TMI Blog2016 (5) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... cted 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 records available with the department, the A.O. noticed that the assessee firm had accepted loan of ` 25 lakhs each from its partner s Shri S. Rama Krishna Reddy and Shri S. Krishna Reddy, otherwise than by way of crossed cheque/demand draft in violation of the provisions of section 269SS of the Act. Therefore, the A.O. issued a show cause notice u/s 271D r.w.s. 269SS of the Act and asked to explain why penalty u/s 271D of the Act shall not be levied for accepting the loans in contravention of the 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of the firm to give credit to the partners account. The provisions of section 269SS of the Act does not cover the loans or deposit accepted by way of journal entries. The assessee further submitted that the A.O. has not doubted the genuineness of the transactions. The firm has recorded the loans in the books of accounts of 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 cheque or demand draft, no penalty can be levied u/s 271D of the Act. The CIT(A) after considering the submissions of the assessee held that no penalty can be levied u/s 271D of the Act, when the loan has been accepted by way of journal entries. The CIT(A) further held that the assessee firm has acknowledged the debt by passing journal entries in the books of accounts, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. cannot levy penalty under sec. 271D, when the transaction is genuine for the simple reason that there is a violation of the provision of section 269SS of the Act. It is further argued that it is a clear case of repayment of loan borrowed from the bank by the firm through its partner s accounts. The repayment has been made to a banking company. 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 warrants 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 repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for the reason that the assessee has not accepted any loans in excess of the specified limits otherwise than by way of account payee cheque 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 Act. 8. Section 271D of the Act provides for levy of penalty for the contraventions of the provisions of section 269SS of the Act. Section 269SS of the Act prohibits acceptance of cash loans beyond specified limits. As per the provisions of section 269SS of the Act, any person takes or accepts any loan or deposit other than by way of account payee cheque or demand draft, then he shall be liable to pay, by way of penalty a sum equal to the amount of loan or deposit so taken or accepted. The object behind the insertion of section 269SS is to preven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s acknowledged by passing entry in the books of account, depending upon the facts of the case. Hence, the acknowledgement of the debt by the assessee-company by passing a journal entry in its books of account would not come within the ambit of the words loan or deposit as mentioned in section 269SS. Therefore, even on this ground the levy of penalty could not be sustained. 10. The assessee relied upon the judgement of ITAT, Ahmedabad bench in the case of ACIT Vs. Gujarat Ambuja Proteins Ltd. 3 SOT 822. The coordinate bench of this Tribunal, under similar circumstances 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 Industries Ltd. were credited by journal entries on account of payments made by the said company for an on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and also respectfully following the decisions of coordinate bench of this Tribunal in the cases referred above, we are of the view 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 nationalized bank. Under these circumstances, the A.O. was not correct in levying penalty u/s 271D of the Act. Therefore, we direct the A.O. to delete the penalty levied u/s 271D of the Act. 12. The assessee has filed the cross objection in support of the order of the Ld. CIT(A). Therefore, for the reasons recorded in the preceding paragraphs, we are of the opinion that the cross objection filed by the assessee is not maintainable. Hence, the same is dismissed. 13. In the result, the appeal filed by the revenue and the cross objection filed by the assessee are dismissed. The above order was pronounced in the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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