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Section 40A(3) of the Income-tax Act, 1961 - Business disallowance - Cash payments exceeding Rs. 2,500 - Whether payments made for purchases of goods were covered by word 'expenditure' under section 4GA(3) and, therefore, would be hit by its provisions - Held, yes Words and phrases - The word 'expenditure' occurring in section 40A(3) of the Income-tax Act, 1961 Facts The assessee-firm during the accounting year relevant to the assessment year 1971-72 made cash payments exceeding Rs. 2,500 to various parties for purchase of goods. The ITO pointed out that those payments were made by the assessee to other traders, who were themselves maintaining bank account and the payments were made after a time lag of six-seven days. Accordingly, he added all such cash payments to the total income of the assessee. On appeal, the assessee contended that the word 'expenditure' as used in section 40A(3) did not include purchases and, therefore, the said payments made for purchases were not hit by its provision. The Tribunal, however, rejected the assessee's claim. On reference: Held The word 'expenditure' as used in section 40A(3) includes expenditure incurred in purchases and there is nothing in this section which restricts the meaning of the word 'expenditure' to payment like wages and salary only. On a perusal of rule 6DD, which has been framed in terms of second proviso to section 40A(3), would reveal that the purchases are covered by the word 'expenditure'. However, to claim the benefit of rule 6DD(j ), it is not sufficient for the assessee merely to establish that the purchasers were genuine payers and were identifiable. The assessee is further required to prove that due to exceptional and unavoidable circumstances, or because payment by cheque was not practicable, cash payments were made. But, the case of the assessee was not covered under any exceptional or unavoidable circumstances or any of the exemptions or by any of the circulars issued by the CBDT. Thus, the Tribunal was justified in holding that the said payments in cash were to be added to the total income of the assessee in terms of section 40A(3). Cases referred to Kanti Lal Purshottam & Co. v . ITO [IT…

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