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"Clause (f) of Rule 6DD of the Income-tax Rules, 1962, did not cover the assessee's case. The payments in question were not made 'to the cultivator or producer of such articles or produce' as were referred to in Clause (f) of Rule 6DD.

The case of the assessee was also not covered by Clause (j) of Rule 6DD as, in the opinion of the Tribunal, the ignorance of law or non-clarity of the law to the assessee did not constitute exceptional or unavoidable circumstance in which he could not make the payments to the sellers by crossed cheques or by crossed bank drafts " ;

7. And, therefore, he submitted that the very purpose of introducing this new section was to have a check over the dishonest assessee who wants to make false deductions on account of expenditure incurred in cash and this intention is further fortified by reference to Rule 6DD(j) wherein it has been provided that the ITO is to be satisfied that the payment could not be made by a crossed cheque or a crossed bank draft due to exceptional or unavoidable circumstances and he is to be satisfied about the genuineness of the payment and the identity of the payee. The rigour of this Clause is, however, relaxed by the proviso to the said sub-section which provides that no disallowance under this sub-section shall be made where any such payment is made otherwise than by a crossed cheque or a crossed bank draft in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. And it was only with this object that the CBDT has framed Rule 6DD. Counsel for the assessee has further submitted that since the assessee was purchasing agricultural produce, he was exempted from the operation of Section 40A(3), in view of Clause (f) of Rule 6DD. According to him, the words "to the cultivator, grower or purchaser of such articles, produce or products" apply and govern only Sub-clause (iv) of Clause (f) and it does not govern Clauses (i), (ii) and (iii) and since the assessee was dealing in agricultural purchase like dhania, he was covered by Clause (f)(i) of Rule 6DD, Learned counsel for the assessee brought to our notice that since some doubt was expressed or created regarding the interpretation of Clause (f) of Rule 6DD, the CBDT published another notification as corrigendum--"Income-tax (Amendment) Rules, 1969, amending Rule (f) as under--See ([1969] 72 ITR (St.) 20) :

10. This amendment was published in the Gazette of India, Extraordinary, Part II, Section 3(iii), page 1855, dated November 19, 1970. On the basis of this, learned counsel for the assessee has submitted that the amendment brought in the Act by introducing new Section 40A(3) and introducing new Rule 6DD and thereafter issuing amendment to the Rules received several queries from various trade associations and members of the public about the operation of the new provisions and, therefore, the first circular was issued on March 25, 1969, and another circular was issued on November 19, 1970, by the Central Board of Taxes and more clarifications were made by the Central Board of Direct Taxes even after 1970. Number of clarifications liberalising the payments have been issued from time to time by the Central Board of Direct Taxes and, therefore, the assessee had a bona fide belief that the restriction provided by Section 40A(3) was not applicable to the purchase of stock-in-trade as it is not an exception in popular sense and cash payment could be made for agricultural produce. The assessee did not make payment by crossed cheque or crossed draft as envisaged by Section 40A(3). It may be at best ignorance of law or that the law was not clear but there was no mens rea and there was no fraud ; that the conduct of the assessee was not contemptuous. Two interpretations were possible to Clause (f) of Rule 6DD and a liberal interpretation more beneficial to the assessee should be taken if two views are possible and, in this connection, he has placed reliance on CIT. v. Shahzada Nand & Sons [1966] 60 ITR 392 (SC), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), CIT v. Naga Hills Tea Co. Ltd. .[1973] 89 ITR 236 (SC), CIT v. Simpson & Co. [1980] 122 ITR 283 (Mad) and CIT v. Mahindra. & Mahindra Ltd. [1983] 144 ITR 225 (SC) and a Division Bench decision of this court reported in Mansinghka Brothers P. Ltd. v. CIT [1984] 147 ITR 361 (Raj), On the basis of these authorities, he has submitted that if the language of a taxing provision is ambiguous or capable of more meaning than one, then the court should adopt that interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of a penalty. He further submits that the effect of disallowing this and charging of additional tax burden amount to penalising the assessee. By disallowing such amount, tax is being charged not on real income but on an imaginary income and this can be termed as penal in nature. He has placed reliance on Cement Marketing Co. of India v. Asst. Commr. of S.T. [1980] 124 ITR 15 (SC) and submitted that since the assessee had the bona fide belief and there is no mens rea or wilful fraud, he was entitled to deduction of these amounts from his total income and he should not be penalised.

14. We have given our thoughtful consideration to the whole matter and have also gone through the relevant records and the various citations at the Bar. Income-tax is a tax on the real income and the purpose of introducing Section 40A(3) was to block the loopholes of making cash payment and claim as deductions with a view to frustrate investigation as to the identity of the recipients and the genuineness of the claim. Proviso to Section 40A(3) shows that the Legislature intended not to make the provision of Section 40A(3) very strict and absolutely mandatory. The rigour of the whole restriction was loosened by the proviso and by making Rule 6DD in pursuance thereof. Clause (j) of Rule 6DD has given a discretionary power to the ITO that if he is satisfied that the payment could not be made by a crossed cheque or a crossed bank draft due to exceptional or unavoidable circumstances and is also satisfied about the genuineness of the payment and the identity of the payee, the assessee will not be covered by the mischief of Section 40A(3). It is also admitted that the assessee used to deal with agricultural produce and if he was under the impression that he is covered by Clause (f)(i) of Rule 6DD, even, if the payment was not made to the cultivator, it was not necessary for him to make payments by crossed cheque of crossed draft as he had a bona fide belief that the interpretation was justified and there is no doubt that Clause (f) as introduced or inserted by the notification dated February 14, 1969, was capable of two interpretations and, therefore, it had become necessary for the Central Board of Direct Taxes to issue a corrigendum and amendment of Clause (f) by notification dated March 25, 1969. Moreover, thereafter also there were some queries by different organisations and associations and as a result thereof, the Central Board of Direct Taxes had to issue several circulars in this respect. All these show that the position of law and the interpretation were not very clear and there were some doubts with regard to its interpretation and the benefit of this doubt should be in favour of the assessee. Since, in the present case, the identity of the payee is not disputed, the transaction has been found to be genuine. Genuineness of the payment has been established.