Rule 6DD

Rule 6DD — the law in short

What the courts have decided on section Rule 6DD, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Attar Singh Gurmukh Singh v ITO Supreme CourtHelps department
  I paid cash for stock purchases. Can the AO disallow it under 40A(3), and is that section even valid?
  The section is valid and it does reach cash payments for purchases of stock-in-trade — the constitutional challenge was dismissed. But it cannot be read in isolation from Rule 6DD: considerations of business expediency and other relevant factors are not excluded, and you may show the circumstances in which payment by crossed cheque or crossed bank draft was not practicable.
• Vaduganathan Talkies v ITO High CourtHelps departmentNo later treatment found
  The purchases are genuine and I can name every payee. Does that answer a s.40A(3) disallowance?
  No, not by itself. The Madras High Court upheld the disallowance where the assessees admitted paying cash for film exhibition rights and rested their case on the genuineness of the transactions and the identity of the payees. Where banking facilities were available and no clause of Rule 6DD was made out, the section applies.
• A. Daga Royal Arts v ITO ITATHelps taxpayer
  The AO disallowed cash paid at the registrar's office for land. Is Rule 6DD the only way out?
  No. The Jaipur Tribunal deleted the disallowance where the payments were made against registered sale deeds, so both the transaction and the identity of every payee were established. It treated Rule 6DD as not exhaustive and business expediency as a live consideration under s.40A(3).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.