Mr. Bhuvan proposes to purchase for his business, certain raw materials from Mr. Srinivas. In view of the scarcity of the products, Srinivas insists…

(1) Where purchases are effected through cash invoice of 3,20,000 (i) In the hands of Mr. Bhuvan Since Mr. Bhuvan is making cash payment of 3,20,000 for purchase of raw materials from Mr. Srinivas 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,3,20,000 would not be allowable as deduction while computing his business income. (ii) In the hands of Mr. Srinivas Section 269ST prohibits, inter alia, receipt of an amount of 2lakh 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. In this case, since Srinivas has received - 3,20,000 by way of cash from Mr. Bhuvan on 27.3.2025, he has violated the provisions of section 269ST, and hence, is liable to pay penalty of 3,20,000 under section 271DA. (2) Where cash purchases of 1,80,000 and - 1,40,000 are effected in respect of different raw materials on two different dates (i) In the hands of Mr. Bhuvan Even if cash payment of 1,80,000 and - 1,40,000 are made by Mr. Bhuvan on two different dates for different raw materials, disallowance under section 40A (3) would be attracted, since the payment in cash in a day to Mr. Srinivas exceeds - 10,000. (ii) In the hands of Mr. Srinivas If Srinivas receives cash of 1,80,000 and - 1,40,000 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 2lakh 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.