Section 269T — Mode of Repayment of Certain Loans or Deposits

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

Section 269T — Mode of repayment of certain loans or deposits

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); widened to "firm or other person" by FA 2002; "specified advance" added by FA 2015; third proviso (PACS/PCARDB) added by FA 2023.

Finance Act, 2026: No amendment by the Finance Act, 2026. Repayment bar retained for AY 2026-27.

Mechanism: Bar on repaying any loan, deposit or specified advance in cash where the amount (with interest) is Rs. 20,000 or more (Rs. 2,00,000 for PACS/PCARDB members). Permitted modes: account payee cheque/draft drawn in the payee's name / ECS / prescribed electronic mode. Penalty: s. 271E (100%); relief: s. 273B reasonable cause.

Litigation profile: Very high. Distinctive journal-entry / book-adjustment jurisprudence; pari materia with s. 269SS.

A. COMMENTARY

Genesis and object — the repayment counterpart

Section 269T is the mirror image of s. 269SS on the repayment side. It was inserted by the Finance Act, 1984 (w.e.f. 1 April 1984), originally confined to banking and corporate repayments, and was progressively widened — notably by the Finance Act, 2002 (w.e.f. 1 June 2002) to cover "no firm or other person" — so that today it binds every repayer. If s. 269SS prevents the introduction of unaccounted money disguised as a cash loan, s. 269T prevents the reverse leakage — the extinguishment of a (possibly bogus) liability by cash repayment that again leaves no banking trail. The two sections are construed together and the penalty sections (271D and 271E) are pari materia.

The prohibition and the aggregation rule

No branch of a banking company or co-operative bank, and no other company, co-operative society, firm or other person, may repay any loan or deposit, or any specified advance, otherwise than by an account payee cheque or account payee bank draft drawn in the name of the payee, or by ECS / prescribed electronic mode, where (a) the loan, deposit or specified advance together with interest, or (b) the aggregate of loans/deposits held (alone or jointly) on the date of repayment with interest, or (c) the aggregate of specified advances (alone or jointly) on that date with interest, is twenty thousand rupees or more. The draft or cheque must be drawn in the name of the payee — the instrument must identify the recipient.

"Loan or deposit" — the wider definition on the repayment side

An important asymmetry: for s. 269T the Explanation defines "loan or deposit" as any loan or deposit of money repayable after notice or after a period, and — in the case of a person other than a company — includes a loan or deposit of any nature. The repayment-side definition is therefore wider than s. 269SS for non-company assessees. "Specified advance" (immovable-property advances) was added by the Finance Act, 2015 (w.e.f. 1 June 2015), matching the "specified sum" insertion in s. 269SS, so that the return of a property advance in cash is now also caught.

Journal entries and book adjustments

The most fertile area of litigation is whether settlement of a loan or deposit by journal entry — a book adjustment with no movement of cash — contravenes s. 269T. The position, on the leading authorities, is nuanced: a journal entry is not "repayment otherwise than by account payee cheque/draft" in the sense of a cash repayment, and where the adjustment is bona fide, for commercial reasons, and not a device to evade tax, reasonable cause under s. 273B is made out and no penalty under s. 271E is exigible (Triumph International Finance; the Noida Toll Bridge line). The adjustment must, however, be genuine; a sham journal entry masking a cash movement remains within the section.

Running / current accounts

As with s. 269SS, money moving on a mutual, open and current account is conceptually distinct from a loan or deposit, and adjustments referable to such an account fall outside s. 269T (Idhayam Publications). Likewise, the consistent High Court view that firm-partner money movements are neither loans nor deposits applies on the repayment side too (Lokhpat Film Exchange; the Muthoot Financiers line).

Penalty, reasonable cause and procedure

Contravention attracts penalty under s. 271E equal to the amount of the loan, deposit or specified advance so repaid. Section 273B affords the reasonable-cause defence, construed liberally (Triumph International Finance holds that "reasonable cause" is wider than "sufficient cause"). The penalty is imposable by the Joint Commissioner; the Jai Laxmi Rice Mills requirement of recorded satisfaction, and its corollary that satisfaction does not survive the setting aside of the assessment, apply directly to s. 271E (indeed Jai Laxmi was itself a s. 271E case); and limitation runs under s. 275(1)(c) (Grihalakshmi Vision).

Finance Act, 2026

The Finance Act, 2026 makes no change to section 269T or to s. 271E. The repayment bar and its penalty are retained for assessment year 2026-27. The section is reproduced below as amended up to the Finance Act, 2025 (carrying the FA-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 92 and 93 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 repayment of certain loans or deposits.

269T. No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it 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 or paid the specified advance, or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed if—

(a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or

(c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances,

is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid :

Provided further that nothing contained in this section shall apply to repayment of any loan or deposit or specified advance taken or accepted from—

(i) 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 section 617 of the Companies Act, 1956 (1 of 1956);

(v) 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:

92[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 paid by a primary agricultural credit society or a primary co-operative agricultural and rural development bank to its member; or

(b) such loan is repaid to 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" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

93[(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 Explanation to sub-section (4) of section 80P;]

(iii) "loan or deposit" means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature;

(iv) "specified advance" means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.

C. AUTHORITIES

The authorities track the s. 269SS clusters, with an additional cluster on journal entries and book adjustments, which is the distinctive s. 269T battleground. Citations should be verified against the full reports.

Cluster 1 — Validity, object and the satisfaction requirement

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

Holding: Upholds the constitutional validity of the Chapter XX-B scheme (ss. 269SS / 269T and the penalties) and explains the anti-evasion object; the reasonable-cause safeguard in s. 273B is integral. Governs s. 269T equally.

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

Holding: A s. 271E case. Satisfaction as to the contravention must be recorded in the assessment; once the original assessment is set aside, the satisfaction recorded in it does not survive and the s. 271E penalty founded on it cannot be sustained.

Use: Leading SC authority directly on s. 271E procedure.

Cluster 2 — Journal entries and book adjustments (the s. 269T battleground)

A bona fide settlement by journal entry, for commercial reasons and without tax-evasion motive, is generally protected by reasonable cause; a sham adjustment masking cash is not.

CIT v. Triumph International Finance (I) Ltd. (2012) 345 ITR 270 (Bom)

Facts: A loan repayable was set off against the sale price of shares sold to the same party; the parties squared the accounts by journal entries, paying only the small balance by crossed cheque.

Holding: Repayment by debit through journal entries is in contravention of s. 269T (the provision being mandatory); but where there is no finding that the adjustment was not bona fide or was an attempt to evade tax, reasonable cause under s. 273B is shown and penalty under s. 271E is not leviable. "Reasonable cause" has a wider connotation than "sufficient cause" and is to be construed liberally.

Use: Leading High Court authority on journal-entry repayment.

CIT v. Noida Toll Bridge Co. Ltd. (Del) — journal-entry line

Holding: Acceptance or repayment effected by genuine journal entries, for bona fide commercial reasons, does not attract penalty under ss. 271D / 271E; the anti-abuse object of the sections is not engaged where there is no passing of cash and no evasion. Followed by Tribunals as the journal-entry benchmark.

Caution: Verify the precise citation and facts of the report relied on; the principle, not any headnote, is what is applied.

Genuine vs. sham adjustment

Principle: The protection is for genuine adjustments only. Where a journal entry is a device to route what is in substance a cash repayment, the section bites and reasonable cause is not available.

Cluster 3 — Running / current accounts and firm-partner transactions

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

Holding: Payments and repayments on a running current account are not repayment of a "loan or deposit"; ss. 269SS / 269T are not attracted to a mutual, open and current account.

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

Holding: Repayments between a firm and its partners are not governed by s. 269T; no penalty under s. 271E. Part of the consistent High Court line (Muthoot Financiers (2015) 371 ITR 408 (Del); V. Sivakumar (2013) 354 ITR 9 (Mad)).

Cluster 4 — Reasonable cause under s. 273B (repayment side)

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

Holding: Where the transaction is genuine, recorded in both parties' books and not a cover for unaccounted money, and there was a bona fide need, reasonable cause under s. 273B is made out; no penalty under s. 271D / s. 271E. Applies on the repayment side.

Firm accepting/repaying cash from partners under bona fide belief

Holding: Where a firm repaid/accepted cash to or from its partners under the bona fide belief that the firm and partners are not different persons, reasonable ground was held to exist and penalty under ss. 271D / 271E could not be imposed. Illustrates the bona fide-belief strand of reasonable cause.

Penalty not to be levied mechanically — Tribunal line

Principle: Section 271E penalty cannot be imposed mechanically; the authority must consider the explanation, and a genuine, disclosed, non-evasive repayment with a satisfactory reason for the non-banking mode will ordinarily escape penalty.

Cluster 5 — Procedure, competent authority and limitation

Grihalakshmi Vision v. Addl. CIT (2015) (Ker)

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

Section 271E(2) — competent authority

Principle: Penalty under s. 271E is imposable only by a Joint Commissioner. A penalty initiated/levied by an officer lacking that rank is liable to be quashed for want of jurisdiction.