Sec 269ss

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vicky kheraj (Querist)
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27 July 2011 Any one plz provide the solution:

One of the client have business of cotton Ginning and pressing. Their maximum business directly come from Farmer and maximum business is in cash.
Now client operate business from different remote location and that is not connected with bank or we can say that bank facility is not available at remote location.
For purchase of cotton cash is required and same must be sent through cash only from one branch to another branch(as banking facility is not available).

My question is that if Cash is paid to other party in excess of 20000 then section 269SS is applicable.

But in recent case it is compulsant to transact in case so is there ant specific exemption is available to assessee if they
make cash payment to his subsidiary in cash.

Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)
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27 July 2011 The one you are talking about is Section 40A(3) and not 269SS.
Further, Rule 6DD mentions certain exceptions of which the following might apply to your case-
1. In case there are no banking facilities available
2. Amounts paid to primary producer.

For Ginning and Pressing, the purchase is of cotton. So, amount paid to farmer for purchasing cotton is allowed.

vicky kheraj

vicky kheraj (Querist)
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27 July 2011 That is fine
But my concern is that inter company transaction is made and for that exemption is there?

vicky kheraj

vicky kheraj (Querist)
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27 July 2011 Means two subsidiary is there one is A and other is B.
Cash Transaction between A to B is exempt u/s 40A (3)

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 Your query revolves around **Section 269SS** and **Section 40A(3)**, specifically about **cash transactions** between **subsidiary companies** (A and B) in a cotton ginning and pressing business.

### Quick Breakdown of the Relevant Sections:

1. **Section 269SS**:

* Section 269SS prohibits accepting or repaying a loan or deposit in cash **exceeding ₹20,000**.
* This section applies to cash transactions between **individuals**, **businesses**, or **entities**, where loans or deposits are involved.

2. **Section 40A(3)**:

* **Section 40A(3)** disallows any **expense or payment** made in cash exceeding **₹20,000**.
* This provision applies to **business payments**, and any payment to a **vendor or supplier** exceeding ₹20,000 in cash will be **disallowed** while calculating business expenses, unless an exception applies.

3. **Exemptions Under Rule 6DD**:

* Rule 6DD provides **exceptions** to the cash transaction restriction under Section 40A(3).
* It includes cases where **no banking facility** is available, and transactions are made with **primary producers** (farmers).

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### Your Specific Query: Inter-Company Transactions

You asked whether cash transactions between **subsidiary companies (A and B)** are **exempt from Section 269SS or 40A(3)**.

### Key Points to Address:

1. **Cash Transactions Between Subsidiaries (A and B)**:

* **Section 269SS** primarily governs cash transactions related to loans and deposits, not general inter-company payments. Therefore, **if it's a loan or deposit** being made between the two subsidiaries, **Section 269SS** would apply if the amount exceeds ₹20,000 in cash.
* **Section 40A(3)** is more relevant when dealing with **business transactions**. If cash payments are made **for business expenses**, exceeding ₹20,000, they could be disallowed unless they qualify under the exemptions in **Rule 6DD**.

2. **Is There an Exemption for Inter-Company Transactions?**:

* **For Section 269SS**:

* **No specific exemption** for inter-company transactions between subsidiaries in Section 269SS, but this section typically applies to loans and deposits.
* If the cash is being used for **business transactions** (i.e., payment for goods or services), Section 269SS is unlikely to apply.
* **For Section 40A(3)**:

* Section 40A(3) would apply if **cash payments** exceeding ₹20,000 are being made for **business expenses** between two subsidiary companies.
* The **exception under Rule 6DD** applies primarily to **payments to farmers** or when **no banking facilities** are available. However, it does **not apply to inter-company transactions**.
* If the subsidiaries are paying for **goods or services** (e.g., cotton purchase, ginning services), the cash transaction between them would be **subject to Section 40A(3)**, and the **exemption under Rule 6DD does not apply** to inter-company payments.

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### Summary of Key Points:

| Section | Applicability |
| ---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Section 269SS** | Applies to loans or deposits in cash. No specific exemption for inter-company transactions. |
| **Section 40A(3)** | Applies to business payments exceeding ₹20,000 in cash. **Exemption under Rule 6DD** does not apply to inter-company transactions. |
| **Exemption under Rule 6DD** | Allows cash payments exceeding ₹20,000 if no banking facilities are available and payments to primary producers (farmers). **Does not apply to inter-company transactions.** |

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### My Advice:

1. **Inter-Company Transactions**: If you’re making payments between **subsidiaries A and B** for **business purposes**, Section **40A(3)** would apply, and the **exemption under Rule 6DD** **would not** cover these payments. Payments exceeding ₹20,000 in cash should be avoided, or they should be made via **bank transfer** to be compliant.

2. **For Cotton Purchase (from Farmers)**: If cash is paid **directly to farmers**, it may qualify for exemption under **Section 40A(3)**, provided the other conditions of Rule 6DD are met (e.g., no banking facilities).

3. **Alternative**: To avoid any issues, if cash transactions between the subsidiaries are frequent, consider setting up **banking facilities** or adopting **cheques or electronic transfers** for compliance.

If you need further assistance in drafting proper accounting or transaction procedures, let me know!

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