S. 40A(3): Financial crises may be “exceptional or unavoidable circumstance” for cash payment

Basu Distributor Pvt Ltd vs. ACIT (Delhi High Court)

The assessee made payments exceeding Rs. 10,000 in cash and claimed that a disallowance u/s 40A(3) read with Rule 6DD(j) & Circular No.220 dated 31.05.1997 could not be made as a payment by cheque etc was not possible due to “exceptional or unavoidable circumstances” etc. The Tribunal rejected the assessee’s claim on the ground that that the assessee’s explanation that the payees would not accept cheques as they had been dishonoured on earlier occasions was “fantastic and fanciful” as in such case the assessee could have deposited cash and obtained bank drafts. It was also held that the assessee had not explained how it obtained the cash for making the payments & if the amounts were borrowed, there was a violation of s.269SS. On appeal by the assessee to the High Court, HELD reversing the Tribunal: