Tribunal rules transfer entries not cash transactions exempt from penalty under section 271D

The Tribunal dismissed the Revenue's appeal, confirming that the penalty under section 271D was not applicable as the transactions were through transfer entries and not in cash. The Tribunal held that the assessee had a reasonable cause for non-compliance with section 269SS and that transfer entries did not attract the penalty. The Tribunal also clarified that section 269SS applies to all persons, including closely related parties, and does not limit its applicability to search and seizure cases.

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Issues Involved:
1. Whether the penalty u/s 271D was rightly imposed for violation of the provisions of s. 269SS.
2. Whether the transactions between closely related parties exempt the application of s. 269SS.
3. Whether the provisions of s. 269SS apply only in search and seizure cases.
4. Whether the transfer entries fall within the scope of s. 269SS.

Summary:

1. Penalty u/s 271D for Violation of s. 269SS:
The Revenue appealed against the CIT(A)'s order deleting the penalty imposed u/s 271D for violation of s. 269SS. The AO had imposed a penalty of Rs. 39,87,063 on the assessee for accepting loans and deposits through transfer entries, not by account payee cheques or drafts, as mandated by s. 269SS. The CIT(A) held that there was a reasonable cause for non-compliance with s. 269SS and that mere transfer entries did not attract penalty u/s 271D.

2. Transactions Between Closely Related Parties:
The assessee argued that the provisions of s. 269SS were not applicable due to the close relationship between the assessee and the depositors, all being family members of Sh. D.K. Gupta. The CIT(A) concurred, stating that the transactions were between closely connected persons and hence s. 269SS was not applicable. However, the Tribunal held that s. 269SS applies to all persons, including closely related parties, as defined in s. 2(31).

3. Applicability of s. 269SS in Search and Seizure Cases:
The assessee contended that s. 269SS was introduced to counteract evasion of tax during search and seizure proceedings, as explained in Circular No. 387. The Tribunal clarified that while the circular provides the background for the introduction of s. 269SS, the section itself does not limit its applicability to search and seizure cases. The Tribunal emphasized that s. 269SS applies under all circumstances, not just in search and seizure cases.

4. Transfer Entries and Scope of s. 269SS:
The Tribunal examined whether transfer entries fall within the scope of s. 269SS. Clause (iii) of the Explanation to s. 269SS defines "loan or deposit" as loan or deposit of money. The Tribunal referred to the Supreme Court's interpretation of "money" as cash and concluded that s. 269SS restricts accepting loans or deposits in cash alone. Therefore, transfer entries do not fall within the ambit of s. 269SS. The Tribunal upheld the CIT(A)'s decision, stating that the assessee was under a bona fide belief that s. 269SS did not apply to transfer entries.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the penalty u/s 271D was not applicable as the transactions were through transfer entries and not in cash, and the assessee had a bona fide belief regarding the non-applicability of s. 269SS.

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