Rule 6DD(h) exception applied to cash kerosene purchases where banking facilities were unavailable and cheque payment was impracticable.

Cash payments for kerosene oil purchases were held to fall within the statutory exception in Rule 6DD(h) because the business was carried on from a village without banking facilities and cheque payments were impracticable in the regulated distribution arrangement. On those undisputed facts, section 40A(3) disallowance could not be sustained, and the expenditure was allowed. The reasoning was supported by earlier jurisdictional precedent on similar facts.

---

---

Issues: Whether the cash payments made for purchase of kerosene oil were covered by the exception in Rule 6DD(h) of the Income-tax Rules, 1962 so as to prevent disallowance under section 40A(3) of the Income-tax Act, 1961.

Analysis: The assessee carried on business from a village which was not served by any bank on the relevant date, and the purchases were made in cash in the course of a regulated public distribution arrangement. The undisputed facts showed that the business was conducted from Chakdola village, banking facilities were unavailable there, and cheque payments were impracticable in the facts of the case. In such circumstances, the statutory exception in Rule 6DD(h) applied, and the disallowance could not be sustained. The earlier jurisdictional precedent on similar facts supported the same view.

Conclusion: The cash payments fell within Rule 6DD(h), so the disallowance under section 40A(3) was not justified and had to be deleted in favour of the assessee.

---