TMI Blog1991 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appeals have made payments in cash exceeding a sum of Rs. 2,500 for some of the purchases of stock-in-trade. The payments are not allowed as deductions in the computation of income under the head "Profits and gains of business". The payments are held to be in contravention of the terms of section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962. The assessees have appealed to this court challenging the disallowance. Two questions arise for consideration in these appeals : (i) the validity of section 40A(3) of the Act; and (ii) the applicability of Section 40A(3) to payments made for acquiring stock-in-trade. Section 40A(3) so far as material provides : "40A. Expenses or payments not deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egins with a non-obstante clause. It is an overriding provision which operates in spite of anything to the contrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains of business or profession". The Legislature has thus made it clear that the provisions of section 40A will apply in super session of other contrary provisions of the Act relating to the computation of income. Sub-section (3) empowers the assessing officer to disallow, as deduction, any expenditure in respect of which payment is made of any sum exceeding Rs. 10,000 otherwise than by a crossed cheque or crossed bank draft. Rule 6DD of the Income-tax Rules, 1962, refers to cases and circumstances in which payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will be on an assumed income. It is said that the provision authorising levy of tax on an assumed income would be a restriction on the right to carry on business, besides being arbitrary. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or 'crossed bank draft. The payment by cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. As for the second question it may be stated that the word "expenditure" has not been defined in the Act. It is a word of wide import. Section 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means that all outgoings are brought under the word "expenditure" for the purpose of the section. The expenditure for purchasing stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The decisions of the High Courts of Andhra Pradesh, Orissa, Allahabad, Kerala, Karnataka, Punjab and Haryana, Rajasthan and Patna are to the effect that the payments made for purchasing stock-in-trade or raw materials should also be regarded as expenditure for the purpose of section 40A(3). The only discordant note struck on this aspect is by the Gauhati High Court in CIT v. Hardware Exchange [1991] 190 ITR 61. The Gauhati High Court has observed that section 40A(3) applies only to payments made on account of "expenditure incurred" and that the payment made for purchase of stock-in-trade cannot be termed as "expenditure incurred" since money does not go out irretrievably in such cases. We are unable to agree with the view taken by the Gau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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