• Jul
  • 08
  • 2012

All about Section 269SS & 269T of Income Tax Act,1961

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CA Rajender Handa

Section 269SS

No Person shall, take or accept from any other person (herein after called “depositor)any loans or deposits otherwise than by an account payee cheque or account payee draft if:-

(a)    The amount of such loan or the aggregate amount of such loan and deposit, is Rs.20,000/- or more, or

(b)   On the date of taking or accepting such loan or deposit, any loan or deposit accepted earlier by such person from the depositor is remaining unpaid is Rs.20,000/-  or more

(c)    The aggregate of the amount of loan or deposit to be taken and the amount of loan or deposit taken earlier which is outstanding on the date on which loan or deposit  is to be taken is Rs.20,000/- or more.

The provisions of this section shall not apply to any loan or deposit taken or accepted from or any loan or deposit taken or accepted by,

(i)                  Government

(ii)                Any banking company, post office saving bank or cooperative bank

(iii)               Any corporation established by a central, state or provincial act.

(iv)              Any government company

Provided further that provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and none of them has any income chargeable to tax under the income tax act.

Analysis

This section gets applicable in following situation as per clause a, b and c

  1. Where a person accepts a two cash loan and/or deposit of Rs.10,000 each from a single person
  2. Where a person has taken a loan of Rs.20,000 by cheque and he wants to take another loan from the same person, say for Rs.3000.
  3. Where a person has taken a loan of Rs.14000 by cheque and he wants to take further a loan of Rs.6000 or 8000

The second proviso to this section shall not be applicable in case the either lender or borrower have any income other than agriculture income i.e. if either lender or borrower have any income chargeable under head income from other sources (either PGBP/Capital gain/other sources) than this section shall not be applicable.

Explanation.—For the purposes of this section,—

6[(i) "banking company" means a company to which 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 meaning 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.

Section 269T

No branch of a banking company or cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee draft drawn in the name of the person who has made the loan or deposit if-

(a)    The amount of the loan or deposit  together with interest payable thereon is Rs.20,000 or more or

(b)   The aggregate amount of the loan or deposits held by such person with the branch of a banking company or cooperative bank of other company or cooperative society or firm or other person, either in his own name or jointly with any other person on the date of such repayment together with interest if any payable on such loan or deposit is Rs.20,000/- or more.

Nothing contained in this section shall apply to repayment of any loan or deposit 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.

Explaination:-    Loan or Deposit means any loans 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.

Analysis

In the second clause Where if assessee made a fixed deposit with  the bank for Rs.18000/- and after one year the bank has to repay RS.21000/- , then the bank cannot pay such amount in cash.

Penalty

If any of the above provisions are violated then the penalty shall be equal to the amount of loan or deposit taken or accepted or repaid.

Issues on 269SS and 269T

1. Whether current account transactions between sister concerns or related parties(Directors) amounts to violation of section 269SS and 269T

Any payments or repayments made pursuant to current account maintained between parties cannot be considered as violation of 269SS and 269T CIT V. Idhayam Publications Ltd., (2006) 285 ITR 221 (Mad)

In this case there was a current account in the books of the assessee in the name of the one of the directors who used to pay money into the current account and also withdraw money from the same. The department treated these payments and withdrawals as violation of section 269T as they were made in cash. Disapproving the action of the department the High court has held that “the deposit and withdrawal of money from the current account could not be considered as a loan or advance. Accordingly the order of the tribunal by which the penalty was cancelled was affirmed.

Similar view taken by ITAT Bench, B, Banglore in the case of M/s CANARA HOUSING DEVELOPMENT CO. Vs. ACIT ITA No.1425/Bang/2008.

2. Whether the provisions of above section applies to payments or receipt by way of journal entries.

                Provisions of section 269SS and 269T are not applicable in case where there are journal entries and payment was ultimately paid through account payee cheque. Commissioner Of Income-Tax vs Noida Toll Bridge Co. Ltd. (2003) 184 CTR Del 266.  Further  acknowledgement of debt by the assessee company by passing a journal entry in the books of accounts would not come within the ambit of the words “loans or deposits of money” as mentioned in Section 269 SS., Sunflower Builders Pvt. Ltd. 61 ITD 227, V.N. Parekh securities Pvt. Ltd. (ITA No.3316 & 3317/Mum/2004)

3. Whether when transactions are bonafide, disclosed in the books of accounts and even made in cash, attracts penalty u/s 271E/271D

In the case of Narsingh Ram Kishor Kumar Vs. Union of India and Others a reference has been made to the explanatory notes of finance act, 1984 by which section 269ss was inserted. It was interalia mentioned that unaccounted cash found during search and seizure operations is often explained by tax payers as representing loans or deposits from various persons. With a view to countering this devise a new section has been inserted debarring the person from taking or accepting loans or deposits otherwise than by account payee cheque or demand draft. Hence where the transactions entered in cash are genuine and reasonable cause, as required u/s 273B, is shown penalty u/s 271E/271D is not called for.

In the case of CIT Vs. Sunil Kumar Goel, (2009) 315 ITR 163 (P&H) it has been mentioned that under section 273B, the assessee is permitted to show cause and tender explanation. The explanation of the assessee was found to be bona fide by the tribunal  and it was also held that it was not aimed at avoiding any tax liability. The genuineness of the transaction was accepted.

In the case of CIT Vs. Balaji Traders (2008) 303 ITR 312 (Mad) it has been held that deletion of penalty was justified in a case where:- (i) creditors are genuine and transactions not doubted (ii) there is no revenue loss to the exchequer, and (iii) there is business exigency forcing the assessee to take cash loan. In the case of Omec Engineers Vs. CIT (2007) 294 ITR 599, it was held that where there is no finding that transactions were not genuine and there is no malafide intention, the penalty could not be sustained in law. In the case of Maheshwari Nirman Udyog (2008) 302 ITR 201, it has been held that where a reasonable explanation is furnished, levy of penalty u/s 271D is not justified.

4.            Whether when the loan or deposit is treated as the undisclosed income of the assessee, penalty can be imposed on the same transactions:-

                In the case of CIT Vs. Standard Brands Ltd. (2006) 285 ITR 295, it has been held that where deposit received in cash has been treated as undisclosed income in the hands of the assessee, no substantial question of law arises from the order of Tribunal wherein penalty u/s 271D is deleted.

5. Meaning of loan or deposit

                In the case of Baidyanath Plastic Industries (P) Ltd. 230 ITR 522.

In case of Loan it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement.

However in the case of deposit it is generally the duty of the creditors to seek the depositee and make a demand for it.

While Articles 19 and 21 of the Limitation Act fix the period within which a suit for recovery of a loan can be filed which is three year from date of borrowing, Article 22 deals with the period of limitation for suits for money on account of deposit which is three years from the date demand is made by the depositor.

6. whether receipt of share application money in cash amounts to violation of section 269SS

No, share application money in case is neither a loan nor a deposit as duly held by the Delhi High Court in the Case of CIT Delhi IV Vs. I P India Pvt. Ltd. 2011-TIOL-811-HC-DEL-IT observing that “the receipt of share application monies from the three private limited companies for allotment of shares in the assessee-company cannot be treated as receipt of loan or deposit. Reliance was placed on the decision of Director of Income Tax (Exemption) vs ACME  Educational Society wherein it was held that a loan grants temporary use of money, or temporary accommodation, and that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it has been made, on fulfillment of certain conditions”

However the transaction should be bonafide and shares should have issued or otherwise if the shares have not been issued and money is repaid the intention of receiving the money as share application money should be clear which can be established by showing that authorized capital has been increased or later on shares has been issued.

7 . Whether receipt and payment of Partners Capital by partnership firm amounts to violation of section 269SS and 269T.

                No, Says the Ahemdabad Income Tax Appellate Tribunal in the Case of ITO, Ward 2(1) vs. Universal Associates, 2011-TIOL-498-ITAT-AHM, as partners capital is neither a loan nor a deposit.

8.  Whether advance received for sale of goods paid in cash amounts to violation of section 269T

                Yes, Says the Allahabad High court in the case of Chaubhey Overseas Corporation Vs. CIT  [2008] 303 ITR 9 (ALL). Trade deposits are included in the definition of Deposit.

9.  Whether Payments made on behalf of lender considered as repayment of loan by the assessee fall within the purview of Section 269SS and 269T

                As the repayment will be made in these cases through journal entries provision of section 269SS and 26T will not be applicable, as discussed above in point no. 2

10. Disclosure in Auditor’s Report under Tax Audit

                Auditor’s are required to disclose the payment of a loan or deposit along with Interest Rs.20000 or more. (Guidance note on Tax Audit issued by ICAI)


15 Responses to “All about Section 269SS & 269T of Income Tax Act,1961”

  1. pawan gauttam says:

    Sir,

    If Interest on unsecured loan is credited, should we show in 269ss in audit report

  2. pankul gupta says:

    Is there any need to report if amount of loan taken by way of account payee cheque exceeds rs 20000/-, in 3cd and why ??

  3. Nandini says:

    A Company made repayment of hand loan of Rs.100000 to an Individual. How Section 269ss and 269t applies.Should we disallow this expenses as per section 40A [expenses made in cash in excess of Rs.20000].

  4. CA Neha Goel says:

    The following transaction took place between A & B. A made some cash expenses on behalf of B (e.g.Rs.100000/-). Now B treats this as a loan and repays the amount to A at a later date through an account payee cheque. Is there any violation of Sec 269SS & 269T?

  5. habib says:

    Whether payment of salary advance to employee attracts section 269ss?

  6. ketan says:

    Out of Loan of Director in Company if Life Insurance premium / Personal Expenses etc are paid would it amount to violation of 269T? if not what shelter we can take.

  7. SANJAY KUMAR says:

    SIR

    PARTNERSHIP FIRM OPEN O/D ACCOUNT AGAINST THE SECURITY OF FIXED DEPOSIT AND WITHDRAW MONEY FOR INDIVIDUAL PARTNERS. THAT MONEY THEY PURCHASE PROPERTY FOR PERSONEL NAMES. BANK CHARGE INTEREST. CAN THIS EXPENSES IS FIRM EXPENSES OR PERSONNEL EXPENSES.

  8. Puneet Malhotra says:

    If there is a payment of Rs 25,000 of security deposit by way of issuing a credit note, is it allowed as per section 269T??

  9. varun says:

    if person takes rs. 18000 in cash and repaid the same during the year and account is nil if he takes more 19000 in cash and repay the same in the same year.

    does 269s & 269 t applies.

  10. prashant tiwari says:

    sir thank you for guidance regarding this provisions.
    i want to ask you question that if there is only transfer entry i.e. first Debited than credited to the same account. it will attract this provision or not ? if there is only deduction of TDS and not payment of interest and other transactions for repayment will the repayment include this TDS amount ?

  11. Vinod Aggarwal says:

    Both sections imposes a restriction on borrower only, either it is taking loan or repaying it. What about the lender. If he gives loan in cash, will he also be liable under the provisions or it is only the borrower. Can anyone clarify??

  12. JACKY GOYAL says:

    I HAVE UNDERSTOOD THE PRIVISION OF 269SS,269T BUT I WANT TO CONFIRM THAT, IN 3CD REPORT HOW TO I MENTION THIS IN 3CD REPORT IF OUSATANDING AMOUT IS 20000 OR MORE AND THIS YEAR REPAYMENT IS 5000 BY CHEQUE .

    PLEASE REPLY ME THAT THIS TRANSACTION SOULS BE DISCLOSED IN 3CD OR NOT…

    FROM JACKY GOYAL

  13. CA.S.Vignesh says:

    Section 269SS attracted when Loan amount touches Rs.20000/-.  Hence, even the interest is not credited to the account section applies. 

  14. Rajender Handa says:

    As per section 269T if loan amount outstanding including interest payable thereon is twenty thousand rupees then the same attracts penal provision if payment is made in cash even for Rs.2000. in Your case according to my understanding it does not make any difference if u directly pay the interest without crediting the same in his account.

  15. CA. M, Lakshmanan says:

    Loan of Rs. 20,000/- is outstanding in the books of M/s/ A&Co.,(partnership firm). If interest of Rs. 2,000/- is credited to this account and paid penal provisions are applicable. If the same is paid directly without crediting the same in the books of account whether A&Co., can escape from penalty proceedings? 

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