Rule 6DD exception for cash land purchase sustained where seller had no bank account and business exigency justified payment.

Cash payment for purchase of land was held to fall within the Rule 6DD exception because the seller had no bank account when the transaction was completed, the consideration was recorded in the registered sale deed, and the payment was made to meet business exigency. On those facts, disallowance under section 40A(3) could not be sustained and was deleted in favour of the assessee.

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Issues: Whether the disallowance made under section 40A(3) of the Income-tax Act, 1961 in respect of the cash payment for purchase of land was justified, or whether the payment fell within the exception under Rule 6DD of the Income-tax Rules.

Analysis: The land purchase was undisputed and the consideration paid in cash and cheque was reflected in the registered sale deed. The seller had no bank account when the cash payment was made, and this circumstance was not disputed by the revenue authorities. The cash payment was made to complete the purchase transaction and was supported by business exigency. In these facts, the payment was treated as covered by the exception in Rule 6DD, and the disallowance under section 40A(3) could not be sustained.

Conclusion: The disallowance under section 40A(3) was deleted and the issue was decided in favour of the assessee.

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