Journal entry loan repayments attract penalty unless reasonable cause is proved under the Income-tax Act.

Sections 269SS and 269T require loans, deposits and repayments above the prescribed limit to be routed through banking channels, and journal entries can amount to a technical breach of those provisions. Penalty under sections 271D and 271E is not automatic where section 273B applies, but the assessee must prove reasonable cause. On the facts, no convincing material showed any compelling business exigency or unavoidable circumstance for using journal entries for the promoter-linked loan and the housing company adjustments. Bona fides, genuineness of the transactions, and administrative convenience were insufficient without proof of reasonable cause, so the penalty orders were sustained.

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Issues: Whether penalties under sections 271D and 271E of the Income-tax Act, 1961 were sustainable for loans and repayments routed through journal entries, and whether the assessee established reasonable cause under section 273B.

Analysis: The statutory scheme of sections 269SS and 269T requires loans, deposits and repayments beyond the prescribed limit to be routed through banking channels. Journal entries may constitute a technical violation of these provisions. However, penalty is not automatic if the assessee proves reasonable cause under section 273B. On the facts, the assessee did not produce convincing material showing any compelling business exigency or unavoidable circumstance for bypassing banking channels, either for the transactions connected with the promoter-linked loan or for the sums adjusted with the housing company. Mere bona fides, genuineness of the transactions, or administrative convenience was held insufficient in the absence of proof of reasonable cause.

Conclusion: The penalties under sections 271D and 271E were rightly sustained, as the assessee failed to establish reasonable cause under section 273B.

Final Conclusion: The Tribunal upheld the penalty orders and rejected the assessee's challenge on both counts.

Ratio Decidendi: Where acceptance or repayment of loans is effected through journal entries in violation of sections 269SS or 269T, penalty follows unless the assessee affirmatively proves reasonable cause under section 273B; mere bona fide or genuine nature of the transaction is not enough.

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