Combined overview of Section-269SS and Section-269T with Section-68 and Section-69

269SS
→  The purpose of introducing section-269SS and section-269T is to decrease skirting of tax as much as possible and to curb the black money. People are entering into number of transactions that are resulting into tax evasion, to control these transactions section-269SS and section-269T is introduced. Earlier, tax payer would escape by saying that he received the cash as loan or deposit from friends or relatives. Also, the persons with the intention of tax evasion would do false transactions by displaying payment and repayment of loans and deposits in cash just by books entries.
Title Section-269SS Section-269T
Provision →    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.

→    No branch of a banking company or a co-operative bank and no other company or cooperative 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 .

Exceptions →     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 saving 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.

→    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.

→    Provided further that nothing contained in this section shall apply to repayment of any loan or deposit or specified advance 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 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.

Example →    This section will be applicable in the following circumstances,

1.   Where a person accepts a two cash loan and/or deposit specified sum 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. 5,000.

3.   Where a person has taken a loan of Rs. 17,000 by cheque and he wants to take further a loan of Rs. 3,000 or Rs. 8,000.

→    This section will be applicable in the following circumstances,

1.   Where a person had borrowed Rs. 16,000 and now he/she/it repays it of Rs. 22,000.

Penalty →    Section-271D-a sum equal to the amount of the loan or deposit so accepted under section-269SS →    Section-271E- a sum equal to the amount of the loan or deposit so repaid under section-269T
Definition      i.    “banking company” means a company to which the provisions of 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 same meaning as assigned to it in Part of the Banking Regulation Act, 1949 (10 of 1949);

   iii.    “loan or deposit” means loan or deposit of money;

  iv.    “specified sum” 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.

   i.       “banking company” means a company to which the provisions of 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 same meaning as assigned to it in Part of the Banking Regulation Act, 1949 (10 of 1949);

iii.       “loan or deposit” means any loan 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;

iv.       “specified sum” 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.

 

  • Effect of Section-68 and Section-69 in respect of Section-269SS and Section-269T:-
Section-68-Cash Credit Section-69-Unexplained Investment
→    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 satisfactory, in the opinion of the Assessing Officer, 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

→    For example, bank account of Mr. Chandresh is a Credited by Rs 2,00,000/- and he is asked to explain it’s source. If the assessing officer is not satisfied by the explanation of Mr. Chandresh, then the assessing officer may make addition to the total income of the assessee.

→    Suppose, Mr. Kamal has purchased immovable property on 14/04/2019 for Rs 50,00,000. Now, Mr. Kamal’s case is selected for scrutiny assessment and he is asked submit details about source of such payments made. He submitted details as under,

Sr. No. Amount Source of Income
1 10,00,000 Proceeds from sale of old house.
2

 

20,00,000 Home Loan from ICICI Bank
3 15,00,000 Loan from Mr. Saurav by account payee cheque
4 4,00,000 Repayment of Loan in Cash earlier given to Mr. Lakshman 
5 1,00,000 Loan taken in Cash from Mr. Manoj

→    Here, source of income in first three transactions are very well acceptable by assessing officer. Fourth transaction will be considered as unexplained investment under Section-69 as here genuineness of the transaction cannot be proved. However, fifth transaction will be considered as violation of Section-269SS.

  • In the immense 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.

      For Example:-

  1. Tarun gives loan of Rs. 70,000 to Mr. Uday in cash.
  • Here Mr. Uday has violated Section-269SS by accepting borrowing of Rs. 20,000 or more in cash. Hence, he is liable to penalty under Section-271D of 100% of such borrowing, however Mr. Tarun will not be penalized.
  • In addition to that, if Mr. Uday is unable to prove genuineness of the transaction of loan received from Mr. Tarun by giving ledger confirmation, then assessing officer may make addition to the income under Section-68.

 

  1. Now Mr. Uday repays loan of Rs. 70,000 to Mr. Tarun in cash.
  • Here again Mr. Uday has violated Section-269T by repaying loan of Rs. 20,000 or more in cash. Hence, he is liable to pay penalty under Section-271E of 100% of such repayment of loan, however Mr. Tarun will not be panalized.
  • Here if Mr. Tarun or Mr. Uday fails to explain source of such loan/repayments made than they may be penalized under section-69.

 

  • However, in the case of CIT Vs. Standard Brands Ltd. (2006) 285 ITR 295 Delhi High Court, decision was given that the moment department contends that given amount is income, that means that said amount is neither loan nor deposit nor specified sum thus not qualifying to fall under the ambit of Section-269SS i.e. penalty is not leviable when in a case the Revenue takes the stand that the alleged deposit was undisclosed income of the assessee.

 

  • Amendment inserted in Finance Bill, 2015:-
Sr. No. Section-269SS/Section-271D Section-269T/Section-271E
1 Clause-66 to Finance Bill, 2015:-

→    It is also proposed to define “specified sum” as any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property whether or not the transfer materializes.

→    These amendments will take effect from 1st June, 2015.

Clause-67 to Finance Bill, 2015:-

→    It is further proposed to define “specified advance” as any sum of money received, as an advance or otherwise, in relation to transfer of an immovable property and becomes repayable if the negotiations do not result in transfer of such immovable property.

→    These amendments will take effect from 1st June, 2015.

2 Clause-69 to Finance Bill, 2015:-

→    It is proposed to amend section 271D of the Income-tax Act to provide that if a person accepts any loan or deposit or specified sum referred to in section 269SS in contravention of 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 sum so accepted.

→    This amendment will take effect from 1st June, 2015.

Clause-70 to Finance Bill, 2015:-

→    It is proposed to amend section 271 E of the Income-tax Act to provide 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.

→    This amendment will take effect from 1st June, 2015.

 Special Provisions:-

Sr. No. Situation Solution
1 Mr. Ram has borrowed money of Rs. 1,20,000 from Mr. Krishna for his son’s marriage. Provisions of Section-269SS are applicable to every person

whether it’s for personal use or business use.

2 Titan Company Ltd received Rs. 1,50,000 in cash against share application. The amount paid in for an application of shares must be considered to be a deposit under section-269SS till the allotment or refund of the money on rejection of the application.
3 Lakshman Company is a partnership concern. Mr. Suhas is partner of the firm, introduced capital by way of

cash of Rs. 50,000.

Provision of Section-269SS or Section-269T is not applicable for introduction of capital by partner.
4 Mr. Mohan paid Rs. 3,25,000 in cash against loan taken by his mother after his death. Provisions of Section-269T are applicable to every person on repayment of any loan or deposit of Rs.20,000 or more.
5 Is advance received from customer and repayment thereof covered under section-269SS or section-269T? No advance money received from customers and repayment thereof is out of the purview of Section-269SS and Section-269T.

 

  • There are number of litigations are going on for these two sections. Let’s take a tour on it,
Sr. No. Case Law Issue Decision
1 Mr. Girishkumar Popatlal Vs JCIT (ITAT Ahmedabad) Is penalty can be levied on cash received more than Rs. 20,000 from relative in cash of urgent business need? The 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. No penalty can be levied.
2 Sri Nikhil Banik Mazumder Vs. JCIT (ITAT Kolkata) Is Section-269SS is applicable for cash transaction to support and help to family members? 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.
3 V. Idhayam Publications

Ltd., (2006) 285 ITR 221 (Mad)

Are current account transactions between sister concerns or 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.
4 Commissioner

Of Income-Tax vs Noida Toll Bridge Co. Ltd. (2003) 184 CTR Del 266

Are the provisions of above section applying 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 were ultimately paid through account payee cheque.
5 CIT Vs. Sunil Kumar Goel, (2009) 315 ITR 163 (P&H) When transactions are bonafide, disclosed in the books of accounts and even made in cash, attracts penalty under Section-271D or Section-271E? 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.
6 CIT Vs. Standard Brands Ltd. (2006) 285 ITR 295 When the loan or deposit is treated as the undisclosed income of the assessee, can penalty be imposed on the same transactions? 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.
7 CIT Delhi IV Vs. I P India Pvt. Ltd. 2011-TIOL-811-HC-DELIT Is receipt of share application money in cash amounts to violation of Section-269SS? 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. 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.
8 M/s

Muthoot Financiers group firms Vs CIT (Delhi High Court)

Are loans advanced by partner to firm fall in the purview of Section- 269SS? Loans advanced by partner to firm does not fall in the purview of Section-269SS.
9 ITO V/s. VS Hostel

(Gujarat High Court)

Is reimbursement of expenses covered under Section-269SS or Section-269T? Reimbursement of Expenses is not covered by Section-269SS or Section-269T.
10 Arkit Vincom (P) Ltd. Vs ACIT (ITAT Kolkata) Can penalty be imposed under Section-271E on conversion of loan into Equity Share Capital? No Penalty U/s. 271E can be imposed on conversion of the loan into Equity Share Capital.
  • Thus, it is advised to take proper care while accepting or repaying of loan. Because just one mistake can lead to hardship of penalty to the assessee. It is highly recommending to consult with your Chartered Accountant before entering into such type of transaction.

 

  • Auditor Section:-
  • Clause No.-31 of Form No.-3CD requires to give details about transactions entered into during previous year under Section-269SS and Section-269T.

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