383. Circumstances when Income-tax Officer can relax requirement of making payments in excess of Rs. 2,500 by crossed cheques under clause (j) of rule 6DD
Circular No. 220 was issued by the Central Board of Direct Taxes on 31 May 1977. Its subject is 383. Circumstances when Income-tax Officer can relax requirement of making payments in excess of Rs. 2,500 by crossed cheques under clause (j) of rule 6DD.
Gives Income-tax Officers guidelines on when to accept a cash payment over Rs. 2,500 under clause (j) of rule 6DD, so that section 40A(3) does not disallow it. The rule requires the assessee to satisfy the officer that a crossed cheque or bank draft could not be used because of exceptional or unavoidable circumstances, or because that mode was not practicable or would have caused genuine difficulty to the payee having regard to the nature of the transaction and the need to settle it quickly, and also to furnish evidence of the genuineness of the payment and the identity of the payee. The Board lists six situations that would seem to meet the rule: the purchaser is new to the seller; the transaction is at a place where either party has no bank account; the transaction and payment fall on a bank holiday; the seller refuses a crossed cheque or draft and the purchaser's business would suffer because the goods are not available elsewhere; the seller is a commission agent who must in turn pay cash to those from whom he bought the goods; or the seller gives a specific discount for cash payment. It adds that a letter from the seller for each such transaction, giving his full address and his sales tax number or permanent account number, will generally satisfy the rule, the officer recording his satisfaction before allowing the benefit, and that the list is illustrative rather than exhaustive.
Various representations complained of difficulties caused by a lack of uniformity in how Income-tax Officers were reading rule 6DD(j).
383. Circumstances when Income-tax Officer can relax requirement of making payments in excess of Rs. 2,500 by crossed cheques under clause (j) of rule 6DD
1. Clause (j ) of rule 6DD provides that no disallowance under section 40A(3) shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft—
a. due to exceptional or unavoidable circumstances; or
b. 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,
and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee.
2. It would be seen that where payment of a sum exceeding Rs. 2,500 is made, otherwise than by a crossed cheque/draft, the assessee besides furnishing evidence as to the genuineness of the payment and the identity of the payee, is required to satisfy the Income-tax Officer that his case falls under any one of the circumstances mentioned in (a) and (b ) above, if he claims that no disallowance should be made under section 40A(3).
3. Various representations have been received by the Board regarding the difficulties that are being experienced by the taxpayers due to lack of uniformity in the interpretation of the provisions of rule 6DD(j ) by the Income-tax Officers. The Board have considered these representations and have decided to lay down certain guidelines to ensure uniformity of approach among the Income-tax Officers in this behalf.
4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are :
a. the purchaser is new to the seller, or
b. the transactions are made at a place where either the purchaser or the seller does not have a bank account; or
c. the transactions and payments are made on a bank holiday; or
d. 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
e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or
f. specific discount is given by the seller for payment to be made by way of cash.
5. 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 transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j).
6. 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 ).
Circular : No. 220 [F. No. 206/17/76-IT (A-II)], dated 31-5-1977.
In an assessment disallowing cash purchases under section 40A(3), and in appeal where the assessee relies on rule 6DD(j).
Rules it names. Rule 6DD of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.
