PREM CHAND JAIN J. - (1.) KARYANA Association, Patiala (hereinafter referred to as the assessee), a registered firm, derived income from grinding of wheat and sale of Atta etc. While processing the assessment, the ITO noticed that the assessee had made purchases from different parties amounting ot Rs. 91,905 to all of whom cash payments were made in sums exceeding Rs. 2,500 each. The ITO made an addition of the said amount to the assessable income by holding that such payments were in violation of the provisions of s. 40A(3) of the IT Act, 1961 (hereinafter referred to as the Act).
(2.) ON appeal by the assessee, the AAC held that the additions made by the ITO did not cover an expenditure within the meaning of s. 40A(3) of the Act and the same was, therefore, deleted from the assessee's income. Feeling aggrieved from the order of the AAC, the Revenue filed an appeal. The Tribunal on consideration of the matter held that the payments of Rs. 91,905 (admittedly made against the purchases of stock-in-trade/raw material) were hit by the provisions of s. 40A(3) of the Act. The Tribunal has also observed that is was a common ground between the parties that the case did not fall within the ambit of second proviso to s. 40A(3) of the Act and there was no exceptional or unavoidable circumstance within the meaning of r. 6DD(j)(i) of the IT Rules. Consequently, the appeal of the Revenue was allowed and the addition of Rs. 91,905 was restored.
(3.) DISSATISFIED from the decision of the Tribunal, the assessee filed an application seeking reference of a question of law. Finding that a question of law did arise, the Tribunal has referred the following question for our decision : "Whether, on the recorded facts of the case, the Tribunal has been right in law in holding that the payments of Rs. 91,905.39 made in cash in sum exceeding of Rs. 2,500 against purchases of stock-in-trade/raw material were expenditure within the terms of s. 40A(3) and, therefore, could not be allowed as deduction from the assessable income." ;