Reasonable cause for journal-entry loan transfers in bona fide restructuring prevents penalty for non-banking acceptance of genuine business loans.

Penalty for accepting loans other than through prescribed banking modes was not leviable where genuine business loans, originally received through banking channels, were transferred by journal entries as part of bona fide financial restructuring. The transfers followed a partnership business takeover by a company, the entities' inability to repay lenders, and the assessee's existing lender guarantees. As no cash was involved and the entries enabled an orderly assumption and repayment of liabilities, the circumstances established reasonable cause for the journal-entry transfers.

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Issues: Whether penalty for accepting loans otherwise than through prescribed banking modes could be sustained where existing genuine business loans were transferred to the assessee through journal entries as part of financial restructuring.

Analysis: The transferred loans had originally been obtained through banking channels for business purposes, and their genuineness was not disputed. The assumption of liability through journal entries followed the takeover of a partnership business by a company, the financial inability of the entities to repay the lenders, and the assessee's existing guarantee to those lenders. The entries formed part of a bona fide restructuring arrangement, involved no cash, and enabled the orderly transition and subsequent repayment of the liabilities. Such circumstances constituted reasonable cause for the journal-entry transfers.

Conclusion: The assessee established reasonable cause; consequently, penalty under Section 271D for the remaining loan transfers was not leviable.

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