Practical Issues in Penalty U/s. 271D & 271E r.w. Section 269SS and 269T

Navin Agicha

Article explains Consequences of contravention of section 269SS and 269T and Issues relating to Section 269SS and Section 269T. Article further explains if penalties can be levied U/s. 271D and 271E when same amount of loan taken and repaid, Levy of Penalty when payment was done by internet banking, Applicability of Penalty on loans and advances in relation to transfer of immovable property. Article also contains extract of Section 269SS- Mode of taking or accepting certain loans, deposits and specified sum, Section 269T- Mode of repayment of certain loans or deposits, Section 271D- Penalty for failure to comply with the provisions of section 269SS and  Section 271E- Penalty for failure to comply with the provisions of section 269T.

A. Consequences of contravention of section 269SS:

Section 271D of Income Tax Act 1961 provides that if a loan or deposit is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit may be levied by the Joint commissioner.

B. Consequences of contravention of section 269T:

Section 271E of Income Tax Act 1961 provides that if a loan or deposit is repaid in contravention of the provisions of section 269T then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner

No Penalty to be levied u/s 271D or 271E if there is reasonable cause.

C. Issues relating to Section 269SS and Section 269T:

1) Can both penalties can be levied under section 271D and 271E when same amount of loan taken and repaid?

Solution of Issue 1:-

This is most debatable issue, still there is no case law which can say that both can’t be levied on same amount.

Analysis of Issue 1,

If a person is taking loan amount exceeding specified limit it will be considered as transaction no. 1.

and when same person is doing repayment of same loan amount then it will be considered as transaction no. 2.

then weather penalty will be levied on both transactions or not? as amount is same.

Solution of Analysis of Issue 1

As if loan is taken in cash and repaid through cash, there is violation of 2 transactions so on loan taken penalty u/s 271D will be levied on transaction no. 1 and on repayment of loan penalty u/s 271E will be levied on transaction no 2.

Let understand this by example

Question:-

If a person take loan of Rs 50,000/- by cash on 01.04.19 and same Rs 55,000/-(principal amount 50,000 and interest amount 5,000/-) is repaid by cash on 31.03.20.

What will be penalty u/s 271D and 271E?

Answer:-

Penalty U/S 271D Will Be Rs 50,000/- And

Penalty U/S 271E Will Be Rs 55,000/-

2) Which amount will attract 269SS only current year transactions or aggregate transactions (including previous years)?

Solution of Issue 2:-

Analysis of Issue 2,

If a person is taking loan is 1^st year below specified limit and in 2^nd year loan taken is below specified limit but aggregate of loan exceeds specified limit will it attract section 269SS?

Solution of analysis of issue 2

As the provisions of section used word

or the aggregate amount of such loan

it will attract section 269SS.

Let understand this by example

Question:-

If a person is taking loan is 1^st year Rs 15,000/- in cheque and in 2^nd year loan taken is Rs 18,000/- by cash.

Will it attract section 269SS? weather penalty will be levied us 271D?

Answer:-

It will attract section 269SS and penalty u/s 271D will be levied.

3) If payment done by internet banking will it be disallowed?

Solution of issue 3:-

Both the section contain following line –

[or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed]

Hence the payment made by internet banking, RTGS, NEFT will not be disallowed u/s 269SS and 269T.

4) Weather loans and advances in relation to transfer of immovable property is also covered u/s 269SS and 269T?

Solution of Issue 4:-

Section 269SS contain following extract –

 “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

Section 269T contain following extract –

“the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances,

“specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.”

This will force everyone to avoid cash transactions in order to reduce curb black money. So loans and advances in relation to transfer of immovable property are also covered u/s 269SS and 269T.

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D. Extract of Section 269SS, 269T, 271D and 271E

Section 269SS- Mode of taking or accepting certain loans, deposits and specified sum.

269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if,—

 (a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

 (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

 (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),

is twenty thousand rupees or more:

Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

 (a) the Government;

 (b) any banking company, post office savings bank or co-operative bank;

 (c) any corporation established by a Central, State or Provincial Act;

 (d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

 (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation.—For the purposes of this section,—

 (i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii) “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ;

(iii) “loan or deposit” means loan or deposit of money;

(iv) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

Section 269T- Mode of repayment of certain loans or deposits.

269T. No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed if—

(a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or

(c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances,

is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid :

Provided further that nothing contained in this section shall apply to repayment of any loan or deposit or specified advance taken or accepted from—

 (i)  Government;

(ii)  any banking company, post office savings bank or co-operative bank;

(iii) any corporation established by a Central, State or Provincial Act;

(iv) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

Explanation.—For the purposes of this section,—

 (i)  “banking company” shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

(ii) “co-operative bank” shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature;

(iv) “specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.

Section 271D- Penalty for failure to comply with the provisions of section 269SS.

271D. (1) If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

Section 271E- Penalty for failure to comply with the provisions of section 269T.

271E. (1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

The credit of this article belongs not only me but to my all friends who helped me to solve concepts.

(Author can be reached at agicha.navin@gmail.com)

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(Republished with Amendments by Team Taxguru)