Circular No. 27/2017


                             F. No. 370149/213/2017 -TPL
                                  Government of India
                                   Ministry of Finance
                                Department of Revenue
                             (Central Board of Direct Taxes)
                                          *****
                                                         New Delhi, Dated 3 rd November, 2017

       Clarification on Cash sale of agricultural produce by cultivatorslagriculturist


      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. 10000 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

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      c) require the cultivator to quote his PAN/ or furnish Form No.60.

                                                                           (Dr. T.S. M pwal)
                                                  Under Secretary to the Government India

Copy to:-
   1. PS to FM/ OSD to FM/ OSD to MoS(R).
   2. PS to Secretary (Revenue).
   3. The Chairperson, Members and all other officers in CBDT of the rank of Under
       Secretary and above.
   4. All Pro Chief Commissioners/ Pr. Director General of Income-tax - with a request to
       circulate amongst all officers in their regions/ charges.
   5. Pr. DGIT (Systems)/ Pr. DGIT (Vigilance)/ Pr. DGIT (Admn.)/ Pr. DG (NADT)/ Pro
       DGIT (L&R).
   6. CIT (M&TP), CBDT.
   7. Web manager for posting on the departmental website.




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