B.P.JEEVAN REDDY,.J. - (1.) UNDER S. 256 (2) of the IT Act, 1961, the following question has been stated for our opinion in pursuance of an order of the Supreme Court: "Whether the amounts spent by the assessee in purchasing goods for the purpose of resale is expenditure within the meaning of section 40A(3) of the IT 1961 -
(2.) A Bench of this Court has held in U. P. Hardware Store vs. CIT (1976) 104 ITR 664 (All) that the word "expenditure" used in S. 40A(3) is not restricted to overhead expenses enumerated in ss. 30 to 43A but is of wide import. It covers expenses to be taken into account while determining the gross profit. On this reasoning, it was held that the payments made by the assessee for purchase of stockin -trade would also be covered by the word "expenditure" and that such payments could be disallowed if they are made in cash in sums exceeding Rs. 2,500. The same view has been taken by the Orissa High Court in Sajowanlal Jaiswal vs. CIT 1976 CTR (Ori) 204 : (1976) 103 ITR 706 and by the Rajasthan High Court in Badrilal Phool Chand Roadwat vs. CIT (1987) 65 CTR (Raj) 306 : (1987) 167 ITR 404 as well as in Fakri Automobiles vs. CIT (1986) 160 ITR 504. No contrary decision of any Court has been brought to our notice but Mr. Bharatji Agarwal, learned counsel for the assessee, argued that, having regard to the language of Sub -S. (3) of S. 40A, its application must be confined only to deductions claimed under ss. 30 to 43A. For a proper appreciation of this submission, it would be appropriate to set out Sub -S. (3) in so far as it is relevant for our purpose : "40A(3). Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand 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 further that no disallowance under this sub -section shall be made where any payment in a sum exceeding ten thousand 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."
(3.) MR . Bharatji Agarwal says that the sub -section applies to any expenditure which is claimed by way of deduction and deductions are dealt with in ss. 30 to 43A. The amount spent for purchasing goods for the purpose of resale is not claimed as deduction under any of the provisions contained in ss. 30 to 43A and, therefore, he says, that the rule contained in Sub -S. (3) is not applicable to such purchase amount. We are not inclined to agree. The object underlying Sub -S. (3) is to prevent use of unaccounted money in carrying on business, as pointed out by the Andhra Pradesh High Court in Mudiam Oil Co. vs. ITO (1973) 92 ITR 519 (AP), which observations have been quoted with approval by this Court in U. P. Hardware Store vs. CIT (supra). Unaccounted money may be used in purchase of stock -in - trade, raw material or any payment of overhead expenses. Adopting the restrictive meaning contended for the assessee would, in our opinion, negate the legislative intent behind the provision. The idea was not only to check the use of black money in business transactions but also to monitor properly the expenditure incurred by an assessee. Normally, payment under a crossed cheque or crossed bank draft is an assurance of its, genuineness. It obviates an inquiry into doubtful payment. The provision is intended to introduce openness in business transactions. Having regard to this underlying object, we see no reason to restrict the meaning of the expression "expenditure" to deductions provided by ss. 28 to 43A alone. The emphasis is upon the word "expenditure" and not upon the word "deduction", as would be evident from a reading of the sub -section. The rule applies to all expenditure claimed and certainly the money spent for purchasing stock -in -trade is claimed as deduction out of the trading receipts with a view to arrive at the gross profit. For the above reasons, we see no reason to doubt the correctness of the Bench judgment of this Court or to take a different view. The question is, accordingly, answered in the affirmative, i.e., in favour of the Revenue and against the assessee. No costs.;