Cash sales are sales made against cash. It is where the
seller receives the cash consideration at the time of delivery. Unlike credit
sales, cash sales do not result in accounts receivable. It is not necessary
that the seller must receive the currency notes to qualify a sale as cash sale.
Sales involving direct immediate transfer to the seller bank account or
payments through credit cards are also cash sales.
No
law which prohibits a trader or a manufacturer in making cash sales
There is no law which
prohibits receipt of sale consideration in cash. There is no limit prescribed
for Cash Transactions under GST Law as of now, which means any registered
person may enter into any business transaction attracting GST Law in cash of
any amount including Sales/Purchases to/from unregistered persons.
But in order to, curb black money, the government has imposed various
restrictions on cash receipts/payments and cash withdrawal from time to time
through Income Tax Act 1961.
Cash Sale – Tax provisions
|
Section |
|
|
269ST |
Section 269ST, introduced vide
Finance Act, 2017 with effect from 01.04.2017 prohibits cash transaction
exceeding Rs. 2,00,000/- otherwise than by an account payee cheque or an
account payee bank draft or use of electronic clearing system through a bank
account. |
|
271DA |
As per the provisions of section
271DA, any person who enters into a cash transaction of Rs. 2,00,000/- or
above, will be liable to a penalty of an amount equivalent to the amount of
transaction. |
Section 269ST of Income Tax Act 1961
provides that no person shall receive an amount of Rs. 2,00,000 or more: –
(a)
In aggregate from a single person in
a single day
Cash Receipt of Rs. 2,00,000 or more, from a single person in a day is
not allowed even if the amount has been paid through multiple transactions
during the day which are below Rs. 2,00,000.
Mr A sold an item amounting to Rs
2,50,000/- to Mr B and received 5 installments of Rs. 50,000/- in a single day.
He has received more than Rs 2,00,000/- in a single day.
(b) In respect of a single transaction
Cash receipts of Rs 2 Lakh or more which are related to a
single transaction are prohibited.
In the example above, if Mr. A
receives 5 installments in 5 days, still the transaction covers under section
269ST of Income Tax Act as amount received against a single transaction.
(c) In
respect of transactions relating to one event or occasion from a person
Cash
transactions or cash receipts related to a single event or occasion, can not be
more than Rs 2,00,000.
A caterer receives cash of more than
Rs. 2,00,000 in respect of a marriage even if separate bills are made and
payment are received on separate days.
KEY NOTE
The
Cash Transactions Limit is applicable on receiver and not the payer.
Non Applicability of section
269ST
This section is not applicable on
(i) Any receipt by Government
, banking company, post office savings bank or co-operative bank
(ii) transactions of nature
referred to in section 269SS (Section 269SS deals with provisions related to
receiving loan or deposit from specified person )
(iii) such other persons or
class of persons or receipts, which the Central Government may, by notification
in the Official Gazette, specify.
Penalty
Sum
equal to the amount of such receipt shall be liable to be paid by the receiver
as the penalty under Section 271DA of Income Tax Act. No penalty shall be
impossible if such person proves that there were good and sufficient reasons
for the contravention. Also, the penalty is imposed on the receiver, not on the
payer.
The
Central Board of Direct Taxes (CBDT) vide Circular No. 27/2017 dated 03.11.2017
clarified that Section 269ST of the Act prohibits receipt of Rs. 2 lakhs or
more otherwise than by specified modes in a day or in respect of a single
transaction or in respect of transactions relating to an event or occasion from
a person. As no exception has been given for agricultural income, any cash sale
of an amount of Rs. 2 lakh or more by cultivator of agricultural produce is
prohibited under this section. This circular also clarified that cash sale of
the agricultural produce by its cultivator to the trader for an amount less
than Rs. 2 lakhs will not:
(a) Result in any disallowance of expenditure
under section 40A(3) of the Act in case of trader
(b) Attract prohibition under section 269ST of
the Act in the case of cultivator
(c) Require the cultivator to quote his PAN or
furnish Form No. 60.
CBDT Circular No.
27/2017, Dated 03.11.2017
Subject :
Clarification on Cash sale of agricultural produce by cultivators/agriculturist
Representations
have been received from the stakeholders. regarding applicability of income-tax
provision to cash sale of agricultural produce by cultivators/agriculturists to
traders.
2.
In this context, it is stated that the provisions of section 40A(3) of the
Income-tax Act, 1961 ('the Act') provides for the disallowances of expenditure
exceeding Rs. 10,000 made otherwise than by an account payee cheque/draft or
use of electronic clearing system through a bank account. However, rule 6DD of
the Income-tax Rules, 1962 ('IT Rules') carves out certain exceptions from
application of the provisions of section 40A(3) in some specific cases and
circumstances, which inter alia include payments made for purchase of
agricultural produce to the cultivators of such produce. Therefore, no
disallowance under section 40A(3) of the Act can be made if the trader makes
cash purchases of agricultural produce from the cultivator.
3.
Further, section 269ST, subject to certain cxceptions, prohibits receipt of Rs.
2 lakh or more otherwise than by an account payee cheque/draft or by use of
electronic clearing system through a bank account from a person in a day or in
respect of a single transaction or in respect of transactions relating to an
event or occasion from a person. Therefore, 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.
4.
Further also the provisions relating to quoting of PAN or furnishing of Form
No. 60 under rule 114B of the IT Rules do not apply to the sale transaction of
Rs. 2 Lakh or less.
5.
In view of the. above, it is clarified that cash sale of the agricultural
produce by its cultivator to the trader for an amount less than Rs. 2 Lakh will
not:-
(a) result in any disallowance of
expenditure under section 40A(3) of the Act in the case of trader.
(b) attract prohibition under
section 269ST of the Act in the case of the cultivator; and Page 1 of 2
(c) require the cultivator to
quote his PAN/ or furnish Form No.60.
Once the amounts have been credited
in the sales account and have been duly included while computing the profit,
the same cannot be added under section 68 of the Income Tax Act, 1961
The
explanation has not been rebutted with evidence by the Assessing Officer. The
claim of the Assessing Officer is that, the assessee has conveniently and very
cleverly filed his reply before few days, when the case is going to be time
barred and hence the documents filed cannot be verified is factually incorrect.
Just because there are problems of time and manpower to conduct verification
and detailed examination of the claims of the assessee, an addition cannot be
made by rejecting the claim of the assessee. (Related Assessment Year :
2014-15) – [New Pooja Jewellers v. ITO –
Date of Judgement : 26.02.2020 (ITAT Kolkata)]
Assessee was
importing mobile phones from China. Most of the time it was making sales of the
goods when in transit by way of high sea sales. During the year total turn-over
was Rs. 62.91 crores out of which high sea sales were of Rs. 59.11 crores. Sale
consideration for high sea sales was received in cash. The assessee was having
meager finances and was purchasing the goods on credit and was making the
payment after the sale. The Assessing Officer with a view to verify the
transactions of high sea sales issued notices to the buyers which were returned
by postal authorities with remarks “left or not exist”. The Assessing Officer
on this basis made addition of Rs. 59.11 crores under section 68. Held by the
Tribunal that Section 68 was not applicable. Goods have been duly imported
there have been custom clearances for the same. There were agreements for sale
of the goods on high sea basis. Once the goods have been sold, the buyer became
the debtor and any receipt of money from him is the realization of such debt.
Therefore, Section 68 cannot be applied. – [M/s
Singhal Exim (P) Ltd. v. ITO – Date of Judgement : 12.04.2019 (ITAT Delhi)]
Only
profit margin to be added if cash deposit was from cash sales
There is no dispute
that there were frequent deposits and withdrawal from the bank accounts. There
is also no dispute in so far as the business of the assessee is concerned.
Considering the nature of business of the assessee it can be safely concluded
that the cash deposited by the assessee were out of his cash sales. In our
considered opinion only margin of profit should be added on such cash deposit,
therefore, we do not find any error or infirmity in the finding of the Ld.
CIT(A). – [ITO v. Shri Pankaj Aggarwal –
Date of Judgement : 16.05.2018 (ITAT Delhi)]
Entire
cash sale can not be added, add only margin
In case the books are
rejected, then only margins out of the cash sales can be added to the income of
the assessee. The ld. CIT(A) has right observed that total amount appearing as
a deposit in the account was not cash credits, rather sale proceeds of the
assessee. Turnover of the assessee is to be computed on the basis of all these
details and at the most, an estimated net profit can be computed as an income of
the assessee. Accordingly, the ld.
CIT(A) has confirmed an addition of Rs. 3,50,208/-. We do not find any error in
the detailed reasoning of the ld. CIT(A), and accordingly, the appeal of the
Revenue is dismissed. For dismissal of this appeal, we do not require the
presence of the assessee. (Related Assessment year : 2008-09) – [ITO v. Shri Pavankumar Bhagatram Sharma –
Date of Judgement : 11.04.2017 (ITAT Ahemdabad)]
As
long as stock is available and nothing adverse against the cash memo is found
then cash sale cannot be doubted - Cash sale is offered as income hence the
same can not be added under section 68 (double addition)
It
is but natural that if a customer makes cash purchase & lifts the goods,
there is no duty cast upon seller to insist for address of the purchaser. In
light of the fact that stock record was available with assessee, which
evidenced making of sale, we fail to appreciate as to how any addition can be
made by treating cash sales as bogus. (Related Assessment year : 2006-07) – [Kishore
Jeram Bhai Khaniya, Prop. M/s Poonam Enterprises v. ITO – Date of Judgement :
13.5.2014 (ITAT Delhi)]
During
the course of survey two slips were found mentioning about sale of bardana of
Rs. 10 Lacs. Cash of Rs. 10 lacs was also found. The assessee entered in the
books of account sale of bardana and determined the profit on that basis. The
Assessing Officer made addition of Rs. 10 lacs rejecting the explanation of the
assessee. The assessee's explanation had been accepted that cash of Rs. 10
lakhs found during the course of survey were on account of realization from
sale of bardana of Rs. 10 lakhs. It was held that since sale of bardana was
duly entered in the books, amount of Rs. 10 lacs did not remain unrecorded and
it was not unaccounted. It was also noted by the Tribunal that addition of the
same amount again during assessment proceedings amounted to double addition. – [CIT v. Jaora flour and Foods (P) Ltd.
(2012) 344 ITR 294 (MP)]
Assessing
Officer had doubted the cash sales as bogus and had made additions - It is not
in dispute that the sum of Rs 24,58,400/- was credited in the sale account and
had been duly included in the profit disclosed by the assessee in its return -
It is in these circumstances that the Tribunal observed that the cash sales could
not be treated as undisclosed income and no addition could be made once again
in respect of the same
Cash
of Rs. 24,58,400/- was deposited in bank account. The Assessing Officer made
the addition on the ground that nexus of such deposit was not establish with
any source of income. The assessee claimed that it was duly recorded in the
books on account of cash sales and was considered in the Profit and Loss
Account. The Assessing Officer had verified the stock and cash position as per
books and had accepted the same. Complete books of account and cash book was
submitted to the Assessing Officer and no discrepancy was pointed out. On this
basis CIT(A) deleted the addition. Tribunal also observed that it is not in
dispute that sum of Rs.24,58,400/- was credited in the sale account and had
been duly included in the profit disclosed by the assessee in its return.
Therefore, cash sales could not be treated as undisclosed income and no
addition could be made once again in respect of the same. The Hon’ble High Court
dismissed the appeal filed by the Department. – [CIT v. Kailash Jewellery House – Date of Judgement : 09.04.2010]
Not
bound to maintain name and address of buyers in cash sale
In the case of a cash
transaction where delivery of goods is taken against cash payment, it is hardly
necessary for the seller to bother about the name and address of the purchaser.
As to the cash transactions also, the quantity of sugar sold has not been disputed.
The rates at which sugar was sold were not such as would excite suspicion by
reason of being lower than the prevailing market rates. The names of the
customers are also entered in respect of the transaction. All that is not done
is that the addresses are not entered and on enquiry the assessee was unable to
supply the addresses. There was no necessity whatsoever for the assessee to
have maintained the addresses of cash customers, the failure to maintain the
same or to supply them as and there was no necessity whatsoever for the
assessee to have maintained the addresses of cash customers, the failure to
maintain the same or to supply them as and when called for cannot be regarded
as a circumstance giving rise to a suspicion with regard to the genuineness of
the transactions. – [R.B. Jessaram
Fatehchand (Sugar Deptt.) v. CIT (1969) 75 ITR 33 (Bom.)
