Prem Lata Bansal, Senior Advocate

Query No.1

Cash deposit in saving bank account of the assessee, generated through business, when business entity is also having current account.

Assessee has made cash deposit in his saving bank account stating that cash was generated through business run by one of the family member. As the cash handling charges in the current account of business is too high and to avoid such charges, assessee is depositing cash generated from business entity into his saving bank account. Assessee has also submitted that the funds were transferred to current account of the business entity within a span of 1 or 2 days. Assessing Officer has made addition u/s 68 on the ground that the amount is unexplained cash credit and to be added u/s 68, even though assessee has given complete details/documents of the persons from whom cash is received. Whether addition u/s 68 is justifiable?

Answer

1. The facts in the query are not very clear, however it is understood that the assessee who is making cash deposit in his savings bank account and the person who is running the business (may be one of the family member of the assessee) are the separate persons.

   Transactions are entered into by the family member during the course of business with the 3rd parties but the payment is not received by him. Payment is received by the assessee in cash and thus the cash is credited in his books of accounts and therefore, provisions of section 68 are applicable. The Assessing Officer is within his rights to examine the accounts of the assessee as per provisions of section 68 of the Act.

   Burden is on the assessee to prove the source of cash deposited by him in the bank account. There is no privity of contract between the assessee and the 3rd party with whom the transaction is entered into by the family member. Infact, it is the facility provided by the assessee to his family member. Burden is on the assessee to prove identity and credit worthiness of the creditor and genuineness of the transaction.

   Infact, assessee has to depict himself as the collecting agent of his family member. Transferring the amount to the current account of the business entity of his family member is the subsequent event. That may help in deciding the nature and source of cash deposit but that may not be conclusive.

2. If the amount is large then provisions of section 194R maybe applicable which states that any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession by such resident, shall before providing such benefit or perquisite as the case may be, ensure that tax has been deducted in respect of such benefit @ 10% of the value of such benefit. However this provision is not applicable to an individual or HUF whose total sales receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession.

   Thus, if, assessee’s business receipts are more than ₹ 1 crore then is liable to deduct tax @ 10% for benefit providing to the family member.

3. In the given circumstances, provisions of section 269ST may also apply if the conditions given in the provision also satisfied. If from a single person, amount of ₹ 2L or more is received in cash (which is deposited in the bank) or the amount of ₹ 2L or more is received towards single transaction then the provisions of section 269ST would also apply to the assessee. The proviso, carves out certain exceptions and the cash deposit in the present case does not fall within those exceptions.
4. Assessee has also to take care of section 285BA which says that any person being an assessee who is responsible for maintaining books of accounts or other document containing a record of any specified financial transaction under any law for the time being in force, shall furnish a statement in respect of such specified financial transaction recorded or maintained by him and information relating to which is relevant and required for the purposes of this Act, to the Income Tax Authority or such other authority as may be prescribed.

   Sub-section (3) defines the term specified financial transaction which includes transaction of purchase, sale or exchange of goods or property etc. and also transaction for rendering any service.

   It is an admitted fact that cash deposit is towards the transaction of sale of goods. If it is to be treated as sale of goods by the family member then also it can be said that the assessee is rendering service to his family member though without consideration. Further, information relating to these transactions is relevant and required for the purposes of the Income Tax Act, 1961.

   Rule 114E prescribed the form i.e. Form No.61A, in which statement of such financial transaction is required to be furnished. Sl No.11 of the table incorporated in Rule 114E states that any person who is liable for audit u/s 44AB of the Act has to report the information in Form No.61A to the Income Tax Authority if receipt of cash payment is exceeding two lakh rupees for sale, by any person, of goods of services of any nature.

   As per the provisions of section 271FA, if a person who is required to furnish a statement u/s 285BA(1) fails to furnish such statement within the time prescribed under sub-section (2) the Income Tax Authority may direct that such person shall pay by way of penalty a sum of ₹ 500/- for every day during which such failure continues.

   Provisions of sub-section (4) & (5) of section 285BA as well as proviso to section 271FA may also be seen.

5. If in the query, assessee is carrying on the business under different name and style being the sole proprietor of the business then he can deposit the tax in his savings account and then transfer the same in the current account in the name of business entity. The sole Proprietorship concern is not the separate entity from its sole Proprietor because in the definition of person u/s 2(31) is firm is a separate entity but the sole Proprietorship concern is not the separate entity and therefore, cash may be deposited in the savings bank account of the assessee.

Query No.2

Violation of Section 269ST

Let say x ltd sold some goods to Y ltd amounting to INR 4 Lakhs. Y Ltd pays 1.50 Lakhs via RTGS and for balance 2.5 Lakhs Y ltd deposit cash amounting to INR 2.5 Lakhs in bank account of XLtd.

Now can AO contend that, since Section 269ST allows account payee check, bank draft or other mode via banking channels which does not include cash deposit directly into bank, this transaction is in violation of section 269 ST and can impose penalty on X ltd.

Answer

1. As per the given facts provisions of section 269ST are applicable to the transaction of ₹2.5L received by X Ltd. by way of depositing cash by Y Ltd. in its bank account.

   As per the provisions of section 269ST

   “No person shall receive an amount of ₹2L or more –

   1. in aggregate from a person in day; or
   2. in respect of a single transaction; or
   3. in respect of transactions relating to one event or occasion from a person,

   otherwise then by an Account Payee Cheque or an Account Payee Bank Draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

   All these 03 conditions are disjunctive and not cumulative as all the 03 clauses are connected by “OR”. Meaning thereby, if any of the circumstance out of 03 is satisfied then provisions of section 269ST are applicable.

2. Proviso to section 269ST carves out an exception as to which entities these provisions are not applicable. In a given query, X Ltd. does not fall within this exception, as proviso applies to
   1. any receipt by –
      1. Government,
      2. any banking company, post office savings bank or cooperative bank,
   2. transactions of the nature referred to in section 269SS
   3. such other persons or class of persons or receipts, which the central government may by Notification in the official gazette, specify.

In a given query, clause (a) and (b) both would apply because it is understood that Y Ltd. has deposited a cash of ₹2.5L in a single day in the bank account of X Ltd. and the said amount is in respect of a single transaction.

Moreover, the payment is not by way of an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

The term “such other electronic mode” is prescribed in Rule 6ABBA, as under:-

“stating that the following shall be the other electronic modes for the purposes of section 269ST (alongwith other provisions as well) namely: –

1. Credit card,
2. Debit card
3. Net banking,
4. IMPS (immediate payment service)
5. UPI (Unified Payment Interface)
6. RTGS (Real Time Gross Settlement)
7. NEFT (National Electronic Funds Transfer) and
8. BHIM (Bharat Interface for Money) Aadhaar Pay

In a given query, cash of ₹2.5L has been deposited by Y Ltd. into the bank account of X Ltd. Cash deposit does not fall within the ambit of Rule 6ABBA of the Income Tax Rules.

In view of above, Assessing Officer can contend that cash deposit is in violation of provisions of section 269ST and therefore, penalty provision u/s 271DA would apply. Section 271DA states that

“If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt.”

However proviso to section 271DA(1) states that

“no penalty shall be imposable if such person proves that there were good and sufficient reasons  for the contravention”.

Accordingly, assessee has to prove that there were good and sufficient reasons for having cash deposits in the bank account.

In M/s Prashanth Fertility Research Centre Pvt. Ltd. vs JCIT(ITA No.389/CHNY/2022 decided on 17.05.2023), ITAT Bench of Chennai has deleted the penalty u/s 271DA of the Act on the ground that the assessee being an hospital after serving the patients of foreign nationals raised the payment and patients were unable to pay the bills by cheque or debit card since they did not have banking facility in India.

In the given query, the amount of ₹ 4L pertains to one single invoice. If three invoices are raised each for an amount below ₹ 2L (because section 269ST is applicable to an amount of ₹ 2L or more) and the cash of

₹2.5L is deposited not in a single day then provisions of section 269ST would not apply.