The main legal point established is that payments made for the purchase of goods fall within the meaning of the expression 'expenditure' in Section 40A(3) of the Income-tax Act.

J.V.Gupta, J.

1. At the instance of the revenue, the following question of law has been referred to this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the word expenditure used in Section 40A(3) of the Income-tax Act does not cover expenditure on purr chase of raw material ?"

2. The assessee known as M/s. New Light Tin Manufacturing Company, Sonepat, is a firm engaged in the business activity of manufacturing certain articles from tin plates and selling those articles. The assessment year in question is 1971-72. The assessee was assessed by the ITO on a total income of Rs. 1,38,010 against the returned income of Rs. 77,636.

3. The ITO had disallowed an expenditure of Rs. 43,440 which was stated by the assessee-firm to have been incurred on purchase of tin plates for its manufacturing business, on the plea that the payments in respect of the said expenditure which were exceeding Rs. 2,500 had been made after 31st March, 1969 (the date specified by the Central Government in the notification issued under Section 40A(3) of the Income-tax Act, 1961) (hereinafter referred to as " the Act"), otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. The assessees plea that he had to purchase a quantity of tin plates for his manufacturing business, in addition to the quota allotted to him by the Government, from other quota-holders at a premium and that those quota-holders would not agree to accept payment by cheque or bank drafts as they were violating the law in not utilising their quota of tin plates for their own manufacturing business, was not considered satisfactory by the ITO for bringing the assessees case within the exceptional circumstances prescribed under Rule 6DD(j) of the I.T. Rules, 1962. On appeal, the AAC confirmed the ITOs finding regarding the disallowance of the said expenditure of Rs. 43,440. In the second appeal, the Appellate Tribunal did not deal with the question as to whether the case of the assessee relating to the expenditure of the said amount of Rs. 43,440 for purchase of tin plates was or was not covered by the exceptional circumstances prescribed Under the aforesaid Rule 6DD(j). The Tribunal instead disposed of the appeal by holding that the money spent on purchase of raw material to be used in the manufacturing business could not be said to be an expenditure within the meaning of Section 40A(3) of the Act. According to the Tribunal, the terms "expenditure" as used in the said Section 40A related only to those expenses, regarding which a question as to their deduction out of the gross profits arises. Taking this view of the matter, the Tribunal allowed the appeal and held the expenditure in question as allowable.

4. The question of law referred to this court has already been dealt with in a judgment of this court in CIT v. Grewal Group of Industries [1977] 110 ITR 278. It has been held therein that Section 40A(3) is obviously designed to check tax evasion by claims of cash expenditure which are difficult of proper investigation by the revenue. To exclude from the meaning of the expression "expenditure" payments made tor goods purchased is to once again make it difficult for the revenue to properly investigate payments and to open the door wide to evasion. Payment for goods comes within the expression "expenditure" in Section 40A(3). Therefore, payments made for the purchase of goods fall within the meaning of the expression "expenditure" in Section 40A(3) of the Act. This view is also supported by the judgment of the Allahabad High Court in Addl. CIT v. Radhey Shyam Jagdish Prasad [1979] 117 ITR 186. We are in respectful agreement with the view already expressed by this court in the aforesaid case. Even, no authority to the contrary has been cited by the learned counsel for the assessee.

5. For the reasons recorded above, the answer to the question is in the negative, i.e., in favour of the revenue and against t