- (1.) AT the instance of the revenue, the following question of law has been referred to this court: "whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the word 'expenditure' used in Section 40a (3) of the Income-tax Act does not cover expenditure on purr chase of raw material ? "
(2.) THE assessee known as M/s. New Light Tin Manufacturing Company, Sonepat, is a firm engaged in the business activity of manufacturing certain articles from tin plates and selling those articles. The assessment year in question is 1971-72. The assessee was assessed by the ITO on a total income of Rs. 1,38,010 against the returned income of Rs. 77,636.
(3.) THE ITO had disallowed an expenditure of Rs. 43,440 which was stated by the assessee-firm to have been incurred on purchase of tin plates for its manufacturing business, on the plea that the payments in respect of the said expenditure which were exceeding Rs. 2,500 had been made after 31st March, 1969 (the date specified by the Central Government in the notification issued under Section 40a (3) of the Income-tax Act, 1961) (hereinafter referred to as " the Act"), otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. The assessee's plea that he had to purchase a quantity of tin plates for his manufacturing business, in addition to the quota allotted to him by the Government, from other quota-holders at a premium and that those quota-holders would not agree to accept payment by cheque or bank drafts as they were violating the law in not utilising their quota of tin plates for their own manufacturing business, was not considered satisfactory by the ITO for bringing the assessee's case within the exceptional circumstances prescribed under Rule 6dd (j) of the I. T. Rules, 1962. On appeal, the AAC confirmed the ITO's finding regarding the disallowance of the said expenditure of Rs. 43,440. In the second appeal, the Appellate Tribunal did not deal with the question as to whether the case of the assessee relating to the expenditure of the said amount of Rs. 43,440 for purchase of tin plates was or was not covered by the exceptional circumstances prescribed Under the aforesaid Rule 6dd (j ). The Tribunal instead disposed of the appeal by holding that the money spent on purchase of raw material to be used in the manufacturing business could not be said to be an expenditure within the meaning of Section 40a (3) of the Act. According to the Tribunal, the terms "expenditure" as used in the said Section 40a related only to those expenses, regarding which a question as to their deduction out of the gross profits arises. Taking this view of the matter, the Tribunal allowed the appeal and held the expenditure in question as allowable.;