JUDGMENT M. Katju, J.
1. This is an income-tax reference under Section 256(2) of the Income-tax Act, 1961. The following question has been referred to us at the instance of the applicant :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in holding that the payments made to Santlal Jain, Daulat Ram Makhan Lal and to M. M. Istiaq Ahmad Sultan Ahmad were covered by Rule 6DD(j) of the Income-tax Rules, 1962, and that the payments made to Gupta Iron and Steel Co. were not hit by Section 40A(3) and in thus deleting the addition of Rs. 65,537 made by the Income-tax Officer?"
2. We have heard Shri Rajesh Kumar Agarwal, learned counsel for the Department, and Shri V.K. Rastogi, for the assessee.
3. The assessment year in question is 1972-73. In respect of that year, the Income-tax Officer has found that the assessee had paid Rs. 7,600 to Gupta Iron and Steel Co., Rs. 4,547 on one date and Rs. 20,060 on another date to Sant Lal Jain, Rs. 5,150 to M.M. Istiaq Ahmad Sultan Ahmad and Rs. 29,200 to Daulat Ram Makhan Lal by cash for the purchase of goods. The Income-tax Officer held that this amount could not be deductible because of Section 40A(3) of the Income-tax Act, 1961, as the payments were not made by crossed cheque or draft. The assessee's appeal to the Assistant Commissioner was rejected by him but in the second appeal, the Tribunal has reversed the order of the Assistant Commissioner and held that the amounts were deductible.
4. A perusal of the Tribunal's appellate order shows that Sant Lal Jain and M.M. Istiaq Ahmad Sultan Ahmad had filed certificates before the Income-tax Officer giving reasons why the payment was made in cash. It appears that these parties had insisted on cash payment since they were in need of cash. The Tribunal has considered several circumstances and then come to the inference that these payments come within the purview of Rule 6DD(j) of the Income-tax Rules, and hence they are deductible.
5. Shri Rajesh Kumar Agarwal had contended that merely because the party insisted on payment in cash that does not come in any of the exceptional circumstances laid down in Rule 6DD(j). We are of the opinion that if the assessee merely makes a bald averment that this seller has been insisting on cash payment then no doubt it could have been said that the case is not covered by Rule 6DD(j) of the Rules. However, in the present case the totality of circumstances indicates that the view taken by the Tribunal is not incorrect. The considerations taken into account by the Tribunal were ;
1. The statement of the assessee that his seller has been insisting on cash payment ;
2. The identity of the seller had been disclosed by the assessee ;
3. The assessee had furnished certificates from the sellers stating that they had insisted on cash payment ;
4. The genuineness of the payments.
6. We may mention that the object of Section 40A(3) was that fictitious amounts should not be claimed as revenue expenditure. The intention of Section 40A(3) was not that cash payment can never be allowed as deductible amount. In fact, the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 has observed (at page 673) :
"The terms of Section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee."
7. As has already been observed above, in the present case the totality of circumstances shows that the transactions were genuine for the reasons already mentioned above. In fact, the amount said to have been paid in cash by the assessee to certain parties has been verified by the certificates of those parties. Hence, the interest of the Department is protected because the Department can assess those amounts in the hands of the payee and it is not that these amounts will not be assessed at all. Thus, the Department will not suffer in any way.
8. In view of the above, we answer the question referred in the affirmative, i.e., in favour of the assessee and against the Department. Parties shall bear their own costs.