By : CA Sanjay Agarwal Mb : 9811080342 Email id : agarwal.s@gmail

1. Analysis of Section 269T of the Income Tax Act, 1961 Mode of repayment of certain Loans or Deposits By : CA Sanjay Agarwal Mb: 9811080342 Email id: agarwal.s.ca@gmail.com

2. Section 269T - Mode of repayment of certain Loans or Deposits • The section was introduced by Finance Act, 1984w.e.f. 1-4-1984. Later substituted by the Finance Act, 2002, w.e.f. 1-6-2002(Circular No. 8/2002, dated 27-08-2002)

3. Applicability The section is applicable on: • Branch of a banking company • Branch of a co-operative bank • other company • co-operative society • firm or • other person If • Any person as specified above • repay any loan or deposit made with 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 in the following cases • the amount of the loan or deposit together with the interest, if any, payable thereon, is Rs. 20,000/- or above or • the aggregate amount of the loans or deposits 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 is Rs. 20,000/- or more

4. Loan or Deposit means……. • "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

5. First proviso to section • Where the repayment is by a branch of a banking company or co-operative bank, such repaymentmay 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.

6. Non- Applicability The section shall not apply to repayment of any loan or deposit taken or accepted from— • Government; • any banking company, post office savings bank or co-operative bank; • any corporation established by a Central, State or Provincial Act; • any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); • 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.

7. Circulars

8. First proviso to section • Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-1-1987] • 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. • * Monetary ceilings Raised to Rs. 20,000/- - Circular: No. 522, dated 18-8-1988]

9. Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-1-1987] • 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. • * Monetary ceilings Raised to Rs. 20,000/- - Circular: No. 522, dated 18-8-1988]

10. Circular: No. 556, dated 23-2-1990 • Where a ‘KachchaArhatiya’ 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 ‘KachchaArhatiya’. Further, whether the ‘KachchaArhatiya’ 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. • However, such unremitted sale proceeds would assume the char­acter of a deposit if the amount is retained by the ‘KachchaArhatiya’ 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 • The above circular was relied upon in Harpal Singh Jaswant Singh v. ITO [1995] 82 TAXMAN 81 (ASR.)(MAG.)(SMC)

11. Section 271E - Penalty for failure to comply with the provisions of section 269T • Penalty of a sum equal to the amount of the loan or deposit so repaid in case of contravention of the provisions of this section. • Penalty shall be imposed by the Joint Commissioner

12. Issues

13. Issue- Applicability of 269T in case of Loan or deposit received/repaid by way of journal entries • Repayment of loan/ deposit by debiting the account through journal entries amounts to contravention of the provisions of section 269T of the Act. However, where the assessee has shown reasonable cause, the penalty cannot be imposed under section 271E of the Act. CIT v. Triumph International Finance (I) Ltd. [2012] 345 ITR 270 (Bom.) • Where amounts have been received or paid in cash were mere book entries and were part of transactions on behalf of family members, it could not be said that there was violation of sections 269SS and 269T so as to attract penalty. CIT vsNatvarlalPurshottamdas Parekh [2008] 303 ITR 5 (GUJ.)

14. Issue- Whether advances made by a specified person towards allotment of shares to a company and its repayment by the said company are to be treated as a ‘loan’ or ‘deposit’ within the meaning of section 269T • Where the amount received is only for the purpose of allotment of shares and it is not a deposit or loan. In this case, the reasonable cause is that the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares and there was no material or evidence or any compelling reason produced by the revenue to prove that the money received was a deposit or loan; as such levy of penalty on the assessee under section 271E was not justified. CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 304 ITR 417 (Mad.)

15. Issues……… • Penalty under Section 271E for offences under section 269T could not be imposed if the same were committed prior to April 1, 1989.Kothari & Co. v. CIT [2006] 157 Taxman 433 (MP). • Where assessee made repayment of loan in a manner other than by account payee instruments before 1-6-2002, it did not result in violation of section 269T. CIT vs Jet Life India Ltd. [2011] 16 taxmann.com 403 (Delhi) and ITO vsSudesh Kumar Sareen [2010] 005 ITR (Trib.) 829 (Del- Trib.) • Expenditure incurred by assessee hostel which was reimbursed by managing trustee of school would not be treated as deposit or loan so as to attract sections 269SS and 269T. ITO vsVS Hostel [2012] 27 taxmann.com 18 (Guj.)

16. Issues……… • Amount of loan or deposit re-paid in parts not exceeding Rs. 20,000 on a single day would not absolve the assessee from rigour of section 269T of the Act as is clear from the section itself. Since the repayment on various dates is the repayment out of the amount of Rs. 2,00,000, though in part, the repayment is squarely covered by the provisions of section 269T of the Act. Ajay GoelvsAsstt. CIT [2010] 1 ITR (Trib.) 569 (Delhi- Trib.)

17. Issues……… • Where the assessee was merely acting as a conduit between group concern and contractors by receiving money for the purpose of paying the contractors and thus enabling them to carry on the work. The amounts could not be considered as loans or deposits even in the general sense. It was an arrangement whereby the responsibility for supervising the contract work was entrusted to the assessee whose responsibility was to make payments to the contractors out of the amounts received. Since the amounts received by the assessee could not be considered as loans or deposits, there was no violation of section 269T when the assessee made payments in cash to the contractors for and on behalf of group concern. Accordingly, there was no justification for the penalty. Canara Housing Development Co. vs Addl. CIT [2010] 1 ITR (Trib.) 165 (Bang.)

18. Issues……… • Repayment of of loan by partners to firm does not attract provisions of Section 269T and penalty could not be imposed as the firm and the partners are not independent of each other. CIT vsLokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

19. Issues……… • The use of word ‘any deposit’, has been used to cover all sorts of deposits and includes ‘trade deposit’ also. If a restricted meaning is 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 that, 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 amount to 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 a bank draft evidences the payment itself. It is easy to establish any payment/repayment if it is made through a bank draft or by crossed account payee cheque. Chaubey Overseas Corpn. Vs CIT [2008] 170 Taxman 9 (All.)

20. Issue - Repayment to ex- partner out of capital remaining with assessee firm, not covered • Repayment of amount out of capital remaining with the assessee-firm could not be said to be repayment out of loan or deposits and, therefore, was not covered the provisions of Section 269T of the Act. ITO vs Shree Mahaveer Industries [2004] 82 TTJ (Jodh.) 549

21. Issue - Penalty can be initiated even after completion of assessment proceedings • The penalty proceedings under sections 271D and 271E could be initiated even after completion of regular assessment proceedings. CIT vsEmeskay Financial Services Ltd. [2010] 124 ITD 435 (Vishakhapatnam- ITAT)

22. By : CA Sanjay Agarwal Mb: 9811080342 Email id: agarwal.s.ca@gmail.com