Penalty – Section 269SS and 271D – A. Y. 2007- 08 – Scope of section 269SS – Provision does not apply to liabilities recorded by book entries – Penalty not justified u/s. 271D:

In
the relevant year i.e., A. Y. 2007-08, the assessee had purchased land
worth Rs. 14.22 crore and the same was reflected in the books of
account. The purchase price was paid by one PACL to the land owners by
demand drafts on behalf of the assessee and accordingly PACL was shown
as creditor to that extent in the books of account of the assessee. The
Assessing Officer held that the assessee has taken loan from PACL in
violation of section 269SS of the Income-tax Act, 1961 and therefore
imposed penalty u/s. 271D of the Act. CIT(A) cancelled the penalty. The
Tribunal held that the order of penalty was barred by limitation.

On appeal by the Revenue, the Delhi High Court held as under:
“i)
A plain reading of section 269SS indicates that the import of the
provision is limited. It 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 ambit of the section is clearly
restricted to a transaction 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 section 269SS of the Act which defines loan or deposit to
mean “loan or deposit of money”. The liability recorded in the books of
account by way of journal entries, i.e. crediting the account of a
party to whom moneys are payable or debiting the account of a party from
whom moneys are receivable in the books of account, is clearly outside
the ambit of the provisions section 269SS of the Act because passing
such entries does not involve acceptance of any loan or deposit of
money.

ii) No money was transacted other than through banking
channels. PACL made certain payments through banking channels to the
land owners. This payment made on behalf of the assessee was recorded by
the assessee in the books by crediting the account of PACL.

iii)
In view of this admitted position, no infringement of section 269SS of
the Act was made out. The levy of penalty was invalid.”