Introduction :- There are very few things in this world which are both “Legal” & “Lethal”. TAX is one of them. If tax provisions are not understood properly or tax is not paid in proper time, it is enough to give you hypertension. Moreover it is important to know what are the sections that affect your daily transactions and how these transactions are dealt with in Assessment proceedings. Hence it is very important to have some elementary knowledge of such Tax Provisions.
Section 269SS of the Income Tax Act,1961
The aim of introducing this section is to reduce evasion of tax as much as possible, as the title of Chapter in which it is being classified under the Income Tax Act is “Requirement as to mode of Acceptance, Payment or Repayment in certain cases to counteract Evasion of Tax”.
i. 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, 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.
ii. 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,
(b) Any banking company, post office saving bank or cooperative 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
(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
For E.g Diya gave loan of Rs 25,000/- to Binal in cash during the financial year and in the books of Binal Diya was shown under the head Unsecured loan at Rs 10,000/-. Then it is out and out violation of section 269SS, according to condition (1) of the section. In this instance case if Diya would have given a loan of only Rs 10,000/- during the year then also Binal has violated the provisions of this section as the aggregate amount works out to be Rs 20,000/-[(10,000/-taken during the year and 10,000/- outstanding balance)].
Here one should take note of the fact that the outstanding balance accepted in earlier years may or may not be in cash. Thus Binal could have received Rs 10,000/- of outstanding balance in earlier years in cash or by cheque, therefore if outstanding bal. of Rs 10,000/- was received through cheque than as aggregate amount being 20,000/- it is a violation of this section. But the penalty will be levied on the loan taken in cash only i.e. Rs 10,000/-.
One interesting feature of this section is that…
Section 269Tof the Income Tax Act,1961
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 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.
Nothing contained in this provision shall apply, 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—
(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
(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.
For Eg. In the books of A, B is shown under the head unsecured loan at 30,000. Now during the financial year
Violation of Section 269SS & 269T
A consequence of violation of any provision of the section is a consequent penalty.
It is based on expenditure. One needs to justify the expenditure one made on the basis of income earned OR other related transactions.
E.g. Shalini has purchased immovable property “XYZ” on 01.05.2017 for Rs 70,00,000/-. Shalini’s case is selected for scrutiny assessment for A.Y. 2018-19 i.e. F.Y. 2017-18 and therein she is asked submit the details of immovable property acquired during the year, thus Shalini will provide details regarding property “XYZ”. During the course of further assessment proceedings she is asked to submit the details of payment made for the property and source of such payments made. She submitted as under:
Nature of expense
Explanation given by her
|20.08.2017||10,00,000||Towards Purchase||Proceeds from sale of shares.|
|28.08.2017||29,00,000||Towards Purchase||Loan from HDFC|
|02.09.2017||29,00,000||Towards Purchase||Interest free loan of Rs 27,00,000 from A .|
|10.09.2017||2,00,000||Towards legal, registration and stamp charges||Repayment of loan, given earlier, from B amounting to Rs 1,60,000 and Loan of Rs 40,000 taken from C in cash.|
Thus from the above we can see that Shalini is able to justify the first two transaction completely while for the transaction dated 02.09.2017 she is able to explain source to the extent of 27,00,00/-only that to subject to loan confirmation from A, for remaining 2,00,000 she has no receipt to explain such expenditure. Further for transaction dated 10.09.2017 she is able to explain full 2,00,000 but the amount of 40,000 is not tenable in view of section 269SS, also amount of 1,60,000 is subject to loan confirmation from C. Thus 2,00,000 is considered as unexplained investment and 40,000 is violation of section 269SS.
Section 68: Cash Credit
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :
Moreover that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
So when there is a credit entry in one’s books of account and he/she/it is not able to explain that it pertains to what, then that amount is added to the income of the assessee of that year. It is based on income.
E.g. In bank account of Q there is a deposit of Rs 2,00,000/- and he is asked to explain the same i.e. what is it’s source. If the AO is not satisfied by the explanation given by Q, then the AO will make addition to the total income of the assessee.
|Total Income as per Return of income:||Rs 5,00,000|
|+ Addition u/s 68 (as discussed above):||Rs 2,00,000|
|Total assessed income||Rs 7,00,000|
|Tax calculated on 7,00,000||Rs 70,000|
|– Prepaid taxes (I.e. on 5,00,00)||Rs 30,000|
|Demand (additional tax to be paid)||Rs 40,000|
In the vast subject of Income Tax, one section always leads to another directly or indirectly. In this case, there is no direct reference of one section in the other but logical relationship can be derived between sections 269SS, 269T, 68 and 69.
E.g. A gives loan to B amounting to Rs 50,000 in cash. Now,
A ——————–→ B
B has violated section 269SS and therefore he is liable for penalty proceedings u/s 271D.
But B need not to pay any tax on 50,000/- until *
*the AO makes addition of this amount u/s 68. If B is not able to prove the genuineness of the transaction that the said loan is received from A (confirmation of accounts from A) only and it’s not any dummy explanation then the AO will add 50,000 to the income of B. Now in such a case there is a two way effect i.e. Penalty u/s 271D of Rs 50,000 and Tax payment on Rs 50,000 due to addition u/s 68.
More or less same will be the case for violation of Section 269T and thus consequent penalty u/s 271E and tax payment due to addition u/s 69.
Conclusion :- Thus it is required to take care while accepting loans from others and repaying the same. Be careful in depositing cash and withdrawing cash in or in excess of Rs 20,000/-.
Below are few of the Recent Rulings:
Mr. Girishkumar Popatlal Vs JCIT (ITAT Ahmedabad)
The ld. counsel vehemently stated that the legislative intent in prohibiting the acceptance and repayment of money in cash over and above Rs. 20,000/- is to check the unaccounted money and not to hit the genuine business need
Shri Shyam Sunder Vs. Sohan Singh @ Shoban Singh (Delhi High Court)
Sections 269SS and 269T do make it compulsory for persons who accept loan or deposits of about Rs. 20,000/- to accept them only through proper banking channels. The consequence of not doing so could fasten the parties with penalties under the Income Tax Act, 1961 which the Court is not concerned with in these proceedings. The Plaintiff and the Defendant could be in violation of the said provisions which would be gone into by the Income Tax Authorities. Authorities are free to take action against the parties for violation of the provisions of the said Act.
Sri Jagmohan Sharma Vs. JCIT (ITAT Kolkata)
The transactions between these family members are neither loans nor deposit and purely a family system and purely a family requirement to help each other in the needy hours, for example medical help, education help and expenses to run the family. That is, one member of the family helps to other member in the needy hours, such as during medical treatment, education, marriage or some other family needs. Therefore, respectfully following the judgment of the Coordinate Bench, we are of the view that transaction between Sister-in-law and Nephew (family members) did not fall in the definition of loan. Therefore, penalty for accepting loan and repaying loan u/s 271D and 271E should not be levied.
Sri Nikhil Banik Mazumder Vs. JCIT (ITAT Kolkata)
To support the family members, the money has been given by the assessee to his son/wife. This is simply a transfer of money from one family member to another family member to support day to day expenses, educational expenses and other family expenses. Going through the facts of case before us, we are of the view that the transaction between son and father and wife and husband, for giving a support and help, in law,is not a loan or deposit in stricter sense of section 269SS of the Act and it is only a financial support, therefore, penalty imposed by the Assessing Officer and confirmed by the ld CIT(A) needs to be deleted, and accordingly we quash both the penalty orders, i.e, under section 269SS and 269T of the Income Tax Act.
Pr. CIT Vs Tehal Singh Khara & Sons (Punjab and Haryana High Court)
Penalty under section 271D of Income Tax Act, 1961 not justified for Contravention of section 269SS if assessee had given reasonable cause for entering into the cash transactions, as creditors from whom the cash was received and repaid were identifiable agriculturists and there was confirmation of the money having been deposited and returned.
Shri Sunil Kumar Sood Vs The JCIT (ITAT Delhi)
Various benches of the Tribunal are holding that transaction of loan between husband and wife does not attract the provisions of section 269SS of the Act. The Kolkata Bench of the Tribunal in the case of Tuhinara Begum Hoogly Vs. JCIT Range 2, Hoogly ITA No. 2256/Kol/2014 order dated 04.10.2017 under somewhat similar circumstances cancelled the penalty levied u/s 271 D of the Act.
Since in the present case also the assessee had taken the loan from his wife for the purchase of house which is for the benefit of the whole family, therefore, following the decision cited [supra], we hold that penalty levied u/s 271D of the Act in the instant case is not justified. We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to cancel the penalty so levied.
The Commissioner Of Income Tax Vs. M/s Al-Ameen Educational Trust
Tribunal erred egregiously in deleting the penalty levied under Section 271D, on the facts disclosed and cause shown, which approach and conclusions are perverse. The assessee failed to discharge its burden in proving that there was a reasonable cause in accepting the deposits from staff members other than by way of cheque or draft. The Tribunal failed to appreciate the import of Section 271D in the correct perspective.
ITO Vs Mrs. Lakshmi Vishwanath (ITAT Delhi)
In this case, the A.O. merely initiated penalty proceedings separately for violation of Section 269SS of the I.T. Act. He did not record any satisfaction under section 271D of the I.T. Act before initiating the penalty proceedings under section 271D of the I.T. Act. Further, the explanation of assessee on merit clearly suggest that assessee had a “reasonable cause” for violation to comply with the provisions of Law because no cash given directly to assessee but deposited at Shilong Branch over which assessee did not have any control. The assessee immediately acted on the matter and refunded the amount in question. The finding of fact recorded by Ld. CIT(A) have not been disputed through any evidence or material on record. Therefore, considering the issue in the light of “reasonable cause” under section 273B of I.T. Act, for failure to comply with the provisions of Law, no penalty is leviable in the matter.
CIT Vs. Sunil Sugar Co. (Allahabad High Court)
TAT maintained the order of the Commissioner (Appeals) holding that the provisions of section 269-SS of the Act is to unearth unaccounted money and is not applicable if the transactions are transparent and inter se the sister concerns.
Principal Commissioner of Income Tax (Central)-2 Vs Mahesh Wood Products Pvt. Ltd. (Delhi High Court) –
Delhi High Court rules in favour of the assessee- time limitation for “initiation” of penalty proceedings Under Section 275 on issues unrelated to assessment of income (such as for s. 269SS/ 269T & TDS defaults) runs from the date on which the AO wrote a letter recommending the issuance of the Show Cause Notice to the ACIT, and not from the date mentioned in the Show Cause Notice. Thus, orders are illegal, being barred by time limitation. ITA No. 786/2016 order dated 05.05.2017.
(Author is CA Final Student from Vadodara)
(Republished With Amendments)