Purchase payments fall within section 40A(3), and rule 6DD relief requires strict proof of statutory conditions.

Payments made to suppliers for purchase of goods were treated as expenditure within section 40A(3) of the Income-tax Act, so the provision applied to such purchase payments and relief was denied on that issue. Relief under rule 6DD of the Income-tax Rules was unavailable because the assessee did not establish the statutory condition of payment to the producer for produce of animal husbandry. The material principle stated is that exemption under rule 6DD depends on strict proof of the prescribed conditions, while purchase payments to suppliers fall within the disallowance framework of section 40A(3).

---

---

Issues: (i) Whether expenditure by way of purchases falls within the scope of section 40A(3) of the Income-tax Act, 1961; (ii) Whether the assessee was entitled to relief under rule 6DD of the Income-tax Rules, 1962.

Issue (i): Whether expenditure by way of purchases falls within the scope of section 40A(3) of the Income-tax Act, 1961.

Analysis: The provision was held applicable to payments made to suppliers for purchase of goods, and such payments were treated as expenditure within the meaning of section 40A(3).

Conclusion: The issue was answered in the affirmative, against the assessee and in favour of the Revenue.

Issue (ii): Whether the assessee was entitled to relief under rule 6DD of the Income-tax Rules, 1962.

Analysis: Relief under rule 6DD was available where the payment exceeded the prescribed limit and was made for purchase of produce of animal husbandry to the producer, but the finding of fact was that the assessee failed to establish payment to the producer.

Conclusion: The issue was answered in the negative, against the assessee and in favour of the Revenue.

Final Conclusion: Both questions were decided against the assessee, and the departmental position was upheld.

Ratio Decidendi: Payments made to suppliers for purchase of goods constitute expenditure within the ambit of section 40A(3), and exemption under rule 6DD is unavailable unless the statutory conditions, including payment to the producer, are proved.

---