- (1.) IN this reference relating to the asst. year 1974 -75, the Tribunal, Jaipur Bench, Jaipur, has referred the following questions for the opinion of this Court: "1. Whether the payments made for the purchase of goods is 'expenditure' within the meaning of s. 40A(3) ? 2. Whether, on the facts and in the circumstances of the case and having regard to the provisions of r. 6DD(j) of the IT Rules, 1962, the Tribunal was right in holding that the payments of Rs. 4,000 to M/s Suresh Oil Co., Kota, Rs. 2,602 to M/s Shivnath Motilal, Kota and Rs. 10,028 to M/s Rajani Oil Co., Kota, were liable to be disallowed under S. 40A(3) of the INCOME TAX ACT, 1961?"
(2.) M /s Badrilal Phoolchand (hereinafter referred to as "the assessee"), is an HUF dealing in grains and also doing moneylending business at village Rodawat in District Sawai Madhopur and it has a branch at Sawai Madhopur City where the assessee was dealing in grain and oil and was also doing commission agency. In the relevant previous year, the assessee paid a sum of Rs. 4,000 in cash to M/s Suresh Oil Co., Kota, on 30th May, 1973, Rs. 2,602.49 in cash to M/s Shivnath Motilal, Kota, on 29th Sept., 1973, and Rs. 10,028.30 in cash to M/s Rajni Oil Industries, Kota, on 2nd July, 1973. Since the said amounts exceeded Rs. 2,500, the ITO, Sawai Madhopur, disallowed the aforesaid expenditure of Rs. 16,630.79 under S. 40A(3) of the IT Act, 1961 (hereinafter referred to as "the Act"). In the assessment order (Annexure "A") dt. 20th Jan., 1975, the ITO observed that the assessee had failed to file any satisfactory explanation for making the aforesaid payments exceeding Rs. 2,500 in cash. In appeal before the AAC, A Range, Jaipur, the assessee submitted that the ITO had disallowed the expenditure without affording a proper opportunity to the assessee and the AAC directed the ITO to call Sri Phool Chand; who was looking after the business of the assessee at Sawai Madhopur and examine the issue afresh. Thereafter the ITO after examining Shri Phool Chand and the relevant accounts, submitted his report. After considering the report of the ITO and the documents which were submitted by the assessee before the ITO, the AAC by his order (Annexure "B") dt. 10th Aug., 1976, affirmed the order of the ITO and disallowed the aforesaid expenditure under S. 40A(3) of the Act. On further appeal, the Tribunal by order (Annexure "C") dt. 28th Feb., 1977, and by order (Annexure "D") dt. 10th Jan., 1978, has upheld the order of the AAC in this regard. Hence, this reference at the instance of the assessee. We have heard Shri V.K. Singhal, learned counsel for the assessee, and Shri R.N. Surolia, learned counsel for the Revenue.
(3.) BEFORE we deal with the contentions that have been urged by Shri Singhal in support of the reference, we may refer to the provisions of S. 40A(3) of the Act which provides as under: "Sec. 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 two thousand five hundred 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 that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the ITO may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of S. 154 shall, so far as may be, apply thereto, the period of four years specified in sub -s. (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made: Provided further that no disallowance under this sub -section shall be made where any payment in a sum exceeding two thousand five hundred 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." ;