INCOME TAX OFFICER, RACE COURSE ROAD vs. ANAMALLAIS BUS TRANSPORT PRIVATE LIMITED, POLLACHI

The brief facts of the case are that the assessee, M/s. Anamallais Bus Transport Private Limited, filed its return of income for A.Y.2018-19 on 31.10.2018, declaring total income at (-) Rs.60,909/-. The case was selected for scrutiny under CASS and was finalised u/s.143(3) of the Act vide assessment order dated 04.08.2021, accepting the returned income.

During assessment proceedings, it was noticed that the assessee had purchased unlisted shares of certain companies from M/s.ABT Investment (India) Pvt. Ltd. and ABT Ltd which had resulted in an outstanding payable of Rs.41,74,41,800/-. The AO was of the view that the said amount was received as a loan in a mode other than account payee cheque, bank draft or use of Electronic Clearing System or through any other electronic mode, thereby violating the provisions of Section 269SS of the Act. Accordingly, penalty proceedings u/s.271D of the Act were initiated.

The penalty order was originally passed on 12.02.2022 by the National Faceless Assessment Centre, Delhi. However, the Hon'ble High Court of Madras in WP Nos. 5911 & 5914/2022 vide order dated 16.03.2022 set aside the said order and remitted the matter back for reconsideration, directing that a fresh notice be issued giving the assessee two weeks' time to respond, which shall constitute the final opportunity. Pursuant thereto, a fresh penalty order was passed on 17.11.2022 u/s.271D of the Act, imposing a penalty of Rs.41,74,41,800/- (equivalent to the loan amount accepted).

Aggrieved by the penalty order dated 17.11.2022, the assessee filed an appeal before the Id.CIT(A). The Id.CIT(A) vide order dated 01.08.2024 deleted the penalty, holding that the transactions in question were made by way of book entries/journal entries and there was no actual flow or movement of money in cash or any other mode. The Id.CIT(A) relied on various judicial decisions and held that the provisions of Section 269SS of

Before us, the Id.CIT(DR) (in short "Id.DR") appearing for the Revenue contended that the Id.CIT(A) erred in deleting the penalty. The Id.DR submitted that the assessee had, during the course of penalty proceedings, admitted that the amounts of Rs.41,66,39,600/- and Rs.8,02,200/- were accepted as loans and advances from related parties in a mode other than account payee cheque, thereby squarely violating the provisions of Section 269SS of the Act.

On the other hand, the Id.AR appearing for the assessee strongly supported the order of the Id.CIT(A). It was submitted that the transaction of purchase of shares of M/s.ABT Textiles P. Ltd. and M/s.Sri Bhagavati Textiles Ltd. from M/s.ABT Investments India P. Ltd. was incorporated in the original return of income and disclosed in the balance sheet as a Non- Current Investment. The purchase consideration of Rs.40,00,00,000/- was not paid in cash but was shown as payable under Non-Current Liabilities of the Balance Sheet under Long Term Liabilities indicating that no actual money changed hands. The entire transaction was captured as payable and there was no repayment of any loan or deposit in cash exceeding the prescribed limit. The Id.AR further placed reliance on the order of the Hon'ble High Court of Madras dated 13.10.2023 in W.P. No. 29209 of 2023, wherein the Hon'ble Court, on perusal of the Balance Sheet as on 31.03.2018, expressly recorded that no amount was passed on by the assessee either by way of cash, RTGS, or any other mode and that the initiation of penalty proceedings was not proper and was due to a wrongful interpretation of the balance sheet.

We have carefully considered the rival submissions, perused the orders of the authorities below, the material on record, and the judicial precedents cited.

The core question before us is whether the provisions of Section 269SS of the Act are attracted to the transaction under consideration, and if so, whether the consequential penalty u/s.271D of the Act is leviable.

Section 269SS of the Act prohibits the acceptance of any loan or deposit or any specified sum of Rs.20,000/- or more otherwise than by way of an account payee cheque, account payee bank draft, or use of Electronic Clearing System through a bank account or through such other electronic mode as may be prescribed. The penalty for violation of this provision is provided u/s.271D of the Act, which makes it equal to the amount of the loan or deposit or specified sum accepted in violation. Section 273B of the Act, however, provides that no penalty shall be imposed if the person proves that there was reasonable cause for such failure. 11. The AO proceeded on the premise that the amount of Rs.41,74,41,800/- was received by the assessee as a loan/advance from related parties in a mode other than that prescribed u/s.269SS of the Act. However, a careful examination of the facts reveals that the transaction under consideration was not a loan or deposit at all it was a transaction for the purchase of shares of M/s. ABT Textiles P. Ltd. and M/s. Sri Bhagavati Textiles Ltd. from M/s. ABT Investments India P. Ltd. The purchase consideration was not paid by the assessee to the seller; instead, it remained outstanding and was reflected as Long Term Liabilities in the balance sheet of the assessee. The transaction was captured entirely through journal entries, with no movement of cash or money in any form whatsoever. 12. This factual position is conclusively established from the audited Balance Sheet of the assessee as on 31.03.2018, where the investments in shares appear on the asset side while the corresponding payable to M/s. ABT Investments India P. Ltd. appears under "Other Long Term Liabilities" on the liability side. These two entries mirror each other, unambiguously

The Hon'ble High Court of Madras, in its order dated 13.10.2023 in W.P. No.29209 of 2023 arising out of the very same transaction, examined the balance sheet of the assessee and recorded categorical findings that no amount had been passed on by the assessee either by way of cash, RTGS, or any other mode, and that the initiation of penalty proceedings was premised on a wrongful interpretation of the balance sheet. These findings of the Hon'ble High Court, though rendered in the context of a writ petition relating to recovery proceedings, are directly relevant to the question of the applicability of Section 269SS of the Act to the transaction in question and constitute a strong judicial endorsement of the assessee's position. The relevant portion of the order of the Madras High Court is also extracted below for ready reference:

Further, it is also noteworthy that the very same transaction was scrutinized during the assessment proceedings in the hands of M/s.ABT Investments India P. Ltd. In those proceedings, a proposed disallowance of proportionate interest relating to this transaction was considered but ultimately dropped after the assessee explained the absence of actual payment and the nature of the receivables. This is consistent with the stand taken by the appellant.

It is well-settled law that Section 269SS applies only where there is an actual receipt of a loan or deposit in the modes other than the specified modes. Where a transaction is effected purely by way of a payable entry and there is no actual flow or movement of money, the provisions of Section 269SS of the Act are not attracted, and consequently, no penalty u/s.271D of the Act can be levied. This position has been consistently upheld by various High Courts and the Tribunal. The Hon'ble Bombay High Court's decision relied upon by the assessee in this regard further fortifies this legal position. We respectfully concur with these authorities.

Hence, in the present case, the provisions in Section 269SS of the Act would not get attracted to the facts of the present case where the disputed amount remains only as payable at the end of the year and consequently the penalty under Section 271D of the Act is not leviable.

Be that as it may, the Journal entries would not constitute violation in terms of Section 271D of the Act and in the absence of any finding by the AO that the journal entries were made with a view to achieve any purpose outside normal business operations, or that there was any involvement of money or cash, the levy of penalty u/s.271D of the Act is not sustainable. Even assuming for the sake of argument that there was some technical violation, the explanation offered by the assessee that the transaction was a purchase of shares on credit terms, reflected as a payable in the balance