Judgment Bhargava, J.-This is a reference under Section 256(1) of the I.T. Act, 1961. Following two questions of law have been referred for opinion of this Court by the Income tax Appellate Tribunal, Jaipur Bench:

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the word ‘expenditure’ as used in Sub-section (3) of Section 40A would include the cost of purchasing the goods meant for resale?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee was not entitled to exemption under Clause (f) or Clause (j) of Rule 6DD in respect of the payment regarding the purchase of the goods from other traders?

2. The assessee-firm is carrying on business of commission agency and kirana goods at Ramganj Mandi. The assessee-firm purchased “dhania” goods and out of the total purchases, those paid for in cash in excess of Rs. 2,500 between April 1, 1969, to June 2, 1969, amounted to Rs. 41,922. According to the ITO, such payments were caught within the mischief of sub Section (3) of Section 40A of the I.T. Act, 1961 (hereinafter to be referred to as “the Act”), which was inserted from April 1, 1969, and the assessee had not been able to show any exceptional or unavoidable circumstances for the payment in cash or that the payment was impracticable or would have caused genuine difficulty to the payee. As such, the amount of Rs. 41,922 was treated as the assessee’s income from undisclosed source and was added to his total income. On appeal, the AAC of Income tax came to the conclusion that a sum of Rs. 18,371 could not be added to the income of the assessee in terms of Section 40A(3), but the remaining amount aggregating to Rs. 23,551 was in his opinion covered by Section 40A(3). On further appeal before the Tribunal, the assessee contended that the genuineness of the purchase was not in doubt. Therefore, the amount should not have been added to his

total income. He further submitted that the word “expenditure” used in Sub-section (3) of Section 40A could never cover purchases, since purchases were not an expenditure in the same sense as payment for salary or wages or rent, etc., was. It was in fact an investment. He further submitted that his case was covered by the provisions of Clauses (f) and (j) of Rule 6DD. But all the contentions of the assessee were turned down by the Tribunal and the Tribunal came to the conclusion that: “Clause (f) of Rule 6DD of the Income tax Rules, 1962, did not cover the assessee’s case. The payments in question were not made ‘to the cultivator or producer of such articles or produce’ as were referred to in Clause (i) of Rule 6DD. The case of the assessee was also not covered by Clause (j) of Rule 6DD as, in the opinion of the Tribunal, the ignorance of law or non-clarity of the law to the assessee did not constitute exceptional or unavoidable circumstance in which he could not make the payments to the sellers by crossed cheques or by crossed bank drafts” and also that the amount was an expenditure, and, therefore, covered by the mischief of Section 40A(3), The assessee, therefore, submitted an application under Section 25 6(1) of the Act and the Tribunal allowed the said application and referred the above-mentioned two questions of law to this Court for our opinion.

3. Learned Counsel for the assessee brought to our notice that there is divergence of opinion between the various High Courts as far as question No. 1 is concerned. The Punjab and Haryana High Court in CIT vs. Avtar Singh and Sons [1981] 129 ITR 671 held that the word “expenditure” used in Section 40A(3) did cover expenditure on purchase of stock-in-trade and the Supreme Court has already granted special leave to appeal against the said judgment of the Punjab and Haryana High Court and the matter is pending before the Supreme Court and, therefore, he had frankly conceded that no useful purpose would be served by expressing any opinion on question

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