Loans or Deposits under Sec 269SS of Income Tax Act, 1961

Sec 269SS under Income Tax Act has been reproduced as follows

[Mode of taking or accepting certain loans, deposits and specified sum]

269SS. 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:

Provided that 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)  the 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 (18 of 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.

Explanation.—For the purposes of this section,—

(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 V 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.]

Please note Advance in cash for Property Covered by Section 269SS & 269T wef 01.06.2015 and details can be checked at the following link :-

 

What does Sec 269SS says?

Analysis:

No person shall accept any loan or deposit in a single day from another person in any form other than account payee cheque or bank draft, if aggregate amount involved is more than Rs 20,000.

♠ This provision has come into force to counteract the evasion of tax by mode of acceptance of money in certain cases. The objective is to prevent transactions in currency thereby allowing account payee cheque and bank draft for allowable transactions.

♠ The non violation of this provision shall attract penalty under Sec 271D equals to amount accepted, on the person accepting such loan or deposit in cash above the prescribed limit. The responsibility to comply with this provision is on the acceptor of such money.

e.g. – Mr A is running his proprietorship concern & has accepted Rs 50,000 from Mr B as deposit on 1.4.2015 in cash. Since, Mr A is acceptor in the above case, he shall be penalised under Sec 271D for Rs 50,000 because he accepted above Rs 20,000 in a day as deposit in cash.

♠ The aggregate amount means total money received on the day including earlier unpaid amounts. To verify the compliance of this provision, total amount received on the day shall be taken irrespective of the nature of the transaction.

e.g. – Mr A received Rs 40,000 in cash on 1.4.2015 as deposit amount from Mr B out of which Rs 15,000 belongs to the same day whereas Rs 25,000 belongs to earlier unpaid deposits.

In such case, aggregate amount shall be taken i.e., Rs 40,000 to verify the compliance of this Section. Therefore, penalty of Rs 40,000 shall be attracted under Sec 271D on Mr A.

♠ ‘In a single day’ means all the transactions of the day from same person shall be clubbed to verify the limit of Rs 20,000.

e.g. – Mr A received Rs 1,00,000 from Mr B in cash in 5 instalments of Rs 20,000 in single day as on 01.04.2015 as deposit. In such case, all the transactions shall be clubbed from same person. Whether every transaction has not crossed the limit of Rs 20,000 or not has no relevance. The total amount shall be taken i.e. Rs 1,00,000 and therefore penalty of Rs 1,00,000 shall be attracted to Mr A for accepting more than Rs 20,000 in cash as deposit in a single day from same person.

♠ If the total amount accepted in cash as deposit is above Rs 20,000 then the whole amount shall be penalised.

e.g.  – Mr A received Rs 25,000 from Mr B in cash as deposit as on 01.04.2015.

In such case, Mr A has accepted deposits in cash more than the prescribed limit of Rs 20,000. He shall be penalised for whole of Rs 25,000 accepted and not only Rs 5,000 over and above the limit prescribed. Exemptions:

1. If any of the two persons involved in the transaction i.e. receiver and payer is:-

– 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

– other institutions as notified,

then above provisions shall not be applied.

2. If both of the above referred persons is having Agricultural Income and there is no tax calculated under the Income Tax Act, above stated provisions shall not be applied.

– The existence of agricultural income of both the persons is necessary.

– The person may have other income under the Act but there should not be any tax liability after computation of Income allowing deductions & exemptions.

 

Various Judgements for better understanding of the concept:

Section 269SS does not apply to non-monetary book entry transactions of loans and advances.  CIT v Noida Toll Bridge Co. Ltd 262 ITR 260 and CIT v Worldwide Township Projects Ltd (2014) 106 DTR (Del) 139 followed Analysis: – The ambit of Sec 269SS is clearly restricted to transactions involving acceptance of money and there is no intention to affect cases where a liability has been arised merely on the basis of book entries.

– In the case of mere book entry, there is no receipt of money in cash or any other form. The provision is intended to verify the transactions in currency. Since there is no movement of money, Sec 269SS shall not be applied.

– Merely crediting the account of a person to whom monies are payable by passing journal entries does not come under the ambit of Sec 269SS.

Hence, movement of money is necessary for Sec 269SS to be effective.

 

Money accepted as share application money cannot be termed as loan or deposit for purpose of Sec 269SS read with Sec 271D.

Eqbal Inn & Hotels Ltd. v JCIT (2014) 49 taxmann.com 74(Chandigarh-Tribunal)

 

Analysis: A ‘loan’ is a transaction in which borrower approaches the lender for a certain sum of money for a fixed period on terms & conditions including interest etc & vice versa is a ‘deposit’.

Share application money accepted cannot be termed as loan as deposit since,

– the intention is to increase the share capital base of the company

– there are no such terms & conditions like fixed interest or fixed period in respect to share capital

– money accepted as share application money is received in current account and is used for reasonable purpose whereas money accepted as loan and deposit is received in capital account.

Therefore, no penalty shall be attracted under Sec 271D for acceptance of share application money.

Where assessee received cash as share application money from an individual but only meagre amount of shares were allotted to said individual, penalty under section 271D was to be imposed.

Estate (P) Ltd. v ACIT Range-6 (2014) 44 taxzmann.com 418 (Delhi- Tribunal) Analysis: When a company accept share application money

– there should be reasonable cause for the receipt of money

– there should be enough authorised capital base of the company

Where company after receiving huge amount share application money, is making allotment for meagre amount of shares i.e, very few amount of shares, it clearly indicates the malafide intention of the company that the money received on the name of share application money was actually in the nature of loan or deposit.

In such case, the actual intention of the company shall be considered and hence penalty shall be attracted under Sec271D since such huge cash received as share application money shall be considered as loan or deposit received under Sec 269SS.

Where partners of firm gives money to firm in need of business exigencies and received it back through capital account, both in cash; no penalty could be levied.

DCIT v Chetan M Kakaria (2014) 49 taxmann.com 490 (Mumbai- Tribunal)

AND,

Provisions of section 269SS would not be violated when money is exchanged inter-se between partners and partnership firm in spite of fact that partnership firm and individual partners are separate assesses.

CIT New Delhi v Muthoot Financiers (2015) 55 taxmann.com 202 (Delhi- High Court)

Analysis:

In the eyes of law, partnership firm and the partners therein are different assesses. But for the application of Sec 269SS, the intention and reasonable cause of acceptance of money shall be considered importantly.

The factual interpretation gives us a view that partners are the real owners of the firm and during business necessities, partners would make contribution as loan or deposit in the firm (through capital account).

A plain reading gives us the interpretation that money is transferred from one hand to other hand of the same person. Thus money exchanged between partners and the firm shall not covered under the ambit of Sec 269SS.

Whether the transactions were made from current or capital account has no relevance since partner has the right to make contributions from both the accounts.

Receipt and repayment of loan in cash due to immediate business necessity would amount to reasonable cause for not levying penalty under sections 271D and 271E.

CIT Chennai v T. Perumal (Indl) (2015) 53 taxmann.com 17 (Madras- High Court)

Analysis:

What would be held as a reasonable cause in the eyes of law is a matter of fact. The reasonability and genuinity shall be judged on the basis of facts of circumstances of the cases.

If assessee is able to satisfy that the reason for immediate necessity is genuine and he had no malafide intention as to evasion of undisclosed income, he may not be penalised under Sec271D due to reasonable cause.

Where assessee-firm received a sum of Rs 4.35 lakhs in cash from its sister concern and repaid a sum of Rs one lakh in cash to sister concern, transfer of cash by one firm to another would operate as a reasonable cause and, therefore, levy of penalty under sections 271D and 271E upon assessee was not justified.

Enterprises v JCIT (2014) 41 taxmann.com 235 (Mumbai- Tribunal) Analysis:

Sister concerns are the subsidiaries of the same parent company. It can be said that there is common control over the management of both the concerns.

A plain reading of cash transactions of the case gives the meaning as loan or deposit under Sec 269SS and so as liable under Sec 271D. The assessee has to prove the reasonable cause for the transactions and what shall be a reasonable cause is a matter of fact. If assessee is able to prove that the cash transactions were in the routine nature of management of business due to common control of both the concerns and there were no malafide intentions, assessee may not be penalised under Sec. 271D.

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