Law:

Section:

Section 40A(3) of the Income-tax Act, 1961 - Business disallowance - Cash payments exceeding prescribed limits - Whether section 40A(3) applies to purchase price in respect of goods purchased for trading or manufacturing - Held, yes Section 256 of the Income-tax Act, 1961 - High Court - Reference to - Whether a reference can be made to High Court under section 256 either at instance of assessee or of department and Tribunal does not have any suo motu power of making such a reference in absense of application for reference - Held, yes FACTS The Tribunal referred two question for opinion of High Court, namely, (1) Whether the Tribunal was correct in holding that section 40A(3) did not apply to the purchase price in respect of goods purchased for trading or manufacturing and in thus deleting the sum added by the ITO under section 40A(3) and (2) Whether the Tribunal was justified in holding that the payments made by the assessee were not protected by rule 6DD of the Income-tax Rules, 1962. HELD As regards first question, in view of the decision of the same High Court in U.P. Hardware Store v. CIT[1976] 104 ITR 664 wherein it was held that the word 'expenditure' includes expenses for purchase of goods purchased for trading or manufacturing, it was to be held that the Tribunal erred in deleting the addition made by the ITO under section 40A(3). So far as the second question was concerned, it was found that the same was referred by the Tribunal suo motu. A reference can be made to the court under section 256 either at the instance of the assessee or of the department. Before a reference can be made an application stating the question of law, in respect of which, either the assessee or the department seeks a reference, has to be moved before the Tribunal. The Tribunal does not have any suo motu powers of referring any question of law in the absence of any application for reference. This being so, the questions which the Tribunal can refer are only such questions in respect of which a reference application under section 256(1) has been made. In the instant case as the question relating to rule 6DD had been decided in favour of the department and no application for a…

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