Penalty U/s. 271D cannot be imposed in absence of payment in cash

Full Text of the High Court Judgment / Order is as follows:-

Heard Sri Krishna Agrawal, learned Counsel for the department and Sri Suyash Agrawal, learned Counsel for the assessee.

This is an appeal filed by the department under section 260A of the Income Tax Act for the assessment year 2001-02. The substantial questions of law referred to are here under:–

“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally justified in confirming the order of learned Commissioner (Appeals) canceling the penalty amounting to Rs. 2,61,98,500 imposed by the Addl. Commissioner of Income Tax Range- 6, Kanpur, without properly appreciating the fact that in the present case money has been accepted otherwise than by crossed cheque/bank drafts and, as such, there is a clear violation of section 269SS of the Income Tax Act, for which penalty under section 269SS was rightly imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur?

2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in confirming the order of learned Commissioner (Appeals) canceling the penalty amounting to Rs. 2,61,98,500 imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur, without properly appreciating the fact that in the present case money has been accepted otherwise than by crossed cheque/bank drafts and, as such, there is a clear violation of section 269SS of the Income Tax Act, for which penalty under section 269SS was rightly imposed by the Addl. Commissioner of Income Tax Range-6, Kanpur?”

We have heard learned Counsel on both sides and perused the order of the Tribunal.

While considering the matter, the Tribunal has taken into account the facts of the case which were not disputed that the assessee- company had to pay certain sums on account of transactions of shares of M/s. Oswal Agro Mills. Ltd. to three companies. It is recorded in the order of the Tribunal that the assessee filed copies of account of three companies as appearing in the books to demonstrate that the amounts, which were transferred to these three companies were transferred by way of account payee cheques and, therefore, the Tribunal came to the conclusion that it could not be said that the assessee had accepted loan or deposit in contravention of the provisions of section 269SS as no cash had been accepted by the assessee. The Tribunal also records in its order that the matter of this very assessee was subject matter of another appeal in the case of Amber Finlease Ltd. in which the Tribunal considered the CBDT Circular No. 387, date 6-7-1984 and has observed in para no. 12 as under :–

“12. ……….We are of the considered view that section 269SS does not include in its ambit where there is a transaction of loan or deposit by way of entries in the books of account by crediting or debiting the account of the other person. In other words, the provisions of section 269SS of the Act, according to us, are not attracted when there is an acknowledgement of debt by passing entry in the books of account and there is no transfer of money in cash from one person to another person by way of loan or deposit.”

The Tribunal has also relied on a decision of Delhi High Court in the case of CIT v. NOIDA Toll Bridge Co. Ltd. 262 ITR 260 (Del) wherein also it was held that since there was no payment in cash either by the assessee or on its behalf it could not be said that there was any violation of section 269SS of the Act. Therefore, the penalty has rightly been deleted by the Tribunal. The questions of law, therefore, are decided in favour of the assessee and against the department.

The appeal stands dismissed. No costs.