prevent unaccounted income being introduced in the books of tax payers through such loans/deposits. Therefore, the argument of the Id. AR that said provisions of section 26988 would not apply to the instant case where the transaction is done through journal entry between the appellant company and its sister concern who are regularly assessed to income tax and out of the funds available in the bank account of the sister concern cannot be denied. The case is clearly covered by the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260 wherein under very similar circumstances, the Hon'ble High Court dismissed the appeal filed by the revenue confirming the finding of the ITAT that as no cash loan was involved, penalty u/s 271 D cannot be imposed. The decision of the Hon'ble High Court is reproduced hereunder:

While completing the assessment of the assessee for the assessment year 1998-99, the Assessing Officer initiated penalty proceedings under section 271D of the Act as he was of the view that the assessee had violated the provisions of section 269SS of the Act because the payment of Rs. 4.85 crores to the Delhi Government was not made in the manner prescribed in section 269SS of the Act. We may note at this stage itself that the said payment had in fact been made by IL & FS vide account payee cheque to the Delhi Government and the amount was debited to the account of the assessee in its books of account.