TMI Blog1984 (9) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... de by a crossed cheque or by a crossed bank draft. The Income-tax Officer disallowed the same under section 40A(3) of the Act. The assessee's case before the Income-tax Officer was that the provisions of section 40A(3) were applicable to payment for expenditure only and not to the payment for purchase of goods. The Income-tax Officer did not accept this contention and he disallowed the entire amount of Rs. 50,360. The order of the Income-tax Officer has been annexed and marked as annexure "A" forming part of the statement of the case. On appeal before the Appellate Assistant Commissioner, it was contended on behalf of the assessee that one of the parties which was at Kanpur and from whom goods had been purchased had declined to accept the cheque from the person who had gone there for making purchases and it was for this reason that the payment to the Kanpur party was made in cash and so the payment was made under compulsion and in the exigencies of business interest. It was also argued on behalf of the assessee that in the case of the second party, the payment could not be made by cheque because of the strike in the bank concerned. It was further contended before the Appellate As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid under compulsion and in the exigencies of business interest and in the second case, there was strike on the clearance side due to a dispute in Baroda Bank. The Appellate Assistant Commissioner also pointed out that it was also submitted that both parties are genuine and are assessed to tax and that the Income-tax Officer has been given discretion that in hard cases when the dealing is genuine, he should not disallow expenditure. It was also asserted before the Appellate Assistant Commissioner that the expenditure does not include purchase of goods. However, the Appellate Assistant Commissioner in paragraph 4 of his order held that in view of the two decisions of the Patna Tribunal which are binding and also due to the satisfactory evidence in regard to the genuineness of the purchases from genuine parties, he felt that in the interest of justice, the disallowance should be deleted. He, accordingly, deleted disallowance of Rs. 50,360. Mr. K.N. Jain has also referred to the decision of the Tribunal at page 7, where the Tribunal has pointed out that apart from the fact that both purchases and payments to the parties concerned have not been doubted by the Department in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of rule 6DD of the Rules has not been pressed by the assessee nor rule 6DD of the Rules is applicable. Unless there is a clear finding by the Appellate Assistant Commissioner as required under rule 6DD(j) of the Rules, it cannot be said that the Appellate Assistant Commissioner has accepted the case of the assessee and deleted the addition on that ground. The only finding in paragraph 4 of the order of the Appellate Assistant Commissioner is that the purchases were genuine from genuine parties. This finding was necessary for the purpose whether purchases of goods were covered by the provisions of section 40A(3) of the Act. Hence, the preliminary objection is liable to be rejected on this ground alone. However, the learned senior standing counsel for the Revenue submitted that the Appellate Tribunal had not referred the question whether expenditure on purchases relating to trading account was covered by rule 6DD(j) of the Rules. The learned counsel has further submitted that when the Tribunal has not referred this question for the opinion of the High Court, the High Court cannot allow the assessee to raise that question at this stage. For this purpose, he has relied on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding Rs. 2,500 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. The second proviso to section 40A(3) of the Act lays down that no disallowance under this sub-section shall be made where any payment in a sum exceeding Rs. 2,500 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 prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Rule 6DD of the Rules has been framed in view of the second proviso to section 40A(3) of the Act. Clearly, any expenditure incurred by an assessee in a sum exceeding Rs. 2,500 is not to be allowed as a deduction unless payment is made by crossed cheque or a crossed bank draft. In other words, payments made in cash are to be disallowed. Now, in the instant case, there is no dispute that the assessee has made payments exceeding Rs. 2,500 in cash and the total of such payment comes to Rs. 50,360. Mr. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66, where it has been held that " spending " in the sense of " paying out or away " of money is the primary meaning of " expenditure " and that " expenditure " is what is paid out or away and is something which is gone irretrievably. It cannot be doubted that the money invested in the purchases of stock-in-trade and raw materials represents circulating capital and such payments are not covered by any of the provisions contained in sections 30 to 43A, but the value of stock-in-trade has to be taken into account while determining the gross profits under section 28 itself on principles of commercial accounting. Rule 6DD of the Rules clearly contemplates payments made for stock-in-trade and raw materials. The rule provides that an assessee can be exempted from the requirements of payment by a crossed cheque or a bank draft where purchases are made of certain agricultural or horticultural commodities or from a village where there is no banking facility. It also provides for cases where an assessee is able to satisfy the Income-tax Officer that due to exceptional and unavoidable circumstances, payment could not be made by cheques, etc., and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, following the decisions in Sajowanlal Jaiswal [1976] 103 ITR 706 (Orissa) and U. P. Hardware Store [1976] 104 ITR 664 (All), in the case of CIT v. Grewal Group of Industries [1977] 110 ITR 278, held that payments made for the purchase of goods fall within the meaning of the expression " expenditure " in section 40A(3). In this case, the assessee manufactured shapers and castings of machines and in that connection raw materials were purchased. In this decision, it was also observed that while it is ordinarily true that a taxing statute is to be construed strictly, it does not mean that a taxing statute should be construed so strictly in favour of the subject as to defeat its very purpose and a provision which is capable of more than one construction should be construed in a manner which would achieve the patent purpose of the Act and not so as to render it sterile and inefficacious merely on the principle that a taxing statute should be construed strictly and that to do otherwise, would be to carry the principles of strict construction too far and to allow a rule of construction so as to override clear parliamentary intention. It was also held in this decision that there is real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first question is entirely academic, for even if it is answered in favour of the Revenue, the assessee must still succeed so far as the other two questions are concerned, and so the Gujarat High Court did not enter upon a consideration of the first question and declined to express any opinion on the same. In such circumstances, this decision is not helpful to the Revenue. The learned senior standing counsel for the Revenue also relied on the case of Fakhri Automobiles v. CIT [1980] 126 ITR 417 (Raj). However, it appears from page 429, that the Rajasthan High Court only considered whether the question of law arose from the order of the Tribunal and directed the Income-tax Appellate Tribunal to state the case on various questions including question No. 3 which was as follows: " 3. Whether the Income-tax Appellate Tribunal was correct in holding that the purchases of diesel worth Rs. 14,026 recorded on July 4, 1970, was 'an expenditure' within the meaning of section 40A(3) of the Income-tax Act, 1961 ? " Thus, this decision is also not helpful to the Revenue. Mr. K. N. Jain, on behalf of the assessee, has relied on an observation of their Lordships of the Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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