Section 269SS — Mode of Taking or Accepting Certain Loans, Deposits and Specified Sum

CHAPTER XX-B — REQUIREMENT AS TO MODE OF ACCEPTANCE, PAYMENT OR REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX

Section 269SS — Mode of taking or accepting certain loans, deposits and specified sum

Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise

Status: Live and heavily litigated. Inserted by the Finance Act, 1984 (w.e.f. 1-4-1984); "specified sum" added by FA 2015; third proviso (PACS/PCARDB) added by FA 2023.

Finance Act, 2026: No amendment by the Finance Act, 2026. Cash-transaction framework retained for AY 2026-27.

Mechanism: Bar on taking/accepting loans, deposits and specified sums in cash at or above Rs. 20,000 (Rs. 2,00,000 for PACS/PCARDB members). Permitted modes: account payee cheque / draft / ECS / prescribed electronic mode (Rule 6ABBA). Penalty: s. 271D (100%); relief: s. 273B reasonable cause.

Litigation profile: Very high. Among the most litigated penalty provisions; rich body of SC, HC and ITAT authority.

A. COMMENTARY

Place in the scheme of the Act

Section 269SS opens Chapter XX-B, a self-contained code whose long title — "Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax" — announces its purpose. The Chapter is not a charging provision and does not bring any sum to tax. It is a regulatory or anti-evasion measure that prescribes the permissible channel — banking channel rather than cash — for four classes of transaction: the taking of loans, deposits and specified sums (s. 269SS); the receipt of large amounts generally (s. 269ST); the provision of electronic-payment facilities by large businesses (s. 269SU); and the repayment of loans, deposits and specified advances (s. 269T). A breach is visited not with disallowance of the expenditure but with a free-standing penalty under Chapter XXI — s. 271D for s. 269SS — equal to the very amount transacted in cash.

Legislative object

Section 269SS was inserted by the Finance Act, 1984 with effect from 1 April 1984. The mischief it addresses is the all-too-familiar device by which an assessee confronted with an unexplained cash credit produces, after the event, a lender willing to swear that he advanced the money in cash. Because a cash loan leaves no banking trail, such explanations were impossible to verify. The section therefore compels that loans and deposits at or above the threshold pass through an account payee instrument, so that the genuineness of the lender and the source can be tested independently. The Supreme Court has authoritatively explained this object in A.B. Shanthi (below), and that object governs the construction of every limb of the section.

The threshold and the aggregation rule

The bar is triggered once the amount is "twenty thousand rupees or more". The figure is not tested transaction by transaction in isolation; clauses (a), (b) and (c) build an aggregation rule. One looks at (a) the amount or aggregate of the loan, deposit and specified sum then being taken; (b) any earlier loan, deposit or specified sum from the same depositor still remaining unpaid (whether or not repayment has fallen due); and (c) the two together. If any of these is twenty thousand rupees or more, the section bites. The practical effect is that a fresh cash receipt of even a small sum is hit if, when added to an unpaid earlier balance from the same person, the running total reaches the threshold.

"Loan or deposit" and the insertion of "specified sum"

By the Explanation, "loan or deposit" means a loan or deposit of money. The Finance Act, 2015 (w.e.f. 1 June 2015) widened the section by adding "specified sum" — any sum receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer ultimately takes place. This amendment was a direct legislative response to large cash advances ("on-money") in property dealings and brought earnest money and sale advances within the cash bar even though, in strict contract law, an advance against sale is neither a loan nor a deposit. The distinction matters when applying earlier case law: rulings that a transaction was "not a loan or deposit" may no longer assist where the receipt answers the description of a "specified sum".

Permitted modes

The only permitted modes are an account payee cheque, an account payee bank draft, use of the electronic clearing system through a bank account, or "such other electronic mode as may be prescribed". The last expression was added by the Finance Act, 2017 and the prescribed electronic modes are set out in Rule 6ABBA (credit/debit card, net banking, IMPS, UPI, RTGS, NEFT, BHIM-Aadhaar Pay), inserted with effect from 1 September 2019. A crossed (but not account payee) cheque does not satisfy the section; the instrument must be account payee, the object being to fix the identity of the payee in the banking record.

Exemptions

The first proviso exempts transactions with the Government, banking companies, post office savings banks, co-operative banks, statutory corporations, Government companies and notified institutions. The second proviso exempts dealings where both parties have only agricultural income and neither has income chargeable to tax — the agriculturist exemption. The Finance Act, 2023 (w.e.f. 1 April 2023) added a third proviso raising the threshold to two lakh rupees for deposits accepted from, and loans taken from, members by a primary agricultural credit society (PACS) or a primary co-operative agricultural and rural development bank (PCARDB) — a concession to the rural co-operative credit structure.

Penalty, reasonable cause and procedure

Contravention attracts penalty under s. 271D equal to the amount of the loan, deposit or specified sum taken in cash. The penalty is, however, not automatic. Section 273B provides that no penalty shall be imposable if the assessee proves "reasonable cause" for the failure; the burden lies on the assessee, but once a genuine, bona fide and satisfactorily-explained transaction is shown, courts have consistently held that reasonable cause is made out. Three procedural points recur in the litigation: (i) penalty under s. 271D is imposable only by the Joint Commissioner, not the Assessing Officer (s. 271D(2)); (ii) following Jai Laxmi Rice Mills, satisfaction as to the contravention must be recorded in the course of the assessment, and if the assessment itself is set aside the recorded satisfaction does not survive; and (iii) limitation runs under s. 275(1)(c), the relevant trigger being, on the Kerala High Court's view in Grihalakshmi Vision, the initiation by the competent authority.

Finance Act, 2026

The Finance Act, 2026 makes no amendment to section 269SS. The cash-transaction framework of ss. 269SS / 269ST / 269T and the penalty regime of ss. 271D / 271DA / 271E is retained without material change for assessment year 2026-27. The section is reproduced below as it stands amended up to and including the Finance Act, 2025 (which carries the Finance Act, 2023 PACS/PCARDB third proviso).

B. STATUTORY TEXT (verbatim)

Reproduced verbatim from the Income-tax Act, 1961 as amended up to the Finance Act, 2025. The bracketed numerals 90 and 91 are the bare Act's footnote markers recording the Finance Act, 2023 insertion/substitution (w.e.f. 1-4-2023); they are retained to preserve fidelity to the source text.

Mode of taking or accepting certain loans, deposits and specified sum.

269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any 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 or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), 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:

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

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

(e) 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:

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:

90[Provided also that the provisions of this section shall have effect, as if for the words "twenty thousand rupees", the words "two lakh rupees" had been substituted in the case of any deposit or loan where,--

(a) such deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or

(b) such loan is taken from a primary agricultural credit society or a primary co-operative agricultural and rural development bank by its member.]

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 any bank or banking institution referred to in section 51 of that Act;

91[(ii) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;]

(iii) "loan or deposit" means loan or deposit of money;

(iv) "specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

C. AUTHORITIES

The authorities are arranged in issue-clusters: (1) constitutional validity and object; (2) what is — and is not — a "loan or deposit"; (3) firm and partner transactions; (4) reasonable cause under s. 273B; and (5) procedure, satisfaction and limitation. Citations should be verified against the full reports before being relied on in practice.

Cluster 1 — Constitutional validity and legislative object

Asst. Director of Inspection (Investigation) v. Kum. A.B. Shanthi (2002) 255 ITR 258 (SC)

Holding: Sections 269SS and 271D are intra vires the Constitution. The provision is a measure to counteract evasion of tax; its object is to ensure that a taxpayer is not allowed to give a false explanation for his unaccounted money, or to make fictitious entries by introducing his own money as a loan or deposit.

Reasonable cause: The Court emphasised that s. 273B is an integral safeguard — where there is a genuine and bona fide transaction and the taxpayer could not get a loan or deposit by account payee cheque or draft for some bona fide reason, the authority may not levy penalty. This is the controlling Supreme Court authority on the section.

Use: Cited for both the object (construction aid) and the centrality of reasonable cause.

Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC)

Principle: Penalty for a statutory breach is not to be imposed merely because it is lawful to do so; the authority has discretion and penalty ought not to be imposed for a technical or venial breach or where the breach flows from a bona fide belief. Though decided under sales-tax law, it is repeatedly applied to s. 271D / s. 273B as the foundational principle of discretion in penalty.

Use: Anchors the reasonable-cause cluster.

Cluster 2 — What is (and is not) a "loan or deposit"

CIT v. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad)

Holding: Amounts moving on a running current account between the company and its director/associate were not in the nature of a loan or deposit; payments and repayments referable to a current/mutual account fall outside ss. 269SS and 269T.

Ratio: The section is attracted only where money passes by way of "loan or deposit"; a mutual, open and current account is conceptually distinct.

CIT v. Bombay Conductors and Electricals Ltd. — current-account line (referred)

Note: Illustrative of the recurring distinction between a loan/deposit and adjustments through a running account; to be read with Idhayam Publications. The full report should be consulted for the precise facts before reliance.

Share application money — judicial line

Principle: Several Tribunal and High Court decisions hold that share application money received in cash is not a "loan or deposit" within s. 269SS, being capital subscription pending allotment, not money lent or deposited. The position must now be read with the FA-2015 "specified sum" amendment, which is confined to immovable-property advances and does not cover share capital.

Use: Definitional limit of the section.

Cluster 3 — Firm and partner transactions

A consistent line across four High Courts holds that money moving between a firm and its partners is neither a loan nor a deposit, the firm and partner not being wholly distinct juristic persons for this purpose.

CIT v. Muthoot Financiers (2015) 371 ITR 408 (Del)

Holding: Advances by partners to the firm (and vice versa) do not take the colour of a loan or deposit; ss. 269SS / 271D are not attracted. The Court expressly followed the consistent view of the Madras, Rajasthan and Punjab & Haryana High Courts and held that where other High Courts have taken a uniform view it should ordinarily be followed.

Use: Leading High Court authority on firm-partner transactions.

CIT v. Lokhpat Film Exchange (Cinema) (2008) 304 ITR 172 (Raj)

Holding: Transactions between a firm and its partners are not governed by ss. 269SS and 269T; no penalty under s. 271D / s. 271E.

CIT v. V. Sivakumar (2013) 354 ITR 9 (Mad)

Holding: Capital/loan transactions between partner and firm fall outside s. 269SS; penalty not sustainable.

CIT v. Punjab & Haryana line — (2005) 277 ITR 420 (P&H)

Holding: Followed in Muthoot Financiers as part of the consistent High Court view that firm-partner money movements are outside s. 269SS.

Capital introduced by a partner — Tribunal view

Holding: Capital contributed by a partner to the firm in cash does not amount to a loan or deposit within s. 269SS; penalty under s. 271D rightly cancelled. The contribution must be genuinely reflected as capital in both the partner's and the firm's books.

Cluster 4 — Reasonable cause under s. 273B

Where the transaction is genuine, recorded in both parties' books, the identity and source are established and there is no tax-evasion motive, reasonable cause is generally accepted and penalty deleted.

CIT v. Bhagwati Prasad Bajoria (HUF) (2003) 263 ITR 487 (Gau)

Holding: No penalty under s. 271D where the loan was genuine, recorded in the books of both assessee and lender, and there was an immediate and bona fide need for cash that could not be met from a bank in time. Reasonable cause under s. 273B was made out.

Caution: The Court was careful that a genuine transaction is not, by itself, a complete answer; the assessee must explain the circumstances compelling the cash mode.

CIT v. Saini Medical Store (2005) 276 ITR 79 (P&H)

Holding: Where the assessee accepted cash under a bona fide belief and the transaction was genuine, reasonable cause under s. 273B was established and penalty under s. 271D was not exigible.

Genuine + bona fide + business exigency — Tribunal line

Principle: Recurring Tribunal ratio: cash accepted in business emergency, at odd hours, in places without banking access, or from agriculturists, has been held to constitute reasonable cause. Mere genuineness without an explanation for the cash mode, however, does not suffice.

Bona fide belief / ignorance distinction

Caution: Bare ignorance of the law is generally not reasonable cause, but a bona fide belief founded on the nature of the relationship (e.g., firm-partner, family) coupled with full disclosure has been accepted. The facts must be pleaded and proved.

Cluster 5 — Procedure, satisfaction and limitation

CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC)

Holding: Satisfaction as to the contravention must be recorded in the course of the assessment proceedings; where the original assessment order (in which such satisfaction was recorded) is itself set aside, the satisfaction does not survive and a penalty under s. 271E / s. 271D founded on it cannot stand.

Use: Leading Supreme Court authority on the satisfaction requirement; ss. 271D and 271E are pari materia.

Grihalakshmi Vision v. Addl. CIT (2015) (Ker) [Grihalakshmi Vision Ktc Building]

Holding: Penalty under ss. 271D / 271E is to be initiated by the competent authority (the Joint/Additional Commissioner), and the period of limitation under s. 275(1)(c) is to be reckoned with reference to that initiation. Clarifies the authority competent to levy and the limitation trigger.

Use: Procedure and limitation.

Section 271D(2) — competent authority

Principle: Penalty under s. 271D is imposable only by a Joint Commissioner. A penalty levied or initiated by an officer below that rank, without the requisite jurisdiction, is liable to be quashed. Read with s. 275(1)(c) limitation.