Section 269SS of the Act prohibits acceptance of loan,
deposits, advances or any other specified sums of Rs. 20,000/- or more
otherwise than through account payee cheque, or draft or use of electronic
clearing system through bank account or through ‘such other electronic modes as
may be prescribed’. This means a person may take or accept loan, deposit or
specified sums in cash only upto Rs. 19,999/-. While section 269T prohibits
repayment of such loan, deposit or specified sum Rs. 20,000 or more otherwise
than through account payee cheque, or draft or use of electronic clearing
system through bank account or through ‘such other electronic modes as may be
prescribed’. This means a person may repay the loans or deposits or specified
sums in cash only upto Rs. 19,999/-. Both the sections 269SS and 269T are on
similar footing and the only difference in these two sections is the applicable
transactions.
Section
269T provides that any branch of a banking company or a cooperative society,
firm or other person shall not repay any loan or deposit made with it or any
specified advance (any sum in nature of advance , by whatever name called in
relation to transfer of an immovable property, whether or not such transfer
takes place) received by it otherwise than by an account payee cheque or
account payee bank draft drawn in the name of the person (or use of electronic
clearing system through a bank account), who has made the loan or deposit, if
(a)
The amount of the loan or deposit or specified advances together with interest
is Rs. 20,000 or more, or
(b) 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. 20,000 or more.
Text of Section 269T
[1][Mode of repayment of certain loans or
deposits.—
269T. No branch of a banking company or a co-operative bank and no
other company or co-operative society and no firm or other person shall repay
any loan or deposit made with it [2][or
any specified advance received by it]
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 [2][or
paid the specified advance,]
[3][or by use of electronic clearing
system through a bank account] or
through such other electronic mode as may be prescribed if —
(a) the amount of the loan or deposit [2][or
specified advance]
together with the interest, if any, payable thereon, or
(b) the aggregate amount of the loans
or deposits held by such person with the branch of the banking company or
co-operative bank or, as the case may be, the other company or co-operative
society or the firm, or other person either in his own name or jointly with any
other person on the date of such repayment together with the interest, if any,
payable on such loans or deposits, [2][or]
[2][(c) the aggregate amount of the
specified advances received by such person either in his own name or jointly
with any other person on the date of such repayment together with the interest,
if any, payable on such specified advances,]
is
twenty thousand rupees or more:
PROVIDED that where the repayment is by a branch of a banking company
or co-operative bank, such repayment may also be made by crediting the amount
of such loan or deposit to the savings bank account or the current account (if
any) with such branch of the person to whom such loan or deposit has to be
repaid :
[4][PROVIDED FURTHER that nothing contained in this section shall apply to
repayment of any loan or deposit [2][or
specified advance]
taken or accepted from—
(i) Government;
(ii) any banking company, post
office savings 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 (1 of 1956);
(v) such other institution,
association or body or class of institutions, associations or bodies which the
Central Government may, for reasons to be recorded in writing, notify in this
behalf in the Official Gazette.]
Explanation. - For the purposes of this section,—
(i) "banking company"
shall have the meaning assigned to it in clause (i) of the Explanation to section
269SS;
(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 any loan 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;
[2][(iv) "specified advance"
means any sum of money in the nature of advance, by whatever name called, in relation
to transfer of an immovable property, whether or not the transfer takes place.]
KEY NOTE
1. Substituted by the Finance Act, 2002, with
effect from 01.06.2002. Prior to its substitution, section 269T was inserted by
the Income-tax (Second Amendment) Act, 1981, with effect from 11.07.1981 and
later on amended by the Finance Act, 1984, with effect from 01.04.1984, Finance
Act, 1985, with effect from 01.04.1986 and Direct Tax Laws (Amendment) Act,
1987, with effect from 01.04.1989.
2. Inserted by the Finance Act, 2015, with
effect from 01.06.2015.
3. Inserted by the Finance (No. 2) Act, 2014,
with effect from 01.04.2015.
4. Inserted by the Finance Act, 2003, with
retrospective effect from 01.06.2002.
Section 269T prohibits any
person to repay the loan or deposit or specified sum otherwise than by an
account payee cheque or account payee bank draft or by use of electronic
clearing system through a bank account, if –
(a) Amount of loan or
deposit, including interest amount, is Rs. 20,000 or more, or
(b) The
aggregate amount of loans or deposits, including the interest amount, held by
such person in his own name, or jointly with any person, is Rs. 20,000 or more.
In nutshell, a person cannot repay the loan or
deposit in cash, if the amount is Rs. 20,000 or more.
In clause 31 of Form 3CD Where to mention about Section 269SS and 269T transactions
In
clause 31 of Form 3CD, the tax auditor has to report the transactions that have
been hit by the provisions of Sections 269SS and 269T. Both the parties (payer
and receiver) have to report the transactions. Clause 31 of Form 3CD is where
these need to be reported.
Provisions
Illustrated - 1
XYZ Ltd. had
deposited of Rs. 18,500 from Mr. ‘A’. During the previous year 2019-20, such
deposit has become due for repayment (Interest payable Rs. 3,100). XYZ Ltd.
repaid such amount by way of bearer cheque.
ANSWER
XYZ Ltd. had
deposited of Rs. 18,500 from Mr. ‘A’. During the previous year 2019-20, such
deposit has become due for repayment (Interest payable Rs. 3,100). XYZ Ltd.
repaid such amount by way of bearer cheque.
The provision of
section 269T shall be made applicable if amount to be repaid (together with
interest) Rs. 20,000 or more. In this case, XYZ Ltd. had repaid Rs. 21,600
otherwise than by account payee cheque or draft or ECS, there is a clear
violation of provisions of section 269T
Provisions
Illustrated - 2
XYZ Ltd had accepted
deposited of Rs. 12,000 from Mr. ‘B’ on 01.05.2018 for a period of two year
(Rate of interest 12% p.a. payable annually). It further accepted deposit of
Rs. 15,000 (Rate of interest 10% p.a payable annually). Date of second deposit
was 01.06.2019. On 01.05.2020, XYZ Ltd repaid Rs.16,800 (together with
interest) towards first deposit in cash. XYZ Ltd also repaid Rs. 16,500 towards
second deposit on 03.05.2020 in cash.
Does your answer
differ if second deposit of Rs. 15,000 was in a joint name of Mr. & Mrs.
‘B’.
ANSWER
The provision of the
section 269T shall be made applicable if aggregate amount of deposits held by a
person together with interest exceeds Rs.20,000 . Therefore, at the time of
repayment of first deposit in cash, there is a violation of provision of
section 269T since aggregate deposits together with interest exceeded Rs.
20,000.
However, there is no
violation of section 269T by XYZ Ltd. at the time of repayment of second
deposit in cash since neither the amount of deposit with interest nor the
aggregate amount deposit held by Mr. ‘B’ on that date together with interest
exceeds the threshold limit of Rs. 20,000.
The answer will not
differ because the law mentioned under section 269T is applicable even if
deposits are held in joint name with other person.
Cases where the provisions Section 269T do not apply:
The provisions of this section
does not apply to in case the loan / deposit has been taken/ made by the
following persons:
(i)
Government;
(ii)
any
banking company, post office savings bank or cooperative 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 (1 of
1956) ;
(v)
such
other institution, association or body or class of institutions, associations
or bodies which the Central Government may, for reasons to be recorded in
writing, notify in this behalf in the Official Gazette.
Consequences
in violation of Provisions - Penalty under Section 271E
Section
271E 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.
However
by virtue of section 273, the above penalty is not leviable if the assessee
proves that there was a reasonable cause for the failure in compliance of the
provisions.
Text of Section
271E
[1][PENALTY
FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 269T.
271E.
[2][(1)
If a person repays any [3][loan or] deposit or [4][specified advance] referred to in section 269T otherwise than in accordance with the
provisions of that section, he shall be liable to pay, by way of penalty, a sum
equal to the amount of the [3][loan or] deposit or [4][specified advance] so repaid.]
[5][(2)
Any penalty imposable under sub-section (1) shall be imposed by the [6][Joint] Commissioner.]
KEY NOTE
1. Inserted by the Direct Tax Laws (Amendment)
Act, 1987, with effect from 01.04.1989.
2.
Numbered
as sub-section (1) by the Finance Act, 1990, with effect from 01.04.1990.
3. Inserted by the Finance Act, 2003, with
effect from 01.06.2003.
4. Inserted by the Finance Act, 2015, with
effect from 01.06.2015.
5. Inserted by the Finance Act, 1990, with
effect from 01.04.1990.
6. Substituted for “Deputy” by the Finance (No.
2) Act, 1998, with effect from 01.10.1998.
Nature of
default
Repaying any deposit/loan in
contravention of section 269T; i.e. repayment of deposit of Rs. 20,000/- or
more otherwise than by an account payee cheque or bank draft.
Approval of
Joint Commissioner [Section 271E(2)]
Section 271E(2) provides that penalty
shall be imposed by Joint Commissioner. Joint Commissioner has been defined in
section 2(28C) of the Act.
Quantum of Penalty under Section
271E
A sum equal to the loan or deposit so repaid.
MINIMUM PENALTY:
— Amount equal to the deposit which is repaid
MAXIMUM PENALTY:
— Same as minimum
Vide Notification No. 8/2020 -
Income-Tax, dated 29.01.2020, the rule 6ABBA shall be inserted and shall be deemed to have been
inserted from the 1st day of September, 2019, namely:-
Text of Rule 6BBA
“OTHER ELECTRONIC MODES
6ABBA. The following shall be the other electronic modes
for the purposes of clause (d) of first proviso to section 13A, clause (f) of
sub-section (8) of section 35AD, sub-section (3), sub-section (3A), proviso to
subsection (3A) and sub-section (4) of section 40A, second proviso to clause
(1) of Section 43, sub-section (4) of section 43CA, proviso to sub-section (1)
of section 44AD, second proviso to sub-section (1) of section 50C, second
proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56,
clause (b) of first proviso of clause (i) of Explanation to section 80JJAA,
section 269SS, section 269ST and section 269T, namely:−
(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment
Service);
(e) UPI (Unified Payment
Interface);
(f) RTGS (Real Time Gross
Settlement);
(g) NEFT (National Electronic
Funds Transfer), and
(h) BHIM (Bharat Interface for
Money) Aadhar Pay”;
Order appealable before Commissioner
(Appeal)
An appeal can be filed under section 246A(1)(n) before Commissioner
(Appeal) against order imposing penalty under section 271E.
Circular No. 09/DV/2016, dated : 26.04.2016 – [F. No.279/Misc./M-116/2012-IT J]
Subject:-
Commencement of limitation for penalty proceedings under sections 271D and 271E
of the Income tax Act, 1961 – reg.
It has been
brought to the notice of the Central Board of Direct Taxes (hereinafter
referred to as the Board) that there are conflicting interpretations of various
High Courts on the issue whether the limitation for imposition of penalty under
sections 271D and 271E of the Income tax Act, 1961 (hereafter referred to as
the Act) commences at the level of the Assessing Officer (below the rank of
Joint Commissioner of lncome Tax.) or at level of the Range authority i.e. the
Joint Commissioner of Income Tax./Addl. Commissioner of Income Tax.
Some High
Courts have held that the limitation commences at the level of the authority
competent to impose the penalty i.e. Range Head while others have held that
even though the Assessing Officer is not competent to impose the penalty, the
limitation commences at the level of the Assessing Officer where the Assessing Officer
has issued show cause notice or referred to the initiation of proceedings in
assessment order.
2. On careful
examination of the matter, the Board is of the view that for the sake of
clarity and uniformity, the conflict needs to be resolved by way of a
“Departmental View”.
3. The Hon’ble
Kerala High Court in the case of Grihalaxmi Vision Addl. Commissioner of Income
Tax, Range 1, Kozhikode, vide its order dated 08.07.2015 in ITA Nos. 83 &
86 of 2014, observed that, “Question to be considered is whether proceedings
for levy of penalty, are initiated with the passing of the order of assessment
by the Assessing Officer or whether such proceedings have commenced with the
issuance of the notice issued by the Joint Commissioner. From statutory
provision, it is clear that the competent authority to levy penalty being the
Joint Commissioner. Therefore, only the Joint Commissioner can initiate
proceedings for levy of penalty. Such initiation of proceedings could not have
been done by the Assessing Officer. The statement in the assessment order that
the proceedings under Section 271D and E are initiated is inconsequential. On
the other hand, if the assessment order is taken as the initiation of penalty
proceedings, such initiation is by an authority who is incompetent and the
proceedings thereafter would be proceedings without jurisdiction. If that be
so, the initiation of the penalty proceedings is only with the issuance of the
notice issued by the Joint Commissioner to the assessee to which he has filed
his reply.”
4. The above
judgment reflects the “Departmental View”. Accordingly, the Assessing Officers
(below the rank of Joint Commissioner of Income) may be advised to make a
reference to the Range Head, regarding any violation of the provisions of
section 269SS and section 269T of the Act, as the case may be, in the course of
the assessment proceedings (or any other proceedings under the Act). The
Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall
not issue the notice in this regard. The Range Head will issue the penalty
notice and shall dispose/ complete the proceedings within the limitation
prescribed under section 275(1)(c) of the Act.
5. Where any
High Court decides this issue contrary to the “Departmental View”, the
“Departmental View” thereon shall not be operative in the area falling in the
jurisdiction of the relevant High Court. However, the CCIT concerned should
immediately bring the judgment to the notice of the Central Technical
Committee. The CTC shall examine the said judgment on priority to decide as to
whether filing of SLP to the Supreme Court will be adequate response for the
time being or some legislative amendment is called for.
6. The above
clarification may be brought to the notice of all officers.
CBDT Circular No. 556, dated 23.02.1990.
Subject : Clarification regarding
applicability of section 269T to amounts kept by agriculturists out of sale
proceeds with commission agents
1. Section
269T of the Income-tax Act provides that no company, co-operative society or firm
shall repay to any person any deposit otherwise than by any account payee
cheque or account payee bank draft where the amount of deposit and interest
thereon, if any, is Rs. 10,000 or more.
2. The
Direct Tax Laws (Amendment) Act, 1987 has amended the definition of “deposit”
for the purpose of section 269T of the Income-tax Act. Under the amended
definition, the said term has been defined to mean “any deposit of money which
is repayable after notice or repayable after a period and, in case of a person other
than a company, includes deposit of any nature”.
3. A
number of references have been received by the Board seeking clarification
whether the sale proceeds of agricultural commodities, left over by the
agriculturists with their ‘Kachcha Arhatiyas’, would also come within the
ambit of deposit of any nature necessitating its payment by an account payee
cheque as provided under section 269T of the Act.
4. The
Board is of opinion that where a ‘Kachcha Arhatiya’ sells goods belonging to an
agriculturist, the sale proceeds thereof which remain with him cannot be
regarded as a deposit made by the agriculturists with the ‘Kachcha Arhatiya’.
Further, whether the ‘Kachcha Arhatiya’ remits only a part of the sale proceeds
to the agriculturist, the unremitted part of the sale proceeds would also not
assume the character of a deposit. Therefore, the repayment of such sale
proceeds does not fall within the purview of section 269T of the Act.
5. However,
such unremitted sale proceeds would assume the character of a deposit if the
amount is retained by the ‘Kachcha Arhatiya’ in pursuance of a direction in
this regard by the agriculturist, irrespective of whether the amount is
retained in the same account or transferred to different accounts and irrespective
of whether the directions are to call it a deposit or just to retain the same
for future payment. The repayment in such cases will be covered under section
269T of the Act.
KEY NOTE
The above circular was relied upon
in Harpal Singh Jaswant Singh v. ITO (1995) 126 Taxation 12 82 TAXMAN 0081 : 51 TTJ 383 (ITAT
Amritsar), and it was held that the provisions of sections 269SS and
269T were not attracted to the facts of the case. (pp. 20-21)
CBDT
Circular No. 522, dated 18.08.1988.
Subject :
Monetary ceilings prescribed in section 40A(3)/269SS/269T - Raised to Rs.
10,000, Rs. 20,000 and Rs. 20,000, respectively, by Direct Tax Laws (Amendment)
Act, 1987 - Clarification regarding effective date of change in monetary
ceilings
1. Provisions
of sections 40A(3), 269SS and 269T have been amended by Direct Tax Laws
(Amendment) Act, 1987 (4 of 1988) and consequently the monetary ceilings
prescribed under the aforesaid sections have been raised from Rs. 2,500 to Rs.
10,000, Rs. 10,000 to Rs. 20,000 and Rs. 10,000 to Rs. 20,000, respectively.
As per provisions of section 1(2) of the Direct Tax Laws (Amendment) Act, these
changes have been made effective from 01.04.1989.
2. Board
has received a number of representations regarding the date of applicability of
the abovementioned amended sections of the Income-tax Act. It is hereby
clarified that the amended provisions of sections 269SS and 269T will apply to
payments or repayments made on or after 01.04.1989. In respect of
disallowance of payments made under section 40A(3), the amendment will apply to
payments made in the previous year relevant to the assessment year
1989-90 and subsequent years.
CBDT
Circular No. 479 , dated 16.01.1987.
Subject
: Whether the payment in cash of
periodical interest amount alone exceeding Rs. 10,000 would attract the
provisions of section 269T
1. Indian
Banks’ Association had sought a clarification as to whether the payment in cash
of periodical interest amount along exceeding Rs. 10,000 would attract the
provisions of section 269T. This section provides that no company, co-operative
society or firm shall repay any deposit otherwise than by an account payee
cheque or account payee bank draft where the amount of deposit or the aggregate
of the amount of deposit together with any interest is Rs. 10,000 or more.
2. The
matter has been examined in consultation with the Ministry of Law. The Board
has been advised that the payment of interest of Rs. 10,000 or more, will have
to be made in the manner provided in section 269T. So far as the repayment of
deposit together with any interest is concerned, there is no room for
doubt. If the amount of repayment after including the interest is Rs.
10,000 or more, the provisions of section 269T would be attracted. This
is because the interest accrued on the deposit and credited to the account
periodically or otherwise partakes of the character of a deposit and as such
becomes a deposit itself.
Conversion
of loan into equity as part restructuring is a genuine transaction and it does
not violate provisions of Section 269T of the Income-tax Act, and hence levy of
penalty is to be deleted
The taxpayer is
engaged in the business of trading of iron and steel and had filed its return
of income for the Assessment Year 2008-09 declaring a loss. The taxpayer had
existing loans in its books of accounts. This loan was converted into equity by
way of book entry without any physical outflow of funds from the side of the
taxpayer, i.e., the taxpayer had squared off the loan by way of allotment of
equity shares with a premium
The
Assessing Officer held that the loan was repaid by the taxpayer otherwise than
by way of account payee cheque or draft and initiated penalty proceedings under
Section 271E of the Act for violation of provisions of Section 269T of the Act.
The Assessing Officer observed that the taxpayer had not brought any material
on record to prove that it was prevented by any reasonable cause for failure to
observe the provision contained under Section 269T of the Act and therefore
would not get benefit under Section 273B of the Act.
The
taxpayer claimed that term ‘repayment’ mentioned in Section 269T of the Act
refers only to repayment in the form of money and does not apply to repayment
in kind or through book adjustments. The CIT(A) held that the transaction of
conversion of loan into equity is not genuine and upheld the levy of penalty by
reiterating the order of the Assessing Officer.
The
taxpayer had duly placed all the relevant data before the Assessing Officer.
Hence the bonafide intention of the taxpayer in placing all facts on record
cannot be doubted at all in the instant case. Increase in share capital has
been examined by the Assessing Officer, and after this examination, the Assessing
Officer had not proceeded to make any addition towards the share capital. Hence,
it could be concluded that the transactions of receipt of share capital and
share premium have been accepted as bonafide and genuine by the Assessing
Officer in the assessment.
Hence,
the observation of the CIT(A) that the taxpayer could have utilised the amounts
raised through share capital from other sources to repay the loan would only
tantamount to stepping into the shoes of the businessman and the Tribunal held
that the said observation is not warranted, more so in the penalty proceedings
under Section 271E of the Act.
The
business compulsions of the taxpayer warranting such conversion of loan into
equity cannot be brushed aside simply as a matter of doubt merely because the
shares were issued at a premium. The remedy available to revenue in such scenario
is provided elsewhere in the Act. These factors cannot contribute to
confirmation of levy of penalty under Section 271E of the Act which is equal to
the amount of loan repaid. Accordingly, it has been held that the levy of
penalty under Section 271E of the Act is not justified and accordingly deleted.
(Related Assessment year : 2008-09) – [Arkit
Vincom (P) Ltd. v. ACIT (2018) TaxPub (DT) 1118 (ITAT Kolkata)]
Penalty under
section 271E - Repayment of loan or deposit – Repayment by cash would not attract
penalty if as on the date of repayment, there was no unsecured loan
The Assessee took cash loans from a party during the
year, on which penalty under section 271D was levied. Subsequently, during the
same year, the credit balance of the party changed to a debit balance and came
within the category of loans and advances. The Assessee repaid the loan, which
was taken earlier, in cash. The Assessing Officer levied penalty on the cash
repayment of loans. The ITAT held that as on the date of cash repayments, the
ledger of the party was not an unsecured loan and hence, no penalty under
section 271E could be levied. (Related Assessment year : 2008-09) – [Hemant Rajnikant Shroff v. Addl. CIT (2016)
179 TTJ 365 (ITAT Ahmedabad)]
Repayment of
loan or deposit – Fresh assessment order was concerned that there was no
satisfaction recorded regarding penalty proceedings under section 271E of the
Act, though in the order the Assessing Officer wanted penalty proceedings to be
initiated under section 271(1)(c) of the Act Penalty under section 271E was
without any satisfaction and no such penalty could be levied
Assessment Order was passed on the basis of CIB
information informing the Department that the assessee was engaged in large
scale purchase and sale of wheat, but it is not filing Income Tax Return.
Ex-parte order was passed at certain income. Assessing Officer observed that
the assessee had contravened the provisions of Section 269SS of the Act and
because of this, Assessing Officer initiated penalty proceedings under section
271E of the Income Tax Act. CIT (A) allowed the appeal and set aside the order
with direction of De novo after affording adequate opportunity to the assessee.
After remand, the Assessing Officer passed fresh Assessment Order. In this
Assessment Order, the Assessing Officer did not recorded satisfaction regarding
initiation of penalty proceedings under section 271E was recorded. On the basis
of original Assessment order, show cause notice was given to the assessee and
it resulted in passing the penalty order. Tribunal and High Court allowed the
appeal of assessee and deleted penalty. On appeal in SC, Hon’ble SC held that
fresh assessment order was concerned that there was no satisfaction recorded
regarding penalty proceedings under section 271E of the Act, though in the
order the Assessing Officer wanted penalty proceedings to be initiated under
section 271(1)(c) of the Act. Penalty under section 271E was without any
satisfaction and no such penalty could be levied. (Related Assessment years : 1991-92,
1992-93) – [CIT v. Jai Laxmi Rice Mills
(2015) 379 ITR 521 : (2016) 286 CTR 159 : 237 Taxman 375 : 134 DTR 223 (SC)]
Book adjustment of funds by assessee to its sister concern -
do not attract penal provisions
A
notice to show cause was issued to the assessee proposing to levy penalty under
section 271E on
the ground that certain payments exceeding Rs.
20,000 were made in cash during the assessment year 1992-93 in violation of
section 269T. It was alleged that a sum of Rs. 2,48,300 was paid to Y and Rs.
24,000 to S in cash. The Assessing Officer rejected the explanation submitted
by the assessee and levied penalty. The appellate authorities confirmed this.
On appeal: Held, allowing the appeal, that except making reference to the
relevant provisions of the Act and the allegation contained in the show-cause
notices, the Assessing Officer did not indicate the method of
payment. It was simply mentioned that everything
was done in cash. The very fact that from the same agencies, amounts were said
to have been received and repaid, as reflected in the books, disclosed that it
was nothing but book adjustment. Further, he did not give any specific finding
that the so-called receipts were in the form of loan or deposit or that
repayment was made thereof. All the three orders passed by the Assessing
Officer were silent about the payment made to S. The appellate authorities
proceeded on the same lines. They did not bestow any attention on whether one
of the sister concerns could take deposit, or loan, from another, without
reflecting it in the books of account. Making book adjustment of the funds by a
firm vis-a-vis its sister concern, could not be said to be violation or
contravention of section 269SS and section 269T. – [Gururaj Mini Roller Flour Mills v. Addl. CIT (2015) 370 ITR 50(T &
AP)]
If assessee's plea about compulsion to pay/
receive loans in cash is not disputed, the violation of section 269SS/269T is
deemed to be bonafide and does not attract penalty
According to the plea
raised, the persons who have advanced these loans to the assessee are relatives
of a salesman who reside in a village and were having no bank account. Such
contention of the assessee has not been discarded or disproved. It is also not
mentioned in the penalty order that the aforementioned amount taken by the
assessee in violation of section 269SS and repayment thereof in violation of
section 269T was not bonafide transaction and the same was made with a view to
evade tax. If it is so, then according to the decision of Hon’ble Bombay High
Court in the case of CIT v. Triumph International Finance (I) Ltd (2012) 345
ITR 720, no penalty is imposable either under section 271D or under section
271E as the explanation submitted by the assessee would be considered to be
reasonable cause under section 273B of the Act. (Related
Assessment year : 2003-04) – [Chemfert Traders (Bombay) Pvt. Ltd v. ACIT – Date of
Judgement : 18.02.2015 (ITAT Mumbai)]
It
was held that where loan/deposit has been repaid by merely debiting account
through journal entries, it must be held that the taxpayer has contravened
provisions of Section 269T of the Act. However, in the absence of any finding
recorded in the assessment order or in the penalty order that the repayment of
loan/deposit was not a bona fide transaction and was made with a view to evade
tax, the cause shown by the taxpayer was a reasonable cause and, therefore, in
view of Section 273B, no penalty under Section 271E could be imposed for
contravening the provisions of Section 269T. – [CIT v. Triumph International Finance (I) Ltd. (2012) 345 ITR 270 (Bom.)]
Where the deposit/ loan has
already been considered as income under section 68, penalty under section 271D
for violation of section 269SS can not be imposed
It was
held that once booking of advance received by constructor had been assessed as
undisclosed income under section 68, same could not be considered as deposit
for levy of penalty under sections 271D and 271E. – [CIT v. Shyam Corporation (2013) 35 taxmann.com519 (Gujarat)]
It was
held that once AO had made addition under section 68 treating deposits received
in cash as non-genuine, then no penalty could be imposed under section 271D. – [ITO v. Smt. Gurmeet Kaur (2012) 27 com173 (ITAT
Jodhpur)]
It was
held that the penalty under section 271E is not automatic and is to be levied only
in the absence of reasonable cause. The rationale behind the provisions of
sections 269SS and 269T is to prevent tax evasion, i.e., the laundering of
concealed income by parties in the guise of cash loans or deposits in or
outside the accounts. The provisions of sections 269SS and 269T therefore have
application only in a limited way in respect of deposits or loans. When it is
is neither deposit nor loan. The (provisions of section 269SS and 269T have no
application at all. – [CIT v. Rugmini Ram
Ragav Spinners (P) Ltd (2008) 304 ITR 417 (Mad.)]
It was of course a case where the
assessee had received sum of Rs.25,000/ from various persons totalling to Rs.
1 lakh. They were advances for procuring silk fabrics. The assessee failed to
deliver the goods and therefore, returned the amount in cash. In the context of
provision contained in section 269T and 271E, the assessee contended that the
amounts being in the nature of advances, would not cover under the expression
"loans or deposits". Repayments thereof in cash therefore, would not
entail penalty under section 271E of the Act. The High Court did not accept the
contention and made the following observations :
37. Viewed as above, the use of
word 'any deposit', in our opinion, has been used to cover all sorts of
deposits and 'trade deposit' also. A restricted meaning, as suggested by the
learned Senior Counsel for the assessee, if given to exclude the trade deposit,
if any within the purview of the words 'any deposit' the very object of the
enactment of Section 269T would be frustrated. Not only this, every time a
vexed question as to whether the deposit in question is a 'trade deposit' or is
a 'deposit' simpliciter would arise and will have to be adjudicated upon by the
authorities concerned which will lead to uncertainty as well as it will amount
colossal wastage of time and energy both of the assessee as well as of the
taxing authorities. Section 269T provides a definite mode of repayment which is
also otherwise very convenient in day to day transaction as the
payment/repayment by a crossed cheque or Bank Draft evidences the payment
itself. It is easy to establish if payment/repayment is made through a Bank
Draft or by crossed account payee cheque. – [Chaubey
Overseas Corporation v. CIT (2008) 303 ITR 9 (All)].
Assessing
Officer levied penalty under sections 271D and 271E in respect of certain
transactions between assessee firm and its' partners described as deposits from
the partners. The transaction related to receipt of deposit during the relevant
assessment year from its partners by way of deposits. Assessing Officer considered
it to be intra party transactions of deposit otherwise then by way of cheque or
bank draft inviting the provisions of sections 269SS and 269T and considered
these payments and repayments were in violation of sections 269SS and 269T
imposed penalty under sections 27 ID and 27 IE respectively for receiving the
deposit in cash and payment incash. The assessee submitted that the partners
and firm were not independent of each other and the firm was not juristic
person, these transactions could not be considered as intra person but were
only for the purpose of carrying on partner's own business. The fact that under
the Act, the firm and partners of the firm are recognised as independent units,
the same cannot be treated for all purposes to be separate and independent.
Hence, the assessee submitted that it had not violated the requirement of
sections 269SS and 269T while conducting these transactions. Assessing Officer
did not accept this explanation and rejected the claim of the assessee and
imposed penalties under sections 27ID and 27IE. CIT(A) deleted the penalties
imposed by Assessing Officer. Tribunal put reliance on a decision of the
Supreme Court in the case of CIT v. R. M. Chidambaram Pillai, etc. (1977) 106
ITR 292 (SC) wherein it was held that there cannot be a contract of service, in
strict law, between a firm and one of its partners so as to consider the salary
paid to the partner as income from salary held that for the purpose of sections
269SS and 269T also the firm and partners cannot be considered to be separate
entity and deleted the penalty.
Held:
The firm was constituted with a particular object of constructing cinema and is
now no more in existence. Section 273B has mitigated the penalty to be levied
under sections 27ID and 27IE by providing that where assessee is able to
establish that there was reasonable cause for failure to comply with sections
269SS and 269T, no penalty is leviable. By considering the decision of the
Supreme Court in the aforesaid decision and considering the facts that under
the general provision relating to Partnership Act that partnership firm was not
a juristic person and for inter relationship different remedies were provided
to enforce the rights arising out of their inter se transactions, the issue
about separate entities apart, it could not be doubted that the assessee has
acted bona fide and his appeal that inter se transactions between the partners
and the firm were not governed by the provisions of sections 269SS and 269T was
bona fide and reasonable ground existed on which they had not adhered to the
requirement of conducting the transaction through bank only. Therefore, CIT(A)
as well as Tribunal was justified in holding that the assessee was otherwise
not liable to be subjected to penalty. Hence, the appeal of the revenue was
disallowed. (Related Assessment year : 1990-91) - [CIT v. Lokhpat Film Exchange (Cinema) (2008) 304 ITR 0172 : (2007) 212
CTR 0371 (Raj.)]
Any payments or repayments made pursuant to current account
maintained between parties cannot be considered as violation of 269SS and 269T
In this case there was a current account in the books of
the assessee in the name of 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 held that
“the deposit and withdrawal of money from the current account could not be
considered as a loan or advance". – [CIT
v. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad)]
It was held that the facts and
circumstances of the instant case clearly indicated that there was a reasonable
cause and therefore, no penalty was leviable. It is settled law that reasonable
cause can be a cause which prevents a man of average intelligence and ordinary
prudence acting under normal circumstances without negligence or inaction or
want of bona fide. In the instant case, the department had not
impeached that the transaction are not genuine. Similarly, no transaction was
noticed outside the books of accounts. The repayments of deposits
were made to the members of the society and it was obvious that the assessee
society entertained a bonafide belief that no contravention of any provisions
of the Act was being made while the repayments of loans/deposits in cash. In
the circumstances, no penalty under sections 269 T read with section 271E could
be imposed. – [Muslim Urban co-op
Credit Society Ltd. (2005) 96 ITD 83 (ITAT Pune)]
Where identity of payee is established and genuineness of transaction is not doubted
It
was held that the introduction of section 269T and section 271E in the statute
is to prevent proliferation of black/ unaccounted money deposited with banks
and other persons by introducing the system of repayment through account payee
cheques and drafts and, thus, to ensure that the identity of the payee is
established. Where the identity of the lender to whom repayment had been made
was known to the department and the genuineness of the loan transaction was not
in doubt, it could not be said that the breach of law, if any, was deliberate
and the default, if any, could be said to be a technical default for which no
penalty would be leviable. – [Addl. CIT v.
Smt. Prahati Baruah (2003) 133 Taxman 74 (Gau) (Mag)]
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