Case Digest on Cash Transaction under Section 269SS of the Income Tax Act

Nowadays the black money menace is ongoing in our country and almost every day money laundering scam is unearthed by the Income Tax Authorities. One of the main reasons for this is the large amount of unaccounted cash that is circulating in the country. Tax evasion also seems to be a serious problem causing economic disparities.

Tax evasion happens when there is unaccounted money because of false cash transactions. Section 269SS of the Income Tax Act 1961 is an important provision that brings such transactions within the scope of the Act and helps keep such unaccounted money in check. As per Section 269SS, any deposit or loan or any specific amount should not be accepted from any person other than by an account payee bank draft, account payee cheque, or through an electronic clearing system via bank account, If:

• The deposit, loan, or specified sum is Rs. 20,000 or more.
• The sum of the above three points is Rs. 20,000 or more.
• A person has already received the loan or specified sum or deposit through the depositor; however, the amount of the loan or specified sum, or deposit has not been paid back. In such a situation, if the specified sum, deposit, or loan is Rs. 20,000 or more.

In a nutshell, an individual is not allowed to accept cash deposits or loans of Rs. 20,000 or more from other people under Section 2699 of the Income Tax Act.

Provided further that the provisions of this Section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Income Tax Officer vs Mrs. Lakshmi Vishwanath - 2017 TAXSCAN (ITAT) 101

While adopting a liberal approach in interpreting the term “reasonable cause”under section 271D and 271E of the Income Tax act, 1961, the ITAT, Pune bench held that penalty under these provisions cannot be levied since the genuineness of the transaction was roved before the authorities. Penalty for violation of sections 269SS and 269T of the Act was charged against the assessee, on ground that she made cash transactions with her close relatives. The assessee maintained that the penalty proposals should be dropped since the transactions were genuine. It was further submitted that the said payments and repayments were neither the loans nor advances but these were debts.

Tuhinara Begum vs J.C.I.T - 2017 TAXSCAN (ITAT) 102

A division bench of the Kolkata Income Tax Appellate Tribunal (ITAT), last week held that cash transactions between husband and wife would not attract section 269SS of the Income Tax Act, 1961. As per section 269SS, a person shall not take or accept loan/deposit from other person otherwise than by the prescribed banking channels i.e. A/c payee cheque or account payee bank draft or by use of electronic clearing system so that the aggregate from such person is Rs.20000/- or more.

Allowing the second appeal filed by the assessee, the bench relied on the decision of the ITAT Kolkata in the case of Dr.B.G.Panda wherein the bench dealt with a similar issue. In that case, the Tribunal concluded that “though the expenditure was apparently incurred by the husband being the karta/head of the family, it could not be said that the wife could not have any interest of her own in this house being constructed. The transaction was neither loan nor any gift as no ‘interest’ element was involved and there was no promise to return the amount with or without interest. It was clear that the money given by the wife was a joint venture of the family.”

Income Tax Officer vs Mrs. Lakshmi Vishwanath - 2017 TAXSCAN (ITAT) 101

The division bench of the Tribunal noted that the assessee had reasonable cause for violation of the law. Because the assessee does not receive any cash directly but the cash deposited in her bank account which she did not any control over the amount and she also immediately refunded the amount. Since there was a ‘reasonable cause’, on the part of the assessee, the bench has cancelled the entire penalty charged by the AO against the assessee. While allowing the appeal of the assessee the bench also mentioned about the same decision taken by the Supreme Court on a similar issue in a previous case.

Since the assessee could not prove the said transactions with documentary evidence, the Assessing Officer added back Rs.16.18 lakhs under section 68 of the Income Tax Act and also initiated penalty proceedings for violation of Section 269SS separately.

Sri Nikhil Banik Mazumder vs JCIT - 2018 TAXSCAN (ITAT) 102

The Income Tax Appellate Tribunal (ITAT), Kolkata bench on Wednesday held that cash transaction between close family members for giving a support and help would not attract penalty under section 269SS of the Income Tax Act, 1961.

The Tribunal viewed that the transaction between son and father and wife and husband, for giving a support and help, in law, is not a loan or deposit in stricter sense of section 269SS of the Act and it is only a financial support, therefore, penalty imposed by the Assessing Officer and confirmed by the ld CIT(A) needs to be deleted, and accordingly we quash both the penalty orders, i.e, under section 269SS and 269T of the Income Tax Act.

Sri Jagmohan Sharma vs JCIT - 2018 TAXSCAN (ITAT) 104

Income Tax Appellate Tribunal (ITAT), Kolkata bench has deleted penalty under section 273B of Income Tax Act 1961 and proclaimed that the cash transactions with sister-in-law and nephew does not fall in the definition of ‘loan’ for the purpose of section 269SS of the Act.

The division bench also specified that the transactions between these family members are neither loans nor deposit and purely a family system and purely a family requirement to help each other in the needy hours. Therefore, the transaction between Sister-in-law and Nephew did not fall in the definition of the loan.

SHRI SHYAM SUNDER vs SOHAN SINGH @ SHOBAN SINGH - 2018 TAXSCAN (HC) 112

The Delhi High Court, in a recent ruling, dismissed an order of the Trial Court wherein a money recovery suit was dismissed on the ground that loan transactions above Rs. 20,000 cannot be recognized since such transactions are barred by the Income Tax Act under the provisions of sections 269SS and 269T.

Justice Prathiba M Singh held that “In so far as this is concerned, Sections 269SS and 269T do make it compulsory for persons who accept loan or deposits of about Rs.20,000/- to accept them only through proper banking channels. The consequence of not doing so could fasten the parties with penalties under the Income Tax Act, 1961 which the Court is not concerned with in these proceedings. The Plaintiff and the Defendant could be in violation of the said provisions which would be gone into by the Income Tax Authorities. Authorities are free to take action against the parties for violation of the provisions of the said Act. Under instructions from the Plaintiff, counsel for the Plaintiff submits that the Plaintiff used to file Income Tax Returns till 2 to 3 years back and has not filed any returns recently.”

Mr. Girishkumar Popatlal Patel Gayatri vs The Joint Commissioner of Income Tax - 2018 TAXSCAN (ITAT) 103

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that if cash was received from brother and father of the assessee to meet business exigencies, such transactions cannot be treated as the violation of section 269SS of the Income Tax Act, 1961. The bench comprising Rajpal Yadav (JM) and N K Billaiya (AM) clarified that in such cases, the penalty under sections 271D and 271E of the Income Tax Act cannot be levied.

The bench noted that Shri Bhupendrabhai Patel (Brother of Assessee) was also an employee of the assessee and his salary was also credited in the same account where the impugned acceptance/repayment of cash was found and is akin to current account.

I.T.O vs M/s Dayamayee Marble & Granite - 2018 TAXSCAN (ITAT) 105

In ITO vs. M/s. Dayamayee Marble & Granite, the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) cancelling the penalty held that the capital contributed in Cash Transaction by the partner in the partnership firm does not tantamount to loan or deposit within the meaning of section 269SS of the Income Tax Act, 1961.

The Bench comprising of Judicial Member A.T. Varkey and Accountant Member M. Balaganesh observed “We find that the capital contributed by the partner in the partnership firm does not tantamount to loan or deposit within the meaning of section 269SS of the Act and accordingly we do not find any infirmity in the order of the ld. CIT(A) cancelling the penalty levied thereon. Hence, we do not deem it fit to interfere in the order of the ld. CIT(A).”

Shri Sunil Kumar Sood vs The JCIT - 2018 TAXSCAN (ITAT) 106

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently held that cash loan from the wife for the purchase of the house which is for the benefit of the whole family cannot be a ground for imposing the penalty under section 271D of the Income Tax Act.

Before the Tribunal, the assessee submitted that the provisions of section 269SS do not bar genuine cash transactions of the loan but bar only those transactions which are entered with the intention to evade taxes. These provisions are made to counteract evasion of tax but not to bar cash transactions between close relations. It was further submitted that in the instant case, it is not a case where unaccounted cash was found in the course of search and seizure operations. The assessee was helped by his wife for acquiring two properties out of which one was for the residence of family members and the other property was for office purposes.

Shri Tej Narayan Agarwal vs Addl. CIT - 2018 TAXSCAN (ITAT) 107

The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the penalty for cash transactions cannot be imposed on genuine transactions.

The bench further noted the decisions in CIT vs. Deccan Designs (India) P Ltd and also in the case of Director of Income Tax (Exemption) vs. All India Deaf and Dumb Society wherein it was held that where the transactions are genuine and enough reasons are offered by the assessee to justify the cash transaction, the penalty is not leviable both u/s 271D and 271E of the Act.

M/s.P.R. Associates vs ACIT - 2019 TAXSCAN (ITAT) 103

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that no penalty under section 271D of the Income Tax Act can be levied for cash transactions above the permitted limit if such payment was made due to the insistence of the lenders.

After considering the facts of the case deeply, the Tribunal held that the assessee specifically submitted before the AO during the course of penalty proceedings, which fact has also been captured in the penalty order, that its business was inoperative for the last 7 years and it had already borrowed loans from Shree Suvarna Sahakari Bank Ltd. and many private money lenders since last 10 years.

M/s. Space N Place Promoters P. Ltd vs Joint Commissioner of Income Tax - 2019 TAXSCAN (ITAT) 102

The Income Tax Appellate Tribunal (ITAT), Chennai has held that no penalty can be imposed for receiving advances from the promoters in cash through their respective current accounts.

“Nothing has been brought on record by the Revenue to show that the receipts were superfluous in nature and not for the business of the assessee. Had it been so, it would have come out in the scrutiny assessment done for the impugned assessment year. Admittedly, there were no adverse findings in such scrutiny. Hon’ble Jurisdictional High Court in the case of Idyayam Publications Ltd, (supra), has clearly held that cash transactions in the current account of a company with its promoters, where such current account was a running one, could not be considered as loan or advances. There is no case for the Revenue that assessee had not produced ledger before ld. Assessing Officer during the course of assessment proceedings or that the accounts of the promoters in the books of the assessee were not in the nature of funds introduced for the running of its business. Hence, considering the judgment of Hon’ble Jurisdictional High Court in the case of Idyayam Publications Ltd (supra), we are of the opinion that advances received from the promoters in cash through their respective current accounts could not be considered as loan or advances coming within the ambit of Section 269SS of the Act,” the Tribunal said.

Sonia Malik vs JCIT - 2019 TAXSCAN (ITAT) 101

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the cash loan received from the parents and brother of the assessee for the purchase of the house for the whole family cannot be penalized under Section 271D of the Income Tax Act.

The assessees had received loans in cash from close family relations, the penalty levied u/s 271D was deleted. Since the assessee, in the instant case, has received cash loan from her parents and brother to meet the stamp duty cost for purchase of a house property for her own living, therefore, it is not a fit case for levy of penalty u/s 271D of the Act and the provisions of section 273B will come to the rescue of the assessee as a reasonable cause,” the Tribunal said.

Gourang Chandra Nayak vs JCIT - 2019 TAXSCAN (ITAT) 104

In a recent order of the Income Tax Appellate Tribunal, Cuttack held that the transaction between the relatives of family members for giving support and help does not amount to loan or deposit under section 269SS of the Income Tax Act.

The tribunal has further categorically stated that simple transaction of transfer of money from one family members to another family members to support him during the medical emergency period cannot be treated as loan or advance and transaction falling under the ambit of section 269SS of the Act. Further, the tribunal also observed that in case of acting as a trustee of money, till it is deposited in bank account in the name of the trust, the transactions cannot be termed as loan or advance in cash which attracts penalty \u./s.271D of the Act.

Smt. Meera Devi Kumawat vs Joint Commissioner of Income Tax - 2021 TAXSCAN (ITAT) 171

In a welcoming ruling favouring women in the country, the Income Tax Appellate Tribunal (ITAT), Jaipur has held that penalty under section 271D of the Income Tax Act, 1961 cannot levied on wife for receiving money from her husband for purchase of family property.

The Tribunal held that “we find the explanation so furnished as reasonable and plausible and donot find any malafide in the explanation so submitted as everything is flowing from the registered sale deed where transactions have been duly documented including the payment through demand draft and cash which is from the known sources of funds contributed by the assessee’s husband. Further, the assessee has explained the payment of construction expenses which are also required to be incurred in cash towards the purchase of construction material and payment to labourers. We therefore find that the assessee has offered reasonable explanation justifying the cash transactions and thus, in the entirety of facts and circumstances of the case and considering various decisions cited at the Bar which also support the case of the assessee especially the decision of the Coordinate Bench in case of Tuhinara Begum where there was a reverse situation where the wife gave money to husband for construction of house which was held not exigible for levy of penaty u/s 271D, we are of the considered view that the assessee doesn’t deserve to be punished by way of levy of penalty u/s 271D for receiving money from her husband for purchase of family property and hence, the same is directed to be deleted.”

Shri Balwan Singh vs Asst. Commissioner of Income Tax - 2022 TAXSCAN (ITAT) 374

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the penalty under sections 271D and 271E of the Income Tax Act, 1961 cannot be leviable on receipt of cash loan from family members to meet business exigencies.

“The assessee has shown existence of reasonable cause in accepting/repayment of cash to meet the immediate business requirements. In our view, mitigating circumstances exists to exonerate the assessee from the recourse of penalty under Sections 271D and 271E of the Act. We accordingly set aside the order of the CIT(A) and cancel the penalty imposed under Sections 271D and 271E of the Act by the competent authority,” the Tribunal said.

Akash Education & Development Trust vs The Addl. Commissioner of Income Tax - 2022 TAXSCAN (ITAT) 409

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that the managing trustee of the society is not covered by the expression “any other persons” occurring in section 269SS or 269T of the Income Tax Act, 1961 and therefore, penalty cannot be levied for such cash transactions.

Holding that the managing trustee of the society is not covered by the expression “any other persons” occurring in section 269SS or 269T of the Act, the Tribunal said that “More so, the transaction undertaken by the assessee with managing trustee is incidental to attainment of main object of assessee society and in this context, if the assessee has not paid money to the contractors who have undertaken construction of the building, the managing trustee himself is liable for all the consequences of non-payment even bouncing of cheques for insufficient funds and in that view the money advanced by the managing trustee to the assessee to meet the urgent business exigency amounts to reasonable cause within the purview of section 273B of the Act and on this count also, the penalty cannot be levied. Further, the concept of mutuality is primarily based on the principle that one cannot profit from himself. Thus, when the managing trustee provided funds to the society to meet urgent business exigency, it cannot be said that it was a loan transaction so as to attract penalty u/s. 269SS of the Act.”

Sunil M. Bhide vs Addl.CIT - 2022 TAXSCAN (ITAT) 615

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that penalty under sections 271D and 271E of the Income Tax Act, 1961 is not leviable when cash transactions of accepting loans and repayments were made by the assessee due to “pressing requirements” and the same can be treated as a “reasonable cause” for the same.

The Tribunal bench comprising Shri R.S. Syal, Vice President and Shri S.S. Viswanethra Ravi, Judicial Member has observed that the above assertion has not been controverted by the AO.

Kalpesh Mahidas Maradia vs Add. CIT - 2022 TAXSCAN (ITAT) 937

The Rajkot bench of the Income Tax Appellate Tribunal (ITAT) consisting of Shri Waseem Ahmed (Accountant Member) and Shri Siddhartha Nautiyal (Judicial Member) has held that the cash loan accepted from the proprietary concern of the father of the assessee cannot attract the provisions of section 269SS and the consequent penalty under section 271D of the Income Tax Act, 1961.

“In view of the decision of the jurisdictional Gujarat High Court in the case of Dr. Rajaram L. Akhani supra and other case laws cited above, as applicable to the facts of the case, in our view so far as receipt of ₹ 12,49,526/- by the assessee from his father’s proprietary firm is concerned, the provisions of section 269SS do not stand attracted. There is nothing on record to show that the amount was taken as a loan or deposit by the assessee from his father and also there is nothing on record to establish that the assessee was under an obligation to repay that the same (with or without interest) and therefore in view of the judicial precedents cited above, in our view provisions of section 269SS cannot be invoked so far as the amount of ₹ 12,49,526/- is concerned.”

Analytical Technologies Ltd vs DCIT - 2022 TAXSCAN (ITAT) 1151

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the loan to the Director due to urgent need of finance in the Company which is duly reflected in the journal entries will not be a violation of section 269SS of the Income Tax Act, 1961 and therefore, penalty under section 271D will not be sustained.

A bench of Shri Waseem Ahmed, Accountant Member and Shri T.R. Senthil Kumar, Judicial Member observed that the assessee clearly established that the loan availed by the Director Sivaprasad Patnam is transferred to the assessee company because of its company is urgent need of cash/finance.

Sh. Raman Chaudhary vs ACIT - 2022 TAXSCAN (ITAT) 1280

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the cash loan between agriculturalists will not attract the provisions of section 269SS of the Income Tax Act, 1961 and therefore, penalty cannot be imposed.

Holding that the assessee’s case would be covered under the exceptions provided in the second proviso to section 269SS, the Tribunal held that “Hence, the provision of section 269SS would not be applicable. In view of the aforesaid, we hold that the penalty imposed under section 271D of the Act is unsustainable. Accordingly, we delete it.”

JICE Academy for Excellence Pvt. Ltd vs NFAC - 2022 TAXSCAN (ITAT) 1587

The Income Tax Appellate Tribunal (ITAT), Bangalore deleted penalty as the cash loan under Section 269SS of the Income Tax Act, 1961 given by Executive Directors to meet urgent financial needs of company.

A Coram Consisting of N V Vasudevan, Vice President and Chandra Poojari, Accountant Member observed that “the transaction between assessee company and its Executive Directors is on account to meet the urgent financial requirements of the company. Accordingly, it cannot be considered and there exist reasonable causes for accepting the money in cash from the Executive Directors of the company who are responsible for day-to-day affairs of the company. In our opinion, in this case, levy of penalty u/s 271D of the is unwarranted.”

Sathyanarayanan Radhika, Vs Asst. Commissioner of Income Tax - 2022 TAXSCAN (ITAT) 1416

The Chennai Bench of Income Tax Appellate Tribunal has held in favour of the appellant-assessee, Sathyanarayanan Radhika that, the deduction of interest on loan amount taken by him in the previous year cannot be treated as unexplained and reassessed.

The Bench comprising Mahavir Singh and Manoj Kumar Aggarwal observed that, “the loan amount of Rs.1.25 Crores was taken in the previous year from Shri R. Sathyanarayanan and the balance amount of Rs.17,00,690/- was interest on the loan amount and this cannot be treated as unexplained and moreover, there is no failure of the provisions of Section 269SS of the Income Tax Act, 1961 because the assessee has not received any cash loan.” and held that “ we quash the revision order and allow the appeal of the assessee.”

PRINCIPAL COMMISSIONER OF INCOME TAX vs RISHIKESH BUILDCON PVT. LTD. - 2022 TAXSCAN (HC) 910

The Delhi High Court quashed penalty under Section 271D of the Income Tax Act, 1961 on the ground that there was lapse of six months on penalty proceedings on violation of cash transactions under Section 269SS of the Income Tax Act.

A Bench comprising of Justice Manmohan and Justice Manmeet Pritam Singh Arora observed that “The ITAT was correct in law in deleting the penalty imposed by the Additional Commissioner of Income Tax, under Section 271D of the Income Tax Act, on the ground that the penalty order, was passed beyond the time period prescribed by Section 275(1)(c) of the Income Tax Act, the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO.”

GAJANAN Vs APPASAHEB SIDDAMALLAPPA KAVERI - 2022 TAXSCAN (HC) 931

A Single Bench of the Karnataka High Court has recently held that, transactions of more than Rs.20000/-  in cash, does not vitiate the proceedings under Section 138 Of the Negotiable Instruments Act, 1881 but only results in an additional penalty under Section 269SS of the Income Tax Act, 1961. It was observed that, the said contravention of Section 269SS of the Income Tax Act does not make the alleged transaction void. The concerned authorities can take necessary action against the complainant for non compliance of Section 269 of the Income Tax Act.

DCIT vs M/s. VME Precast Pvt. Ltd - 2022 TAXSCAN (ITAT) 1795

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that No disallowance u/s 269SS when disallowance has already been made on payments for construction contract and Penalty u/s 271 D of the Income Tax Act,1961 is not leviable. Once, it is established that these payments are for construction contracts and particularly the AO has made disallowance by invoking the provisions of section 40A(3) of Income Tax Act the no disallowance can be made by invoking the provisions of section 269SS of the Act for levy of penalty u/s.271D of the Income Tax Act.  The Tribunal upheld the order of CIT(A) deleting the penalty and dismissed the appeal of Revenue.

H.K. InfraventurePvt. Ltd. vs Joint Commissioner of Income Tax - 2023 TAXSCAN (ITAT) 217

Income Tax Appellate Tribunal ( ITAT ) upheld the addition for exceeding the limit of cash transactions under section 269SS of Income Tax Act, 1961 made by the Assessing Officer (AO). That no reasonable cause or urgency is shown by the assessee for having accepted cash aggregating to Rs. 1,10,02,000 on different occasions from  Hemant Kumar Sindhi, Director. Furthermore, it was not possible to demonstrate why the transactions could not be carried out in accordance with the modes specified under section 269SS of the Income Tax Act. Additionally, the Private Limited firm and the Director are entirely different entities under the terms of Section 2(31), thus there can be no disagreement on this point.

Prakash Asphaltings & Toll of Highway (India) Ltd. vs ACIT  - 2023 TAXSCAN (ITAT) 360

The Indore bench of Income Tax Appellate Tribunal ( ITAT ) recently held that in case of “loan given” Penalty under section 271D Income Tax Act 1961 would be invalid. section 271D  Income Tax Act 1961 provides that if any person accepts any loan in contravention of the provision of 269SS Income Tax Act 1961 he shall be liable to pay an amount by way of penalty.

Siddha Chetty Natarajan vs Income Tax Officer - 2023 TAXSCAN (ITAT) 387

The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) has upheld the penalty under Section 271D of the Income Tax Act 1961 on contravention of Section 269SS for sale of property for Hindu Undivided Family. The Division Bench of Mahavir Singh, (Vice President) and G. Manjunatha, (Accountant Member) dismissed the appeal filed by the assessee observing that, “As regards, the claim of the assessee that property was owned by HUF, if you go by date of generating PAN number for HUF, the assessee HUF has generated PAN number on 03.03.2017 much after the date of sale of asset. Further, the appellant has filed a return for HUF capacity on 30.03.2018. In our considered view, the documents relied upon by the assessee can only be considered as an afterthought to circumvent penalty proceedings initiated in his individual capacity.”

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