1978 (3) TMI 57 - HC - Income Tax

Court upholds ban on cash purchases over Rs. 2,500 for business stock.

The High Court of Allahabad upheld the Tribunal's decision to disallow cash purchases exceeding Rs. 2,500 for stock-in-trade under section 40A(3) of the ... Scope of section 40A(3) as to 'expenditure' - Purchases as part of 'expenditure' for gross profit computation - Disallowance of cash payments exceeding Rs. 2,500 - Binding precedential effect of U. P. Hardware Store v. CITScope of section 40A(3) as to 'expenditure' - Purchases as part of 'expenditure' for gross profit computation - Disallowance of cash payments exceeding Rs. 2,500 - Whether the purchase price of stock-in-trade constitutes 'expenditure' within the meaning of s. 40A(3) so as to attract disallowance for cash payments exceeding Rs. 2,500. - HELD THAT: - The court held that the word 'expenditure' in s. 40A(3) is of wide import and is not confined to overheads under ss. 30 to 43A. Expenditure covers amounts to be taken into account in determining gross profit, which is derived from opening stock and purchases as against closing stock and sales. Payments made for purchases of stock-in-trade therefore fall within the scope of 'expenditure' and may be disallowed under s. 40A(3) when made in cash in sums exceeding the statutory limit. The court applied and followed the earlier Division Bench decision in U. P. Hardware Store v. CIT, treating that precedent as binding and controlling the present reference.The question is answered in the affirmative in favour of the department and against the assessee; purchases of stock-in-trade are 'expenditure' within s. 40A(3) and may be disallowed if paid in cash in excess of the prescribed limit.Final Conclusion: The reference is answered in favour of the revenue: payments for purchase of stock-in-trade are within the scope of 'expenditure' under s. 40A(3) and may be disallowed if paid in cash beyond the stipulated amount; costs awarded to the Commissioner. The High Court of Allahabad held that purchases made in cash exceeding Rs. 2,500 for stock-in-trade can be disallowed under section 40A(3) of the Income Tax Act. The Tribunal's decision to disallow such purchases was upheld based on the wide interpretation of the word 'expenditure.' The court ruled in favor of the department, citing a previous Division Bench decision. The Commissioner was awarded costs of Rs. 200.