PER SHRI K.S. VISWANATHAN, A.M.: ORDER This is appeal by assessee objecting to some of findings of CIT (A) for asst. yr. 1981-82. assessee's business is running flour mill. 2. first point to be considered is disallowance under s. 40A (3) of IT Act, 1961 ('the Act'). following three items had been disallowed : Amount Date Name of party paid Rs 4th Jan., Standard Refrigeration 6,453 1980 Co. 24th Jan., Deccan Brush Co. 7,500 1981 16th Feb., Deccan Brush Co. 2,700 1981 reason for payment of cash has been explained before IAC. It appears that assessee had to make cash purchases of some machinery parts in order to carry out repairs to machinery without loss of time. purchases are made on spot in shops. shopkeepers refuse to accept cheque in respect of such purchases and assessee in business interests had to pay cash. 3 . ITO was of opinion that cash payments would be hit by provisions of s. 40A (3). According to him, assessee has not proved existence of exceptional or unavoidable circumstances as required by provisions of r. 6DD (j) of IT Rules, 1962 ('the Rules'). He, therefore, held that amount could not be allowed as deduction. 4. On appeal, CIT (A) agreed with ITO. Before him, assessee produced certificate from one of parties, i.e., Deccan Brush Co. certificate stated that party had insisted upon cash payments. CIT (A) found that payments for purchases had been made in round sums like Rs. 7,500 and Rs. 2,700. Even though claim is made that purchases were made in cash on account of urgent need of goods, assessee had not, according to CIT, produced any evidence to show that purchases were such that they had to be made on spot in cash. For this purpose, according to him, it was not enough that certificate is filed from seller. He, therefore, upheld addition. 5. assessee is on further appeal before us. He submitted that certain machineries required urgent repairs and parts had to be purchased from market and shopkeepers were not willing to accept cheques. It was under these circumstances that cash payments had been made. He submitted that this would be one of circumstances accepted by Board as coming within purview of r. 6DD. He, therefore, submitted that entire amount should be allowed as deduction. 6 . provisions of s. 40A (3) which are harsh enough have been softened by provisions of r. 6DD. Clause (j) of r. 6DD states as follows : "in any other case, where assessee satisfies ITO that payment could not be made by crossed cheque drawn on bank or by crossed bank draft (1) due to exceptional or unavoidable circumstances, or (2) because payment in manner aforesaid was not practicable, or would have caused difficulty to payee. having regard to nature of transaction and necessity for expeditious settlement therefore, and also furnishes evidence to satisfaction of ITO as to genuineness of payment and identity of payee." 7. above provisions of rule have been further explained by Circular No. 220 dt. 31st May, 1977 (See Taxmann's Direct Taxes Circulars, Vol. 1. 1985 edn., p. 405) issued by CBDT. Paragraphs 4, 5, and 6 of that circular read as follows : "4. All circumstances in which conditions laid down in r. 6DD (j) would be applicable cannot be spelt out. However, some of them which would seem to meet requirements of said rule are : (a) purchaser is new to seller; or (b) transactions are made at place where either purchaser or seller does not have bank account; or (c) transactions and payment are made on bank holiday; or (d) seller is refusing to accept payment by way of crossed cheque/draft and purchaser's business interest would suffer due to non- availability of goods otherwise than from this particular seller; or (e) seller, acting commission agent, is required to pay cash in turn to persons from whom he has purchased goods; or (f) specific discount is given by seller for payment to be made by way of cash. 5. It can be said that it would, generally, satisfy requirements of r. 6DD (j), if letter to above effect is produced in respect of each transaction falling within categories listed above from seller giving full particulars of his address, sales tax number/permanent account number, if any, for purposes of proper identification to enable ITO to satisfy himself about genuineness of transaction. ITO will, however, record his satisfaction before allowing benefit of r. 6DD (j). 6. It is further clarified that above circumstances are not exhaustive but illustrative. There could be cases other than those falling within above categories which would also meet requirements of r. 6DD (j)." 8 . We have to see whether payments made by assessee would come within above parameters. If so, then assessee is entitled to deduction. In our opinion, provisions of r. 6DD, as explained by circular, would be applicable to facts of case. As noted above, there are two alternatives considered in cl. (j). One is that payment should be due to exceptional or unavoidable circumstances. This is condition which ITO and CIT (A) considered. Both of them gave finding that no exceptional or unavoidable circumstances had been proved. No doubt, they may be correct in this finding. But cl. (j) has one further alternative which has not been considered by them, this alternative states that if payment by cheque was not practicable or whole have caused genuine difficulty to payee having regard to nature of transaction and necessity for expeditious settlement, then such payment would be considered as covered by cl. (j). only condition, circular states, is that assessee proves genuineness of payment and identity of payee. 9. We have noted above that assessee had to make these purchases in shops. When purchases are made in shops and that too in markets for spare parts of mills, it is not necessary that buyer and seller are familiar with one another. They may be strangers. When purchases are made from shops, normally cash payments are made. That is nature of transaction referred to in circular. In such cases, payments have to be made immediately and that shows necessity for expeditious settlement of transaction, condition again referred to in Bard's circular. further conditions laid down in circular have also been satisfied by assessee. There is no question regarding genuineness of payments. identity of payee has also been established. assessee had shown certain certificates from seller and Department has been satisfied regarding genuineness of payments. Therefore, case is one completely covered by r. 6DD (j). 10. We may refer to certain authorities which were cited before us. first case cited was Kerala High Court decision in Rajarajeswari Wvg. Mills. vs. ITO 1978 CTR (Ker) 248 : (1978) 113 ITR 405. In this case, no doubt, Kerala High Court has held that mere insistence by seller for payment in cash will not be sufficient circumstances to claim exemption under r. 6DD. But in that case itself, High Court also observed : "We are of opinion that assessee's contention regarding applicability of r. 6DD and its eligibility for deduction of cash payments, must be understood in broad and liberal sense in light of contentions seem to have been put forward in grounds of revision ...." (p. 411) High Court also recorded factual position of assessee therein, i.e., assessee was often pressed for goods after banking hours and on holidays and sellers invariably demanded cash for release of further goods. tenor of decision of Kerala High Court seems to consider such position to be governed by r. 6DD (j). 11. ITO and IAC has referred to decision of Punjab and Haryana High Court in case of Hari Chand Virender Paul vs. CIT (1982) 30 CTR (P&H) 325 : (1983) 140 ITR 148. That case can be easily distinguished. In that case, goods were purchased on credit basis number of days earlier to date on which alleged payments was made. assessee had, therefore, ample opportunity to make payments by crossed cheque and need not have waited till demand was made for payment in cash. High Court held, therefore, that no exceptional or unavoidable circumstances had been made out. In this case, purchase and payment are simultaneous. So, decision is easily distinguishable on facts. 12. Gujarat High Court in case of Hasanand Pinjomal vs. CIT 1977 CTR (Guj) 486 : (1978) 112 ITR 134 had construed expression 'payment not practicable' occurring in r. 6DD (j). It is pointed out that meaning of word 'practicable' in ordinary parlance must prevail in context of rule. If object of enactment, viz., to relax rigour of sub-s. (3) of s. 40A in genuine and bona fide cases to avoid hardship and harassment is borne in mind, adoption of ordinary meaning which is circumstance wide enough would be justified because it would advance cause rather than defeat it. word 'practicable', it has been held, must be construed to signify that which is feasible, that is to say, capable of being put into practice, done or accomplished with relevant means and resources. In determining practicability for purpose of rules, regard will have to be had for facts and circumstances of each of cases. Gujarat High Court again stated that practicability for purpose of rules must be judged from point of view of businessman and not of Revenue. For purpose of carrying on his business, businessman may have to make payments otherwise than by crossed cheques or drafts in circumstances voluntarily and out of sheer necessity. We have applied these tests also and we find that assessee's case should be accepted. 13. We may finally refer to decision of Punjab and Haryana High Court in case of CIT vs. Sawaran Singh Balbir Singh (1981) 20 CTR (P&H) 131 : (1982) 136 ITR 595. In that case, assessee was engaged in husking of paddy. It had made purchase of gunny bags from firm with which assessee had running account and dealings were in cash as well as cheques. There was oral agreement between assessee and firm to make payments by cash. Punjab and Haryana High Court found that circumstances were sufficient to consider it as case of exceptional circumstances and payment in cash was allowed. 1 4 . In view of above authorities, we are clear in minds that assessee is entitled to deduction. 15. We now consider ground No. 2 in which assessee is objecting to disallowance of part of wastage of gunny bags. assessee is getting wheat in gunny bags from Food Corporation of India (FCI). For their own purpose. for rebagging flour, atta etc., assessee was also purchasing gunny bags from market. Taking into account gunny bags purchased in market and gunny bags received from FCI, ITO found that stock of gunny bags was less by 14,100. He found that this was more than 12 per cent of total purchase of gunny bags. In prior assessment years, shortage or wastage was around 8 per cent only. He, therefore, restricted shortage to 8 per cent and made disallowance of excess which amounted to Rs. 13,481. 16. assessee appealed. CIT (A), while agreeing with ITO that claim for wastage was excessive, however, reduced addition roundly to Rs. 10,000. assessee is on further reduced appeal before us. It was submitted that most of gunny bags received by assessee are from FCI. quantity of gunny bags came from FCI would vary depending upon how old stock was. He submitted that during this year assessee must have been supplied wheat from old consignments with result that gunny bags coming with them were of poor quality. It was because of this reason that there w s excess shortage. He, therefore, submitted that whatever shortage was found in books of account should have been accepted and no addition should have been made. 17 . We are unable to accept this submission. In earlier years also, assessee had been getting most of gunny bags from FCI only. In spite of that fact, in earlier three years, wastage was only about 8 per cent. If for year under appeal wastage had stood in 12 per cent, there must be have been some extraordinary reasons. assessee has not been able give any reasons as to why wastage should go up during this year. In absence of any reasons being given which are satisfactory, we will not be able to accept assessee's submission. addition made will stand confirmed. 18. last ground is in respect of disallowances of interest amounting to Rs. 2,100. ITO found that assessee had advanced sum of Rs. 30,000 free of interest to another sister concern by name Surya Roller Flour Mills. This concern was in formative stages and monies had been advanced towards meeting preliminary expenditure. According to ITO, amount was advanced out of borrowed funds of assessee on which interest of 24 per cent on average was being paid. To extent of amount advanced to Surya Roller Flour Mills, according to ITO, there was diversion of borrowed funds for non-business purposes. He, therefore, disallowed part of interest which was worked out at Rs. 2,100. CIT agreed with ITO's finding. 19. assessee is on further appeal before us. It was submitted that assessee had sufficient capital and reserves and amount in question could actually have come from out of those funds. As Shri Radhakrishnamurthy for Department pointed out, capital and reserves are already locked up in various types of fixed assets and current assets. advance had been made towards end of accounting year. liquid funds of assessee were only their bank overdrafts. So, it seems to us that advance could have come only from borrowed funds. It was submitted that advance could be considered as having been made out of current sales receipts. current sales receipts are first to be considered in goods account. assessee perhaps might of had case if result in accounting year was positive figure of profit. But, as we find from P&L A/c, assessee had actually suffered loss. So, it is not possible to say that amount was advanced out of profits either. We will, therefore, uphold finding of ITO on this point also. 20. In result, appeal is partly allowed. *** VENKATESWARA ROLLER FLOUR MILLS LTD. v. INCOME TAX OFFICER