Acceptance / Repayment of Loan in Cash- Section 269SS/ 269T

Object:

The provision of 269SS and 269T has been enacted in order to prevent the increase in black money and to stop tax evasion. It ensures that the taxpayer does not give any false explanation for his unaccounted money.

Acceptance of Cash Deposits

Section 269SS provides that any loan or deposit shall not be taken or accepted by any person 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 Rs. 20,000 or more:

Thus it is clear that no person can accept any loan or deposit of Rs. 20,000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs. 20,000 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.

Repayment of Cash Deposits

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

(a) The amount of the loan or deposit together with interest is Rs 20000 or more, or

(b) 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.

Exemption:

As per proviso of section 269SS and section 269T, section is not applicable on any loan or deposit taken or accepted from:-

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 (1 of 1956) ;

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.

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, so taken or accepted, may be levied by the Joint commissioner.

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.

Let us try to understand the above mentioned provisions by way of following case studies. Answers to them are mentioned towards the end of the article .

Case studies on Section 269SS/269T:

In the following cases, whether section 269SS/269T will be attracted?

Case Study 1. Loan from Gabbar Singh

Date	Particulars	Amount	Date	Particulars	Amount
30/04/20	To Bank A/c	21,000	01/04/20 20/04/20	By Balance b/d By Cash A/c	19,000 2,000 21,000
		21,000
15/05/20	To Cash A/c	19,000	01/05/20	By Cash A/c	19,000
		19,000			19,000
03/06/20	To Cash A/c	25,000	01/06/20	By Bank A/c	25,000
		25,000			25,000
10/06/20	To Cash A/c	25,000	05/06/20	By Cash A/c	25,000
		25,000			25,000
20/06/20 30/06/20	To Bank A/c To Balance c/d	25,000 10,000	12/06/20 15/06/20	By Bank A/c By Cash A/c	25,000 10,000
		35,000			35,000
15/09/20	To Bank A/c	23,000	01/07/20 02/08/20 31/08/20 01/09/20	By Balance b/d By Cash A/c By Interest By Cash A/c	10,000 9,000 3,000 1,000
		23,000			23,000

Case study 2:

Mr. Santa has taken loan of Rs. 1,00,000/- in cash for the wedding of his daughter from Mr. Banta.

Case study 3:

Mr. Ram paid Rs. 5,00,000/- in cash against loan taken by his father after his death.

Case study 4:

Gold Safe Trading Company Ltd received Rs. 50,000/- in cash against share application.

Case study 5:

Haldiram Pvt Ltd received advance of Rs. 2,00,000/- from customer. However, subsequently, the deal could not be materialized and amount was refunded in cash.

Case study 6:

ABC & Co. is a partnership concern. Mr. A, who is partner of the firm, introduced capital by way of cash of Rs. 50,000/-.

Answers to case studies:

Case study 1:

Loan from Gabbar Singh

	Date	Particulars	Amount	Date	Particulars	Amount
√	30/04/20	To Bank A/c	21,000	01/04/20 20/04/20	By Balance b/d By Cash A/c	19,000 2,000 21,000	X
			21,000
√	15/05/20	To Cash A/c	19,000	01/05/20	By Cash A/c	19,000	√
			19,000			19,000
X	03/06/20	To Cash A/c	25,000	01/06/20	By Bank A/c	25,000
			25,000			25,000
X	10/06/20	To Cash A/c	25,000	05/06/20	By Cash A/c	25,000	X
			25,000			25,000
√	20/06/20 30/06/20	To Bank A/c To Balance c/d	25,000 10,000	12/06/20 15/06/20	By Bank A/c By Cash A/c	25,000 10,000	X
			35,000			35,000
√	15/09/20	To Bank A/c	23,000	01/07/20 02/08/20 31/08/20 01/09/20	By Balance b/d By Cash A/c By Interest By Cash A/c	10,000 9,000 3,000 1,000	√ X
			23,000			23,000

i) On 1^st April, 2020, the balance in Loan A/c from Gabbar Singh stands at Rs.19,000/-.On 20/04/20, further Rs. 2,000/- are taken in cash on the same loan Account, so it will attract 100% penalty. On 30th April, 2020, the loan is repaid by a cheque of Rs. 21,000/, which is correct and does not attract any penalty.

ii) Again on 1^st May, 2020, Rs. 19,000/- are taken on loan in cash and on 15^th May, 2020, it is repaid in cash. It is correct because the balance due in the Loan account is less than Rs. 20,000/- and hence it does not attract any penalty.

iii) On 1^st June, 2020, loan of Rs. 25,000/- is again taken through cheque. On 3^rd June, 2020, it is repaid in cash, which is not correct as it is against the provisions and so it will attract 100% penalty.

iv) On 5^th June, 2020, Loan of Rs. 25,000/- is again taken in cash. It will attract 100% penalty as it exceeds the permissible limit of Rs. 20,000/-. The same loan is repaid in cash on 10^th June, 2020, which will again attract 100% penalty due to the same reason.

v) Again on 12^th June, 2020, Rs. 25,000/- are taken on the same Loan A/c in cheque. On 15^th, June, 2020, Rs.10, 000/- are taken on loan in cash. This amount of Rs. 10,000/- will attract 100% penalty because the balance in the Loan Account is more than Rs. 20,000/-.

vi) On 20^th June, 2020, Rs. 25,000/- are repaid in cheque which is correct and does not attract any penalty.

vii) Rs. 9,000/- are taken on loan in cash on 1^st August, 2020. It is correct because the amount is less than Rs. 20,000/-. Rs. 3,000 are earned as interest which are credited to the Loan Account. On 1^st September, 2020 Rs. 1,000/- are taken on loan in cash. It will be against the provisions of section 269SS as the balance in the Loan Account is more than Rs. 20,000/- and hence it will attract 100% penalty. The balance due in the Loan Account of Rs. 23,000/- is repaid in cheque, which is correct and according to the provisions.

Case study 2:

Yes, the provisions of Section 269SS are applicable to every person taking or accepting any loan or deposit exceeding Rs.20000 whether it’s personal or not.

Case study 3:

Yes, the provisions of Section 269T are applicable to every person on repayment of any loan or deposit exceeding Rs.20000.

Case study 4:

The amount paid in support of an application of shares must be considered to be a deposit u/s 269SS till the allotment or refund of the money on rejection of the application.

Case study 5:

The provisions of section 269SS and 269T are applicable in case of loan or deposits and not in case of advance. Hence, the money relieved are outside the ambit of the section 269SS.

Special Considerations for Audit:

While reporting the details of loans and deposits in Tax Audit report, following points need to be considered:

(a) Details as per following format to be taken and verify the same:

Name & Address and PAN

Opening Balance

Amount Received

Amount Paid

Interest Credited

TDS Deduction

Closing Balance

Maximum Outstanding

(b) Squared –Up means Loans taken and repaid in the same assessment year.

(c) All Loans or Deposits are to be reported even if they are grouped under Debtors or creditors.

(d) Even if the loans are taken free of interest the information will still have to be given.

(e) Loans and deposits taken or accepted by means of transfer entries constitute acceptance of deposits or loans otherwise than by account payee cheques.

(f) Scrutinize Cash book to find out Loans or deposits taken or repaid in cash.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)