R.N. Misra, J.
1. The Income-tax Appellate Tribunal has stated this case and referred the following question for opinion of the court on an application of the assessee made under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act,'):
'Whether the expenditure referred to in Section 40A(3) refers only to the expenditure that could be claimed as a deduction under Section 37 or to any payment made by the assessee and taken into account in computing the total income under the provisions of the Income-tax Act, 1961 ?'
2. The assessee is a firm carrying on business in grocery articles on wholesale basis at Jharsuguda in the district of Sambalpur. In the assessment year 1970-71, corresponding to the accounting year ending on March 31, 1970, the assessee returned a net income of Rs. 34,41.2. The Income-tax Officer while examining the books of account found that there were two payments in cash being on January 21, 1970 for a sum of Rs. 2,734 and on 30th of March, 1970 for a sum of Rs. 6,000. The Income-tax Officer called upon the assessee to explain why payments of these amounts had been made in cash and not by crossed cheque or a crossed bank draft as required by Section 40A(3) of the Act. The assessee in his explanation dated September 21, 1970, claimed that payment of Rs. 2,734 was towards price of sugar purchased in a cash memo dated January 21, 1970, from M/s. Jagannath Hariram and payment of Rs. 6,000 on 30th of March, 1970, was to M/s, Kishore Traders for satisfaction of business dues of the said dealer. It was further claimed that since those payments were made for purchase of goods and the assessee had not claimed such purchases as deductions, Section 40A(3) was not attracted and the statute required Section 40A(3) to be complied with only in respect of expenditure claimed as deduction under Section 37 of the Act. The Income-tax Officer did not accept the explanation and, therefore, added a sum of Rs. 8,734 to the income of the assessee.
3. The Appellate Assistant Commissioner dismissed the assessee's appeal and upheld the addition. Before the Tribunal, in second appeal, the assessee re-agitated the matter. The Appellate Tribunal was of the view that the requirement of Section 40A(3) was categorical and specific and unless the assessee satisfied the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft due to exceptional or unavoidable circumstances and also there was evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment, the amounts claimed could not be allowed as a deduction and accordingly upheld the addition.
4. Section 40A. makes provision for expenses or payments not deductible in certain circumstances. Sub-section (3) which is relevant provides :
'Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction:......
Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.'
5. The cases and circumstances referred to in the proviso have been prescribed in Rule 6DD of the Income-tax Rules, 1962. That rule runs thus :
'No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sura exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a. bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely:--.........
(f) where the payment is made for the purchase of-
(i) agricultural or forest produce ; or
(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or
(iii) fish or fish products ; or
(iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products;
(g) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the. producer of such products;
(h) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town ;......
(j) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft--
(1) due to exceptional or unavoidable circumstances ; or
(2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishing evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee.'
Assessee's counsel has claimed that for the mischief under Section 40A to apply, three conditions are necessary, namely, (i) the assessee must have incurred expenditure in respect of which payment is made after the prescribed date, (ii) the payment must be a sum exceeding two thousand five hundred rupees, and (iii) the expenditure must have been claimed as a deduction. It is claimed that the two payments in question were not deductions as such, but were investments in course of business, i.e., buying goods for resale. Accordingly, Section 40A of the Act has no application. This contention is not tenable in view of the clear provisions in Rule 6DD. Clauses (f) and (g) which have been extracted above clearly indicate the intention of Sub-section (3). If the exceptions had not been made in terms of the second proviso to the sub-section, payments for these purchases would have also come within the mischief of this sub-section. Clauses (f) and (g) do not make any exception by indicating that if purchase is made by way of investment in business, the sub-section would not be attracted ; on the other hand, the language used in these two clauses clearly shows the scope of Sub-section (3), Even when payment is made for the purchase of the named items in these two clauses and purchases were for purposes of business, Sub-section (3) would have been applicable but for the exclusion provided under the rule. This would mean that payment made for purchases of sugar, because it is not excluded under Rule 6DD, would come within the purview of Sub-section (3). Upon this analysis the action of the departmental authorities or the decision of the Tribunal is unexceptionable.
6. Learned standing counsel has contended that the legislative purpose in incorporating Sub-section (3) is clear. The provision is designed to counter evasion of tax through claims of expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and the reasonableness of the payment. In our view, the Tribunal came to the correct conclusion in not accepting the assessee's contention.
7. 'Expenditure' has no definition in the statute. All outgoings could broadly come under this head. In fact the Chambers' Twentieth Century Dictionary gives the following meaning to the words :
'act of expending or laying out; that which is expended; the process of using up ; money spent.'
8. If this be the meaning of the word according to common parlance, and in the absence of a statutory definition, the word would take its colour according to its common parlance use, payment for purchase of goods would certainly be an expenditure. Deduction need not also be confined to Section 37. In Sub-section (3) that word has been used in its widest amplitude and the provisions of Rule 6DD throw considerable light as to what exactly is meant to be the scope of Sub-section (3).
9. We would accordingly answer the question referred to us by saying :
The expenditure referred to in Section 40A(3) of the Income-tax Act is not confined to expenditure that could be claimed as a deduction under Section 37 and refers to any payment made by the assessee and taken into account in computing the total income under the provisions of the Act.
10. We make no order as to costs.
N.K. Das, J.
11. I agree.