Internal Audit Observations Commonly Reported in Finance & Accounts Department

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Hello All! In this blog I am going to show the common observations that are being reported during internal audit in Finance & Accounts Department:

1. Cash receipt of ₹ 20,000 or more towards deposit (Section 269SS of Income Tax Act 1961)

As per Section 269SS of Income Tax Act 1961, No person shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—
(a)  the amount of such loan or deposit or the aggregate amount of such loan, deposit: or
(b)  on the date of taking or accepting such loan or deposit, any loan or deposit 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:

Example: For case (a) above, receipt of ₹ 20,000 or more in cash towards deposit or loan.
               For case (b) above, Party "A" received a sum of ₹ 1,000 in cash from "B" on 10th May 2019 but however the outstanding balance of deposits received from "B" is ₹ 19,000 before including the current deposit of ₹ 1,000/- So, in this case also section 269SS applies because the after accepting the deposit of ₹ 1,000/- the deposit balance reaches to ₹ 20,000/-.

 Impact - Contravention of provisions of Section 269SS results in applicability of Section 271D of Income Tax Act 1961 which states penalty equivalent to the amount received.


2.  Cash receipt of ₹ 2,00,000/- or more towards sale of goods or services

As per Section 269ST of Income Tax Act 1961, No person shall receive an amount of two lakh rupees or more—
(a)  in aggregate from a person in a day; or
(b)  in respect of a single transaction; or
(c)  in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account:

Example: For case (a) One party received a payment of ₹ 2,50,000/- towards due against multiple                        invoices on the same day.
                For case (b) One party received balance payment of ₹ 50,000/- against the original invoice for value ₹ 2,50,000/- for which an advance of ₹ 2,00,000/- collected in cash earlier.
                  For case (c) One party received payment against multiple invoices against a single purchase order of ₹ 1,00,000 & ₹ 1,50,000 in two different dates. (Since payment received against invoices raised against same purchase order, that constitutes that such multiple invoices are for the same occasion).

Impact - Contravention of Section 269ST attracts provisions of Section 271DA of Income Tax Act which states penalty equivalent to the amount of receipt.



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