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Application of sec 269ss & t

CA Uday Kiran (Chartered Accountant) (85 Points)

11 May 2012

Dear all,

Does Sec 269SS & T aply to advances received from customers ?

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8 Replies

Tejas Jain (Chartered Accountant) (314 Points)
Replied 11 May 2012

Section 269SS: Section 269SS provides that any loan or deposit shall not be taken or accepted from any other person 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

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid and the amount or the aggregate amount remaining unpaid ; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more :

Thus it is clear that no person can accept any loan or deposit of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs 20000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr X has a credit balance of a loan of Rs 19000 from Mr Y. Now in this case Mr X cannot take loan in excess of Rs 999 more from Mr Y except with an account payee cheque or account payee bank Draft.

Exemptions from section 269SS: The Following persons are exempted from the purview of section 269SS:

a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

and

Section 269T : Section 269T of Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
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, if

(1) The amount of the loan or deposit together with interest is Rs 20000 or more, or
(2) 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 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

Exemptions from Section 269T: The Following persons are exempted from the purview of section 269T:

Hence it Applies to Customer Advances also..

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Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 11 May 2012

Mr Uday, advances received from customers is in the ordinary course of the business of the company. hence I don't think that it would partake the nature of loan or deposit to attract the provision of section 269SS or 269T.

for the purpose of attracting the provison of the said sections, there should be an loan or deposit taken Moreover, the section does not specifies that loan or deposits includes advacnes also. Even if it would have included it, then also the advances would not have been considered as loans, as it is in the ordinary course of the business.

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Gufran Khan (Deputy Manager - Internal Audit) (78 Points)
Replied 11 May 2012

I agree with your point Mr Giridhar.

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CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 11 May 2012

Uday ji,

Agreed with Mr. Giridhar, Advance from customer can not be considered as loan or deposit.

Therefore, it does not attract 269SS & T.

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CA rafiq (ca) (129 Points)
Replied 13 May 2012

if we received advances from customer in cash and repaid in cash above 20000 for cancellation of transaction. is this valid transaction as per income tax act.?

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Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 13 May 2012

Yes it is a valid transaction, because as said above the provision of section 269SS & T do no get attracted in case of transactions conducted in ordinary course of business.

Also the provision of sectino 40(A)(3) do not get attracted becasue advance is an B/s item & not routed through the P&L.

CA rafiq (ca) (129 Points)
Replied 16 May 2012

thank you frd. and if received through cheque and returned amount in cash is answer changes is it attacts 266s&t or 40(A)3

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 16 May 2012

Dear Rafiq, section 40(A)(3) is applicable only for expenditure incurred & not for revenue items. Moreover as pointed out by me in my earlier posting, the provison of 269Ss & T are not applicable for transaction taking place in the ordinary course of business.