Law:

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Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits - Whether expenditure mentioned under section 40A(3) includes expenditure by way of purchases - Held, yes - Whether where Tribunal found that assessee, running a tannery, had failed to establish that payments were made to producer, he would not be entitled to relief under rule 6DD - Held, yes FACTS The assessee, running a tannery, made certain purchases of hides and skins the Tribunal found that the assessee had failed to establish that payments were made to the producer and held that the assessee was not entitled to relief under rule 6DD. On reference : HELD The expenditure mentioned under section 40A(3) includes expenditure by way of purchases. Rule 6DD, provides relief from the operation of section 40A(3), inter alia, where the payment exceeding a sum of Rs. 2,500 is made for the purchase of produce of animal husbandry to the producers of such articles. In the instant case, since the finding of the Tribunal was that the assessee had failed to establish that the payments were made to the producer, the assessee was not entitled to relief under rule 6DD. 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.-Two questions of law have been referred for our opinion: "1.Whether, on the facts and in the…

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