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Vimal Enterprises Versus Joint, CIT, Range 31 (3) Mumbai

2017 (8) TMI 447 - ITAT MUMBAI

Penalty u/s. 271D - contravention of provision of Section 269SS - reasonable cause for not accepting loans by way of account payee cheque or demand draft - accepting loan by book adjustment, through journal entries - Held that:- The assessee has filed a paper book containing details of loan ledgers of parties appeared in the books of account of M/s. Atlanta International and also ledger accounts of loan creditors in the books of accounts. On perusal of details field by the assessee, we find that .....

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loans were accepted to evade taxes, penalty cannot be levied u/s. 271D of the Act, merely there is violation of Section 269SS of the Act. - These loans are genuine transaction which were accepted by way of cheques by its sister concern. The assessee claims that it was under the bonafide belief that, acceptance of loans or deposit by book adjustment would not attract the provision of Sections 269SS of the Act. There is a reasonable cause, for failure to comply with the provision of Section 26 .....

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the case are that the assessee is a firm engaged in the business of manufacture of printed polythene bags, filed its return of income for assessment year 2012-13 on 14.09.2012 declaring total income of ₹ 1,38,060/-. The assessment was completed u/s. 143(3) on 27.03.2015, assessing the total income of the assessee at ₹ 1,38,060/-. However, the A.O while completing the assessment, observed that the assessee has accepted loans in excess of prescribed limits otherwise then by way of acco .....

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the Act, for contravention of provision of Section 269SS of the I.T. Act, 1961. 4. In response to show cause notice, the assessee has filed its reply vide letter dated 30.08.2015 and submitted that there is no contravention of Section 296SS, as it has accepted loans by way of book adjustment, by passing necessary journal entries in the books accounts for transfer of existing unsecured loans borrowed by its sister concern M/s. Atlanta International. The assessee further submitted that the reason .....

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. Act, 1961. 5. The A.O after considering the explanation of the assessee and also analyses of the provision of Section 269SS and 271D of the Act, observed that the provision of Section 271D doesn t mentioned anything about the loans being taken in cash. The provision is on accepting any loan or deposit otherwise then by an account payee cheque or account payee bank draft (or use of electronic clearance system through the bank draft). From the reading of provision of Section 271D, it is clear th .....

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ty proceedings failed to prove reasons for not accepting the loans by way of modes referred to in Section 269SS of the Act. Therefore, opined that the assessee has violated the provision of Section 269SS, which attracts penalty u/s. 271D of the Act. Accordingly, levied penalty of ₹ 21,51,464/-, equal to the amount of loan/deposit taken/accepted. 6. Aggrieved by the penalty order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions .....

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ds & associates for the purpose of extending credit facilities. The assessee under bonafide belief, that acceptance of loans by way of book adjustment, would not attract provision of Section 269SS, has transferred existing loans from its sister concerns to its books accounts, therefore it cannot be considered as acceptance of loans other than by way of account payee cheque or bank drafts. In support of its arguments, relied upon the decision of Hon ble Bombay High Court, in the case CIT vs. .....

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the assessee, submitted that the Ld. CIT(A) without giving proper/sufficient opportunity and disregarding the bonafide and genuine explanation of the assessee erred in holding that accepting loan by way of book transaction through journal entry is a violation of Section 269SS, which attracts penalty u/s.271D of the Act. The A.R further submitted that the assessee was under bonafide belief that the alleged transaction was not within the purview of the provision of Section 269SS of the Act. It is .....

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ubmitted that the A.O erred in levying penalty without their being any finding in the assessment order or the penalty order that acceptance of loan was not bonafide transaction and that the entries were made with a view to evade tax. The assessee has accepted loans under bonafide belief that these transactions are not hit by the provisions of Section 269SS and also fact that there is reasonable cause for not accepting the loans by way of cheques or bank drafts and therefore, the AO was completel .....

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Govind Kumar 119 Taxman 110 (Raj) vii) Sunflower Builders (P) Ltd. vs. OCIT 61 ITO 227 (Pune) viii) ITO vs. Arnar Nath Shivraj (HUF);1 SOT 346 (Agra) ix) ACIT vs. Gujarat Ambuja Proteins Ltd. 3 SOT 811 (Ahd.) 9. On the other hand, the Ld. DR strongly supported order of the CIT(A). The D.R further submitted that the provisions of section 271D would apply, if assessee accepts loans or deposits in contravention of the provision of Section 269SS of the Act. In this case, the assessee has accepted u .....

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therwise then by way of account payee cheque or bank drafts in contravention of provisions of Section 269SS of the Act. It is the contention of the assessee that there is no contravention of provisions of Section 269SS of the Act, as it has accepted loans by way of book adjustments through journal entries to transfer existing loans appeared in the books of its sister concerns. The assessee further contended that the reasons for accepting loans by way of book adjustment is that its bankers insist .....

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9SS of the Act. Section 269SS of the Act, prohibits acceptance of loans other than by way of account payee cheque or demand draft. As per the provision of Section 271D, if a person takes or accepts any loan or deposits in excess of specified some in contravention of the provision of section 269SS, he shall be liable to pay by way of penalty, a sum equal amount of the loan or deposit so taken or accepted. Therefore, as per the provision of section 271D r.w.s. 269SS of the Act, if a person accepts .....

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e assessee has accepted loans in contravention of the provision of Section 269SS of the Act. 12. Having said, let us examine whether any reasonable cause for not accepting loans by way of account payee cheque or demand draft. The assessee claims that it has accepted loans by book adjustment by passing journal entries in the books of accounts for transfer of existing loans appeared in the books of accounts of its sister concerns. The assessee further claims that these loans were accepted by its s .....

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that it was under the bonafide belief that, acceptance of loans or deposit by book adjustment would not attract the provision of Sections 269SS of the Act. There is a reasonable cause, for failure to comply with the provision of Section 269SS of the Act, therefore penalty cannot be levied u/s. 271D of the Act. 13. Having heard both the sides and considered material on record, we find that the assessee has accepted loans by way of journal entries. The assessee has transferred loans standing in th .....

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ent by way journal entries. We further noticed that the assessee has paid interest on these loans after duly deducting applicable TDS. We further observed that, it s not a case of A.O that these loans are not genuine transactions. The AO neither doubted genuineness of the loan nor these are not a bonafide transaction or that the entries were made with a view to evade tax. In the absence of any finding as to genuineness of the transactions or the loans were accepted to evade taxes, penalty cannot .....

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use as provided u/s.273B of the Act. The provision of Section 273B provides for immunity from levy of penalty, if such person proves that there was a reasonable cause for the failure referred to in the said provision of the Act. In this case, on perusal facts available on records, we find that the reasons given by the assessee for accepting loans by way of book of adjustment comes under the reasonable cause as provided u/s. 273B and hence, penalty cannot be levied u/s. 271D of the Act, for contr .....

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. On perusal of the decision of Hon ble High Court, we find that their lordships in the first phase, held that taking of loans/ repaying loans through journal entries is a violation of the provision of section 269SS of the Act. However, in the second phase, the Hon ble Court observed that in the absence of any finding in the assessment order or in the penalty order to the effect that the repayment of loan or deposit was not a bonafide transaction and was made with a view to evade tax, the cause .....

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cheque or draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan or deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business had been doubted in the regular assessment. There was nothing on record to suggest that the amounts advanced by I to the assessee represented the unaccounted money of I or the assessee. The fact that the assessee-compa .....

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