Transfer of loan through journal entry is not violation of sec 269

CA Prarthana Jalan

Hon’ble Delhi ITAT in the case of Dinesh Jain has held that Penalty u/s. 271E is leviable if a person repays any loan, otherwise, than in accordance with provisions of section 269T. As per section 269T no person shall repay the loan otherwise, than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan. Now in this case admittedly the assessee has transferred the loan by way of journal entry to his wife. Therefore, the question is whether there is violation of section 269T so as to penalise the assessee  as required u/s. 271E? When the assessee has transferred the loan from himself to his wife by way of journal entry, it is only the substitution of one debtor by another debtor. So far as creditors i.e. MGF Developments Ltd. is concerned, it has not received any amount and since the creditors has not received any amount, it cannot be said that there is a repayment of loan. Section 269 would come into play only when there is actual repayment of loan. Merely because loan is assigned by the assessee to his wife by way of journal entry, it cannot be said that there is a repayment of loan, otherwise, than by account payee cheque or account payee bank draft, so as to penalize the assessee u/s. 271E.