Satish Chandra, C.J. - The Tribunal has solicited our opinion on three questions of law. Question No. 1 has been referred to us at the instance of the Commissioner of Income Tax who has applied for it u/s. 256(1) of the I.T. Act, 1961. But questions No. 2 and 3 have been referred at the instance of the assessee. The assessee had made no application for reference under S. 256(1) of the Act. It appears that at the hearing of the application moved by the Department, learned counsel for the assessee also proposed two questions which have been referred to us as question Nos. 2 and 3. In view of the decision in Messrs U.P. Co-operative Union Ltd., Lucknow vs. The Additional Commissioner of Income Tax, Lucknow, decided on March 14, 1978, it is not open to the Tribunal to refer questions at the instance of the party who had not made an application under S. 256(1) of the Act. Under the circumstances, question Nos. 2 and 3 are returned unanswered.
2. In relation to the first question, the position is that the assessee is registered firm carrying on cloth business. For the assessment year 1970-71, it purchased cloth worth Rs. 10,79,730/- out of which it paid Rs. 54,800/- to Messrs. Bethi Brothers in cash. This cash payment was disallowed by the Income tax Officer in view of the provisions of S. 40-A(3) of the Act.
3. On appeal, the Appellate Assistant Commissioner deleted the disallowance. The Tribunal upheld this view. At the instance of the Commissioner, it has referred the following question for our opinion.
'Whether, on the facts and in the circumstances of the case, provisions of S. 40-A(3) of the Income Tax Act, 1961 apply to the purchase price in respect of the goods purchased for trading or manufacturing for the accounting period relevant to the assessment year 1970-71 ?'
4. This question stands decided by a Bench of this Court in U.P. Hardware Store vs. Commissioner of Income Tax, U.P. It was held that there was no justification for accepting the plea that the word 'expenditure' used in s. 40-A(3) should be restricted to overhead expenses enumerated in Ss. 30 to 43A. The word 'expenditure' was of wide import. It would cover the expenses to be taken into account while determining the gross profit. The gross profit will be the purchases on the one hand and the closing stock and the sales on the other. The payments made for purchases would also be covered by the words 'expenditure' and such payments could be disallowed if they are made in cash in sums exceeding Rs. 2,500/-.
5. In view of this decision, we answer the question referred to us in the affirmative in favour of the Department and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200/-.