- (1.) The question of law referred to us for our opinion in this case is whether S. 40A(3) of the Income Tax Act 1961 applies to purchase price is respect of the goods purchased for purposes of trading or manufacturing business of the assessee. The Tribunal held that they were outside the purview of this provision. A Bench of this Court in U.P. Hardware Store vs. Commissioner of Income Tax, U.P. held that there was no justification for accepting the plea that the word expenditure used in S. 40(3) should be restricted to overhed expenses enumerated in Ss. 30 to 43A. The word expenditure was of wide import. It would also cover the expenses to be taken into account while determining the gross profit. The gross profit is determined by the difference between the opening stock and the purchases on the one hand and the closing stock and the sales on the other. The payments made for purchases would also be covered by the word expenditure and such payments could be disallowed if they are made in cash in sums exceeding Rs. 2,500/-.
(2.) In view of this decision, with which we agree, we answer the question in the negative in favour of the department and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200/-.;