• Apr
  • 25
  • 2012

Income Tax – Provisions of Section 269SS & 269T

Finance is the important part and need of every business. The own capital of a person may not be always sufficient to meet the needs of finance of the business. Therefore the Loans and deposits become necessary and important to meet the financial needs of the business. But while taking loans and accepting deposits one also has to keep in mind the restrictions imposed under the Income Tax Act on the mode of taking such loans and deposits.

Such provisions regulating the mode of accepting or taking loans or deposits and mode of repayment of certain loans and deposits are contained under section 269SS and 269T of the Income Tax Act 1961.

Section 269SS: Section 269SS provides that any loan or deposit shall not be taken or accepted from any other person otherwise than by an account payee cheque or account payee bank draft if,

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

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid and 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 :

Thus it is clear that no person can accept any loan or deposit of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs 20000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr X has a credit balance of a loan of Rs 19000 from Mr Y. Now in this case Mr X cannot take loan in excess of Rs 999 more from Mr Y except with an account payee cheque or account payee bank Draft.

Exemptions from section 269SS: The Following persons are exempted from the purview of section 269SS:

a) 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 section 617 of the Companies Act, 1956
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

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.

Section 269T : Section 269T of Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
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, if

(1) The amount of the loan or deposit together with interest is Rs 20000 or more, or
(2) The aggregate amount of loans or deposits held by such person, either in his own name or jointly with other person on the date of such repayment together with interest, is Rs 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

Exemptions from Section 269T: The Following persons are exempted from the purview of section 269T:

a) 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 section 617 of the Companies Act, 1956
(e) other notified insititutions

Consequenses 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 : As per Section 273B of Income Tax Act no penalty shall be levied if the failure to comply with the provisions of section 269SS or 269T is due to some reasonable cause. Now the question arises what can be a reasonable cause to justify the violation of the provisions of section 269SS and 269T. Some of the reasonable causes based upon judicial decisions are provided as follows:

Repayment or receipt of amount to partners: If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawl from firm cannot be called as loans or deposits.

Amount paid by firm to partners or vice versa- is payment to self and doesnot partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts( CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

Deposit assessed as income, No penality can be imposed u/s 271D in such case: It was held by Jodhpur tribunal in Bajrang Textiles v. Additional CIT [2009] 122 (JD.) 190 that where the A.O having treated the impugned amount of deposit as income, he is precluded from treating the same amount as deposit or loan for the purpose of section 269SS and levy penalty u/s 271D. The penalty ought to be cancelled.

Acceptance or repayment through Journal entry donot attract section 269SS or 269T: Acceptence or repayment through Journal Entry would not come within the ambit of the words ‘loans or deposits’-section 269SS applies only where money passes from one person to another by way of ‘loan or deposit’[CIT v. Noida Toll Bridge Co. Ltd. 262 ITR 260 (Del.)]

A genuine transaction made in an emergency, doesnot attract penalty u/s 271D: held in Mrs Rupali R. Desai v. ACIT 88 ITD 76 (Mum.). In ITO v. Shree Mahaveer Industries 82 TTJ 549 (Jd.) it was held that cash paid to meet medical treatment expenditure in emergency, does not attract penalty u/s 271D.

In ITO v. Prabhulal Sahu [2006] 99 TTJ (Jd.) 177 it was held that Assessee was not aware of provisions of section 269SS or 269T. His councel did not apprise him about the provisions. No penalty u/s 271D shall be attracted.

Where Depositors residing in rural areas are not having access to banking facility and are ignorant of relevant provisions of law, it would constitute bonafide reasons for payment in cash. (ACIT v. Vinman Finance & Leasing Ltd. [2008] 306 ITR (AT) 377 (Visakha.)

Loan given by relatives on Sunday for safe custody and for use in business. No contravention of section 269SS takes place- ITO v. T.R. Rangarajan [2005] 279 ITR 587 (Mad.)

Cash Transaction made on Sunday. No penalty could be imposed in such a case.- ITO v. Narsing Ram Ashok Kumar[1993] 47 ITD 38(Pat)

Transfer of money exceeding Rs. 20000 by way of bank voucher instead of a/c payee cheque or draft doesnot attract penalty u/s 271D as the transaction are through banking channels only held in Asst. CIT v. Jag Vijay Auto Finance (p) Ltd.[2000] 68 TTJ (Jp) 44

Loan in cash under compelling circumstances have been held to be reasonable cause: Industrial Enterprises v. DCIT [2000] 68 TTJ (Hyd) 373

Where the Lenders did not have any bank account which compelled the assessee to accept the loan in cash. This has been considered as reasonable cause in Balaji Traders v. DCIT [2001] 73 TTJ (Pune) 246

Although the provisions of section 269SS and 269T have been enacted with a view to prevent the increase in black money and to stop the tax evasion. Still the amount of Rs 20000 is very small in the present scenario considering the rate of inflation resulting in decrease in value of money and the rise in prices of various goods, which in turn also has enhanced the working capital needs of every businessman.Therefore the limits u/s 269SS and 269T also need to be raised similar to the increase in the audit limit u/s 44AB which has been done to benefit the small assessees in the current budget by the Finance minister.

Author: Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

Cell No 9815243335


29 Responses to “Income Tax – Provisions of Section 269SS & 269T”

  1. ashraf says:

    cash loans and advances taken problems as per indian income tax

  2. ashraf says:

    cash loans and advances taken problems as per indian income tax. ashraf.kdr7@gmail.com

  3. R.Karthikeyan says:

    Please anyone can clarify whether receipt of cash loan against mortgaging gold jewellery from Companies like Manappuram Gold Loans Pvt Limited and Muthoot Finance, etc in excess of Rs.20,000 is violation of section 269SS of the Income Tax Act. If so, what is the restrictions given under NBFC act. Since the lay men are not aware of the provision intrinsic provisions of this draconian penalty provision of income act, what is the restriction made for these kind of NBFC companies.

  4. Sravya says:

    To whom does the consequence of penalty gets attracted ie., whether to lender or the one who has taken loan?

  5. Amratlal L. Solanki says:

    Respected Sir,

    I the undersigned Mr. A.L. Solanki, Working in The Goa State co-op.Bank Ltd., Diu as a branch manager, we are facing same confusion of 269ss & 269T IT rule.

    our branch is collect Loan installment and Cash for Deposit in Banking business on Scheduled cooperative Bank.

    My question is sir that can co-operative bank can accept loan installment greater than 20000 under the IT rules 269ss and 269T because we are facing big problem to take amount less then 20000 in loan installment. Sir, please provide me some help and suggestion for this issue.
    A.L.Solanki

  6. sandeep agarwal says:

    sir i given Rs 1000000/ to my father than its also a case of section 269ss.

  7. CA KIRAN says:

    CAN PAYMENT BE MADE TO RETIRED PARTNER IN CASH EXCEEDING 20000?

  8. CA Rajiv Kumar says:

    Sir, We were given advances of Rs 21000/- to our employee as imperest for site expenses. Is this payment comes under abmit of 266ss/266t/ 40A.
    kindly reply asap.

    Regards,

    Rajiv

  9. CA Vinod Jain says:

    Dear Sir,
    Is sec 269ST applicable on advances given to employee in cash which is more then 20000/-.

  10. nitesh verma says:

    sir i took loan from mannaPURAM GOLD LOAN OF RS 15000 AND 10000 IN CASH .IS IT CASE OF THIS PROVISION OR NOT

  11. Arun says:

    Dear Sir
    Iam a trader of agricultural products and paid 100% cash to farmers as
    they dont accept cheques or DD’s. Is it ok paying cash as i have an IT problem
    can someone please help me on this regard

  12. Narayanan says:

    Dear Sir
    Can we deposit Excess of Rs.20000/- to our Creditors? please guide me as defined Income Tax Act in India

  13. A.k kumar says:

    what is the consequences upon a person giving loan(lend money)? Does a person(assessee) would be liable to any penalty if he give loan in cash more than 20000 on interest.
    Actually im a propieter of a firm (doing business of iron goods etc with VAT & PAN). I gave money (lend) from my books capital to some peoples(to 7-8) more than 20000 in cash on interest. thereafter in a case, borrower gave me repayment 250000 by account payee cheque , his cheque got dishounred with due to insufficient funds.thereafter lower court dismissed my complaint with judgement that a lender cannot give loan more than 20000 in cash. 2nd- lender donot have money lending license in haryana & punjab. If it is an offense ? do i have a benifit in appeal? which thing i can show to session judge in my favour?

  14. Abhishek Sharma says:

    What is the consequences upon a person giving loan. Does a person would be liable to any penalty if he give loan forgetting the consequences being faced by the person accepting that loan.

    Please reply
    slgabhi@gmail.com

  15. Roank says:

    is section 269SS applies to working capital loan taken by the company.

  16. S K Agrawal says:

    I have a live case where in I want to apply the decision of Madras high court by giving a loan of Rs. 5.0L in cash to my wife on a Sunday relying on the case “ITO v. T.R. Rangarajan [2005] 279 ITR 587 (Mad.)” above. I have downloaded the full text of the case and gone thru the same. This judgment was given by the Tribunal and upheld by the High Court. All my effort to get hold of a copy of the tribunal’s judgment has failed. May you please help me in finding it out. I will be extremely thankful to you for this assistance.
    S K Agrawal
    Kolkata
    saroj123@gmail.com

  17. abhishek pareek says:

    thanks sir 
    it was finely explained by you….

  18. amit pandey says:

    if a person gives loan of rs 500000/- in multiples of 20000/- in a single day. will it attract provision of sec 269 SS and 269 T

  19. chandini says:

    Hello this notes has given me a very good idea about this particular sections thanks a lot and lot

  20. Vinod Aggarwal says:

    Despite these restrictions how some gold loan companies are able to give loans in cash in excess of the prescribed limits. If anyone can through some light on it, please mail at several.login@gmail.com.

  21. k c ahuja says:

    I would like to know whether advance above 20000 made to farmers by Commission agents (Kacha aartia) which will be settled by sale of crop by the farmers attract provisions of sec 269 SS and 269 T and needs to be reported in tax audit reports.thanks

  22. jaykishan khatik says:

    if during the year repaid amount exceeds the loan taken now the depositer hav debit balance ,should we mantion in 3cd abt its deposit as unsecured or not ?

  23. S.N.CHAUDHARY says:

    if any ltd company sale the goods in cash Rs.500000 can we deposit in bank

  24. Mayank Jalan says:

    please guide me with the following problem.

    Suppose Xyz enterprise has taken Rs. 500000 loan in F.Y 2008-2009 and the same has been mentioned in form 3cd.
    My question is will the same be reflected in 3cd of 2009-2010 as no fresh loan has been taken in the current financial year 2009-2010 and the act says : Loan or deposit taken or accepted DURING THE PREVIOUS YEAR :

    Please guide me

    Thanks

  25. admin says:

    No. As the same will be treated as capital contribution

  26. varsha gupta says:

    If Partner has given a loan under section 269ss more than Rs 20,000 as on date,& the Firm pays him the amount in cash….Will sec 269T attract

  27. Sandeep Kumar Tandon says:

    Amount paid by firm to partners or vice versa- is payment to self and doesnot partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts( CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

  28. CA.M.Lakshmanan says:

    I remember to have read a decision of Tribunal in favour of the assessee regarding advances made by partners in cash in excess of Rs. 20,000/-. Whether any anybody can get the citation?

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