SHIVASHANKAR BHAT, J.

( 1 ) THE following question of law is referred for our answer at the instance of the assessee under the provisions of the Income Tax Act, 1961 ('the act' for short):-"on the facts and in the circumstances of the assessee's case, whether the Tribunal was justified in law in holding that the expenditure incurred by the assessee was hit by Section 40-A (3) of the Income Tax Act, 1961?"

( 2 ) IN the course of the assessment proceedings for the year 1976-77, a sum of Rs. 50,000/-was found to have been debited in the profit and loss account. This represented the loss sustained by the assessee on a picture called 'nirman'. The assessee is a distributor of films and sought sole distributorship of the film 'nirman' for Andhra pradesh for a consideration of Rs. 95,000/ -. The agreement was dated 6-12-1974. The assessee paid a sum of Rs. 5,000/- on one date in cash and further sum of Rs. 45,000/- subsequently. Since the picture was a failure, the assessee did not release the film and wrote off this sum of rs. 50,000/ -. The claim of the assessee for excluding this sum was rejected by the Income-tax officer on two grounds: i) the payment was made by cash in contravention

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