Acceptance of loans by journal entries not violates section 269SS – SLP dismissed

Acceptance of loans by passing journal entries in books of accounts not in violation of section 269SS hence no penalty u/s 271D imposable – SC dismisses SLP of  ITD

ABCAUS Case Law Citation:
ABCAUS 2735 (2019) (01) SC

Important Case Laws Cited/relied upon:
Commissioner of Income Tax Vs. Triumph International Finance (I) Ltd.
Premier Breweries Ltd. Vs. Commissioner of  Income Tax, 372 ITR 180.
Commissioner of Income Tax Vs. Noida Toll Bridge Co. Ltd. 262 ITR 260
Sunflower Builders Vs. Dy.CIT, 1997 (61) ITD (Pune) 227, 
Asst.CIT Vs. Ruchika Chemicals & Investment (P) Ltd. 2004 (88) TTJ (Delhi)85
Asst.CIT Vs. Lala Murari Lal & Sons, 2004(2) SOT (Luck) 543

The assessee had accepted loans / deposits by way of passing journal entries in its books of accounts. The Addl. Commissioner of Income Tax imposed penalty under Section 271D of the Income Tax Act, 1961 (the Act) for breach of Section 269SS of the Act which prohibits a person from taking /accepting  any loan / deposit or specified sum, otherwise by an account payee cheque or by an account payee bank  draft or by use of electronic clearing system of a bank.

This imposition of penalty under Section 271D of the Act, was upheld by the Commissioner of Income Tax (Appeals).   

On further appeal, the Tribunal, following the jurisdictional High Court’s decision inter alia held that penalty under Section 271D of the Act was not imposable in view of Section 273B of the Act for the reason that there was a reasonable cause for the failure to comply with Section 269SS of the Act.  

The Tribunal observed that neither the genuineness of receipt  of  loans / deposits by way of an adjustment through  journal  entries carried  out  in the ordinary course of business has been doubted in the regular assessment proceedings. It held that the transaction by way of journal entries was undisputedly done to raise funds from sister concerns,  to  adjust or transfer balances to consolidate debts, to correct clerical  errors etc. 

The Tribunal found that as observed by the jurisdictional High Court, journal entries constituted  a recognized modes of recording of transactions and in the absence of any adverse finding by the authorities that the journal entries were made with a view to achieve purposes out side the normal business operations or there was any involvement of money, then, in these facts there was  a reasonable cause for not  complying  with  Section 269S of the Act.

The Revenue challenged the order of the Tribunal on the ground that the reasons set out for taking advances / deposits by way of journal entry would not satisfy the test of reasonable cause.

The Hon’ble High Court opined that the test of reasonable cause can  not,  in the present facts be determined on the basis of the number of  entries.  If there was a reasonable cause for making the journal entries, then, the number of entries made, will not make any difference.

The Hon’ble High Court dismissed the ground holding that the question raised by the Revenue does not  give rise to any substantial question of law.

Aggrieved, the Revenue filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court. However the Apex Court did not find any good ground to entertain the petition and was dismissed.

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