Loan accepted through journal entries – No penalty leviable u/s 269SS
When the loan is accepted by acknowledgement of debt by passing journal entries in the books of accounts it cannot be considered as acceptance of loan in violation of the provisions of section 269SS of the Act, consequently, no penalty can be levied u/s 271D of the Act. This was held by ITAT Visakhapatnam in a recent cas as under:
Case Law Details:
ITA No.729/Vizag/2013
ITO vs. M/s. Ramalingeswara Commercial Complex
Date of Judgment/Order: 06/05/2016
Important Case Laws Referred:
Sun Flower Builders Pvt. Ltd. Vs. DCIT (ITAT, Pune)
ACIT Vs. Gujarat Ambuja Proteins Ltd. 3 SOT 822.
Brief Facts of the Case:
The A.O. noticed that the assessee firm had accepted loan of Rs. 25 lakhs each from its partner’s otherwise than by way of crossed cheque/demand draft in violation of the provisions of section 269SS of the Income Tax Act, 1961. Therefore, the A.O. issued a show cause notice u/s 271D r.w.s. 269SS 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. The assessee submitted that there was no violation as the assessee firm had not accepted loan in cash. That the firm had availed loan from Andhra Bank and the same has been repaid by partners from their individual accounts. The firm hasd acknowledged the debt of the partners by passing journal entries in the books of accounts of the firm, therefore, it could not be considered as acceptance of loan or deposit in violation of section 269SS. Also, the genuineness of the transactions had been established therefore a genuine transactions cannot be brought under the rigor of provisions of section 271D.
However, the A.O. was of the opinion that any loan in excess of specified limit accepted otherwise than by way of account payee cheque or draft comes within the provisions of section 269SS and he levied the penalty u/s 271D.
On appeal to FAA, CIT(A)held that no penalty could be levied u/s 271D when the loan had been accepted by way of journal entries.
Aggrieved by the CIT(A) order, the revenue contested the matter before ITAT
Thus the only issue involved was whether the acceptance of loans by way of journal entry tantamount to acceptance of loans, otherwise than by way of account payee cheques or demand drafts which attracts penalty under sec. 271D.
Important Excerpts from ITAT Judgment:
Therefore, from the provisions of section, it is very clear that the object of insertion of this section is to prohibit persons explaining the unaccounted cash or assets by way of purported loan or deposit accepted in cash. In the present case on hand, on perusal of the details available on record, we find that the transactions are genuine. The firm has borrowed loan from M/s. Andhra Bank. The partners of the firm have repaid the loan borrowed 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 been explained, there is no reason for the A.O. to levy penalty u/s 271D of the Act.
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