Gokal Chand Mital, C.J. - (1.) BHERWA Fertilizers, Pali (hereinafter called "the assessee"), entered into various purchase transactions of fertilizers with Kisan Agro Service Centre, Pali, from November 20, 1979, to December 23, 1979. All these purchases were of more than Rs. 2,500 and their payments were made in cash. The total purchase transactions were to the tune of Rs. 2,21,578 and the assessee sold that fertilizer for the total sum of Rs. 2,38,563 and as per the profit and loss account of that firm, the net profit earned by that firm came to Rs. 11,525.
(2.) WHEN this matter came up for consideration before the Income-tax Officer, he noticed that payments of all these purchase transactions were exceeding Rs. 2,500 and, therefore, he called upon the assessee to give his explanation. The assessee explained that the seller was not prepared to accept cheques or bank drafts and insisted on cash payment and that is how the cash payment was made. The Income-tax Officer applied Section 40A(3) of the Income-tax Act, 1961 (for short, "the Act"), read with rule 6DD(j) of the Income-tax Rules, 1962 (hereinafter to be referred as "the Rules"), and came to the conclusion that the assessee was not entitled to the deductions of the amount of Rs. 2,18,678, which was paid to the seller at different times in cash exceeding Rs. 2,500 and thus disallowed the deductions of Rs. 2,18,678 and added this towards the income of the assessee. The matter was taken up in appeal before the Commissioner of Income-tax, where the assessee failed but on further appeal, the learned Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, held that though the provisions of Section 40A(3) of the Act and Rule 6DD(j) of the Rules are applicable but the assessee is entitled to the deduction of this amount under Rule 6DD(j) of the Rules. The Income-tax Appellate Tribunal noticed inconsistencies in the statement of the seller of fertilizers but ultimately concluded as follows : "In these circumstances, the assessee should not have been penalised with the heavy liability of tax on such a huge amount, the genuineness of payments whereof was probably not in dispute. From the figures furnished by the assessee at pages 27 to 29 of the paper book, it appears that most of the payments were in respect of goods received on that very date. The closing balance on each day was nominal. It was further pointed out that most of the moneys had been actually paid off by the seller to his own vendors on the same date. Transactions in fertilizers are very quick in a few days and naturally quick exchange of money is required. One of the grounds taken before the Income-tax Officer was that there was no such demand for fertilizers in Pali, whereas there were better demands from other areas where there were better irrigation facilities. Although the Punjab and Haryana High Court in CIT v. Kishan Chand Maheshwari Dass [1980] 121 ITR 232 has held that the payment for goods given within the expression 'expenditure' is to fall within the mischief of Section 40A(3), the Rajasthan High Court has taken a comparatively lenient view in Kanti Lal Purshottam and Co. v. CIT [1985] 155 ITR 519 in D. B. Income-tax Reference No. 8 of 1975, dated January 29, 1985, reported in Tax World VIII, Part IV, page 50. Keeping in view the exceptional circumstances of the case and the view taken by the Rajasthan High Court, we are of the opinion that it would be too harsh a penalty to levy tax on the assessee by disallowing its entire expenditure. The case can be said to fall under Section 6DD(j) of the Income-tax Rules. " It appears from the aforesaid observations of the learned Income-tax Appellate Tribunal that the learned Tribunal only looked into the genuineness of the payment and not the other ingredients contained in Rule 6DD(j) of the Rules, viz., (i) due to exceptional or unavoidable circumstances ; (ii) 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. The finding about the exceptional circumstances can be deduced from the penultimate paragraph of the order of the learned Income-tax Appellate Tribunal but on what fact this finding has been arrived at has not been clarified. At the instance of the Revenue, the following question of law has been referred for opinion to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Rule 6DD(j) of the Income-tax Rules, 1962, was clearly applicable to the facts of the case and that the payment exceeding Rs. 2,500 aggregating to Rs. 2,18,678 disallowed by the Income-tax Officer did not attract the provisions of Section 40A(3) of the Income-tax Act, 1961?" A reading of the aforesaid question shows that we have only to answer whether, on the facts and in the circumstances of the case, Rule 6DD(j) of the Rules and Section 40A(3) of the Act would be applicable or not ? No question has been referred to us as to whether, on the facts and in the circumstances of this case, this deduction should be allowed or not ? Accordingly, we proceed to answer the question referred to us that on the facts and in the circumstances of this case, Rule 6DD(j) of the Rules and Section 40A(3) of the Act would be applicable and attracted. Even counsel for the assessee conceded the applicability of both the provisions of this case.
(3.) THE above answer given by us does not solve the problem whether the assessee should be allowed the deduction of Rs. 2,18,678. In doing so, as already observed, besides giving a finding that the payment was genuine, as required by Rule 6DD(j) of the Rules, a further finding has also to be given that (i) either due to exceptional or unavoidable circumstances ; or (ii) because payment by a crossed cheque drawn on a bank or by a crossed bank draft 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. Since no finding in this behalf has been given by the Tribunal, learned counsel for the parties stated that it is not appropriate for this court to give finding in a reference and the matter be remitted to the Tribunal to give findings on those matters. We find the suggestion of learned counsel for the parties to be reasonable. On behalf of the Department, apart from other judgments, reliance was placed on Nahgi Lal v. CIT [1987] 167 ITR 139 (Raj) and Badrilal Phool Chand Rodawat v. CIT [1987] 167 ITR 404 (Raj). Pointed attention was made by Mr. D. S. Shishodia, learned counsel appearing for the Revenue to a Division Bench decision of this court in Badrilal Phool Chand Rodawat's case [1987] 167 ITR 404, wherein it has been observed as under (at page 409) : "In this context, it may also be stated that the Central Board of Direct Taxes has issued a circular dated May 31, 1977, wherein, after referring to the provisions of Clause (j) of Rule 6DD of the Rules, it has been mentioned that various representations had been received by the Board regarding difficulties that are being experienced by taxpayers due to lack of uniformity in the interpretation of the provisions of Rule 6DD(j) of the Rules by the Income-tax Officers and after considering the said representations, the Board has decided to lay down certain guidelines to ensure uniformity of approach among the Income-tax Officers in this behalf. After stating that all the circumstances in which the conditions laid down in Rule 6DD(j) would be applicable cannot be spelt out, the Board has enumerated some of those circumstances which would meet the requirements of the said rule and the same are as follows : '(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.' In the said circular, it has also been stated that - '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 transactions. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 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)'. " ;