1986 (1) TMI 11 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the interpretation of section 40A(3) of the Income-tax Act, 1961 regarding the disallowance of expenditure exceeding Rs. 2,500 not made by crossed cheques or bank drafts. The specific issues addressed are:
1. Whether the Appellate Assistant Commissioner could confirm the addition of Rs. 16,250 on a new ground not mentioned by the Income-tax Officer.
2. Whether the purchases of goods were covered by the word 'expenditure' in section 40A(3) of the Act.
3. Whether the payments made by the assessee firm to a specific entity were in respect of the purchase of goods and thus covered by the term 'expenditure' in section 40A(3).

Judgment Details:
The assessing authority found discrepancies in payment dates between the assessee and sellers, leading to a disallowance of Rs. 16,250 under section 40A(3). The Appellate Assistant Commissioner upheld this disallowance due to non-compliance and unreliable accounts. The Tribunal affirmed this decision, stating the payments were for goods purchased and constituted expenditure under section 40A(3).

The court held that section 40A(3) aims to prevent unaccounted money use in business transactions, including purchases exceeding Rs. 2,500. Various High Courts supported the broad interpretation of 'expenditure' to include payments for goods. The Supreme Court defined 'expenditure' as money paid out, supporting the inclusion of purchase payments under section 40A(3).

Regarding the specific payments to the entity, the court affirmed they were for goods purchase and thus fell under 'expenditure' in section 40A(3). As the disallowance was based on section 40A(3) infringement, considering it as unexplained investment under section 69 was deemed unnecessary.

In conclusion, the court answered the second and third questions in favor of the Revenue, affirming the disallowance under section 40A(3). The first question was deemed academically irrelevant in this context, and hence, no opinion was provided. Each party was directed to bear its own costs.