TMI Blog1979 (9) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case, the Tribunal was right in holding that the prohibition in section 40A(3) was attracted even in cases of payments by book adjustments and where the book adjustments were not made by the assessee directly in the accounts of the party who supplied the goods or services to the assessee? " The assessee, M/s. Kishan Chand Maheshwari Dass, is a registered firm. It has four partners, namely, sarvashri Amar Nath, Manohar Lal, Bhan Chand and Kishan Chand, with varying shares in the firm's profits. For the assessment year 1972-73, the ITO completed the assessment at a total income of Rs. 78,440 as against the declared income of Rs. 22,280. The ITO purported to apply the prohibition contained in s. 40A(3) of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at payments by book adjustments in the accounts of third parties were hit by the prohibition contained in s. 40A(3). Question No. 1.--The learned counsel for the revenue submitted that the question of law referred to this court has already been dealt with in a judgment of this court in CIT v. Grewal Group of Industries [1977] 110 ITR 278, wherein it has been held that s. 4OA(3) is obviously designed to check tax evasion by claims of cash expenditure which are difficult of proper investigation by the revenue. To exclude from the meaning of the expression " expenditure " payments made for goods purchased is to once again make it difficult for the revenue to properly investigate payments and to open the door wide to evasion. Payment for good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 crossed bank draft, such expenditure shall not be allowed as a deduction... " The various expenditures on which deductions, he contends, are allowable, are dealt with in ss. 30 to 37 of the Act and s. 40A(3) deals only with those deductions. Expenditure incurred otherwise than that, such as cost price of the goods, etc., is not included in the term " expenditure " used therein. According to the learned counsel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common parlance, and in the absence of a statutory definition, the word would take its colour according to its common parlance use, payment for purchase of goods would certainly be an expenditures. Deduction need not also be confined to section 37. In sub-section (3) that word has been used in its widest amplitude and the provisions of rule 6DD throw considerable light as to what exactly is meant to be the scope of sub-section (3)." Similarly, in U. P. Hardware Store's case [1976] 104 ITR 664, 668 the Allahabad High Court has repelled this contention by saying thus : " The learned counsel then urged that money spent on purchase of stock-in-trade, etc., represents circulating capital and cannot be included in the term 'expenditure' which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the negative, i.e., in favour of the revenue and against the assessee. Question No. 2 : In view of our answer to question No. 1 and because of cl. (e) of r. 6DD, which reads, " where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered, by the assessee to such payee ", it is clear that there is a limited area within which payments by book adjustment can be considered to fall within the exception to the rule of prohibition contained in the said provision of law. According to the said cl. (e) it is the expenditure in respect of which the payment by way of book adjustment is made to the payee who directly supplied the goods or services to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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