2014 (1) TMI 1874 - HC - Income Tax

High Court Upholds Tax Act Interpretation - Emphasizes Need for Concrete Evidence

The High Court upheld the Tribunal's decision regarding the interpretation of Section 269SS and Section 271D of the Income Tax Act, 1961, emphasizing the ... Penalty u/s 271D - whether transactions through journal entry do not attract the provisions of Section 269SS ? - ITAT deleted penalty - HELD THAT:- We have read the reasoning rendered in the previous judgment [2013 (7) TMI 952 - ITAT HYDERABAD] . It appears that the assessee challenged the penalty proceedings initiated under Section 271D of the Income Tax Act, 1961 on the ground of illegal borrowings in contravention of Section 269SS of the Act. The learned Tribunal on an earlier occasion found that there is no proof of receipt of such loan from the records and they were only found to be journal entries. The learned Tribunal, in our view, correctly observed that relying on an entry in the journal, no penalty proceedings can be initiated. Hence, it was sent for clarification whether actual flow of money did take place. Therefore, the matter was remanded and no decision was taken on merit. We find that the learned Tribunal has correctly decided the same Issues:1. Interpretation of Section 269SS and Section 271D of the Income Tax Act, 1961 regarding transactions through journal entries.2. Determination of whether a loan was accepted by the assessee through journal entries or actual cash payment.Analysis:Issue 1: The first question of law raised in the appeal pertains to the justification of the Income Tax Appellate Tribunal's decision regarding the applicability of Section 269SS and Section 271D of the Income Tax Act, 1961 to transactions conducted through journal entries. The Tribunal's judgment was based on a previous case involving the same assessee. The High Court noted that the Tribunal had previously ruled that penalty proceedings cannot be initiated solely based on journal entries without evidence of actual money transactions. The Court found that the Tribunal's decision was correct as it sought clarification on the actual flow of money before making a determination. Consequently, the High Court upheld the Tribunal's decision on this issue and dismissed the appeal.Issue 2: The second question raised in the appeal concerns the acceptance of a loan by the assessee, whether through journal entries or actual cash payment. The High Court reviewed the previous judgment where the Tribunal had remanded the matter for clarification on the actual receipt of the loan. The Court observed that the Tribunal correctly emphasized the need for evidence of the actual flow of money to initiate penalty proceedings under Section 271D. As the Tribunal had appropriately handled the matter by seeking clarification on the transaction, the High Court found no reason to admit the appeal for further consideration and consequently dismissed the appeal.In conclusion, the High Court, comprising Sri Kalyan Jyoti Sengupta and Sri Sanjay Kumar, JJ., affirmed the Tribunal's decisions on both issues raised in the appeal, emphasizing the importance of concrete evidence of actual money transactions to support penalty proceedings under the Income Tax Act, 1961.