1997 (1) TMI 153 - AT - Income Tax

Penalty u/s 271D deleted as mere journal entry not loan or deposit u/s269SS, assessees protected

ITAT Pune allowed the assessee's appeal and deleted the penalty imposed u/s 271D. It held that s.269SS applies only where there is an actual taking or ... Levy of penalty levied u/s 271D - Assessment Year - Financial Year - debt incurred in connection with the investment made in purchase of the plot - provisions of section 269SS - Whether the penalty levied by the Assessing Officer under section 271D can be sustained in law as well as on facts of the case. - HELD THAT:- The bare reading of the section 269SS clearly shows that the words 'take or accept' has been used with reference to the words 'loan or deposit' respectively. The reason is obvious. In the case of loan, it is the borrower who goes to the lender for obtaining the loan and in the case, of deposit, it is the depositor who goes to the person with whom he wants to deposit the money. This is the reason that the Legislature has used the word 'take' with reference to the word 'loan' and used the word 'accept' with reference to the word 'deposit'. In our opinion, there cannot be the intention of the Legislature to penalise the innocent assessees. Therefore, we are of the opinion that the provisions of section 269SS cannot be applied where the assessee merely acknowledges the debt incurred earlier and there is no transfer of money from one person to another. The same view has been taken by the Tribunal, Ahmedabad Bench in the case of Bombay Conductors & Electricals Ltd. [1995 (11) TMI 119 - ITAT AHMEDABAD-C], wherein it has been held that deposit/loan must be made through money and constructive loan or deposit could not come within the mischief of provisions of section 269SS. In that case, the assessee had purchased goods from its subsidiary company and since it was not in a position to pay the said amount immediately, the holding company agreed to treat the amount as loan. The respective entries were made by the assessee in this regard. Thus, we are of the view that the acknowledgement of the debt by the assessee-company by passing a journal entry in its books of account would not come within the ambit of the words 'loan or deposit' as mentioned in section 269SS. Therefore, even on this ground, the levy of penalty cannot be sustained. It is well settled by now that penal provisions are to be construed strictly and no person can be penalised unless the default falls within the four comers of the penal provisions. The contention of the learned Senior Departmental Representative that interpretation should be made to make the provisions workable can be applied only to the provisions other than the charging section and penal provisions. When the provisions are to be construed strictly, it is impermissible for the courts to reach into the taxing provisions any words which are not there and exclude the words which are there. If there is any lacuna left by the Legislature while enacting the penal provisions, it is only for the Legislature to amend such law. It is also settled provision of law that if the penal provisions are susceptible of two interpretations, then the interpretation which is favourable to the assessee should be adopted. Reference may be made to the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT]. Therefore, the contention of the learned Senior Departmental Representative has to be rejected. Thus, we set aside the order of the CIT (Appeals) and cancel the penalty levied under section 271D sustained by him. Issues Involved:1. Legality of the penalty u/s 271D for contravention of section 269SS.2. Interpretation of the terms 'take or accept' in section 269SS.3. Applicability of penal provisions in the context of journal entries.Summary:Issue 1: Legality of the penalty u/s 271D for contravention of section 269SSThe appeal challenges the order of the CIT(A) sustaining the penalty levied u/s 271D for the assessment year 1991-92. The assessee argued that no cash was received from Mr. Banthia, and the journal entry made on 31-3-1991 was merely to acknowledge the debt incurred in connection with the purchase of a plot on 20-11-1989. The Assessing Officer's basis for initiating penalty proceedings was the alleged cash loan of Rs. 27.67 lakhs from Mr. Banthia, which was not substantiated by any material evidence. The Tribunal found that the sum was directly paid by Mr. Banthia to the vendors of the land, and the assessee merely acknowledged the debt by passing a journal entry. Consequently, the penalty u/s 271D could not be upheld as there was no cash transaction during the relevant financial year.Issue 2: Interpretation of the terms 'take or accept' in section 269SSThe Tribunal examined the terms 'take or accept' used in section 269SS and concluded that these terms are used with reference to 'loan or deposit' respectively. The section applies only where money passes from one person to another by way of loan or deposit. The Tribunal rejected the contention that the acceptance of debt by making a journal entry falls within the ambit of section 269SS. The Tribunal emphasized that the provision cannot be applied where the debt is acknowledged by passing an entry in the books of account without any transfer of money.Issue 3: Applicability of penal provisions in the context of journal entriesThe Tribunal highlighted that penal provisions must be construed strictly, and no person can be penalized unless the default falls within the four corners of the penal provisions. The Tribunal referred to the decision of the Ahmedabad Bench in the case of Bombay Conductors & Electricals Ltd., where it was held that constructive loan or deposit could not come within the mischief of section 269SS. The Tribunal also cited the Supreme Court's observation in Bombay Steam Navigation Co. (1953)(P.) Ltd. v. CIT, stating that an agreement to pay a debt does not necessarily constitute a loan. The Tribunal concluded that the acknowledgment of debt by passing a journal entry does not fall within the ambit of section 269SS, and thus, the penalty u/s 271D could not be sustained.Conclusion:The Tribunal set aside the order of the CIT(A) and canceled the penalty levied u/s 271D, allowing the appeal of the assessee.