TaxTMI 
TaxTMI 
2026 (6) TMI 140
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.... 3. The assessee has raised substantially identical grounds in both the appeals, assailing the validity of the penalty proceedings as well as the imposition of penalty on merits. For the sake of brevity, the grounds raised in ITA No.376/M/2026 relating to levy of penalty under section 271D of the Income Tax Act, 1961 (in short, "the Act"), are reproduced as under: "1. Ground No. 1 Validity of the penalty order: 1.1. The learned Commissioner of Income-tax (Appeals) ("Ld. CIT(A)") has erred in law in confirming the order dated March 22, 2023 passed under section 271D of the Income-tax Act, 1961 ("the Act"). 1.2. The Appellant submits that the Ld. CIT(A) failed to appreciate that the impugned penalty order was without jurisdiction and/or otherwise not in accordance with the provisions of the Act, and was therefore bad in law and of no legal effect. 1.3. The Appellant submits that the impugned order passed under section 271D of the Act deserves to be held as null and void and be quashed. Without prejudice to the above: 2. Ground No. 2 - Levy of penalty of Rs. 1,28,74,43,161/-under section 271D of the Act: 2.1. The Ld. CIT(A....
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....said borrowing was secured by pledge of shares belonging to one of the promoters, Late Mr. Cyrus P. Mistry. It was contended that, in December 2019, a decision was taken by the promoter to liquidate a part of the pledged TCS shares so as to facilitate repayment of the outstanding liability owed by the assessee to DIIPL. Pursuant thereto, the lender adjusted Rs.120,67,43,195/-, the loan of Rs. 120 crores together with accrued interest of Rs. 67,43,195/- from the sale proceeds of the pledged shares and transferred the balance, if any, to the account of the promoter. The assessee thereafter passed corresponding journal entries in its books treating the said amount as loan received from Late Mr. Cyrus P. Mistry. The total amount repaid of Rs.120,67,43,195/-, was treated by the assessee in its books of accounts as a loan from late Mr. Cyrus P Mistry. 4.2. In relation to M/s Joyville Shapoorji Housing Pvt. Ltd., The assessee submitted that it had sold its land to Joyville in August 2019, for Rs. 1,53,35,93,587/- and had received Rs.1,30,99,70,056/- against this land in the same financial year. The Joyville deducted Rs.8,07,37,320/- towards various expenses such as approval fee, labour....
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....Joyville Shapoorji Housing Private Limited in contravention of section 269SS of the Act. Accordingly, it was concluded that the assessee had violated the provisions of section 269SS by accepting loan/deposit/specified sum otherwise than through prescribed banking modes and had failed to establish reasonable cause under section 273B. Consequently, penalty under section 271D amounting to Rs.1,28,74,43,161/- was levied, being equal to the amount so accepted in contravention of the Act. The relevant part of the order u/s 271D is reproduced as under: "3.5 Point-wise consideration of reply of the assessee including analysis of case law relied upon: The reply of the assessee has been duly considered but not found acceptable as discussed hereunder: 1. The assessee in its reply dated 20.02.2023 has stated that total loan amounting to Rs. 1206743195/-has been accepted from Late Cyrus Mistry to repay the loan directly to Deutsche Investments India Private Limited (DIIPL) on behalf of the assessee. The assessee has passed the journal entry for the loan from Late Cyrus Mistry The assessee has stated that as per section 2738 of the Income-tax Act, 1961 no penalty could....
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....Court in CIT vs. Triumph International Finance (I) Pvt. Ltd. reported in [2012] 345 ITR 270 (Bom), as also the decisions of the Hon'ble Supreme Court in ADIT vs. Kum. A.B. Shanthi [2002] 255 ITR 258 (SC) and CIT vs. Adinath Builders (P.) Ltd. [2019] 102 taxmann.com 57 (SC). 5.1. Similarly, the Ld. CIT(A) upheld the penalty u/s 271E with almost same finding. 6. We have carefully considered the orders of the authorities below and the material available on record. At the outset, we may like to mention that despite notifying none attended on behalf of the assessee during the course of hearing. The appeals were listed for hearing on 02.04.2026 and on said date the matter was adjourned to 13.04.2026 at the request of the learned counsel for the assessee for filing of a paper book. On 13.04.2026, again the assessee sought further time and submitted that the assessee was in the process of preparing and filing paper book and on his request the matter was adjourned finally to 20.04.2026. During the course of the hearing on 20.04.2026, the Ld. Counsel was notified that next date would be a final opportunity. Despite all the opportunities, neither anyone attended nor was any adjournment ....
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....on shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act: Provided also that the provisions of this section shall have effect, as if for the words "twenty thousand rupees", the words "two lakh rupees" had been substituted in the case of any deposit or loan where,-- (a) such deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or (b) such loan is taken from a primary agricultural credit society or a primary co-operative agricultural and rural development bank by its member. Explanation.-For the purposes of this section,- (i) banking company" means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (ii) "co-operative bank", "primary agricultural credi....
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....me Court in Kum. A.B. Shanthi (supra), wherein it was held that genuineness of the transaction alone is insufficient and that the assessee must independently establish compelling circumstances justifying deviation from the prescribed statutory mode. 6.3 In the present case, however, we find ourselves in agreement with the findings recorded by the Ld. CIT(A) that the assessee has failed to discharge the burden cast upon it under Section 273B of the Act. Neither before the authorities below nor before this Tribunal has the assessee demonstrated any compelling business exigency or unavoidable circumstance necessitating routing of the impugned transactions through journal entries instead of recognized banking channels. No material has been brought on record to explain as to why the sale proceeds of the promoter's pledged shares could not first be credited to the promoter and thereafter advanced to the assessee through permissible banking modes. Similarly, in respect of the adjustment entries passed with M/s Joyville Shapoorji Housing Pvt. Ltd., no satisfactory explanation or contemporaneous material has been furnished to establish existence of any reasonable cause within the contemp....
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....ortant to mention here that the Hon'ble Supreme court had dismissed SLP against High Court ruling that receipt of deposits/loans received through journal entries is in breach of section 269SS in the case of [2019] 102 taxmann.com 57 (SC) Commissioner of Income-tax, (Central) IV v. Adinath Builders (P.) Ltd. 03/12/2018. The judgement is as under "High Court by impugned order held that receipt of any advance or loan by way of journal entries is in breach of section 269SS - It further held that journal entries constitute a recognized mode of recording of transactions and in absence of any adverse finding by authorities that journal entries were made with a view to achieve purpose outside normal business operations or there was any involvement of money, there was a reasonable cause for not complying with section 269SS and penalty under section 271D was not to be imposed - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes" Although the SLP was dismissed but the key points from this judgement is that the Hon'ble SC has also confirmed that transactions through journal entry violates the provisions of Sec 269 but the relief was gi....
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.... However, the burden of proving reasonable cause under section 273B rests entirely upon the assessee. If the assessee successfully establishes that genuine business constraints, absence of mala fide intent, and the bona fide nature of the transaction constituted compelling circumstances for adopting the general entry mode, penalty may be mitigated or deleted in reliance upon the Supreme Court's judgments in Kum. A.B. Shanthi, Triumph International Finance, and Adinath Builders precedents. In view of the above detailed observations and respectfully following the various judicial precedents relied upon hereinabove, i hold that it is a duty of the appellant to establish the proper reasonable cause within the meaning of section 273B of the Act for routing the transaction through Journal entries in books of accounts. The appellant had failed to establish the reasonable cause that why the appellant had not chosen the mode of payment through banking channel. The appellant had failed to establish any reasonable cause that what were the factors which prohibit or inconvenient caused for not making payment through banking channel and why the appellant had chosen the way of pay....