Section 269SS and Section 269T of the Income Tax Act, 1961 in India are provisions that aim to curb black money transactions and promote transparency in financial dealings. These sections impose certain restrictions on cash transactions between individuals or entities.

Section 269SS:

Section 269SS prohibits individuals or entities from receiving certain amounts in cash. As per this section, any person receiving an amount of Rs. 20,000 or more in cash in a single transaction, or a series of transactions, is prohibited. This applies to all individuals, including businessmen, professionals, and even banks and financial institutions. If such a transaction occurs, it is considered an offense, and the person receiving the cash can be penalized.

Section 269T:

Section 269T complements Section 269SS by imposing restrictions on repayment of loans or deposits in cash. According to this section, any repayment of a loan or deposit of Rs. 20,000 or more in cash is prohibited. This applies to both individuals and businesses. If a person or entity receives a cash repayment above the specified threshold, they are considered to have violated the provision and can be penalized.

The primary objective of these sections is to discourage the circulation of black money and promote the use of traceable transactions. By restricting large cash transactions and promoting digital or cheque payments, the government aims to create a more transparent and accountable financial system.

Penalties:

If a person or entity violates Section 269SS or Section 269T, they can be subject to penalties. The penalty amount is equal to the amount of cash received or repaid in violation of the provisions. For example, if a person receives Rs. 30,000 in cash in violation of Section 269SS, they can be penalized with a penalty of Rs. 30,000. It's important to note that these sections do not apply to certain specified transactions, such as those with the government, banking institutions, or certain other exempted entities.

Overall, Sections 269SS and 269T are part of the government's efforts to curb black money and promote transparency in financial transactions. By discouraging large cash transactions, these provisions aim to create a more accountable and traceable financial system.

The following amendments u/s 269SS & 269T has come into force from 1st of June, 2015

Further Analysis :

While 269SS has introduced the key words "advance or otherwise" in relation to transfer of section 269T has introduced the words "advance by whatever name called".

Therefore, if the sum being repaid is not in the nature of advance then the provisions of section 269T will not be attracted.

Thus question of fact and circumstances of the case plays important role

Short Comings

Although the amendments are made in order to curb generation of black money in immovable property transactions, in reality the cash portion of the transaction is not accounted at all and therefore to that extent the amendment will not have the desired effect.

Our Comments

The amendments will certainly deter the use of back dated transactions. Hitherto for purchase of immovable property as an asset any quantum of cash could be paid and repayment of advance for immovable property could be paid in cash without attracting any penal provisions under the income tax law. Now, for cash consideration or repayment in cash the penal provisions will get attracted. At the same time cash consideration or repayment per se will not affect the validity of the transactions or will not affect the date of the transfer under the property laws concerning transfer or will not affect even the date of transfer under the provisions of the Income-Tax law more particularly with reference to provisions contained in clauses (v) and (vi) of sub section (47) of section 2 of the Act.

All abound Section 269SS & 269T of Income Tax Act, 1961

Section 269SS :

No Person shall, take or accept from any other person (herein after called depositor) any loans or deposits otherwise than by an account payee cheque or account payee draft if :-

a)           The amount of such loan or the aggregate amount of such loan and deposit, is Rs. 20,000/- or more, or

b)           On the date of the accepting such loan or deposit, any loan or deposit accepted earlier by such person from the depositor is remaining unpaid is Rs. 20,000/- or more

c)           The aggregate of the amount of loan or deposit to be taken and the amount of loan or deposit taken earlier which is outstanding on the date on which loan or deposit is to be taken is Rs. 20,000/- or more.

The provisions of the section shall not apply to any loan or deposit taken or accepted from or any loan or deposit taken or accepted by,

i)            Government

ii)           Any banking company, post office saving bank or cooperative bank.

iii)          Any corporation established by a central, state or provincial act.

vi)          Any government company

Provided further that provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and none of them has any income chargeable to tax under the Income Tax Act.

Analysis

This section gets applicable in following situation as per clause a, b and c.

1.           Where a person accepts a two cash loan and/or deposit 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. 3000.

3.           Where a person has taken a loan of Rs. 15000 by cheque and he wants to take further a loan of Rs. 6000 or 8000.

Explanation - For the purposes of this section

i)            "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institute referred to in section 51 of that Act;

ii)           "Co-operative bank" shall have the meaning 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.

Section 269T

No branch of a banking company or cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee draft drawn in the name of the person who has made the loan or deposit if -

a)           The amount of the loan or deposit together with interest payable thereon is Rs. 20,000 or more or

b)           The aggregate amount of the loan or deposits held by such person with the branch of a banking company or cooperative bank of other company or cooperative society or firm or other person, either in his own name or jointly with any other person on the date of such repayment together with interest if any payable on such loan or deposit is Rs. 20,000/- or more.

Nothing contained in this section shall apply to repayment of any loan or deposit taken or accepted from :-

i)            Government

ii)           Any banking , post office saving bank or co-operative bank

iii)          Any corporation established by a central, state or provincial act

iv)          Any government company as defined in section 617 of the companies act 1956.

Explanation - Loan or Deposit means any loans 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

Analysis

              In the second clause where if assesses made a fixed deposit with the bank for Rs. 18000/- and after one year the bank has to repay Rs. 21000/-, then the bank cannot pay such amount in cash.

Penalty- If any of the above provisions are violated then the penalty shall be equal to the amount of loan or deposit taken or accepted or repaid.

Issues on 269SS and 269T

1. Whether current account transactions between sister concerns or related parties (Directors) amounts to violation of section 269SS and 2)69T. Any payments or repayments made pursuant to current account maintained between parties cannot be considered as violation of 269SS and 269T CITV. Idhayam Publications Ltd., (2006) 285 ITR 221 (Mad

In this case there was a current account in the books of the assessee in the name of the one of the directors who used to pay money into the current account and also withdraw money from the same. The department treated these payments and withdrawals as violation of section 269T as they were made in cash. Disapproving the action of the department the High Court has helf that "the deposit and withdrawal of money from the current account could not be considered as a loan or advance. Accordingly the order of the tribunal by which the penalty was cancelled was affirmed.

Similar view taken by ITAT Bench, B, Bangalore in the case of M/s CANARA HOUSING DEVELOPMENT CO. Vs. ACIT ITA No. 1425/Bang/2008.

2.  Whether the provisions of above section applies 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 was ultimately paid through account payee cheque. Commissioner of Income Tax vs Noida Toll Bridge Co. Ltd. (2003) 184 CTR Del 266. Further acknowledgment of debt by the assessee company by passing a journal entry in the books of accounts would not come within the ambit of the words "loans or deposits of money" as mentioned in Section 269SS, Sunflower Builders Pvt. Ltd. 61 ITD 227, V. N. Parekh securities Pvt. Ltd. (ITD No.3316 & 3317/Mum/2004)

3. Whether when transactions are bonafide, disclosed in the books of accounts and even made in cash, attracts penalty u/s 271E/271D.

              In the case of Narsingh Ram Kishor Kumar Vs. Union of India and others a reference has been made to the explanatory notes of finance act, 1984 by which section 269SS was inserted. It was interalia mentioned that unaccounted cash found during search and seizure operations is often explained by tax payers as representing loans or deposits from various persons. With a view to countering this devise a new section has been inserted debarring the person from taking or accepting loans or deposits otherwise than by account payee cheque or demand draft. Hence where the transactions entered in cash are genuine and reasonable cause, as required u/s 273B, is shown penalty u/s 271E/271D is not called for.

              In the case of CIT Vs. Sunil Kumar Goel, (2009) 315 ITR 163 (P&H) 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 bonafide 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.

              In the case of CIT Vs. Balaji Traders, 303 ITR 312 (Mad) it has been held that deletion of penalty was justified in a case where :-

i)            Creditors are genuine and transactions not doubted.

ii)           There is no revenue loss to the exchequer, and

iii)          There is business exigency forcing the assessee to take cash loan.

              In the case of Omec Engineers Vs. CIT (2007) 294 ITR 599, it was held that where there is no finding that transactions were not genuine and there is no bonafide intention, the penalty could not be sustained in law.

              In the case of CIT Vs. Maheshwari Nirman Udyog (2008) 302 ITR 201 (Rai), it has been held that where a reasonable explanation is furnished, levy of penalty u/s 271D is not justified.

4.           Whether when the loan or deposit is treated as the undisclosed income of the assessee, penalty can be imposed on the same transactions :-.

              In the case of CIT Vs. Standard Brands Ltd. (2006) 285 ITR 295, 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.

5.           Meaning of Loan or Deposit -

              In the case of Baidyanath Plastic Industries (P) Ltd. 230 ITR 522. In case of Loan it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement.

              However in the case of deposit it is generally the duty of the creditors to seek the depositee and make a demand for it.

              While Articles 19 and 21 of the Limitation Act fix the period within which a suit for recovery of a loan can be field which is three year from date of borrowing, Article 22 deals with the period of limitation for suits for money on account of deposit which is three years from the date demand is made by the depositor.

6.           Whether receipt of share application money in cash amounts to violation of section 269SS -

              No, share application money in case is neither a loan nor a deposit as duly held by the Delhi High Court in the Case of CIT Delhi IV Vs. I P India Pvt. Ltd. 2011 - TIOL-811-HC-DEL-IT observing that "the recipt 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. Reliance was placed on the decision of Director of Income Tax (Exemption) Vs. ACME Educational Society wherein it was held that a loan grants temporary use of money, or temporary accommodation and that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it has been made, on fulfillment of certain conditions." 

              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.

7.           Whether receipt ans payment of Partners Capital by partnership firm amounts to violation of section 269SS and 269T -

              No says the Ahemdabad Inocme Tax-Appellate Tribunal in the Case of ITO Ward 2(1) Vs. Universal Associates, 2011-TIOL-498-ITAT-AHM, as partners capital is neither a loan nor a deposit.

8.           Whether advance received for sale of goods paid in cash amounts to violation of section 269T -

              Yes, says the Allahabad High Court in the case of Chaubhey Overseas Coorporation Vs. CIT [2008] 303 ITR 9 (all). Trade deposits are included in the definition of Deposit.

9.           Whether Payments made on behalf of lender considered as repayment of loan by the assessee fall within the purview of Section 269SS and 269T -

              As the repayment will be made in these cases through journal entries provision of section 269SS and 269T will not be applicable, as discussed above in point No. 2

10.        Disclosure in Auditor's Report under Tax audit -

              Auditor's are required to disclose the payment of a loan or deposit along with Interest Rs. 20000 or more. (Guidance note on Tax Audit issued by ICAI