Satish Chandra, J.:— The question of law raised in this reference is whether expenses incurred by an assessee in purchasing its raw material for stock-in-trade for carrying on the manufacturing or trading business is covered within the meaning of the expression “expenditure” occurring in s. 40A of the I.T Act, 1961. The Tribunal held that they were outside the purview of this expression and hence s. 40A was not applicable with the result that the amount of such purchases could not be added back.
2. This court in U.P Hardware Store v. Commissioner Of Income-Tax, U.P, [1976] 104 ITR 664 (All) has taken a different view. It was held that there was no justification for accepting the plea that the words “expenditure” used in s. 40A(3) should be restricted to overhead expenses enumerated under ss. 30 to 43A of the Act. The word “expenditure” is of wide import.
3. It would cover payments made for purchases of stock-in-trade also and such payments could be disallowed if they are made in cash exceeding Rs. 2,500. This decision is binding on us. In view of this decision, we answer this question in favour of the department and against the assessee.
4. The second question referred to us is whether the payments made for purchases were allowable in view of r. 6DD(j). We find that the Tribunal has not addressed itself to the question whether any individual payment for purchases was within or without the ambit of this rule because it took the view that the rule was itself ultra vires of section 40A. In the view we have taken, the rule will be intra vires and, therefore, the question whether the new purchases were or were not covered by r. 6DD will arise now. The Tribunal will address itself to this question on merits, after receiving back our answer. In this view, question No. 2 is returned unanswered.
5. The Commissioner will be entitled to costs which are assessed at Rs. 200 (Rupees two hundred) only.