2.2   Query:

Application of section 269 T of Income Tax Act,

1961 in case of loans squared up by means of book entries.

1. One person is proprietor of two firms. There are three other firms, in which his brothers are proprietors. All these firms are assesses and have regular/frequent cheque dealings. At the end of the year, in the books of a firm (first firm) there is a credit balance of other two firms and debit balance of two firms on account of above stated frequent cheque dealings. The first firm has passed transfer entries in its books to square up the credit and debit balances of other firms. Other firms have also passed transfer entries accordingly.

2. The querist has sought the opinion of the Expert Advisory Committee whether there is any violation of section 269T of the Income-tax Act, 1961, in above mentioned transactions.

                                                                    Opinion                      August 17, 1992

1.  The Committee notes para 42.3(X) of the Guidance Note on Tax Audit Under Section 44 AB of the Income Tax Act, issued by the Taxation Committee (now Fiscal Laws Committee) of the Institute of Chartered Accountants of India, which reads, inter alia, as follows:

“…. loans created/discharged by means of transfer entries do not constitute acceptance or repayment of deposits or loans by cash and would not contravene the provisions of section 269SS and /or 269T…”

2. On the basis of the above, the Committee is of the opinion that there is no violation of section 269T in the circumstances mentioned in para 1 of the query above.

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