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provisions-of-section-269ss-269tt-under-income-tax-act-1961

 

Provisions of Section 269SS & 269T

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Every business man required more money to grow their business. His own capital is not always sufficient to run their business, he want to take loan or deposits from other persons i.e. friends or relatives etc. But under income tax act, there has been imposed certain restrictions to take loan or deposits and their repayment in cash.

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,
  1. The amount of such loan or deposit or the aggregate amount of such loan and deposit, is Rs. 20,000 or more,
    OR
  2. 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, is Rs. 20,000 or more,
    OR
  3. The total amount arrived at, by adding the loan accepted during the year or outstanding balance is more than 20,000.
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.

Example1.
If Mr. X has a credit balance of Mr. Naveen Rs 15,000 on account of loan. Now Mr. X wants to take another loan of Rs. 10,000 during the year. But in this case he cannot take a loan of more than 4,999/- except with an account payee cheque or account payee bank Draft otherwise section 269SS will apply.
 
Exemptions from section 269SS- The Following persons are exempted from the purview of section 269SS–
  • The Government ;
  • Any banking company, post office savings bank or co-operative bank ;
  • Any corporation established by a Central, State or Provincial Act ;
  • Any Government company as defined in the Companies Act;
  • 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.
  • 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, 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.

Penalty on contravention of Section 269SS- 100% of the loan or deposit amount.
Example1.
If a person has taken a loan from X of Rs. 15,000 in 1st year through cheque, the amount is still outstanding and 2nd year he has also taken cash of Rs. 10,000, will attract section 269SS or will be levied penalty under section 271D?
 Answer-
Yes, It will attract section 269SS and imposed penalty under section 271D, there is no excuse that he has received Rs. 15,000 through cheque in previous year.

Example 2.
If a person has taken a loan from Mr. Y of Rs. 15,000 in cash, once again he has received cash of Rs. 5,000 during the year, will attract section 269SS or will be levied penalty under section 271D?
Answer-
Yes, It will attract section 269SS and imposed penalty under section 271D, because the amount of loan is 20,000.

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
  • The amount of the loan or deposit together with interest is Rs 20000 or more
    OR
  • 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 20,000 or more.
For Example-
If Ramesh is having loan of Rs 28,000 outstanding to Vanshika. Then Ramesh cannot repay such loan in cash to Vanshika.
 
Exemptions from section 269T- The Following persons are exempted from the purview of section 269T–
  • The Government ;
  • Any banking company, post office savings bank or co-operative bank ;
  • Any corporation established by a Central, State or Provincial Act ;
  • Any Government company as defined in the Companies Act;
  • Other Notified Institutions

Consequences of contravention of section 269T- Section 271E of Income Tax Act 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.

Penalty on contravention of Section 269T- 100% of the loan or deposit amount.
 Example-
If a person take loan of Rs. 20,000 by cash and pay Rs. 23,000 (Principal 20,000 + Interest 3,000), what will be the penalty under section 271D or 271E?

ANSWER:-

Penalty under section 271D will be Rs. 20,000 and under section 271E will be Rs. 23,000.


No Penalty to be levied u/s 271D or 271E, if there is reasonable cause- 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.-
  • Repayment or receipt of amount to partner- If a partner introduce capital in cash in the firm or withdraws the same in excess of Rs 20,000, then Provisions of section 269SS or 269T shall not be attracted as it is not considered loans or deposits. 
  • Acceptance or repayment through Journal entry do not attract section 269SS or 269T- Acceptance 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, does not attract penalty u/s 271D- held in (Mrs Rupali R. Desai v. ACIT 88 ITD 76)(Mum.) & (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. 
  • 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. 20,000 by way of bank voucher instead of a/c payee cheque or draft does not attract penalty u/s 271D as the transaction are through banking channels held in (Asst. CIT v. Jag Vijay Auto Finance (p) Ltd.[2000] 68 TTJ (Jp) 44) 
  • 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 (Bajaj Traders v. DCIT[2001]73TTJ (Pune)246) 
 
See the related post : How to E-file Income Tax Return



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