Sivarajan, J.

The Incometax Appellate Tribunal, Cochin Bench at the instance of the Revenue has referred the following question of law as per direction issued by this Court in the judgment dated 5.10.1999 in O.P.No. 22075 of 1999 for decision by this court.

“Whether, the Tribunal was justified in holding that the provisions of Rule 6DD(j) of the Incometax Rules apply to the facts of the case, vis-à -vis section 40A(3) of the Incometax Act?â€

2. The brief facts are as follows. The assessee is an exporter of cashew kernels. The assessee, during the previous year relevant to the assessment year 1990-91, had ‘purchased raw cashewnuts from various places including the State of Orissa and the same was transported to the assessee’s factories in Kanyakumari for processing. In the assessment for the year 1990-1991 the assessee claimed deduction of a total sum of Rs. 10,98,698/- as transport and coolie charges for transporting raw cashewnuts. The assessing officer held that out of the said expenses payment of Rs. 10,28, 350,/- had to be subjected to the provisions of Sec.40A (3) by the Act as the payments were made otherwise than by way of crossed cheques or bank drafts. Since the assessee had effected payment of the said amount in cash in violation of the provisions of sec.40A(3) the said amount was disallowed. In appeal filed by the assessee the Commissioner of Incometax (Appelas) upheld the said disallowance stating that the assessee has not proved that the said payment will come within the exclusionary provisions of Rule 6DD(j) of the Incometax Rules. In further appeal by the assessee the Incometax Appellate Tribunal allowed the claim. Hence the reference.

3. We have heard Sr. P.K.R. Menon, learned senior counsel (Government of India) Taxes appearing for the applicant and Sri. P.Balachandran, learned counsel appearing for the respondent. The senior counsel submitted that in regard to the payment of Rs. 10,28,350/- towards transportation and coolie charges, admittedly the payments were made otherwise than by way of crossed cheques or bank drafts and therefore the provisions of Sec. 40A (3) were applicable. The senior counsel further submitted that since the assessee was not able to substantiate by evidence that the proviso to Sec. 40A(3) r/w Rule 6DD(1) of the Rules applied to exclude the applicability of the main part of Sec. 40A (3) the said amount was rightly disallowed by the assessing officer and confirmed by the first appellate authority. The senior counsel submitted that the Tribunal had committed a serious error in allowing the claim by holding that the circumstances stated by the assessee would definitely be an exceptional or an unavoidable circumstance to make the payment eligible for exclusion under clause (i) of Rule 6DD (j). The senior counsel submitted that the assessee had not established that the present case would fall under the exclusionary clause contained in Rule 6DD (j) of the Rules. On the other hand, the contention of the counsel for the assessee is that the Assessing Officer has not doubted the genuineness of the transport of raw nuts from Orissa to Kanyakumari District as also the identity of the transporter and the payment of the charges. He further submitted that the only circumstance pointed out for rejecting the claim is that the assessee had not produced evidence obtained from drivers of the vehicles in which the raw cashew nuts were transported during the relevant period to the effect that they insisted for payment of the transport and coolie charges in cash. The counsel further submitted that it was impracticable for obtaining bank drafts or for issuing crossed cheques to the transporting company or to the drivers of the vehicle at the time of purchase and that the transporting agency/drivers had insisted for payment of the transporting charges and coolie charges in cash and the assessee had no option but to pay the amount in cash having regard to the commercial expediency. He further su