GOPALAN NAMBIYAR C.J. - These two writ appeals raise a common question and may be disposed of together by a common judgment. W. A. No. 114 of 1977 relates to the assessment year 1971-72. Both the appeals arise out of orders passed by a learned judge dismissing the writ petitions in limine. It would be convenient to deal first with the facts in W.A.No. 113 of 1977. The assessee claimed deduction of certain amounts expended by him for the purchase of stock-in-trade, viz., yarn. Deduction was claimed on the basis of the general provisions of the Income-tax Act read in the light of section 40A(3) and rule 6DD(j) of the Act and the Rules. The section of the Income-tax Act with particular reference to which the claim for deduction has got to be based is section 28 of the Act. The deduction was disallowed on the ground that the requirements of section 40A(3) and rule 6DD(j) have not been satisfied. Section 40A(3) and rule 6DD(j) may conveniently be extracted.
'40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the March 31, 1969) as may be specified in this behalf by the Central Government by notification in the official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction :
Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the April 1, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Income-tax Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provision of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made :
Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by 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......'
'6DD. No disallowance under sub-section (3) of section 40A shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :-........ (j) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft -
(1) due to exceptional or unavoidable circumstances; or
(2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee.' Besides expatiating on the scope and the ambit of the section and the rule, counsel for the appellant placed reliance on two circulars issued by the Central Board of Revenue under the powers vested in it under section 119 of the Act. Section 119(1), in so far as it is material, reads :
'119. (1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board :
Provided that no such orders, instructions or directions shall be issued -
(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or
(b) so as to interfere with the discretion of the Appellate Assistant Commissioner or the Commissioner (Appeals) in the exercise of this appellate functions.'
The circular on which strong reliance was placed by the appellant is Circular No. 220, R.No. 296/76-ITA. II dated May 31, 1977. The circular will be seen printed in  108 ITR 8. After referring to rule 6DD(j) the relevant portion of the circular reads :
'4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are :
(i) The purchaser is new to the seller; or
(ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or
(iii) The transactions and payments are made on a bank holiday; or
(iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchasers business interest would suffer due to non-availability of goods otherwise than from this particular seller; or
(v) The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or
(vi) Specific discount is given by the seller for payment to be made by way of cash.
5. It can be said that it would generally satisfy the requirements of rule 6DD(j) if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j)
6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of the rule 6DD(j).'
The question of the legality and the binding character of circulars of this type by the Board of Revenue was debated before us. For the revenue, it was contended that the circulars of this type issued by the Board of Revenue can relate only matters of administration and cannot have reference to the judicial or quasi-judicial of the authorities functioning under the Income-tax Act. Counsel for the assessee would contend that such circulars can extend even to judicial and quasi-judicial matters with which the authorities functioning under the Act are entrusted, so long as such functions of the authority are not hidebound or fettered so as to affect any individual case or any individual assessee or class of assessees. Counsel for the appellant drew our attention to pages 773 and 774 of Kangas Law and Practice of Income-tax, 7th Edn., Vol. I, which has succinctly summed up what, according to the authors, is the scope and ambit of any direction that can be issued under section 119 of the Act. Counsel also placed reliance on two decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, Appellate Assistant Commissioner of Income-tax : 56ITR198(SC) Ellerman Lines Ltd. v. Commissioner of Income-tax : 82ITR913(SC) . It was the counsels contention that even if the circulars travelled beyond the provisions of the Act, the authorities functioning under the Act are bound by the circulars and are bound to carry out the circulars. For this, pointed reliance was placed on the latter decision of the Supreme Court, viz., Ellerman Lines Ltd. v. Commissioner of Income-tax : 82ITR913(SC) , where it was observed that although the circular clearly deviated from the Act, it was nevertheless binding on the authorities functioning under the Act.
Our attention was further drawn to the decisions in J.K. Synthetics Ltd. v. Central Board of Direct Taxes : 83ITR335(SC) and Sirpur Paper Mills Ltd. v. Commissioner of Wealth-tax : 77ITR6(SC) (the latter of these, rendered under the provisions of section 13 of the Wealth-tax Act corresponding to section 119 of the Income-tax Act).
Counsel for the revenue, on the other hand, invited our attention to the decision of the Madras High Court in A.L.A. Firm v. Commissioner of Income-tax Officer : 102ITR622(Mad) , which, after considering the Supreme Court decision referred to by the assessee, stated that circulars issued under section 119 of the Act cannot fetter the judicial discretion of the authorities under the Income-tax Act, but can relate only to matters of administration. Counsel for the revenue also placed reliance on Sirpur Paper Mills Ltd. v. Commissioner of Wealth-tax : 77ITR6(SC) , viz., the same decision that was cited by counsel for the assessee. We do not wish to get enmeshed in the intricacies as to the exact scope and purview of a circular under section 119 of the Income-tax Act, and as to whether, and, if so, to what extent, such a circular can fetter the judicial or quasi-judicial discretion of authorities functioning under the Act. In this particular case, the circular that we have noticed earlier is dated May 31, 1977, and the order of the Commissioner with respect to which the question has arisen in these appeals is dated June 21, 1976. It is obvious, therefore, that the circular in question can have no application to these cases. We are not impressed by the argument of the assessee that the circular is only clarificatory or declaratory.
Counsel for the assessee, however, stated that a circular, more or less to the same effect, was in operation even much earlier, and drew our attention to Chaturvedis Income-tax Law, second edition, volume I, at page 880, where an earlier 'press note' of the Board of Revenue dated January 19, 1970, is seen quoted. That circular-if such it can be called-reads :
'After considering representations from various quarters that the existing exceptions were not helpful in preventing disallowance of substantial payments for purchases of commodities on the ground that these were made in cash in amounts exceeding Rs. 2,500, the Central Board of Direct Taxes have now liberalised this residuary clause (j) of rule 6DD so as to avoid disallowance of such payments in genuine cases.'
Counsel for the revenue invited our attention to rule 6DD(j), as it stood prior to its amendment on November 18, 1970, and pointed out that the 'circular' or the 'press note' (as it is styled) from Chaturvedis book noticed supra, was issued the very next day after the amendment of the rules. It was stressed by counsel for the revenue that the instruction of the Board dated November 10, 1970, was quite general in character and was nothing more than an expression of view regarding the scope and ambit of the rule and no more. We do not think that the instruction of the Board, or circular-if such it be-is helpful or of any assistance to the assessee in this particular case. We are, therefore, of the opinion that the decision in this appeal must be rested on the section and the rule, unhampered by any circular issued by the Board of Revenue under section 119 of the Act. We, therefore, proceed to consider the case with reference to the section and the rule.
Section 40A(3) provides negatively that any expenditure exceeding Rs. 2,500, of a particular type mentioned in the section, shall not be allowed as a deduction, if incurred otherwise than by a crossed cheque drawn on a bank or a crossed draft. The second proviso to the section has a rider against such disallowance, by providing that such disallowance shall not be made in cases and circumstances which may be prescribed having regard to the nature and extent of bank facilities available, considerations of business expediency, and other relevant factors. The prescription thus held out by the section has appeared in the form of rule 6DD(j). The rule should be sufficiently self-explanatory, and we do not think it necessary to expatiate on it at any great length for the purpose of this case. The question for consideration is whether the Commissioner was right in his conclusion that the rule was not attracted so as to entitle the assessee to a deduction of the amounts claimed by him and whether the conclusion of the Commissioner discloses any jurisdictional defect or patent error of law which can be redressed in these proceedings under article 226 of the Constitution. The Commissioner dealt with the matter in exhibit P-5 order, paragraph 6 of which is as follows :
'The only contention on which the assessee has based his claim is that the parties concerned were insisting on payments in cash. Mere insistence on cash payments throughout the year will not amount to exceptional or unavoidable circumstances as has been held by the Tribunal in the same case for the assessment year 1970-71. Moreover, in this case, payments by cheques have been made to these parties on various occasion and it is not clear as to why in respect of certain payments only cash should have been insisted upon. At any rate, this insistence does not by itself constitute exceptional or unavoidable circumstances as contemplated under sub-rule (j) of rule 6DD. It has also not been proved that payments in cheque were not practicable or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof.'
Relying on the above statement of the Commissioner, it was contended by counsel for the revenue that the only contention urged before the Commissioner was that payments were made in cash and not by crossed cheque or draft as required by the rule as the parties were insisting on payment in cash. If this be the only ground pleaded for non-compliance with the requirements of the rule, counsel for the revenue would be right in taking the stand that the order of the Commissioner was justified and correct. But we cannot understand this to be the only ground that was pleaded by the assessee before the Commissioner. Counsel for the assessee invited our attention to exhibit P-4 which was a copy of the grounds of revision preferred before the Commissioner. Paragraphs 6 and 8 of the said grounds read as follows :
'6. During the year, your petitioner was often pressed for goods after the banking hours and on holidays and the parties invariably demanded cash for release of further goods. Your petitioner had to invariably oblige in the interests of both its own and business so as to be able to avoid losses and execute orders.
8. Letter from the various parties also have been filed before the Income-tax Officer stating that they had insisted on cash payments and the payments have been duly accounted for by them.'
We are of the opinion that the assessees contention regarding the applicability of rule 6DD and its eligibility for deduction of the cash payments, must be understood in a broad and liberal sense in the light of the contentions seems to have been put forward in the grounds of revision, although these are not expressly reflected in the Commissioners order. So understood, we have no hesitation in rejecting the contention of counsel for the revenue that the point now sought to be urged before us by counsel for the assessee had not been raised either in the writ petition or in the writ appeal. We consider that the point sought to be urged by counsel for the assessee is only one aspect of the case regarding the applicability of rule 6DD(j) of the Income-tax Rules.
We are, therefore, of the opinion that there has not been a fair and proper approach by the Commissioner, nor a fair and proper consideration, of the question as to whether the assessee was entitled to claim deduction of the cash payments in respect of which he had sought deduction before the authorities concerned. If the assessee had not conformed to the requirement of rule 6DD(j) on account of the insistence by the customers for payment for the goods delivered by them out of banking hours or on days on which the banks were not functioning, it would certainly be a matter for consideration by the authorities concerned as to whether the requirements of the rule would or would not stand attracted. As the Commissioner has not paid attention to this aspect of the matter, we feel obliged to set aside the order and to send the matter back for reconsideration and fresh disposal.
In the result, we allow this writ appeal and set aside the order of the learned judge. The writ petition, O.P.No. 559 of 1977-N, will stand allowed and exhibit P-5 order of the Commissioner would stand quashed to this limited extent that the Commissioner would be directed to consider afresh the claims of the assessee to deduction of items Nos. 1 and 4 mentioned in paragraph 3 of exhibit P-5 order, viz., for the assessment year 1970-71, the sum of Rs. 18,500 paid to S.Gopal Kammath and Rs. 5,000 paid to Krishnadas Weaving Mills, and items Nos. 1 and 2 for the assessment year 1971-72, viz., Rs. 3,000 paid to S. Gopal Kammath and Rs. 3,000 paid to U. S. Babu Rao. The tenability of the assessees claim to deduction of these amounts will be considered by the Commissioner in accordance with law and in the light of the observations contained in this judgment. There will be no order as to costs.
W.A. No. 114 of 1977
This writ appeal out of the assessment proceedings for the years 1970-71 and 1971-72. The contentions urged in this writ appeal are also exactly the same as those in W.A. No. 113 of 1977. Exhibit P-5 is the Commissioners order. Paragraph 3 of the same shows the items in respect of which deduction was claimed and which were dealt with by the Commissioner in the order impugned. These items with reference to the assessment years are as follows :
'Assessment year 1970-71
Payments made to Sujatha Textile Mills after 31-6-1969
Assessment year 1971-71
Sujatha Textile Mills
S. Gopal Kammath
For the reason given while dealing with W.A. No. 113 of 1977, we allow this writ appeal and set aside the order of the learned judge. The result is that O.P. No. 558 of 1977 would stand allowed and exhibit P-5 order of the Commissioner would stand quashed with the direction that the Commissioner will proceed to examine the assessees claim to deduction of the amounts involved in the revision preferred to him afresh in accordance with law and in the light of the observations contained in this judgment. There will be no order as to costs.