ITAT Amritsar: No Section 269SS Violation for One-Time Cash Payment Before Sub-Registrar

The Income Tax Appellate Tribunal (ITAT), Amritsar, recently delivered a significant judgment clarifying the application of Section 269SS of the Income Tax Act, 1961. This section restricts cash transactions exceeding ₹20,000 for specific purposes. The ITAT’s ruling, specifically pertaining to a cash payment made in a single instance before the sub-registrar during property registration, was challenged by assessing Officer as contravening the provisions of Section 269SS as cash payment was made before sub-registrar for purchase of property.

 The judgment has sparked considerable interest among taxpayers and tax professionals.

Section 269SS of the Income Tax Act, 1961, is a provision designed to curb cash transactions and promote transparency in financial dealings. In essence, it places restrictions on the acceptance of certain sums of money in cash.

What is Section Section 269SS of the Income-tax Act, 1961- that defines Mode of taking loans or deposits and specified sum

No person shall take from any other person any loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], if,—

 (a) the amount of such loan or deposit or specified sum is twenty thousand rupees or more; or

 (b) the aggregate amount of such loan or deposit or specified sum is twenty thousand rupees or more; or

 (c) on the date of taking such loan or deposit or specified sum, the aggregate amount outstanding of the loans or deposits or specified sum taken earlier by such person from the depositor is twenty thousand rupees or more.

 [Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken from or accepted by,—

 (i) the 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 clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

 (v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded, notify in this behalf in the Official Gazette:

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

 Explanation.—For the purposes of this section,—

 (i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes a co-operative bank;

 (ii) “co-operative bank” shall have the meaning assigned to it in clause (dd) of section 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961);

 (iii) “loan or deposit” means loan or deposit of any nature;

 (iv) “specified sum” means any sum of money receivable, whether by way of advance or otherwise, in relation to transfer of immovable property, whether or not the transfer takes place.

Core Purpose of Section 269SS:

• The primary objective of Section 269SS is to prevent the use of unaccounted money (black money) in financial transactions.
• It aims to encourage the use of banking channels for larger transactions, which facilitates tracking and auditing.

In simpler terms Key Provisions of Section 269SS:

• It prohibits any person from accepting any loan or deposit or specified sum of ₹20,000 or more in cash.
• If such a loan, deposit, or specified sum is to be accepted, it must be done through:

• Account payee cheque
• Account payee bank draft
• Electronic clearing system through a bank account (e.g., NEFT, RTGS, UPI)

• The purpose is to ensure that these financial transactions leave a clear trail.

Section 269SS basically says that if someone is giving or receiving a loan or deposit of ₹20,000 or more, it has to be done through a proper banking channel, not in cash.

• There are certain exceptions to this rule, such as transactions with government entities, banks, and certain cooperative societies.
• Violation of Section 269SS can result in penalties.

The Case and the Issue

In the case brought before the ITAT Amritsar, the assessee made a cash payment exceeding ₹20,000 at the sub-registrar’s office during the registration of a property. The Assessing Officer (AO) considered this a violation of Section 269SS and imposed a penalty. The core issue was whether a single cash payment made at the sub-registrar’s office for property registration constitutes a “loan” or “deposit” within the meaning of Section 269SS.

Arguments and Counterarguments

Arguments by the Assessing Officer (AO):

• The AO contended that the cash payment, even though made in a single transaction at the sub-registrar’s office, was a “deposit” or “loan” for the purpose of property purchase.
• The AO emphasized the necessity of adhering to the strict provisions of Section 269SS to prevent black money transactions.
• The AO argued that the nature of the transaction, irrespective of the location, fell under the purview of Section 269SS.

Arguments by the Assessee:

• The assessee argued that the payment was a one-time transaction made directly before the sub-registrar, a government official, for the immediate purpose of property registration.
• The assessee asserted that this payment did not constitute a “loan” or “deposit” as envisaged under Section 269SS.
• The assessee highlighted the transparency of the transaction, as it was conducted in the presence of a government official and recorded in official documents.
• The assessee argued that the intention of section 269SS is to prevent hidden cash transactions, and a payment made in front of the sub registrar is not hidden.

Key Issues Discussed by the ITAT

• Nature of the Transaction: The ITAT meticulously examined the nature of the transaction. It considered whether the payment was a “loan” or “deposit” or a mere payment for the immediate purchase of property.
• Interpretation of “Loan” and “Deposit”: The ITAT delved into the legislative intent behind Section 269SS and the meaning of “loan” and “deposit.” It considered whether a one-time payment for property registration could be equated with these terms.
• Transparency and Intent: The ITAT gave due consideration to the transparency of the transaction, as it was conducted in the presence of a government official. It also assessed the intent behind the transaction, determining whether it was aimed at evading tax.
• Practical Implications: The ITAT considered the practical implications of applying Section 269SS to such transactions, particularly in the context of property registration.

The ITAT’s Judgment on Section 269SS

The ITAT Amritsar ruled in favor of the assessee, holding that the cash payment made at the sub-registrar’s office did not violate Section 269SS. The tribunal reasoned that:

• The payment was a one-time transaction for the immediate purchase of property and not a “loan” or “deposit” in the traditional sense.
• The transaction was transparent, conducted in the presence of a government official, and recorded in official documents.
• Applying Section 269SS to such transactions would create unnecessary hardship for taxpayers and hinder property registration processes.
• The ITAT emphasized the context of the transaction, and the fact that it was not a hidden cash transaction.

Implications of the Judgment

This judgment provides much-needed clarity on the application of Section 269SS in the context of property registration. It underscores the importance of considering the nature and intent of the transaction, rather than solely focusing on the amount of cash involved.

Key Takeaways for Taxpayers:

• One-time cash payments made before the sub-registrar for property registration may not attract penalties under Section 269SS.
• Transparency and documentation are crucial in such transactions.
• Taxpayers should maintain proper records of all transactions to avoid any disputes with the tax authorities.
• It is always advisable to use banking channels for large transactions whenever possible.