Case Law Details
CA Sandeep Kanoi
Accepting/ repaying loans/ advances via journal entries contravenes Section 269SS & 269T but Penalty cannot be levied under section 271D and Section 271E of the Income Tax Act,1961 if transactions are bona fide & genuine.
Briefly stated relevant facts of the case are that the assessee who belongs to the Lodha group of cases, is engaged in the business of land development and construction of real estate properties. Assessee filed the return of income declaring the total income at Rs. NIL and the same was subsequently revised to adjust carry forward losses. Assessment was completed determining the total income of Rs. 26,69,084/- under the special provisions of section 115JB of the Act. In the scrutiny assessment, there is a solitary and minor addition made by the AO u/s 14A of the Act. There is no further appeal against the said order of the AO before the CIT (A). Thus, the assessment reached finality. In the assessment, vide para 6, the AO, otherwise, mentioned about “Accepting / repayment of loans other than account payee cheques / draft”. Eventually, AO mentioned that such accepting / repayment of loans other than account payee cheques / drafts (through journal entries) amounts to violation of the provisions of section 269SS and 269T of the Act. Subsequently, for imposing the penalty proceedings, AO made a reference to the Addl. CIT for necessary action.
Addl. CIT examined the provisions of section 269SS/T of the Act, as the case may be, and discussed certain judgments including the binding judgment of the Hon‟ble Bombay High Court in the case of Triumph International (I) Ltd, dated 12th June, 2012 reported in 22 taxmann.com 138. Further, he reproduced the contents of the said judgment of the Hon‟ble High Court (supra) which is relevant for the proposition that where the loan / deposit were repaid by debiting the amount through journal entries, it must be held that the assessee has contravened the relevant provisions. Though the said judgment was delivered in the context of provisions of section 269T of the Act, the same was equally adopted for the provisions of section 269SS of the Act. Addl. CIT discussed on the irrelevance of the genuineness of the transactions in these matters of impugned penalty proceedings. He also examined the aspects of the bona fide and genuineness of the transactions before concluding that the assessee failed to establish the genuineness of transactions carried out. Addl. CIT further mentioned that even bona fide and genuineness of the transactions, if carried out in violation of provisions of section 269SS of the Act, the same would attract the provisions of section 271D of the Act. There was a discussion on the applicability of the decision of the Tribunal in the case of Mahak Sing vs. ITO (ITAT, Del) 127 ITD 1 relating to the mens rea issues. Eventually, the Addl. CIT levied the penalty of Rs. 495,23,61,634/- u/s 269SS of the Act within the meaning of section 271D of the Act. Further, depending on the nature of credit, journal entries are summarized into 6 categories, namely (i) assignment of debit balance to a group company (4.75 Crs); (ii) lender assigns debt to group company (Rs. 93.47 Crs); (iii) assigning of group debt to an independent company (Rs. 374.92 Crs); (iv) Directors / family account transfers (Rs. 2.81 Crs); (v) payment / receipt on behalf of group company (Rs. 19.19 Crs) and (vi) miscellaneous (Rs. 0.10 Crs). Addl CIT passed similar penalty order u/s 271D in respect of other group concerns namely M/s. Lodha Properties Development Pvt Ltd (Rs. 30,11,30,396/-); M/s. Adhinath Builders Pvt Ltd (Rs. 32,81,39,868/-); M/s. Ajitnath Hi-tech Builders Pvt Ltd (Rs. 81,75,244/- ); M/s. Aasthavinaya Real Estate Pvt Ltd (Rs. 61,50,900/-); M/s. Ajitnath Hi-tech Builders Pvt Ltd and M/s. Infratech Builders and Agro Pvt Ltd (Rs. 36,67,81,854/-). Aggrieved with the same, assessee filed an appeal before the CIT (A).
During the first appellate proceedings, CIT (A)-38, Mumbai passed a combined order on 31.12.2013 confirming the penalties levied by the Addl. CIT in all the above referred cases. It is the conclusion of the CIT (A) that the assessee failed to establish the reasonable cause as required u/s 273B of the Act.
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Author Bio
Hi , i am a partner in a firm
In which we have UNSECURED LOANs Taken from our family members , but last year my uncle died suddenly by heart failure , the firm had 26 laks rs as an unsecured loan taken from him , now I wanted to know that how can I repay that loan beacuse he is no more and can’t accept and transfer money via his bank account ,
but as per his last will the loan on his name in firm was to be repaid off to his nephew who is also a partner in that firm ,
So can we repay or transfer the loan amount to his nephew’s capital account by passing a journal entry in our books and can we also pay interest to his nephew on that amount
Or will we have to pay the loan by first transferring full amount to his nephews bank account and then again taking that amount back via cheque
And if it is possible that we can transfer that amount via journal entry in our books itself than will that attract any violation of sec 269SS Or sec 269T Because amount of this is just going via journal entries and nothing is paid or taken back in cash form and what should an auditor write in its finding at the time of audit report
he did not had any child from his wife , and plus his wife had also left him 20-25 years back , so he doesnot have any legal heir , and has written a will for his nephew to receive that money back , he was single and very ill from last 4-5 years ,
So can it be done by transferring the amount by passing journal entries or do I need to pay back the loan to successor by giving him a cheque and than again take a cheque back from him…
Plus is their any time frame under which this has to be done , like within one month or any stipulated time ??