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 section 269SS and Section 269T of the Income Tax Act on the mode of taking / Paying  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 Section 269T of the Income Tax Act 1961.

Section 269SS of Income Tax Act, 1961

Section 269SS provides that any loan or deposit or any specified sum shall not be taken or accepted from any other person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account if,

Income Tax Provisions of Section 269SS and Section 269T

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

(b) on the date of taking or accepting such loan or deposit or any specified sum, any loan or deposit or any specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not) 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 or any specified sum of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft or use of electronic clearing system through a bank account . 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 specified sum, any loan or deposit any specified sum taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit any specified sum 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 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) 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 sectionin clause (45) of section 2 of the Companies Act, 2013
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

Note: For the purpose of this section specified amount 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

Consequences of contravention of section 269SS

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

Section 269T of Income Tax Act, 1961

Section 269T of Income Tax Act provides that any 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 not repay any loan or deposit 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 by use of electronic clearing system through a bank account, if

(a)  the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon is twenty thousand rupees or more, 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 is twenty thousand rupees or more, 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:

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 definedsection in clause (45) of section 2 of the Companies Act, 2013
(e) other notified insititutions
(f) 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

Consequenses of contravention of section 269T

Section 271E of Income Tax Act 1961 provides that 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. Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

Note: 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.

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

Section 269SS not applies to Loan transaction between husband & wife – Shri Sunil Kumar Sood Vs The JCIT (ITAT Delhi)

No Penalty for cash above Rs. 20000 from relatives due to Business Exigencies -Mr. Girishkumar Popatlal Vs JCIT (ITAT Ahmedabad)

Cash Transactions with Sister-in-Law & Nephew not amounts to Loan – Sri Jagmohan Sharma Vs. JCIT (ITAT Kolkata)

Section 269SS not applies to Cash Transaction between Close Family Members for giving support & help – Sri Nikhil Banik Mazumder Vs. JCIT (ITAT Kolkata)

Penalty not justified for loan received in cash and immediately refunded– ITO  Vs Mrs. Lakshmi Vishwanath (ITAT Delhi)

Penalty U/s. 271D for cash deposit with Reasonable cause from identifiable agriculturists not justified – Pr. CIT Vs Tehal Singh Khara & Sons (Punjab and Haryana High Court)

No Penalty on Return of loan by cash to sister concern under a bonafide belief – Global Realty Heritage Venture (Cochin) (P.) Ltd., Vs Addl. CIT (ITAT Delhi)

No penalty u/s 271D on cash loan taken more than Rs. 20,000 if it is routed through Bank  – CIT Vs Smt. Dimpal Yadav (Allahabad High Court)

Loans advanced by partner to firm does not fall in the purview of Sec 269SS– M/s Muthoot Financiers group firms Vs CIT (Delhi High Court)

Penalty u/s 271D & 271E cannot be levied on transaction entered through journal voucher –  Goldstar Electricals Pvt. Ltd. Vs ACIT (ITAT Mumbai)

Penalty cannot be levied on bonafide transaction with no intention to evade tax and where default was of technical nature – Chemfert Traders (Bombay) Pvt. Ltd. Vs ACIT (ITAT Mumbai)

Section 269SS not applies to loan between firm and partners – CIT Vs M/s Muthoot Financiers (Delhi High Court)

Sec. 269SS not violated in accepting share application money or deposit in cash – M/s Eqbal Inn & Hotels Ltd. Vs The JCIT (ITAT Chandigarh)

Section 269SS/ 269T not applies to book entries not involving cash transactions – CIT Vs M/S Saurabh Enterprises (Allahabad High Court)

Penalty u/s 271D cannot be levied for cash deposited in bank by company director for making urgent payments to suppliers – Makewell Inducto Cast Pvt. Ltd. Vs JCIT (ITAT Ahmedabad) –

Reimbursement of Expenses not covered by Section 269SS or 269T – ITO V/s. VS Hostel (Gujarat High Court)

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.

Read Other Articles from Advocate Amit Bajaj

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

(Republished With Amendments)

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55 Comments

  1. KAPIL CHAND says:

    monthly cash withdrawal by a director exceeding two lacs,against salary for meeting household expenses,whether provisions of section 269ST are attracted

  2. Jitendra S Bihani says:

    I had borrowed loan from family member living in joint family in cash. Was not aware about 269ss section. Both of us had disclosed the same in our respective ITRs before the scrutiny notice. I was genuinely unaware ant this law. What to do?

  3. CA RAJENDRA THAKKAR says:

    SIR, LET ME KNOW WHAT IS THE MEANING OF SPECIFIED SUM,U/S 269SS & 269T UNDER THE INCOME TAX ACT,1961. ABOUT RECEIPT AND PAYMENT . IN WHICH CONTEXT THIS TERM USED IN TAX AUDIT REPORT FORM 3CD.

  4. Rohit Kathotia says:

    I Have Automobile Finance Business and My Installments are received through Cash and Cheque.

    Will monthly Installment Received in cash come under the purview of 269ST , if they are received in different receipts on different days

  5. Rupin says:

    Petrol pump dealers can accept cash deposit of Rs. 1 lackh as business deposite or advance against future sales or any other way? 269SS applicable or not?

  6. bindu says:

    i have difficulty in question of loan trasaction above Rs.20000 by cash my question is if A Pvt Lted. co.Taken loan from B pvt.Ltd. co. 500000 dt 5-4-2016 & then after Rs.5000 received froM Same co. cash dt 30-4-2016 & then after cheq transction made between A & B Co. so Rs.5000 cash transaction is allowed or note as loan? reply me urgently

  7. TripleD says:

    Dear Sir,
    I want to know that, is there is any consequenses, if we take a loan in cash (8-10 lakhs)from relatives for using it in a proprietary business. Is it hit the sec. 269SS / 271D

    please give your valuable suggestions

    Thanks

  8. sidhani says:

    dear Sir

    i have taken loan from mannapuram gold loan of rs 500000 in cash.and trasfer the same to my friend through my bank a/c. does it will attract tax.

    1. ANUJ says:

      SIR I AM A REGISTERED MONEY LENDER UNDER UTTAR PRADESH MONEY LENDING REGULATION ACT 1976. WHAT IS THE MAXIMUM AMOUNT OF LOAN I CAN LEND AND RECEIVE ACCORDING TO INCOME TAX ACT.

  9. Ram Kumar says:

    I had taken cash loan of Rs. 19,500.00 approx. per day or alternate day from my friends in the FY 2012-13 Total loan amount in FY 12-13 is Rs. 18 Lacs , I used this money to do in my Transport Business. Now in have received a notice from Income Tax department for this
    Please advise how I should give reply to the notice.

    Reply

  10. Vijay says:

    I had taken cash loan of Rs. 300000 from my uncle (brother of my father) in financial year 2012-2013. I took this loan in different installments and deposited cash in my savings account. I used this money to do online trading in shares, and I lost the entire amount as loss. I also did not mention this amount in my Income Tax Returns. Now I have received a notice from income tax department for this.

    Please advise how I should give reply to the notice.

    Best regards

  11. Mitchell Shane says:

    Hello all,

    I am a private loan lender, i offer loan at 3% interest rate, this is a legitimate company with honor and difference we are ready to help you out in any financial problem that you are, we offer all types of loan so if you are interested in applying for a loan, kindly contact us now on our email: mitchell_shane010@hotmail.com

    Also provide the follow details so that we can proceed with the loan immediately.

    Full Name:
    Amount needed:
    Duration:
    country:
    Sex:
    Purpose of loan:
    Monthly income:
    Phone number:
    Have you applied before:

    Contact us with the above details on our email: mitchell_shane010@hotmail.com

    Regards to you all.

  12. P.VENKATESWARA RAO says:

    Sir,

    weather Advances given to employees in excess of rs.20,000/- i cash and reovered in monthly salary is attracted the provisions of income tax act?

  13. Darshan Panicker says:

    Sir I have doubt with exemption provisions. If it meant that only this mentioned category is exempted from reporting they could have stopped by specifying that “Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted by,—”
    However it says “Provided that 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,—”
    Based on the above comparison We could conclude that If any person has taken loan or deposited to the above mentioned exempted catergory they are not required to report these kind of loans.

  14. 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.

  15. 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

  16. 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

  17. 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

  18. 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?

  19. 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

  20. 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

  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. 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

  24. 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

  25. 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.)

  26. 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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