U/S 269ss & 269t

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KAPIL (Querist)
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18 October 2010 Sir,
Kindly confirm that If anyone person receive more than Rs.20000/- from individual person in a single financial year. Then what is liability of receiver or giver as per I.T. Act.

KAPIL

KAPIL (Querist)
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18 October 2010 please give reply

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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18 October 2010 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,

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

(b) 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 and 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 :

Thus it is clear that no person can accept any loan or deposit of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs 20000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr X has a credit balance of a loan of Rs 19000 from Mr Y. Now in this case Mr X cannot take loan in excess of Rs 999 more from Mr Y except with an account payee cheque or account payee bank Draft.

Exemptions from section 269SS: The Following persons are exempted from the purview of section 269SS:

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 section 617 of the Companies Act, 1956
(e) other notified insititutions
(f) 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 1961 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.

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

(1) The amount of the loan or deposit together with interest is Rs 20000 or more, or
(2) 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 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

Exemptions from Section 269T: The Following persons are exempted from the purview of section 269T:

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 section 617 of the Companies Act, 1956
(e) other notified insititutions

Consequenses of contravention of section 269T: Section 271E of Income Tax Act 1961 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.

No Penalty to be levied u/s 271D or 271E if there is reasonable cause : As per 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. Now the question arises what can be a reasonable cause to justify the violation of the provisions of section 269SS and 269T. Some of the reasonable causes based upon judicial decisions are provided as follows:

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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18 October 2010 In addition to to the liability to pay off the money borrowed, equal amount can be penalized under section 271D of the Income tax Act,1961.

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18 October 2010 REQUIREMENT AS TO MODE OF ACCEPTANCE AND REPAYMENT OF CERTAIN LOAN OR DEPOSIT
[SECTION 269SS AND 269T]

Section 269SS: No person shall take or accept any Loan or Deposit from any person otherwise than by way of an Account Payee Cheque or an Account Payee Draft, if:

(1.) The amount of Loan or Deposit, or
(2.) If any Loan or Deposit was taken earlier and has remained unpaid (whether repayment has fallen due or not), then the amount of such Loan or Deposit together with interest, or
(3.) The aggregate amount of (1.) and (2.)

is Rs. 20,000/- or more.

Exceptions: The provisions of Sec. 269SS do not apply on any Loan or Deposit taken or accepted from or by:-

(a.) Government,
(b.) Any Government Company,
(c.) Any Statutory Corporation,
(d.) Any Banking Company, Post Office Savings Bank or any Co-Operative Bank (i.e. any Bank) and
(e.) Any other Institution as the Central Government may notify,
(f.) A case where, the Lender and the Borrower, both are Agriculturists and have no other income chargeable to tax in India under the Income Tax Act.

Default: Any Loan or Deposit taken or accepted in violation of the provisions of Sec. 269SS shall attract a Penalty U/S 271D, which shall be equivalent to the amount of Loan or Deposit taken or accepted in violation of Sec. 269SS. Penalty will be levied on the person who has taken or accepted the Loan or Deposit in violation of Sec. 269SS.

Points to be noted about Section 269SS:

(i.) Power to impose Penalty is discretionary in nature. If there was a default due to circumstances beyond the control of the assessee, then as per Sec. 273B, no penalty shall be levied. The apex Court in ADIT v/s Kum. A.B. Shanthi (2002), held that if there was a genuine and bonafide transaction and the taxpayer could not get a Loan or Deposit by way of an Account Payee cheque or an Account Payee Draft for some bonafide reason, then Penalty U/S 271D can not be levied.
(ii.) In CIT v/s Noida Toll Bridge Co. Ltd. (2003) (Del.) it was held that if there was no cash loan, no penalty can be levied U/S 271D. Where, Loan was obtained by way of journal entry, it does not amount to violation of Sec. 269SS, hence, no penalty can be levied U/S 271D.
(iii.) Transactions between sister concerns in current accounts for short and temporary period was held not to be a Loan or Deposit in Patiram Jain and Others v/s Union of India (1996) (MP).
(iv.) In Asst. CIT v/s Jag Vijay Auto FinancePvt. Ltd. (2000) (Jaipur) it was held that if the amount was transferred through Transfer Vouchers by the Bank, then the spirit of Sec. 269SS is not violated therefore, no penalty shall be imposed.
(v.) In Shrepak Enterprises v/s Deputy CIT (1998) (Ahemdabad) it was held that the payments received by partners of the firm from the firm do not partake the character of Loan or Deposit. Provisions of Sec. 269SS do not apply to such situations.
(vi.) Assessee established that the Loan was taken in cash in excess of Rs. 20,000/- to avail 2% discount by making payment in time to suppliers of raw materials. The bonafide intention of the assessee was established and therefore, penalty U/S 271D was deleted in CIT v/s Parmanand (2002) (Delhi) and also in CIT v/s Manoj Lalwani (2002) (Rajasthan).
(vii.) If Cash is found to have been credited in the Books of Accounts of the assessee and the amount of such cash credited is in excess of Rs. 20,000/- and the assessee has no explanation for the same, then A.O. can either invoke Sec. 269SS and levy penalty U/S 271D or he can invoke Sec. 68 and assess the unexplained cash credit as the income of the assessee, but he can not invoke both the sections simultaneously.

Section 269T: No Person shall repay any Loan or Deposit, otherwise than by way of an Account Payee Cheque or an Account Payee Draft, if:

(1.) The amount of such Loan or Deposit, together with Interest thereon, if any, or
(2.) If any Loan or Deposit along with interest if any, is remaining unpaid, whether repayment of the same has fallen due or not,

is Rs. 20,000/- or more.

Exceptions: The provisions of Sec. 269T do not apply on repayment of any Loan or Deposit taken or accepted from or by:-

(g.) Government,
(h.) Any Government Company,
(i.) Any Statutory Corporation,
(j.) Any Banking Company, Post Office Savings Bank or any Co-Operative Bank (i.e. any Bank) and
(k.) Any other Institution as the Central Government may notify.

Default: Any Loan or Deposit repaid in violation of the provisions of Sec. 269T shall attract a Penalty U/S 271E, which shall be equivalent to the amount of Loan or Deposit repaid in violation of Sec. 269T. Penalty will be levied on the person who has repaid the Loan or Deposit in violation of Sec. 269T. (No cumulative Penalty shall be levied U/S 271D and U/S 271E).

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