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Section 40A(3) of Income-tax Act, 1961 – Business disallowance – cash payment exceeding prescribed limits – Whether word ‘expenditure' mentioned in section 40A being of wide import, would cover payments made for purchases of stock-in-trade also, and therefore, such payment could be disallowed if they were made in cash exceeding Rs. 2,500 – Held, yes Word and Phrases : Word ‘expenditure' as occurring in section 40A of the Income-tax Act, 1961. FACTS The Tribunal held that the expenses incurred by assessee in purchasing raw material for stock-in-trade for carrying on the manufacturing or trading business were outside the purview of the expression ‘expenditure' occurring in section 40A, and hence section 40A was not applicable. On reference: HELD In U.P. Hardware Store v. CIT [1976] 104 ITR 664 (All), it was held that there was no justification for accepting the plea that the words ‘expenditure' used in section 40A(3) should be restricted to overhead expenses enumerated under section 30 to 43A. The word ‘expenditure' is of wide import. It would cover payments made for purchases of stock-in-trade also and such payments could be disallowed if they are made in cash exceeding Rs. 2,500. Following the aforesaid decision, it was to be held that order passed by the Tribunal was incorrect. Note: The decision was in favour of revenue. CASE REFERRED TO U.P. Hardware Store v. CIT [1976] 104 ITR 664 (All). JUDGMENT Satish Chandra, J.—The question of law raised in this reference is whether expenses incurred by an assessee in purchasing its raw material for stock-in-trade for carrying on the manufacturing or trading business is covered within the meaning of the expression "expenditure" occurring in s. 40A of the I.T. Act, 1961. The Tribunal held that they were outside the purview of this expression…

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