Sandeep Ahuja & Co.

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Saturday, April 15, 2017

Cash transactions, restrictions, penalities and clarifications by CBDT with FAQs effective from 01.04.2017

SECTION  269ST OF THE INCOME-TAX ACT, 1961 inserted vide Finance Act, 2017
CASH TRANSACTIONS & MODE OF UNDERTAKING TRANSACTIONS  WHICH SHALL NOT APPLY TO RECEIPT BY ANY PERSON FROM AN ENTITY REFERRED TO IN PROVISO (i)(b) OF SECTION 269ST vide CBDT Notification and Press Release  dated 5-4-2017
5th April 2017 the Central Govt notified that the provision of section 269ST shall not apply to receipt by any person from an entity referred to in sub-clause (b) of clause (i) of the proviso to section 269ST and such notification be effective from 1st day of April, 2017.
i.e. , restriction on cash transactions shall not apply to withdrawal of cash by a person from banks,  Co-operative Banks or Post offices. i.e. A person can withdraw cash in excess of INR. 2,00,000 from Banks, Co-Operative banks or Post Offices without any restriction u/s 269 ST.
Ministry of Finance has issued a Press Release on 05th April, 2017.
Various steps to curb black money by discouraging cash transaction and by promoting digital economy have been introduced by Finance Act 2017.
         i.            Restriction on cash transaction by sections 269ST & 271DA newly inserted to the Income-tax Act.
       ii.            Providing that no person (other than those specified therein) shall receive an amount of two lakh rupees or more,
(a)     in aggregate from a person in a day;
(b
) in respect of a single transaction; or
(c)
in respect of transactions relating to one event or occasion from a person,
(b)     otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
      iii.            Providing for penalty of a sum equal to the amount of such receipt in contravention of such provision
     iv.            Such restriction is not applicable to any receipt by Government, banking company, post office savings bank or co-operative bank & also that the restriction on cash transaction shall not apply to withdrawal of cash from a bank, co-operative bank or a post office savings bank.
       v.            Any capital expenditure in cash exceeding rupees ten thousand shall not be eligible for claiming depreciation allowance or investment-linked deduction.
     vi.            The limit on revenue expenditure in cash has been reduced from Rs.20,000 to Rs.10,000.
    vii.            The rate of presumptive taxation has been reduced from 8% to 6% for the amount of turnover realized through cheque/digital mode  to promote digital payments in case of small unorganized businesses,
  viii.            Restriction on receipt of cash donation up to Rs. 2000 has been provided on political parties for availing exemption from Income-tax.
     ix.            Any donation in cash exceeding Rs.2000 to a charitable institution shall not be allowed as a deduction under the Income-tax Act.
PENALTY  Provisions for "Cash" receipts [Section 271DA]

Section 271DA the newly inserted section effective from 1-4-2017 provides for penalty for failure to comply with provisions of section 269ST.
As per Section 271DA  provides as follows:
(a)

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.
(b)

Any such penalty shall be imposed by the Joint Commissioner.
(c)

The penalty shall not be imposable if such person proves that there were "good and sufficient" reasons for the contravention.

If  a person receives any amount in contravention of this section u/s 269ST, he shall be liable for penalty , a sum equal to the amount of such receipt.  Any penalty imposable under this section shall be imposed by Joint Commissioner.

It has also been provided that penalty shall not be imposable if such person proves that there were good and sufficient reasons for the contravention.

No definition of good & sufficient reasons.
Perhaps this needs some clarification or suitable amendment in section 271D so as to bring out clearly what all reasons are covered under this expression of good and sufficient reasons.

The reason is good and sufficient or not has to be seen from the perspective of the recipient. For Example LIC of India accepts cash or draft in case the payer's cheque has been returned unpaid due to insufficient funds.

The Time limit for initiating of penalty proceeding
There is no time limit mentioned for initiation of penalty proceedings but it should be reasonable after the contravention of such provisions. Section 273A(4) authorizes only Joint Commissioners to reduce or waive any penalty payable by an assessee, subject to satisfaction of the conditions specified in it or where satisfied for the reasonableness of good and sufficient cause for such contravention.



Non Appeal ability of Penalty imposed by the Joint Commissioner under Section 271DA.
I. Before Tribunal.
Section 253(1)(a) which provides for appeal to the Tribunal against order passed by CIT(A) has not been amended to cover an order under section 271DA. So Penalty Order under Section 271DA is not appealable before Tribunal.
II. Before CIT(A).
Section 246A. (1) Any assessee [or any deductor] aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against —
(q) an order imposing a penalty under Chapter XXI;
Since, penalty u/s 271DA is an order under Chapter XXI and unless the recipient is an assessee, he cannot file an appeal against the penalty order.
Section 246A does not apply due to the following reasons:
(a)

Section 246 applies to penalty order on a person in his capacity of
           i.            Assessee.
         ii.            Deductor .

Here, the person penalized does not receive the penalty order in the capacity of an assessee so the order is not appealable.
Conclusion: It may be that till any further amendment is done or in the absence of prohibition clause for an appeal against an order under section 271DA, the benefit of doubt is given to the assessee and an appeal against pending order under section 271DA  may be allowed.
EXAMPLES OF TRANSACTIONS COVERED
Case I:
Cash Receipts (INR) in respect of same sale transaction on different dates.
Sale Invoice (INR) Issued on April 1,2017

5,00,000

5,00,000

4,00,000
Cash received on

a.       April 2,2017

b.      April 4,2017


c.       April 6,2017

d.      April 8,2017







1,50,000


50,000


50,000

1,50,000

1,00,000

70,000

1,50,000

20,000

40,000

 NIL     

NIL

40,000

Received through Bank Tfr., Account Payee Cheque or DD.

50,000

3,30,000

2,00,000

Total Cash Received

4,50,000

1,70,000

2,00,000

Whether Section 269ST Applicable

Applicable,
since total receipts  in respect of sale transaction on 1st April 2017 exceeds threshold limit of INR. 2,00,000 u/s 169ST.

Not Applicable,
Since Total Cash receipts does not exceed threshold limit of INR. 2,00,000 u/s 269ST.

Applicable,
since total receipts  in respect of sale transaction on 1st April 2017 are equal to threshold limit of INR. 2,00,000 u/s 169ST.

Penalty leviable u/s 271DA

4,50,000

NIL

2,00,000



Case II:
Cash Received on same event / occasion i.e. Marriage/Birthday etc.

Situation I:
Cash Received
Situation II:
Cash Received
Cash Gift from A
1,40,000
2,00,000
Cash Gift from B
1,25,000
1,50,000
Cash Gift from C
1,75,000
2,10,000

Total Cash Received

4,40,000

5,60,000

Whether Section 269ST Applicable

Not Applicable since total amount received from a person does not exceed INR. 2,00,000.

Applicable, since total amount received from a person exceed INR. 2,00,000.

Penalty Leviable u/s 271DA

NIL

4,10,000
                                                                                                                                               
This condition shall be examined on the basis of total cash receipts from a person on a same event or occasion such as Birthday, Marriage, Anniversaries etc. Therefore, even though total cash receipts from all on an event/occasion may be higher than INR 2,00,000 but Section 269ST shall be attracted only when cash receipts from a person on a same event/occasion exceed INR 2,00,000.

Penalty in respect of Gifts also: As per Income Tax Act, Gift u/s 56  received from relatives are exempt without any ceiling limit . However, with introduction of Section 269ST, cash gifts in exceeding INR 2,00,000 shall be liable for Penalty @100% of the amount received even though it is otherwise exempt under Income Tax Act,1961.  

This clause covers situations where in the event like marriage, payments are received for different categories like catering, decoration, marriage hall etc. All these transactions must be lower than specified limit of INR 2,00,000 otherwise penalty @ 100% of the amount of receipt shall be attracted u/s 271DA.

Frequently asked questions with respect to cash transactions under Section 269ST & 271DA.
1. Section 269 ST is applicable on Whom ?
Ans. Section 269 ST is applicable on all persons whether  a  Company, LLP, Partnership Firm,  HUF's , Trust etc , except the following :
         i.            Government
       ii.            Any banking company
      iii.            Post office savings banks
     iv.            Co-operative banks
       v.            Any other person as notified by the Central Government
2.  What types of receipts are covered u/s 269 ST?
Ans.  All types of receipts are covered whether Capital or Revenue u/s 269ST. However, those receipts where payment made by the other party is covered u/s 269SS, then Section 269St will not be applicable on such transactions.
3.  Does Section 269 ST prescribe any Penalty on Payer of cash exceeding INR 2,00,000?
Ans. Section 269ST impacts the payee only not the payer. It is the payee or recipient who is made liable for violation of section 269ST in the form of penalty u/s 271D @ 100% of the amount. Section 269 ST does not prescribe any penalty for making payments above threshold limit of INR 2,00,000 as explained in  Case II of Example.
4.  Whether  Section 269 ST will be applicable even if a person provides two different services  to a same Person for a consideration exceeding INR 2,00,000 & the same is received in cash.
 Ans. If a person has provided different services to a same person in respect of same event occasion for a consideration exceeding INR  2,00,000 & same is received in cash, then such a transaction shall be covered u/s 269ST & Penalty will be leviable u/s 271DA for receipt of cash exceeding INR 2,00,000.
Even, if a person provides different services to a same person in respect of separate events/ occasions then also Section 269ST will be applicable & penalty will be leviable u/s 271DA.
5. Whether any drawings of cash from Banks, Cooperative Banks or Post Office Savings Bank attract  provisions of Section 269ST & 271DA?
Ans. As per CBDT Press Release dated 5th April, 2017, restriction u/s 269ST shall not apply to withdrawal of cash from Bank, Cooperative Banks or a Post Office Savings Bank Account.
6. Can a person receive gifts from relatives on occasion of marriage exceeding INR 2,00,000 which were otherwise exempt under Income Tax Act,1961 without attracting the provisions of Section 269ST?
Ans. All gifts received by a person  from relatives are exempt from tax. However, after April 1, 2017 , all cash gifts received by a person exceeding INR 2,00,000 will attract Provisions of Section 269ST & a penalty of 100% of the  amount of receipt shall be leviable u/s 271DA.
This means that a person can receive gift of any amount from a relative as defined under section 56. But with the introduction of section 269ST one limitation will be imposed on cash gifts received even from relatives exceeding  Rs. 2 Lakhs in respect of single event or occasion.   
7.  If once penalty is imposed u/s 271DA, can an appeal against such order be made?

Ans.  As per Section 246A, penalty  u/s 271DA is an order under Chapter XXI and if the recipient is an assessee, he can file an appeal against the penalty order. However, there is no explicit prohibition on appeal against a penalty order u/s 271DA. Therefore, an appeal can be made against an order u/s 246A.
Contributed by Tanveer Alam ( CA Finalist at Sandeep Ahuja & Co.)

5 comments:

  1. WHEN A FIRM RAISE 20 INVOICE AGAINST A PERSON SUM EQUAL AMOUNT IS MORE THEN 2LACS THEN (ALL INVOICE IS LESS THEN 2 LACS AND NEVER REC. 2 LC IN A DAY) AND WT ABOUT OPINING DEBTORS MORE THEN 2 LC CAN WE REC. CASH FORM HIM)

    ReplyDelete
  2. Whether a firm can receive cash exceeding Rs.2,00,000/- from partner as a capital introduction?

    ReplyDelete
  3. 269ST covers both capital and revenue receipts.hence firm would be liable if it receives more than d's 2 lambs in cash

    ReplyDelete
  4. Rightly said 269ST covers both Capital as well as revenue

    ReplyDelete
  5. Can a partner withdraw capital from firm more than two lakh in a year, like 25000 per month in cash

    ReplyDelete