Cash payment exception under income-tax disallowance provisions applies where cash was insisted on and transactions were genuine.

Section 40A(3) is not absolute, and its disallowance can be avoided where the assessee shows that payment by the prescribed mode was not practicable or would have caused genuine difficulty, bringing the case within rule 6DD(j). Genuine and bona fide transactions are not automatically outside the provision, but business expediency and other relevant circumstances may justify cash payment. Where the Tribunal found that the payee insisted on cash and the transactions were genuine, the factual basis supported application of the exception and no interference was warranted with that conclusion.

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Issues: Whether the assessee's cash payments could be excluded from the disallowance under section 40A(3) of the Income-tax Act, 1961 by virtue of the exception in rule 6DD(j), where the Tribunal found that the payee insisted on cash payment and the transactions were genuine.

Analysis: The terms of section 40A(3) are not absolute, and the statutory scheme permits consideration of business expediency and other relevant factors. Genuine and bona fide transactions are not automatically excluded from the provision, and the assessee may establish the circumstances showing that payment by the prescribed mode was not practicable or would have caused genuine difficulty to the payee. On the facts found by the Tribunal, the payment was insisted upon in cash and the transactions were genuine, which was a factual conclusion.

Conclusion: The exception was attracted on the facts found, and no interference was warranted with the Tribunal's conclusion.

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