Section 40A(3) of the Income-tax Act, 1961--Rule 6DD(j) of the Income-tax Rules, 1962--Clarification regarding - Income Tax - 220/1977

Section 40A(3) of the Income-tax Act, 1961--Rule 6DD(j) of the Income-tax Rules, 1962--Clarification regarding Circular No. 220 Dated 31/5/1977 To All Commissioners of Income-tax. Subject: Section 40A(3) of the Income-tax Act, 1961--Rule 6DD(j) of the Income-tax Rules, 1962--Clarification regarding. Sir, Clause (j) of rule 6DD of the Income-tax Rules, 1962, provides that no disallowance under section 40A(3) of the Income-tax Act, 1961, shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft- (a) due to exceptional or unavoidable circumstances; or (b) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof; and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. 2. It would be seen that where payment of a sum exceeding Rs.2,500 is made, otherwise than by a crossed cheque/draft, the assessee besides furnishing evidence as to the genuineness of the payment and the identity of the payee, is required to satisfy the Income-tax Officer that his case falls under any one of the circumstances mentioned in (a) and (b) above if he claims that no disallowance should be made under section 40A(3) of the Income-tax Act, 1961. 3. Various representations have been received by the Board regarding the difficulties that are being experienced by the taxpayers due to lack of uniformity in the interpretation of the provisions of rule 6DD(j) of the Income-tax Rules, 1962, by the Income-tax Officers. The Board have considered these representations and have decided to lay down certain guidelines to ensure uniformity of approach among Income-tax Officers in this behalf. 4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: (i) The purchaser is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday; or (iv) 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 (v) The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (vi) 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 within the above categories which would also meet the requirements of rule 6DD(j). 7. The above clarification may please be brought to the notice of all the officers working in your charge for their information and guidance. Yours faithfully, Sd. J.P. Sharma, SECRETARY, CENTRAL BOARD OF DIRECT TAXES.