Provisions of S.269SS cannot be invoked in case of book entry i.e. transfer between two accounts by way of Journal Entry:

AO noticed that the assessee had received certain unsecured loans. According to him, since the said amounts were not received through account payee cheques, provisions of S.269SS were violated and hence, penalty was levied u/s 271D. Hon’ble ITAT observed that the assessee had entered into an agreement with the concerned persons according to which those persons infused funds in the business of the assessee. The said funds were not in the nature of unsecured loans but were in the nature of capital contribution since those parties had share in the profits and losses of the assessee. Those persons had incurred certain expenses on behalf of the assessee for restarting assessee’s business including buying the machinery and the accounts of the said persons were credited by passing a J.V. in the books of accounts. As per Explanation (iii) to S.269SS, “loan or deposit” means loan or deposit “of money”. Transfer between two accounts by way of journal entry does not imply receipt of loan or deposit in monetary terms. It was thus held that there was no violation of S.269SS and consequently, there was no question of levying penalty u/s 271D.

[ITO Vs. SHRI MINESHKUMAR SHANTILAL PATEL – ITA NO.643/Ahd/2010]