Vinod Enterprises proposes to purchase for his business, certain raw materials from Mr. Chetan. In view of the scarcity of the products, Chetan insists on cash payments for the purchases, to which Vinod enterprises agree

Where purchases are effected through cash invoice of ₹ 1,40,000 and ₹ 1,70,000 (i) In the hands of Vinod Enterprises Since Vinod enterprises is making cash payment of ₹ 1,40,000 and ₹ 1,70,000 for purchase of raw materials from Mr. Chetan for his business, disallowance under section 40A(3) would be attracted, since the payment otherwise than by way of account payee cheque or bank draft or use of ECS through a bank account or through other prescribed electronic modes to a person in a day exceeds ₹ 10,000. Accordingly, ₹ 3,10,000 (₹ 1,40,000 + ₹ 1,70,000) would not be allowable as deduction while computing his business income. Cash payment of ₹ 1,40,000 and ₹ 1,70,000 are made by Vinod enterprises on two different dates for different raw materials, disallowance under section 40A(3) would be attracted, since the payment made in cash in a day to Mr. Chetan exceeds ₹ 10,000. (ii) In the hands of Mr. Chetan Section 269ST prohibits, inter alia, receipt of an amount of ₹ 2 lakh or more in aggregate from a person in a day otherwise than by way of account payee cheque or account payee bank draft or use of ECS through a bank account or through other prescribed electronic modes. If any person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay penalty under section 271DA of a sum equal to the amount of such receipt. Here, Mr. Chetan receives cash of ₹ 1,40,000 and ₹ 1,70,000 on two different dates, for purchase of different raw materials, there would be no violation of section 269ST since receipt on a day is less than ₹ 2 lakh and the receipts are not in respect of the same transaction but for purchase of different raw materials. Hence, provision of section 271DA shall not be attracted.