Rule 6DD(j) exception allowed cash purchases where payments were genuine and made outside the business location.

Cash purchases were treated as allowable expenditure where the genuineness of the payments and the identity of the payees were accepted, and the purchases were made at places different from the assessee's business location without an account at those places. Rule 6DD(j) and Board Circular No. 220 recognised such circumstances as an exception to the general prohibition on cash payments. On those facts, the mere possibility of payment by cheque or draft did not justify disallowance, and the cash purchases were covered by the exception and allowable as expenditure.

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Issues: Whether cash purchases aggregating to Rs. 2,09,705 were allowable as expenditure in view of the exception under Rule 6DD(j) of the Income-tax Rules, 1962 and the Board's Circular No. 220 dated 31 May 1977.

Analysis: The genuineness of the payments and the identity of the payees stood accepted. The purchases were made at places different from the assessee's place of business, and the assessee had no bank account at those places. The Board's circular contemplated such a situation as an exceptional circumstance for cash payment. On those facts, the case fell within the exception contemplated by Rule 6DD(j), and the mere possibility of payment by cheque or draft did not justify disallowance.

Conclusion: The cash purchases were covered by the exception and were allowable as expenditure; the disallowance was unsustainable and the appeal succeeded in favour of the assessee.

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