J.V.Gupta, J.

1. At the instance of the revenue, the Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following two questions of law for the opinion of this court:

"1. 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) does not cover expenditure on purchases of goods ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the prohibition in Section 40A(3) was attracted even in cases of payments by book adjustments and where the book adjustments were not made by the assessee directly in the accounts of the party who supplied the goods or services to the assessee?"

2. The assessee, M/s. Kishan Chand Maheshwari Dass, is a registered firm. It has four partners, namely, Sarvashri Amar Nath, Manohar Lal, Bhan Chand and Kishan Chand, with varying shares in the firms profits. For the assessment year 1972-73, the ITO completed the assessment at a total income of Rs. 78,440 as against the declared income of Rs. 22,280. The ITO purported to apply the prohibition contained in Section 40A(3) of the Income-tax Act, 1961 (herei