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Facts
The assessee, a partnership firm, received a loan of Rs. 15 lakhs from an NBFC which was directly disbursed to a third party. The assessee recorded this as a journal entry in its books. Subsequently, the AO initiated penalty proceedings under Section 271D for alleged violation of Section 269SS.
Held
The Tribunal held that the transaction, being a direct disbursement by the NBFC to the vendor and recorded as a journal entry, did not constitute acceptance of a loan or deposit in monetary form by the assessee, thus falling outside the purview of Section 269SS. Consequently, the penalty levied under Section 271D was not justified.
Key Issues
Whether a loan directly disbursed by a third party and recorded as a journal entry constitutes a violation of Section 269SS, thereby attracting penalty under Section 271D.
Sections Cited
250, 271D, 271E, 139, 269SS, 143(3), 273B, 617
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI. OMKARESHWAR CHIDARA
The instant appeal of the assessee was filed against the order of theNational Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2015-16, date of order 27/12/2024.The impugned order was emanated from the order of the Learned Joint Commissioner of Income-tax, Range 16(1), Mumbai (in short the “AO”)passed under section 271D of the Act, date of order 28/02/2020.
“1. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer has erred in passing the penalty order u/s 271D of the Income Tax Act, 1961, which is had in law and Rs. 0 null and void as the same is passed in violation of the provisions of the Income Tax Act, 1961 2. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer has erred in passing the penalty order u/s 271D of the Income Tax Act, 1961, which is time barred as per the provision of the Income Tax Act, 1961.
3. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer has erred in imposing the penalty u/s 271D of the Income Tax Act, 1961, without appreciating the fact 3 that Assessing Officer did not recorded any satisfaction in the assessment order to the effect that the provisions of section 269SS were violated by the assessee and penalty proceedings is to be initiated w/s 271D of the Income Tax Act, 1961.
4. On the facts and circumstances of the case as well as in law, the Leaned CIT(A) has erred in confirming the action of Learned Assessing Officer in levying the penalty of Rs.15,00,000/- u/s 271D of the Income Tax Act, 1961 on the alleged plea that the assessee has contravened the provisions of section 269SS of the Income Tax Act, 1961 without considering the facts andcircumstances of the case.
5. The appellant craves leave to add, amend, alter or delete the saidground of appeal
.”
3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of film production, distribution, and related activities. The assessee filed its return of income under Section 139 of the Act for the relevant assessment year. During the impugned assessment year, the assessee was sanctioned a loan of Rs. 15 lakhs from a Non-Banking Financial Company (NBFC), M/s Goldencrest Financial Services Pvt. Ltd. The said NBFC disbursed the loan amount directly to the assessee’s party, M/s Rajak Enterprises, through banking channels. The assessee also made a payment of Rs. 10 lakhs to the same party from its own funds. Consequently, the assessee recorded the loan from the NBFC in its books of accounts by way of a journal entry, recognizing the liability amounting to Rs. 15 lakhs.The assessment was completed under Section 143(3) of & 387 /Mum/2025 JugeshShobhanath Yadav the Act. Subsequently, penalty proceedings were initiated under Section 271D of the Act on the ground of alleged violation of Section 269SS of the Act. During the penalty proceedings, the Ld. AO treated the journal entry reflecting the loan as contravening the provisions of Section 269SS of the Act, despite the fact that the loan amount was routed through banking channels and duly confirmed by the NBFC. The Ld. AO imposed a penalty of Rs. 15 lakhs under Section 271D of the Act. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A), who dismissed the appeal. Further aggrieved, the assessee has filed the present appeal before this Tribunal.
4. The Ld.AR argued ground No.1 and filed a written submission containing pages 1 to 14 which is kept in record. From the written submission we find that the entire transaction was through banking channel and the transaction was confirmed by the NBFC. The relevant documents are relied by the assessee related the transaction of loan which is as follows: - Sr.No. Nature of Documents APB Page No. 1 Financial Statements of appellant for the AY 2015-16 01 05 2 Notices issued for initiation of penalty proceedings u/s. 271E & 271D 06 09 3 Ledger account of M/s Goldencrest Financial Services Pvt. Ltd in the 10 10 appellant’s books. 4 Ledger confirmation received from M/s Goldencrest Financial 11 11 Services Pvt. Ltd 5 Extracts from the Bank statement of M/s Goldencrest Financial 12 12 Services Pvt. Ltd highlighting the amount paid to M/s Rajat Enterprises. 6 Ledger account of M/s Rajat Enterprises in the appellant’s books 13 13 7 Producer’s account received from M/s Rajat Enterprises. 14 14 & 387 /Mum/2025 JugeshShobhanath Yadav 5. The Ld.AR further argued that the assessee regularly deals with the vendor 'M/s Rajat Enterprises' for distribution of film and other ancillary work related to promotion and distribution of film.During the year under consideration, the assessee had paid an amount of Rs. 10,00,000/-and Rs. 15,00,000/-on 17.4.2014 and 28.04.2014 respectively towards the work done by M/s Rajat Enterprises. The same can be seen from the ledger account of M/s Rajat Enterprises enclosed herewith in APB page 14.
6. However, out of total payment of Rs. 25,00,000/-, the payment made on 17.04.2014 of Rs. 10,00,000/- was through appellant's bank account and balance amount of Rs. 15,00,000/-was paid by borrowing funds from the NBFC i.e. 'M/s Goldencrest Financial Services Pvt.Ltd.' The said amount was directly paid by the NBFC via banking channels in the account c M/s Rajat Enterprises.As per the normal business practices, the assessee had passed a book entry by debiting the ledger account of M/s Rajat Enterprises and crediting the ledger account of NBFC for amount of Rs. 15,00,000/-. Ld.AO without appreciating the fact that said book entry was pursuant to the fact that NBFC had directly credit an amount to the bank of assessee's vendor M/s Rajat Enterprises concluded that the assessee has violated the provisions of section 269SS of the Act and proceeded to levy the penalty u/s 271D of the Act.
It is further argued that M/s Goldencrest Financial Services Pvt. Ltd had paid the said amount directly to M/s Rajat Enterprises owing to the fact that the same does not lead to the diversion of funds. Similar to common business transaction of letter of credit wherein the bank directly credits the account of vendor party for such amount. The assessee was not in control of such transaction and had no On plain reading of the provisions of section 269SS of the Act which states as under:
"269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft [or use of electronic clearing system through a bank account] if,-
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking of accepting such loan or deposit, any loan or deposit taken or accepted earlier by person from the depositor is remaining unpaid (whetherrepayment has fallen due or not), the amount or the aggregate amount remaining unpaid (c) the amount of the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is [twenty) thousand rupees or more : Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit token or accepted by.- (a) Government (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act: (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)
& 387 /Mum/2025 JugeshShobhanath Yadav (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette..."
However, Ld.AO, on contrary, in his assessment order stated that the assessee has accepted a loan by way of journal entry, which squarely falls under the mode specified in section 269SS, viz., 'otherwise than by an account payee cheque or account payee bank draft', without appreciating the fact that it was not the actual intent of the section. In this regard, respectfully reliance was placed on the judgement of Hon'ble Delhi High Court in case of Commissioner of Income-tax Vs. Noida Toll Bridge Co. Ltd. [2004] 139 Taxman 115 (Delhi) wherein on the basis of identical facts the Hon'ble Delhi High Court had held that journal entry passed by appellant was clearly out of purview of the section 269SS and hence no penalty needs to be levied. The relevant extract is reproduced as under:
"2. While completing the assessment of the assessee for the assessment year 1998-99, the Assessing Officer initiated penalty proceedings under section 271D of the Act as he was of the view that the assessee had violated the provisions of section 26955 of the Act because the payment of Rs. 4.85 crores to the Delhi Government was not made in the manner prescribed in section 26955 of the Act. We may note at this stage itself that the said payment had in fact been made by IL & FS vide account payee cheque to the Delhi Government and the amount was debited to the account of the assessee in its books of account.
Not being satisfied with the reply filed by the assessee to the show-cause notice, the Assessing Officer levied a penalty of Rs. 4.85 crores under section 271D of the Act on the assessee for alleged violation of the provisions of section 26955 of the Act.
Aggrieved, the assessee preferred appeal to the Commissioner of Income-tax (Appeals) but without any success. The assessee carried the matter in further appeal to the Tribunal. By the impugned order, the Tribunal had deleted the said penalty. While holding that the provisions of section 26955 of the Act were not attracted, the Tribunal has noticed that: (i) in the instant case, the transaction & 387 /Mum/2025 JugeshShobhanath Yadav was by an account payee cheque, (ii) no payment or account was made in cash either by the assessee or on its behalf, (iii) no loan was accepted by the assessee in cash, and (iv) the payment of Rs. 4.85 crores made by the assessee through IL & FS, which holds more than 30 per cent of the paid-up capital of the assessee by journal entry in the books of account of the assessee by crediting the account of IL & FS.
Having regard to the aforenoted findings, which are essentially findings of fact, we are in complete agreement with the Tribunal that the provisions of section 26955 were no attracted on the facts of the case. Admittedly, neither the assessee nor IL & FS had made any payment in cash. The order of the Tribunal does not give rise to any question of law much less a substantial question of law.
We accordingly decline to entertain the appeal. Dismissed." (Emphasis added) 9. In argument it is stated that in the instant case also the NBFC M/s Goldencrest Financial Services Pvt. Ltd. had made payment directly to M/s Rajat Enterprises through banking channels, no loan was accepted by the assessee in cash and the liability was created by passing the journal entry for the payment directly made by NBFC to Rajat enterprises.Following the above decision in case of M/s Noida Toll Bridge, the Hon'ble Delhi High Court in case of Commissioner of Income Tax-VI Vs. Worldwide Township Projects Ltd (ITA 232/2014) had also dismissed the appeal of revenue wherein the levy of penalty under section 2710 was under consideration. Thus considering the facts of the case, provisions of the law and to the touchstone of the above judicial pronouncement it can be safely concluded that the transaction entered by the assessee company is outside the purview of the section 269SS and hence penalty levied by the Ld.AO u/s 271D needs to be deleted.
& 387 /Mum/2025 JugeshShobhanath Yadav 10. Considering the genuineness of receipt of loans/deposits by way of a journal entry carried out in ordinary course of business had never been doubted in the regular assessment proceedings and transaction by way of journal entry was undisputedly done since the NBFC had directly paid the amount to the vendor. To prove the factual position of the case, the assessee during the course of the penalty proceedings& normal assessment proceedings had submitted the following documents: a. Ledger account of M/s Goldencrest Financial Services Pvt. Ltd in the appellant's books. b. Ledger confirmation received from M/s Goldencrest Financial Services Pvt. Ltd. c. Extracts from the Bank statement of M/s Goldencrest Financial Services Pvt. Ltd. highlighting the amount paid to M/s Rajat Enterprises. d. Ledger account of M/s Rajat Enterprises in the appellant's books. e. Producer account received from M/s Rajat Enterprises.
Considering the above factual position, the findings of the Hon'ble Bombay High Court in case of CIT, Central-IV vs. Triumph International Finance (1) Ltd [2012] 22 taxmann.com 138 (Bom.) stated that in absence of any material on record to suggest that the transactions in question were not reasonable or bona fide no adverse inference can be drawn if in view of section 273B of the Act the transactions in question were undertaken with a reasonable cause to do so.
& 387 /Mum/2025 JugeshShobhanath Yadav 11. The Ld.DR vehemently argued and fully relied on the order of the revenue authorities.
We have heard the rival submissions and carefully considered the documents placed on record. Upon perusal of the record, we find that there is no dispute regarding the fact that the amount of Rs. 15 lakh was paid through banking channels and was duly confirmed by both the NBFC and the concerned party. The loan amount of Rs. 15 lakh was disbursed directly to the said party. Furthermore, we note that the balance amount of Rs. 10 lakh was paid by the assessee to the same party towards film promotion and other incidental charges. In its books of accounts, the assessee recorded the said transaction through a journal entry, recognizing the liability as a loan. Since the assessee is responsible for repaying the said amount, the loan is duly reflected in its books of accounts. A plain reading of Section 269SS of the Act,reveals that the provision applies to transactions where a deposit or loan is accepted by an assessee otherwise than by an account payee cheque, an account payee draft, or other prescribed banking modes. The scope of this provision is restricted to transactions involving the acceptance of money and does not extend to cases where a debt or liability arises merely due to book entries. The legislative intent behind Section 269SS is to prevent cash transactions, as is evident from clause (iii) of the Explanation to the section, which defines a "loan or deposit" as a "loan or deposit of money." Consequently, a liability recorded in the books of accounts through journal entries—such as crediting the account of a party to whom money is payable or debiting the account of a party from whom money is receivable—falls outside the purview of Section 269SS, as such entries do not involve the actual acceptance of a loan or deposit in monetary form.The imposition of penalty under Section 271D & 387 /Mum/2025 JugeshShobhanath Yadav in relation to Section 269SS is, therefore, not justified, particularly in light of the judgments of the Hon’ble Bombay High Court in the case of Triumph International Finance (I) Ltd. (supra) and the Hon’ble Delhi High Court in the case of Worldwide Township Projects Ltd. (supra). TheLd. AR has further placed reliance on the decision in Noida Toll Bridge Co. Ltd. (supra), wherein the Hon’ble Delhi High Court has categorically held that the provisions of Section 269SS do not apply to transactions recorded through journal adjustments. Considering the facts of the case, the relevant provisions of law, and the binding judicial pronouncements, it can be conclusively held that the transaction entered into by the assessee is outside the ambit of Section 269SS. Consequently, the penalty levied by the Ld. AO under Section 271D amounting to Rs. 15 lakhs is liable to be deleted. The issue was also agitated before the Ld. CIT(A), where it was argued that, in the absence of any material evidence indicating that the assessee had engaged in any cash transaction, no adverse inference could be drawn under Section 273B of the Act. However, the Ld. CIT(A) rejected the assessee’s contention. Furthermore, the Ld. DRwas unable to rebut any of the submissions advanced by the Ld. AR with any contrary judicial precedents. Accordingly, following the binding decisions of the Hon’ble Delhi High Court and the Hon’ble Bombay High Court, we hold that the penalty imposed under Section 271D amounting to Rs. 15 lakh stands deleted.
is allowed. Order pronounced in the open court on _____ day of March 2025.