Mode of Taking or Accepting Loans, Deposits – Section 269SS

Mode of Taking or Accepting Loans, Deposits – Section 269SS

Mode of Taking or Accepting Loans, Deposits – Section 269SS: Income Tax Authorities during raids would uncover vast amounts of unaccounted cash. In such cases, the person would give excuses that the cash discovered was received as a deposit from friends or relatives or as a loan. The person would also record false transactions showing repayment and payment of loans and deposits in the form of cash to evade tax.

In order to curb such cash transactions, section 269SS was introduced. The objective of the provision is to restrict transactions in currency. If any person violates this provision, it will attract a penalty under section 271D which equals the amount accepted or the person receiving such deposits, loans, or specified sum cash over and above the prescribed limit.

According to Section 269SS, no person shall take or accept any deposit or loan or specified sum from any other person (referred to as the depositor) by an account payee bank draft or account payee cheque or use of electronic mode or electronic clearing system through a bank account as may be prescribed, if

  • If the amount of such deposit or loan or specified sum is ₹20,000 or more.
  • If the aggregate amount of such deposit, loan, or specified sum is ₹20,000 or more.
  • In such cases where the person has already received a deposit, loan or specified sum from the depositor but the amount of deposit, loan or specified is sum is left unpaid, and the amount of due deposit, loan or specified amount is ₹20,000 or more.
  • The total amount of aggregate amount of (a), (b) and (c) is ₹20,000 or more.

These provisions are introduced to regulate the mode of taking or accepting deposits or loans and keeping a check on the repayment method of such deposits and loans.

Exceptions

There are certain exceptions to Section 269SS. The amount of deposit, loan or specified sum accepted or taken from, or any deposit, loan or fixed sum accepted or taken by the Government

  • Any post office savings bank, banking company, or co-operative bank;
  • Any Corporation established by a Central, State or Provincial Act;
  • Any Government company as specified in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);
  • Any association, institution or class or body of institutions, associations or bodies as notified in the Official Gazette.

The provisions of section 269SS shall not apply to a person whose earning is from agricultural income who accepts the deposit, loan from a person whose source of income is also based on agricultural income

  1. Cash received during emergencies from relatives
  2. Contribution of cash into partnership firm by partners in the form of capital.

Penalty

The assessing officer can levy the person 100% of the amount of deposit or loan or specified sum, which will be the penalty amount.

What Is Section 269SS?

According to Section 269SS, no person shall accept any deposit or loan from another person in a single day in any form other than account payee bank draft or cheque if the aggregate amount is more than ₹20,000.

  • This provision aims to prevent the evasion of tax while accepting money in several cases.
  • Any person violating this provision shall attract a penalty under section 271D, which equals to amount accepted, or the person receiving such deposit or loan in the form of cash over and above the prescribed limit. The sole responsibility of complying with this provision depends on the acceptor of such money. For example, Mr P is running his proprietorship business and has accepted ₹50,000 from Mr C as a deposit on 1.4.2020 in cash. Since Mr A is the acceptor in the above case, he is to be penalized under Section 271D for ₹50,000 because he received above ₹20,000 as a deposit in cash in a single day.
  • The aggregate amount means the total amount of money received on the day, including amounts that were not cleared earlier. In such cases, the total amount of money received irrespective of transaction nature shall comply with the provision. For example, Mr P received ₹50,000 in cash on 1.4.2020 as a deposit from Mr B, out of which ₹25,000 belongs to the same day while ₹25,000 belongs to earlier unclear deposits. In such cases, the total amount shall be taken ₹50,000 to verify whether the transaction complies with the section. Therefore, a penalty of ₹50,000 will be charged under Section 271D on Mr P.
  • In a single day means that all the transactions of a particular day from the same person shall be clubbed to verify the limit of ₹20,000. For example, Mr D received an amount of ₹1,00,000 from Mr F in cash in five instalments of ₹20,000 in a single day as of 01.04.2020 as a deposit. Here, all the transactions will be clubbed under one person, which exceeds the daily prescribed limit of ₹20,000, and therefore Mr D will be penalized.
  • If the aggregate amount of deposit accepted in cash is above ₹20,000, then the whole amount will be penalized. For example, Mr M received ₹25,000 from Mr N deposit in cash as of 01.04.2020. In such cases, Mr M has accepted deposits of more than ₹25,000 in cash which exceeds the prescribed limit. He will be penalized in such cases for the total amount, i.e., ₹25,000 and not on ₹5,000, which is over the prescribed limit.

However, there are certain exceptions such as the Government, post office savings bank, any banking company or corporate bank where any amount of deposit or loan is accepted or taken does not come under the extent of section 269SS.

Several Judgements To Understand Section 269SS

The provisions of Section 269SS do not apply to non-monetary book-entry transactions of advances and loans. CIT vs Worldwide Township Projects Ltd. (2014) 106 DTR (Del) 139 and CIT vs Noida Toll Bridge Company Ltd. 262 ITR 260 followed.

Analysis:

  • The extent of Section 269SS is clearly restricted to only transactions involving acceptance of money, and there will be no effect to cases where liability has been aroused merely based on accounting book entries.
  • In the case of mere accounting book entry, there is no receipt of money in cash or any other form. The main intentions of the provision are to verify the transactions in currency. Section 269SS shall not be applied as there is no movement of money.
  • Simply crediting the account of a person to whom money is payable by making simple journal entries does not come under the extent of Section 269SS.

Hence, 269SS is effective only when there is the movement of money.

Money accepted as share application money cannot be termed as deposit or for loan purpose and does not come under Section 269SS.

Eqbal Inn & Hotels Ltd. vs JCIT (2014) (Chandigarh Tribunal)

Analysis:

A ‘loan’ is a transaction where a borrower approaches the lender of money for a particular amount of money for a fixed period on specific terms & conditions, including interest on loan etc., and ‘deposit’ is the vice versa.

Money received for Share application cannot be termed as deposit or loan since the following:

  • Such monetary transaction intends to increase the share capital base of the company
  • In respect of share capital, there are no such terms & conditions as a fixed period or fixed interest.
  • Money accepted as share application money is credited in the current account and is used for the reasonable purpose of a company, whereas money accepted as deposits and loans is credited in the capital account.

As a result, there shall be no penalty under Section 271D for accepting money of share application.

Cases where an assessee received cash as share application money from an individual or person but only a meager amount of shares were allotted to the said individual or person then a penalty under section 271D was to be imposed.

Estate (P) Ltd. vs ACIT Range-6 (2014) (Delhi- Tribunal)

Analysis: 

When a company accepts share application money, it needs to ascertain the following:

  • Receipt of money should be backed up by a reasonable cause.
  • The company must hold enough authorized capital base.

After receiving huge amounts of share application money, when the company is making allotments of the meagre amount of shares, i.e., very few or less amount of shares, it clearly indicates the deceptive intention of the company and that the money received as the share application money was actually made in the nature of deposit or loan.

In such cases, the actual intention of the company shall be considered as deceptive and that the money is received is either deposit or a loan. Hence such transactions will attract a penalty under Section 271D as such huge amounts of cash received as share application money shall be considered as deposit or loan, which comes under the extent of Section 269SS.

Cases where partners of the firm provide money to the firm in need of business requirements and the partners received it back through the capital account, both in cash; then no penalty could be levied.

DCIT vs. Chetan M Kakaria (2014) (Mumbai- Tribunal) and

The provisions of section 269SS would not be violated for transactions where money is exchanged between partnership firm and partners in spite of the fact that individual partners and partnership firm are separate assesses.

CIT New Delhi vs Muthoot Financiers (2015) (Delhi High Court)

Analysis:

As per law, individual partners and partnership firm are different assesses. But for the application of Section 269SS, the reasonable cause and intention of acceptance of money shall be considered necessary.

As we all know and as per the clauses of The Indian Partnership Act, 1932, partners are the real owners of the partnership firm. As a result, during business requirements, the partners can make a contribution to the firm as a deposit or loan through a capital account.

An ordinary reading tells us that money is transferred from one account to another accounts of the same person. Thus, the transaction of funds between partners and the partnership firm will not come under the extent of Section 269SS.

The transactions can be made from both the current and capital accounts as the partner has the right to contribute from any of the accounts.

Penalty will not be levied under section 271D and 271E on receipt and repayment of the loan in cash due to immediate business necessity.

CIT Chennai vs T. Perumal (Indl) (2015) (Madras- High Court)

Analysis:

A court of law shall judge the genuineness and reasons of such transactions based on the facts and circumstances of the cases.

If the assessee can satisfy the court of law that there are reasons for immediate requirement of funds and the transaction is genuine, and he had no deceptive intention to evade any undisclosed income or taxes, he may not be penalized under Section 271D due to such reasonable causes.

When the assessee-firm received a sum of ₹5 lakhs in cash from its sister concern and repaid a sum of ₹1 lakh in cash to the sister concern, then the transfer of cash by one firm to the other firm would be considered as a reasonable cause and, therefore, levy of penalty under sections 271D and 271E upon assessee was not justified.

Enterprises vs. JCIT (2014) (Mumbai- Tribunal)

Analysis:

The subsidiaries of the identical parent company are known as sister concerns or firms. It is often observed that the overall control over the management is standard of both the concerns.

An ordinary reading of such cash transactions of the case gives the meaning as deposit or loan under Section 269SS and is liable to penalty under Section 271D. It is the sole liability of the assessee to demonstrate justifiable cause for such transactions, and what shall be considered a reasonable cause is a matter of fact.

If the assessee can prove that the cash transactions that took place were part of the routine nature of business management due to the common control of both the concerns and there were no deceptive intentions, the assessee may not be penalized under Section 271D.

Recent Case Laws On Section 269SS

Sl. No. Citation Particulars
1. Shri T. Perumal vs CIT (Madras High Court) No penalties were charged due to cash receipt and repayment of same due to business emergency.
2. Baldev Singh vs Addl. CIT (ITAT Chandigarh) If the assessee provides a reasonable cause penalty under section 271D for not complying, 269SS will not be levied.
3. Hardeep Singh vs JCIT (ITAT Chandigarh) Penalty under section 271 D shall not be charged for receipt of cash from commission agent against the sale of crops.
4. Snehalata Sitani vs JCIT (ITAT Kolkata) Section 269SS is not applicable for transactions between relatives.
5. N.S.S. Karayogam vs CIT (Kerala High Court) Cash received over and above ₹20,000 shall be penalized under section 271D.
6. Sri Nikhil Banik Mazumder vs JCIT (ITAT Kolkata) Cash transactions between close family members for support and help does not come under the extent of Section 269SS.
7. Shri Venkat Narayana Raju Pasuparthy vs Addl. CCIT (ITAT Hyderabad) The penalty will be not be charged on loan in cash for sister’s marriage which was repaid through RTGS.
8. Shri Sanmathi Ambanna vs JCIT (ITAT Bangalore) The loan received in cash from father-in-law shall not be penalized under section 271D.
9. M/s. Space N Place Promoters P. Ltd. vs JCIT (ITAT Chennai) Advance received in current accounts from promoters in the form of cash is not to be penalized under section 271D.
10. Sonia Malik vs JCIT (ITAT Delhi) The loan received from parents or brother for purchasing the house for the family is not to be penalized.
11. ITO vs Dayamayee Marble & Granite (ITAT Kolkata) Section 269SS is not violated when capital is contributed to the partnership firm by partners.
12. M/s. P.R. Associates vs ACIT (ITAT Pune) The penalty is not to be charged on loans in the form of cash availed from the unorganized finance sector to repay liability.
13. Monarch Dyestuff Industries And Exports Ltd. vs JCIT (ITAT Ahemdabad) The penalty will not be levied for loans in the form of cash paid or taken to comply resettlement scheme of BIFR.
14. Nabil Javed vs ITO (ITAT Delhi) Transactions of loan between husband and wife do not come under the extent of Section 269SS.
15. Sri Jagmohan Sharma vs JCIT (ITAT Kolkata) Cash transactions with nephew and sister–in–law are not considered loans and do not come under the extent of section 269SS.

 

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