SATISH CHANDRA, J. - (1.) THE Tribunal has solicited our opinion on three questions of law. Question No. 1 has been referred to us at the instance of the CIT who had applied for it under S. 256 (1) of the IT Act, 1961. But questions No. 2 and 3 have been referred at the instance of the assessee. The assessee had made no application for reference under S. 256 (1) of the Act. It appears that at the hearing of the application moved by the Department, learned counsel for the assessee also proposed two questions which have been referred to us as question Nos. 2 and 3. In view of the decision in U.P. Co-operative Union Ltd., Lucknow vs. The Addl. CIT, Lucknow 1978 CTR (All) 259 : ITA. NO.480 of 1975 decided on 14th March 1978, decided on 14th March, 1978, it is not open to the Tribunal to refer questions at the instance of the party who had not made an application under S. 256 (1) of the Act. Under the Circumstances, question Nos. 2 and 3 are returned unanswered.
(2.) IN relation to the first question, the position is that the assessee is registered firm carrying on cloth business. For the asst. yr. 1970-71, it purchased cloth worth Rs. 10,79,730/- out of which it paid Rs. 54,800/- to Bethi Brothers in cash. This cash payment was disallowed by the ITO in view of the provisions of S. 40-A (3) of the Act. On appeal, the AAC deleted the disallowance. The Tribunal upheld this view. At the instance of the CIT, it has referred the following question for our opinion. "Whether, on the facts and in the circumstances of the case, provisions of S. 40-A (3) of the IT Act, 1961 apply to the purchase price in respect of the goods purchased for trading or manufacturing for the accounting period relevant to the asst. yr. 1970-71?"
(3.) THIS question stands decided by a Bench of this Court in U. P. Hardware Store vs. CIT, U. P. 1978 CTR (All) 259 : 104 ITR 664 All. It was held that there was no justification for accepting the plea that the word "expenditure" used in S. 40-A (3) should be restricted to overhead expenses enumerated in Ss. 30 to 43A. The word "expenditure" was of wide import. It would cover the expenses to be taken into account while determining the gross profit. The gross profit will be the difference between the opening Stock and the purchases on the one hand and the closing stock and the sales on the other. The payment made for purchases would also be covered by the words "expenditure" and such payments could be disallowed if they are made in cash in sums exceeding Rs. 2,500/-.;