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Acceptance of loan by book tranfer

Suresh Goel (servuce) (335 Points)

25 October 2007

Is there is any violation of section 269SS if a company tranfer a funds from its creditors account to their respective unsecured loan accounts

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5 Replies

CA.Saibaburao Nanduri (Chartered Accountant) (3847 Points)
Replied 25 October 2007

Dear Suresh Goel !
269 SS say as follows...
No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,—

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

The section said that 'take or accept' . Book adjustment comes under the purview of 'acceptance'. Hence the provisions shall apply.

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Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 25 October 2007

There will be technical violation . Biut, since there is reasonabe cause , penalty may not be levied.

CA. Dashrath Maheshwari (TaXpert) (15103 Points)
Replied 25 October 2007

Yes provision of sec 269 SS will apply on this

Srivathsan Rangarajan (Chartered Accountant) (66 Points)
Replied 26 October 2007

One should not ignore the meaning of the words loan and deposits. These words connote a transfer of funds. Also the object of the section is to curb the black / illegal money being converted into white money by being brought into business. Thus the source and object of the transaction need to be seen. Where funds have been accepted on an earlier date for genuine business purposes (say against future supplies i.e., advance payments) and later treated as loans on account of commercial / business exigencies section 269ss will not apply.If the transaction was in nature of loan or deposit right from the begnning there is no question of deferment of the section to a date later than the very date of the transaction. Note that the cluthes of the section, as is commonly understood, are not so tight as to stifle genuine business transactions.

Vijay K. Agrawal (Service) (608 Points)
Replied 26 October 2007

Dear, Basically we have to first understand the why this section came in to picture. the purpose of this section is to curb cash transactions which can not be traced. in this transaction is already recorded in the books and can always be traced. hence this will not atracted section 269SS