Penalty: S/s 269T, 271E and 273B A. Y. 2003-04: Repayment of loan or deposit otherwise than by account payee cheque or draft: Provision mandatory: Repayment by debit of accounts through journal entries is in contravention of the provision: Assessee becoming liable to repay loan and receive similar sum towards sale price of shares sold to creditor: Account settled by journal entries: No finding that repayment not bonafide or attempt at evasion of tax: Reasonable cause shown: Penalty not leviable<

The assessee was engaged in the business of share trading. The assessee had accepted a sum of Rs. 4,29,04,722/- as loan from I which was repayable during the A. Y. 2003-04. In that year the assessee sold 1,99,300 shares to I for an aggregate consideration of 4,28,99,325/-. The parties set off that amount in the respective books of account by making journal entries and the balance amount of Rs. 5,397/- was paid by the assessee by a crossed cheque. The Assessing Officer imposed penalty u/s 271E on the ground that the assessee had repaid the loan to the extent of Rs,4,28,99,325/- in contravention of the provisions of section 269T of the Income-tax Act, 1961. The Tribunal held that the payment through journal entries did not fall within the ambit of sections 269SS or 269T and consequently no penalty could be levied u/ss. 271D or 271E.

On appeal by the Revenue, the Bombay High Court held as under:

“i) The Tribunal was not justified in holding that repayment of loan or deposit through journal entries did not violate the provisions of section 269T of the Act.

ii) It would have been an empty formality to repay the loan or deposit amount by account-payee cheque or draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan or deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business had been doubted in the regular assessment.

iii) There was nothing on record to suggest that the amounts advanced by I to the assessee represented money of I or the assessee. The fact that the assessee company belonged to a group involved in the security scam could not be a ground for sustaining penalty.

iv) Settling claims by making journal entries in the respective books is also one of the recognised methods for repaying loan or deposit. Therefore, on the facts, in the absence of any finding recorded in the assessment order or in the penalty order to the effect that the repayment of loan or deposit was not a bona fide transaction and was made with a view to evade tax, the cause shown by the assessee was a reasonable cause and in view of s. 273B of the Act, no penalty u/s 271E could be imposed for contravening the provisions of s. 269T of the Act.”