Dama Seshadri Naidu, J.

Introduction:

1. A rice-miller purchases paddy both from registered dealers and farmers themselves directly, mills them, and supplies the rice. His income return for an assessment year is subjected to scrutiny. Section 40-A (3) of the Income Tax Act mandates an assessee to spend or pay money exceeding Rs.20,000/- through an account payee cheque or demand draft. Rule 6DD of the Income Tax Rules provides for exemptions. The question in these appeals is whether the assessee’s transactions are exempted under Rule 6DD. And has the assessee discharged it statutory burden?

Facts:

(a) The Assessment:

2. The assessee, a private limited company, runs a rice mill. It filed its ‘return’ on 25.09.2010 disclosing an income of Rs.47,85,240. After processing the return under section 143(1) of the Income Tax Act (“the IT Act”), the Assessing Officer picked it up for scrutiny. On 29.08.2011, he issued notice under section 143(2), heard the assessee, and computed the taxable income. This exercise resulted in penalty proceedings under section 271(1)(c) of the IT Act