2016 (2) TMI 1402 - AT - Income Tax

Receipt of loans by journal entries in tax assessment: penalty withdrawn as 269SS inapplicable per journal entry precedent

Whether statutory restriction on receipt of loans in cash applies to entries in the books formed the issue; Tribunal relied on higher court precedent ... Penalty u/s 271D - violation of provisions of Section 269SS - assessee has received deposits by way of journal entries from three Directors of the assessee company - assessee submitted that the provisions of section 269SS were introduced to curb the transactions of black money and not for targeting genuine transfer of money through the journal entries. HELD THAT:- In the case of Commissioner of Income Tax Vs. Noida Toll Bride [2003 (1) TMI 46 - DELHI HIGH COURT] has clearly held that the provisions of Section 269SS are not attracted in case of receipt of loan through journal entries. Decided in favour of assessee. Issues: Whether the penalty under Section 271D for acceptance of loans/deposits by journal entries (alleged contravention of Section 269SS of the Income-tax Act, 1961) was rightly deleted by the Commissioner of Income Tax (Appeals).Analysis: The Tribunal examined the factual finding that the sums of Rs. 77,75,000 were reflected in the assessee's books by journal entries and that there was no receipt of cash; the transactions originated by account-payee cheque from an associated company and were squared up through accounting entries between the assessee and its directors. The Tribunal considered the legal framework that Section 269SS aims to prohibit acceptance of loans or deposits by modes other than account-payee cheque or bank transfer to prevent cash transactions, and noted controlling precedent of the jurisdictional High Court in Noida Toll Bridge which held that receipts effected by journal entry, absent any cash payment, do not attract the prohibition in Section 269SS. Applying that precedent to the present factual findings, the Tribunal found no occasion to treat the journal-entry transactions as contraventions attracting penalty under Section 271D.Conclusion: The deletion of penalty under Section 271D by the Commissioner of Income Tax (Appeals) is upheld and the Revenue's appeal is dismissed; decision is in favour of the assessee.