Payments made for the purchase of goods are covered by the word 'expenditure' used in sub-section (3) of section 40A of the Income-tax Act, 1961.

1. - The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has by its order dated December 27, 1974, referred the, following three questions of law arising out of its order to this court for decision :

"(i) Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the Appellate Assistant Commissioner could confirm the addition of Rs. 16,250 on a new ground not mentioned by the Income-tax Officer in his order ?

(ii) Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the purchases of the goods were covered by the word 'expenditure' used in sub-section (3) of section 40A, of the Income-tax Act, 1961 ?

(iii) Was the Tribunal right, on the facts and in the circumstances of this Case, to hold that the payments made by the assessee firm to M/s. Amar Singh & Sons were payments made in respect of the purchase of the goods and as such were covered by the word ' expenditure ' as used in sub-section (3) of section 40A?"

2. M/s. Kejriwal Iron Stores, Neem-ka-thana, is assessed to income-tax is a registered firm. While scrutinising the return of the aforesaid firm in respect of the assessment year 1970-71 and the account books of the firm to the aforesaid period, the assessing authority, viz., the Income-tax Officer, Sikar, found that there were discrepancies in the dates of payment and receipts between the purchaser and sellers in respect of three amounts totalling Rs. 16,250. He also found that each one of the three amounts exceeded Rs. 2,500 but payments were not made either by crossed cheques or demand drafts and as such the assessee committed breach of section 40A(3) of the Income-tax Act, 1961 (herein after referred to as " the Act "). The assessing authority therefore, directed that the amount of Rs. 16,250 be disallowed and be added back to the total income of the assessee.

3. On appeal, the Appellate Assistant Commissioner of Income-tax confirmed the, finding arrived at by the assessing authority and observed that no exceptional or unavoidable circumstances have been shown to exist for not making payments in respect of the purchases in question by crossed cheques or drafts. Thus, the Appellate Assistant Commissioner also held that there was violation of the, provisions of sub-section (3) of section 40A of the Act by the assessee. However, the Appellate Assistant Commissioner observed that in addition to the aforesaid ground, there was one other reason for the addition of Rs. 16,250 to the total income of the assessee viz., that there were discrepancies in the dates of payments shown by the appellant and the dates of receipts shown by the sellers, who were residents of Delhi. Thus, it appeared that the cash balances in hand on these, dates were carried forward as the opening balance to the next date without showing any withdrawal corresponding to the payments alleged to have been received by the sellers. The Appellate Assistant Commissioner, in these circumstances, held that the books of account of the assessee were completely unreliable as, incorrect cash balances were shown therein and the withdrawals made for making payments to the sellers were not shown. Thus, the Appellate Assistant Commissioner held that the addition of Rs. 16,250 in the total income of the assessee was justified on two counts, viz., as disallowed under section 40A(3) of the Act and also as unexplained investment as the assessee was unable to disclose the source for making payments on the dates on which the payments were alleged to have been received by the sellers.

4. On further appeal, the Income-tax Appellate Tribunal, Jaipur Bench, confirmed the finding arrived at by the Appellate Assistant Commissioner by its order dated November 26, 1973. It was held by the Tribunal that the payments to the extent of the amount of Rs. 16,250 were made by the assessee undeniably in respect of the expenditure incurred on the purchase of goods and it was paid in respect of the p