Addl. Commissioner of Income Tax vs Nathimal Badri Prasad and Another

Satish Chandra, J.—The question of law raised in this reference is whether expenses incurred by an assessee in purchasing its raw material for stock-in-trade for carrying on the manufacturing or trading business is covered within the meaning of the expression "expenditure" occurring in Section 40A of the I.T. Act, 1961. The Tribunal held that they were outside the purview of this expression and hence Section 40A was not applicable with the result that the amount of such purchases could hot be added back.

This court in U.P. Hardware Store Vs. Commissioner of Income Tax, has taken a different view." It was held that there was no justification for accepting the plea that the words "expenditure" used in Section 40A(3) should be restricted to overhead expenses enumerated under Sections 30 to 43A of the Act, The word "expenditure" is of wide import. It would cover payments made for purchases of stock-in-trade also and such payments could be disallowed if they are made in cash exceeding Rs. 2,500. This decision is binding on us. In view of this decision, we answer this question in favour of the department and against the assessee.

The second question referred to us is whether the payments made for purchases were allowable in view of Rule 6DD(j). We find that the Tribunal has not addressed itself to the question whether any individual payment for purchases was within or without the ambit of this rule because it took the view that the rule was itself ultra vires of Section 40A. In the view we have taken, the rule will be intra vires and, therefore, the question whether the new purchases were or were not covered by Rule 6DD will arise now. The Tribunal will address itself to this question on merits, after receiving back our answer. In this view, question No. 2 is returned unanswered.

The Commissioner will be entitled to costs which are assessed at Rs. 200 (Rupees two hundred) only.