Satish Chandra, J.:— Two questions of law have been referred for our opinion:
“1. Whether, on the facts and in the circumstances of the case, the expenditure mentioned under s. 40A(3) includes expenditure by way of purchases?
2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under r. 6DD of the I.T Rules, 1962?”.
2. On the first question, a Bench of this court in U.P Hardware Store v. CIT, [1976] 104 ITR 664 (All) has held that payments made to suppliers for purchase of goods are expenditure within the meaning of s. 40A(3) of the Act.
3. In view of this decision, the first question is answered in the affirmative.
4. On the second question, r. 6DD provides relief from the operation of s. 40A(3), inter alia, where the payment exceeding a sum of Rs. 2,500 is made for the purchase of produce of animal husbandry to the producers of such articles. Here the purchases in question were of hides and skins and the finding of the Tribunal is that the assessee had failed to establish that the payments were made to the producer. On that finding of fact the second question is answered in the negative.
5. Consequently, both the questions are answered in favour of the department and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200.