Loan under Section 269SS

Amir

Learner

4016 Points Joined December 2009

To me, It's a debatable issue:-

1) Logically :- It should NOT ATTRACT Sec 269 SS

2) Legally :- It will ATTRACT Sec 269 SS

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27354 Points Joined October 2007

Originally posted by : Amir
	To me, It's a debatable issue:- 1) Logically :- It should NOT ATTRACT Sec 269 SS 2) Legally :- It will ATTRACT Sec 269 SS

Ya Amir is Rite.

well Logically Should be Followed from My View.

@ CA. $ahar$h @

Student

338 Points Joined September 2009

Bank account transfer is equivalant to account payee cheque or account payee draft so it should not attract 269SS.

The time when the section was made at that moment of time net banking was not there. So the intention of the lawmaker is to get the transaction in the eyes of taxing authority and to ensure that the said person receive the payment. Bank account transfer covers both.

J.K.Shahi

Service

44 Points Joined July 2008

Dear Umesh

I have mentioned the judgements which may help you.

While upholding the constitutional validity of Section 269SS, the Apex Court in the case of ASST.DIRECTOR OF INSPECTION (INVESTIGATION) VS. KUM.A.B.SHANTHI

reported in (2002) 255 ITR 258 has observed that the object of introducing section 269SS was to ensure that a taxpayer was not allowed to give false explanation for his unaccounted money, or if he made some false entries, he shall not escape by giving false explanation for the same. The main object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. The apex Court further

observed that the undue hardship of the provisions of Section 271D which replaced section 276D providing for penalty was substantially mitigated by the inclusion of Section 273B providing that if there was a genuine and bona fide transaction and the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty.

S. 269SS --Penalty--Loans exceeding prescribed limit otherwise than by account payee cheque--Transfer of funds through foreign inward remittances system approved by RBI--Transfer not doubted--No material to show that assessee received amount in cash as a deposit or loan--No violation of section 269SS--Penalty cancelled-- Hamarashehar Co. P. Ltd. v. Addl. CIT

The transfer of loan by money is proper and shows that there is no intention of concleament or evasion of tax. Therefore , if the loan is transferred through book entries , backed by letter of the lender to do so and acceptance letter by the person in whose name same is being transferred , section 269SS or 269TT can not be applicable.In this regard , ITAT , PuneBench in Sunflower Builders Pvt. Limited. vs Deputy Commissioner Of Income-Tax. 61 ITD 227 ruled on this issue as under

This clearly shows that this section can be applied only where money passes from one person to another by way of 'loan or deposit'. This provision cannot therefore, be applied where the money does not pass from one person to another but the debt is acknowledged by passing entry in the books of account, depending upon the facts of the case. If the contention of the learned departmental representative is accepted, then, it may result in absurdity. For example, a person may give the money to a vendor by way of advance against the supply of goods. Such transaction at the time of giving money would not come within the ambit of the words 'deposit or loan'. But on subsequent date the contract for supply of goods may be cancelled due to unforeseen circumstances and the parties may agree to treat the advance of money as loan. In such a situation, if the provisions of section 269SS are applied then the assessee cannot be penalised for no fault of his. Similarly, in the case of dissolution of the firm, the parties may agree that the amount standing to the credit of retiring partner may be treated as loan with the continuing partners. In such a situation also, only journal entries are made and no cash is transferred from one person to another. The application of section 269SS to such situation would create anomaly and absurdity. In our opinion, there cannot be the intention of the Legislature to penalise the innocent assessees. Therefore, we are of the opinion that the provisions of section 269SS cannot be applied where the assessee merely acknowledges the debt incurred earlier and there is no transfer of money from one person to another. The same view has been taken by the Tribunal, Ahmedabad Bench in the case of Bombay Conductors & Electricals Ltd. wherein it has been held that deposit/loan must be made through money and constructive loan or deposit could not come within the mischief of provisions of section 269SS. In that case, the assessee had purchased goods worth Rs. 23.00 lakhs from its subsidiary company and since it was not in a position to pay the said amount immediately, the holding company agreed to treat the amount as loan. The respective entries were made by the assessee in this regard. On these facts, the Tribunal held that the provisions of section 269SS could not be applied.

Regards

j.k.shahi

Provisions of sec 269ss cannot be applied where assesse has proved the genuiness of transaction backed by genuine reasons to the satisfaction of AO.

In your case if you can prove that transaction has hit the bank account of both the party and bank statement clearly shows amount of loan then the provision of Sec 269ss will not be applicable eg payment through RTGS is valid.

R!tu Ber!

Chartered Accountant

405 Points Joined October 2009

nice work J.K.Shahi ji. i was also looking upon to see the cases on the above query, thanks sir. Would look upon such answers on ca club in future too.