To put restriction on the cash transactions & promote digital economy, section 269ST was inserted in the Income-tax Act, 1961 vide Finance Act, 2017 w.e.f 1st April 2017. Article discusses Provisions of Section 269ST which Prohibits receipt of an amount of Rs. 2 lakh or more by a person, Section 271DA which provides penalties for Contravention of Section 269ST, Disallowance of Expenses for Cash Payments exceeding prescribed limits under Section 40 A(3) read with Rule 6DD which provide exception to Cash Payments and some Judicial Pronouncements related to the same.
1. In aggregate from a person in a 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 than 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:
Provided that the provisions of this section shall not apply to—
1. Any receipt by— Government / any banking company, post office savings bank or co-operative bank;
2. Transactions of nature referred to in section 269SS – i.e. acceptance of Loan, deposits etc;
3. Such other persons or class of persons or receipts which the Central Government may, by notification in the Official Gazette etc.
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, no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention, i.e. Absence of Banking Facilities, Payment to agents, Payments made by third parties etc.
Penalty Imposable by – The Joint Commissioner.
With effect from 1st April 2018, sub-section 3 of Section 40A provides that where the payments or aggregate of payments in a day to a person otherwise than by an account payee cheque or bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, exceeds Rs. 10,000 in a day, no deduction shall be allowed and such payment shall be treated as deemed profits and gains of business or profession of the assessee.
[Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.]
Rule 6DD, no dis allowance shall be made and no payment shall be treated as profits & gains of business or profession, where a payment or aggregate of payments made to a person in a day, otherwise than account payee cheque draft, exceeds Rs. 10,000 in following cases –
1. Where the payment is made to –
2. Where the payment is made to the Government, such payment is required to be made in legal tender.
3. Where the payment is made by –
4. Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.
5. Where the payment is made for the purchase of –
6. Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry.
7. Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;
8. Where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with –
9. Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary and when such employee—
10. Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.
11. Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.
12. Where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers’ cheques in the normal course of his business.
1. The provisions both Section 40A (3) and Rule 6DD were challenged as unconstitutional on the ground of restriction on right to carry on business.
However, the Hon’ble Supreme Court upheld the validity of the said provisions by stating “ Section 40 A (3) must be read along with the Rule 6DD, if read together, it will be clear that the provision of the said Section is not in violation of Constitution either restrict the business activities. Attar Sigh Gurmukh Singh V. ITO – 191 ITR 667
2. Payments to middlemen for the purchase of agricultural produce don’t cover under the Section 40 A (3). In Anurag Radheshyam Attal V. ITO – 69 Taxmann.com 324, it was held that where assess purchased agricultural produce from farmers through some parties who charged their commission for facilitating the transaction of sale and purchase, payments made to them could not be disallowed.
3. In CIT v. Pehlaj Raj Daryanmmal – 190 ITR 242, it was held that the words cultivator, grower or producer occurring at the end of Rule 6DD – Clause, qualify the word occurring all the preceding clauses. Thus, the exemption is confined to grower or producer of forest produce and not available for purchases from others.
Press Note, dated 02.05.1969, reads that the payments for the purchase of agricultural or forest produce are excluded, only, where the payments are made to the cultivator or grower or producer.
The Central Board of Direct Taxes (CBDT), in its latest Circular, clarifies that any cash sale of an amount of Rs. 2 lakh or more by a cultivator of agricultural produce is prohibited under section 269ST of the Act.
Further, the provisions relating to quoting of PAN or furnishing of Form No.60 under Rule 114B of the Income Tax Rules do not apply to the sale transaction of Rs. 2 Lakh or less.
In other words, the cash sale of the agricultural produce by its cultivator to the trader for an amount less than Rs 2 Lakh will not –
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(Republished with Amendments)