Bar in S. 269SS/ 269T does not apply to loans/ advances accepted/ repaid via journal entries. Limitation period for s. 271D penalty is as per s, 275(1)(c) & not 275(1)(a)

CIT vs. WorldWide Township Projects Ltd (Delhi High Court)

PACL India Ltd purchased lands on behalf of assessee from several land owners. PACL made payments through demand drafts to the said land owners. The assessee showed the land in its books and the amount as being due to PACL. The AO passed an assessment order dated 30.12.2009 in which he held that the transaction amounted to a loan from PACL to the assessee which contravened s. 269SS/ 269T as it was not be ‘account payee’ cheque. A penalty order u/s 271D dated 10.03.2012 was passed for the said contravention. The said penalty was deleted on the ground that the penalty order was barred by limitation and also that s. 269SS did not apply to journal entries. On appeal by the department to the High Court HELD dismissing the appeal:

(i) Penalty u/s 269SS is independent of the assessment. The action inviting imposition of penalty is granting of loans above the prescribed limit otherwise than through banking channels and as such infringement of s. 269SS is not related to the income that may be assessed or finally adjudicated. Accordingly, the time limit in s. 275(1)(a) would not be applicable. The time limit in s. 275(1)(c) is applicable (Hissaria Bros 291 ITR 244 (Raj) followed);

(ii) On merits, no offence u/s 269SS is made out. S. 269SS applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. The section is restricted to transactions involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. The object of the section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the explanation to s. 269SS which defines loan or deposit to mean “loan or deposit of money”. The liability recorded in the books of accounts by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of accounts, is clearly outside the ambit of s. 269SS because passing such entries does not involve acceptance of any loan or deposit of money (Noida Toll Bridge Co Ltd 262 ITR 260 (Del) followed).

Note: In Triumph International 345 ITR 370 (Bom) it was held that s. 269SS/ 269T applies to journal entries though s. 271D penalty was deleted on the grounds of bona fides