Section 40A(3) covers stock-in-trade purchase payments, making excess cash purchases disallowable unless rule 6DD applies.

Section 40A(3) uses the term "expenditure" in a wide sense and is not limited to overhead or similar deductible items. It covers payments made for purchases that form part of stock-in-trade and enter the computation of gross profit. Cash payments for such purchases exceeding the statutory limit are therefore liable to disallowance unless they fall within the exceptions in rule 6DD. The issue was answered in favour of the Revenue, confirming that purchase price of stock-in-trade is expenditure for section 40A(3).

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Issues: Whether the purchase price of stock-in-trade constitutes expenditure for the purpose of section 40A(3) of the Income-tax Act, 1961, so that cash payments exceeding the prescribed limit are liable to disallowance.

Analysis: The expression "expenditure" in section 40A(3) was held to be of wide amplitude and not confined to overhead or similar deduction items. It extends to amounts paid for purchases that enter into the computation of gross profit. Accordingly, cash payments for stock-in-trade purchases, where they exceed the statutory limit and do not fall within the exceptions in rule 6DD, are within the scope of disallowance.

Conclusion: The purchase price of stock-in-trade is expenditure within section 40A(3), and the question was answered in the affirmative in favour of the Revenue.

Ratio Decidendi: For section 40A(3), expenditure includes payments for purchases of stock-in-trade, and such cash payments are disallowable unless they satisfy the prescribed exceptions.

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