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2015 (10) TMI 2238 - ITAT DELHI

2015 (10) TMI 2238 - ITAT DELHI - TMI - Penalty u/s. 271D - Held that:- only those loans and deposits are covered by section 269SS where funds/money are transferred. We, therefore, are of the opinion that where the loans are recorded by merely passing adjustment entries or journal entries are outside the scope of section 269SS of the Act. Therefore, in our considered opinion, the ld. CIT(A) was not justified in confirming the penalty against the assessee on this count. - Decided in favour of ass .....

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ent year 2007-08. 2. The brief facts of the case are that the assessment of the assessee u/s. 143(3) was completed on 11.12.2009 at a total income of ₹ 1,03,78,160/- as against returned income of ₹ 1,02,55,632/-. During the course of assessment proceedings, the Assessing Officer having perused the loan account of Shri Harpal Singh Pasricha, Managing Director of the assessee company, noticed that a loan of ₹ 30 lacs was accepted by the assessee company on behalf of Shri Harpal S .....

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f money in this case, as there was only a journal entry which did not fall within the mischief of section 269SS entailing penalty u/s. 271D of the Act. Being not satisfied by the explanation of assessee, the Assessing Officer imposed a penalty of ₹ 30,00,000/- u/s. 271D of the Act on the ground that the language of section 269SS puts complete bar on acceptance of a loan otherwise than by A/c payee Cheque/Draft, as is evident from unambiguous language of section; that the decisions cited by .....

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recorded through journal entry are not covered in those exceptions. He also observed that the assessee failed to explain as to why the loan was not accepted by the assessee company by way of account payee cheque/draft particularly when the assessee company and both of its directors maintained bank account and therefore, reasonable cause u/s. 273B does not come to the rescue of the appellant. Aggrieved by the impugned order, the assesseecompany has come up in this appeal before us. 3. The ld. Cou .....

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vely and it was decided to convert the loan A/c into share capital of the company. Mr. Harpal Singh had lent money to Mrs. Neelam Kaur in his personal capacity which in the proprietary concern of Neelam Kaur namely Nav-Yug Sales Corporation was outstanding to the extent of ₹ 33,98,899.85 as Credit banalance of Harpal Singh. Since the loan of Mr. Harpal Singh was insufficient in the books of assesseecompany as it was less than ₹ 50 laksh, which was the requirement for share capital po .....

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rediting the same amount to the loan account of Mr. Harpal Singh. Therefore, this journal entry does not stand in breach of section 269SS, as observed by the authorities below. The ld. Counsel for the assessee further contended that there is no involvement of physical transfer of money in this case, as there was a journal entry which did not fall within the mischief of section 269SS warranting levy of penalty u/s. 271D of the Act as per Explanation (iii) appended to section 269SS which explains .....

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er dated 16.01.2015 of ITAT, Delhi (ITA Nos.2253 & 2259/Del/2013 & Ors.) in the cases of ACIT vs. M/s. Vardaan Fashion and ACIT vs. Shri Inderpal Singh Wadhawan. (iv). Bombay Conductors & Electricals Ltd. vs. DCIT(1996) 56 TTJ(Ahd.) 580 (v). Sunflower Builders (P) Ltd. vs. DCIT (1996) 61 ITD (Pune) 227. (vi). Order dt. 21.01.11 of ITAT, Mumbai (ITA No. 698/Mumb/2010) in the case of ACIT vs. KNP Securities Pvt. Ltd. (vii). Order dt. 25.10.11 of ITAT, Mumbai (ITA No.6077 & 6078/Mum .....

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idered the rival submissions and have perused the material available with us as well as the decisions cited by the parties. Before adjudicating the issue, we feel it convenient to reproduce the provisions of section 269SS of the Act, which read as under : 269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing sys .....

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o in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,- (a) the Government; (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government com .....

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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. 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" shall have the same .....

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xplanation (iii) to this section. It is not in dispute that the loan of ₹ 30 Lakhs has been accepted by the assessee-company in the present case by way of journal entry (book entry) and there is no transfer of funds. Such acceptance of loan by way of journal entry, being not covered by the provisions of section 269SS, the assesseecompany cannot be held to be liable for penalty u/s. 271D for acceptance of loan in violation of section 269SS. As a matter of fact, the journal entry passed in a .....

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e placed at pages 118 to 140 of the paper book. Subsequent recording of loan by transfer entry(journal entry), in our opinion, was not the loan for the purpose of section 269SS of the Act. Therefore, there being no violation of section 269SS, the assessee cannot be saddled with penalty u/s. 271D of the Act. The learned CIT(A) has relied on the Circular No. 387 dated 06.07.1984. We have gone through the said circular, which lists out the cases where the provisions of section 269SS will not apply. .....

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