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TMI Blog1985 (5) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 6,453 24-1-1981 Deccan Brush Co. 7,500 16-2-1981 Deccan Brush Co. 2,700 The reason for payment of cash has been explained before the IAC. It appears that the assessee had to make cash purchases of some machinery parts in order to carry out repairs to machinery without loss of time. The purchases are made on the spot in shops. The shopkeepers refuse to accept the cheque in respect of such purchases and the assessee in the business interests had to pay cash. 3. The ITO was of opinion that the cash payments would be hit by the provisions of section 40A(3). According to him, the assessee has not proved the existence of exceptional or unavoidable circumstances as required by the provisions of rule 6DD(j) of the Income-tax Rules, 1962 ('the Rules'). He, therefore, held that the amount could not be allowed as a deduction. 4. On appeal, the Commissioner (Appeals) agreed with the ITO. Before him, the assessee produced a certificate from one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ; or (c) the transactions and payments are made on a bank holiday ; or (d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller ; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods ; or (f) specific discount is given by the seller for payment to be made by way of cash. 5. It can be said that it would, generally, satisfy the requirements of rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j). 6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO [1978] 113 ITR 405. In this case, no doubt, the Kerala High Court has held that a mere insistence by the seller for payment in cash will not be sufficient circumstance to claim exemption under rule 6DD. But in that case itself, the High Court also observed: "We are of the opinion that, the assessee's contention regarding the applicability of rule 6DD and its eligibility for deduction of the cash payments, must be understood in a broad and liberal sense in the light of the contentions seem to have been put forward in the grounds of revision...." The High Court also recorded the factual position of the assessee therein, i.e., the assessee was often pressed for goods after banking hours and on holidays and the sellers invariably demanded cash for release of further goods. The tenor of the decision of the Kerala High Court seems to consider such a position to be governed by rule 6DD(j). 11. The ITO and the IAC had referred to the decision of the Punjab and Haryana High Court in the case of Hari Chand Virender Paul v. CIT [1983] 140 ITR 148. That case can be easily distinguished. In that case, the goods were purchased on credit basis a number of days earlier to the date on which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. 14. In view of the above authorities, we are clear in minds that the assessee is entitled to the deduction. 15. We now consider ground No. 2 in which the assessee is objecting to the disallowance of a part of the wastage of gunny bags. The assessee is getting wheat in gunny bags from the Food Corporation of India (FCI). For their own purpose, for rebagging flour, atta, etc., the assessee was also purchasing gunny bags from the market. Taking into account the gunny bags purchased in the market and the gunny bags received from the FCI, the ITO found that the stock of gunny bags was less by 14,100. He found that this was more than 12 per cent of the total purchase of gunny bags. In the prior assessment years, the shortage or wastage was around 8 per cent only. He, therefore, restricted the shortage to 8 per cent and made a disallowance of the excess which amounted to Rs. 13,481. 16. The assessee appealed. The Commissioner (Appeals), while agreeing with the ITO that the claim for the wastage was excessive, however, reduced the addition roundly to Rs. 10,000. The assessee is on further appeal before us. It was submitted that most of the gunny bags received by the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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