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The High Court held that the question of law should be answered in favour of the assessee and against the revenue. The Court referred to its own previous decisions in CIT Vs. Avtar Singh and Sons (1992) 194 ITR 80 and Aggarwal Steel Traders Vs. Commissioner of Income-Tax (2001) 250 ITR 738. These judgments established that if an assessee furnishes a confirmatory letter from the concerned parties regarding cash payments, the case might be covered by the exceptional circumstances provided in Board Circular No. 220 dated 31.5.1977. The Court found that in the present case, the assessee had provided a certificate from the Ludhiana Foundry and Small Industries Association (Regd.) indicating that cash payments were insisted upon, along with receipts. This evidence was considered sufficient to conclude that the assessee had no alternative but to pay in cash, a fact also supported by it being the first year of business. The Tribunal had ignored this crucial evidence. Therefore, the High Court answered the question in favour of the assessee. The connected appeal filed by the revenue was also dismissed.
