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2016 (5) TMI 1145 - ITAT VISAKHAPATNAM

2016 (5) TMI 1145 - ITAT VISAKHAPATNAM - TMI - Penalty u/s 271D - Held that:- No penalty can be levied u/s 271D of the Act, when the loan is accepted by acknowledgement of debt by passing journal entries in the books of accounts. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has not doubted the genuineness of the transactions. The firm has accepted loan from the partners and also explained sources. Moreover, the repayment of loan is made to a nat .....

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This appeal filed by the revenue and cross objection filed by the assessee are directed against the common order passed by the CIT(A), Visakhapatnam dated 21.10.2013 and it pertains to the assessment year 2008-09. 2. The brief facts of the case are that the assessee firm filed its return of income for the assessment year 2008-09 on 31.3.2009 declaring total income of 3,31,290/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). From the r .....

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provisions of section 269SS of the Act. In response to the show cause notice, the authorized representative of the assessee appeared and submitted that there was no violation referred to in section 269SS of the Act, as the assessee has not accepted loan in cash. The assessee further submitted that the firm has availed loan from Andhra Bank and the same has been repaid by partners from their individual accounts. The firm has acknowledged the debt by passing journal entries in the books of account .....

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of section 269SS of the Act and has become liable for penalty u/s 271D of the Act. The A.O. further held that as per the provisions of section 271D of the Act, if a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS of the Act, he shall be liable to pay, by way of penalty, a sum equal to the amount of loan or deposit so taken or accepted. In the present case, the assessee firm has accepted 50 lakhs unsecured loan from two of its partners, therefore, i .....

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f the Act are not attracted. It was further submitted that this is purely a business transaction recorded in the books of accounts of the firm by way of journal entries, but not by way of cash entry. The assessee further submitted that provisions of section 269SS of the Act applies only, when any person accepts loans or deposits in excess of the specified limits other than by way of cheques or drafts. In the present case on hand, the assessee firm has borrowed loan from nationalized banks and th .....

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the firm and the partners have proved the sources for the loan given to the firm. Moreover, the repayment has been made to a nationalized bank. Under these circumstances, the A.O. was not correct in coming to the conclusion that the assessee has violated the provisions of section 269SS of the Act. It was further submitted that when the sources of funds were explained and their utilization was also properly explained by the respective partners, just because the loan has not been accepted by cheq .....

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ineness of the transactions. The assessee firm has recorded the transactions in the books of accounts and also explained the sources for the loan accepted from the partners. Therefore, the A.O. was not correct in coming to the conclusion that this is a colourable device for avoidance of tax. With these observations, the CIT(A) directed the A.O. to delete the penalty of 50 lakhs levied u/s 271D of the Act. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 4. The Ld. D.R. submitte .....

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69SS of the Act, by accepting cash loans in excess of specified limits, therefore, penalty is leviable u/s 271D of the Act. It is further argued that section 269SS of the Act clearly states that no person shall after 30th day of June, 1994 take or accept from any other person any loan or deposit, otherwise than by an account payee cheque or draft in excess of the specified amount. The assessee has accepted the cash loans from two of its partners and recorded the fact in the books of accounts. Th .....

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e Act. The A.R. further submitted that the assessee has borrowed loan from Andhra Bank and partners of the firm have repaid the loan from their individual accounts. The firm has acknowledged the debt from the partners by passing the journal entries in the books of accounts. The A.O. has not doubted the genuineness of the transactions. The firm has recorded the transactions in the books of accounts and also explained the sources for the loan from their partner s individual accounts. The A.O. cann .....

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ts levy of penalty u/s 271D of the Act. In support of his arguments, relied upon the judgement of ITAT, Pune Bench in the case of Sun Flower Builders Pvt. Ltd. Vs. DCIT and also ACIT Vs. Gujarat Ambuja Proteins Ltd. 3 SOT 822. 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The facts which lead to imposition of penalty u/s 271D of the Act are that the assessee firm has repaid loan borrowed from M/s. Andhra Bank th .....

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e contention of the assessee that these are genuine transactions, therefore, no penalty can be levied u/s 271D of the Act. The assessee further contended that the firm has not accepted loans or deposits in violation of section 269SS of the Act. Mere passing of journal entries to acknowledge debt from the partners does not tantamount to acceptance of cash loans in violation of section 269SS of the Act. 7. The only issue came up for our consideration is whether acceptance of loans by way of journa .....

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accepted two cash loans of 25 lakhs of each from two of the partners of the firm. Therefore, held that it is not a mere acknowledgement of debt by passing the journal entries, but it is a clear violation of the provisions of section 269SS of the Act. It is the contention of the assessee that the firm has not accepted any cash loan in violation of the provisions of section 269SS of the Act. The partners have repaid the loan borrowed by the firm from their individual books of accounts. The firm h .....

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or demand draft. Though partners have repaid the loans in cash, the genuineness of the transactions was not in doubtful. The partners have repaid the loan to M/s. Andhra Bank which was accounted in the books of accounts of the firm by passing journal entries. The partners have explained the sources for the loan. Under these circumstances, the A.O. was not correct in coming to the conclusion that there is a violation referred to in section 269SS of the Act which attracts penalty u/s 271D of the A .....

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behind the insertion of section 269SS is to prevent the assessee s from explaining the unaccounted cash found in the course of search by way of cash loans or deposits taken from various persons and also bringing into the books of accounts unaccounted income in the form of loans or deposits. The section deprives persons from taking or accepting from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or .....

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wed from the Andhra Bank from their individual accounts. The source for the amount of loan has been explained by the partners. The firm has recorded the transactions in books of accounts of the firm and disclosed in the regular return of income filed u/s 139(1) of the Act. Therefore, we are of the opinion that these are genuine transactions, which should be kept outside the purview of the provisions of section 269SS of the Act. Since the transactions are genuine and the source of the loan has be .....

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ovisions of section 269SS of the Act, consequently, no penalty can be levied u/s 271D of the Act. The relevant portion is reproduced hereunder: It is seen that in the case of Sunflower Builders (P) Ltd., the Hon ble ITAT, Pune has held:- This clearly shows that this section can be applied only where money was passed from one person to another by way of loan or deposit . This provision cannot, therefore, be applied where the debt is acknowledged by passing entry in the books of account, depending .....

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mstances held that no penalty can be levied when the loan is accepted by way of journal entries and also the genuineness of the transactions is not in doubt. The relevant portion is reproduced hereunder: 7.3 In the case of Gujarat Ambuja Proteins Ltd., the Hon ble ITAT, Ahmedabad Bench, has held 9. After going through the rival contentions, I am of the opinion that on merits, the imposition of penalty is uncalled for. In the first place, it is absolutely clear that the accounts of Ambuja Agro In .....

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it of money. In other words, if the credit is for the amount of money received or accepted, only then the provisions of s. 269SS will be applicable and for the journal entry wherein no actual money is received, the said provisions to my mind, cannot be invoked. The enlargement of the meaning of deposit by the Direct Tax Laws (Amendment) Act, 1987, so as to include deposit of any nature would also have no relevance in the present case for the reason that such enlargement of the meaning of the sai .....

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, in my opinion, penalty has been imposed on wrong presumption. For arriving at this decision, I am guided by judgement of Hon ble Tribunal, Ahmedabad Bench, in ITA No.1609/Ahd/1994 for asst. yr. 1991 in case of Bombay Conductors and Electricals Ltd. and judgement of the Tribunal, Jaipur Bench, in case of Jagvijay Auto Finance (P) Ltd. vs. Asst. CIT (1995) 52 ITD 504. 10. Further, even if for arguments sake it is accepted that a breach of a statutory provisions is there, still there is existence .....

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