Indian Kanoon - Search engine for Indian Law

(iv) Whether on the facts and in the circumstance of the M/s Galaxy Premises Pvt. Ltd.

case and in law, the Tribunal is justified in holding that the journal entries should enjoy equal immunity on par with account payee cheques and bank drafts ?

3. Regarding Question No.(i)

(a) The common impugned order of the Tribunal arises from the orders passed by the Addl. Commissioner of Income Tax imposing penalty upon the respondents under Section 271D of the Act for breach of Section 269SS of the Act. This penalty was imposed inasmuch as during the previous year relevant to the subject assessment year, the respondents had accepted loans / deposits by way of passing journal entries in its books of accounts, in breach of Section 269SS of the Act. In terms Section 269SS of the Act prohibits a person from taking / accepting any loan / deposit or specified sum, otherwise by an account payee cheque or by an account payee bank draft or by use of electronic clearing system of a bank if the amount involved is in excess of Rs.20,000/-. This imposition of penalty under Section 271D of the Act, was upheld by a common order dated 31St December, 2013 passed by the Commissioner of Income Tax (Appeals). On further appeal, the impugned order dated 27t1 June, 2014 of the Tribunal, inter a/ia held that penalty under Section 271D of the Act is not imposable in view of Section 273B of the Act. This for the reason that there was a reasonable cause for the failure to comply with Section 269SS of the Act.

5. The A.O after considering the explanation of the assessee and also analyses of the provision of Section 269SS and 271D of the Act, observed that the provision of Section 271D doesn't mentioned anything about the loans being taken in cash. The provision is on accepting any loan or deposit otherwise then by an account payee cheque or account payee bank draft (or use of electronic clearance system through the bank draft). From the reading of provision of Section 271D, it is clear that if a loan or deposit is accepted otherwise then by way of account payee cheque or bank draft, then it is in contravention of provisions of Section 269SS, which attracts penalty u/s. 271D of the Act. The A.O further observed that though Section 273B excludes certain failures referred to in the provision of Section 271D, to get immunity from penalty, the onus is on the assessee to prove that there was a reasonable cause for the said failure. The assessee, neither before the A.O nor during penalty proceedings failed to prove reasons for not accepting the loans by way of modes referred to in Section 269SS of the Act. Therefore, opined that the assessee has violated the provision of Section 269SS, which attracts penalty u/s. 271D of the Act. Accordingly, levied penalty of M/s Galaxy Premises Pvt. Ltd.

11. The provision of 271D of the Act, provides for levy of penalty, for contravention of Section 269SS of the Act. Section 269SS of the Act, prohibits acceptance of loans other than by way of account payee cheque or demand draft. As per M/s Galaxy Premises Pvt. Ltd.

the provision of Section 271D, if a person takes or accepts any loan or deposits in excess of specified some in contravention of the provision of section 269SS, he shall be liable to pay by way of penalty, a sum equal amount of the loan or deposit so taken or accepted. Therefore, as per the provision of section 271D r.w.s. 269SS of the Act, if a person accepts loans in excess of specified limit otherwise then by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, then such person is liable for penalty of equal amount of loan or deposit so taken or accepted u/s. 271D of the Act. In this case, no doubt the assessee has accepted loans in excess of specified limits, otherwise then by way of account payee cheque or account payee bank draft. Therefore, we are of the considered view that the assessee has accepted loans in contravention of the provision of Section 269SS of the Act.

with the provision of Section 269SS of the Act, therefore penalty cannot be levied u/s. 271D of the Act.

13. Having heard both the sides and considered material on record, we find that the assessee has accepted loans by way of journal entries. The assessee has transferred loans standing in the name of its sister concern to its books of accounts for the purpose of enhancing its own funds as per the requirement of its bankers for the purpose availing credit facilities. The assessee has filed a paper book containing details of loan ledgers of parties appeared in the books of account of M/s. Atlanta International and also ledger accounts of loan creditors in the books of accounts. On perusal of details field by the assessee, we find that these loans have been transferred by book adjustment by way journal entries. We further noticed that the assessee has paid interest on these loans after duly deducting applicable TDS. We further observed that, it's not a case of A.O that these loans are not genuine transactions. The AO neither doubted genuineness of the loan nor these are not a bonafide transaction or that the entries were made with a view to evade tax. In the absence of any finding as to genuineness of the transactions or the loans were accepted to evade taxes, penalty cannot be levied u/s. 271D of the Act, merely there is violation of Section 269SS of the Act. No doubt, the assessee has accepted loans in excess of specified amount, otherwise then by an account payee cheque or account payee bank draft, which violates the provision of Section 269SS of the Act. The reasons given by the assessee for accepting loans other than by way of account payee cheque or bank draft in contravention of Section 269SS of the Act, appears to be reasonable and comes under reasonable cause as provided u/s.273B of the Act. The provision of Section 273B provides for immunity from levy of penalty, if such person proves that there was a reasonable cause for the failure referred to in the said provision of the Act. In this case, on perusal facts available on records, M/s Galaxy Premises Pvt. Ltd.