Income tax law provides under section 40(A)3 of income tax act as a person can not take more than 20000 rupees in cash in a single day. If he takes, this will be treated his personal income. But Penalty under section 271D can not be imposed if a person takes 20000 or less from 5 or 6 persons in a single day.
Since CBDT Circular No. 572 dated 3-8-1990 clearly states that section 271D is applicable for taking or accepting any loan or deposit in excess of Rs.20,000, penalty under section 271D is not imposable where assessee accepted cash loans of Rs.20,000 each from 6 persons aggregating to Rs.1,20,000. This is so even though the interpretation in the said circular is contrary to the express provisions of section 269SS which provides that section 269SS is applicable to loans or deposits of Rs.20,000 or more.
Para 43 of Circular No. 572 dated 3-8-1990
"…..Penalty under section 271D may be levied for failure to comply with the provisions of section 269SS, i.e., for taking or accepting any loan or deposit in excess of Rs. 20,000 otherwise than by an account payee cheque or bank draft….."
CIT v. Madhukar B. Pawar (2008) 218 CTR 59(Bom.) -  21 taxmann.com 132 (Kolkata - Trib.)
Tags:- section 40a 3 of income tax act,section 40a 3,cash payment of 20000 rule,20000 cash rule of income tax,income tax rule of payment 20000.