1977 INSC 0241
                                                 Janta Metal Supply

                                                           Vs

                                       Commissioner of Income-Tax, U.P.

                                        Civil Appeal No. 1905(T) of 1976

                                     (Y. V. Chandrachud, P. S. Kailasam JJ)

                                                      27.07.1977

                                                     JUDGMENT

CHANDRACHUD J.

The assessee-firm, which is the appellant before us, does business in brass and copper scrap on a
wholesale basis. It purchased metal scrap during the assessment year 1970-71, for which it paid a
sum of Rs. 2,46,625 consisting of various items, each one of which exceeded Rs. 2,500. It claimed
these amounts as allowable deductions, whereupon a question arose whether payments made in cash
in excess of Rs. 2,500 at a time could be claimed as deductions in view of the provisions contained
in section 40A(3) of the Income-tax Act, 1961.

The revenue authorities and the Appellate Tribunal rejected the assessee's claim, holding that the
case fell squarely within the terms of section 40A(3) and that none of the exceptions contained in
rule 6DD was attracted.

The assessee asked the Appellate Tribunal to make reference to the High Court which the Tribunal
declined to do on the ground that its judgment did not give rise to any question of law. The assessee
then approached the High Court of Allahabad asking that the Tribunal be directed to make a
reference to it on the questions raised by the assessee. The order of the High Court dismissing the
application for reference is challenged by the assessee in this appeal by special leave.

Mr. Singhania, who appears on behalf of the assessee, contends that the Tribunal's judgment raises
an important question of law, viz., whether payments made by the assessee in purchasing scrap
metal for resale is "expenditure" within the meaning of section 40A(3). The Tribunal not having
discussed this question in its judgment, the High Court is apparently justified in its view that the
question did not arise out of the Tribunal's judgment. Our attention has, however, been drawn by the
assessee's counsel to an affidavit filed in the High Court by one Balkishan, who is the son of one of
the partners of the assessee-firm, in which he says that he was present at the hearing before the
Tribunal and that the question on which a reference was sought was argued before the Tribunal. Not
only was Balkishan's affidavit not rebutted by a counter-affidavit or otherwise, but the
Commissioner or Income-tax, by his reply to the application filed by the assessee in the Tribunal
asking for a reference to the High Court, conceded that a question of law arose out of the Tribunal's
judgment which should be referred for the opinion of the High Court.

A judgment dated November 29, 1973, rendered by the Delhi Bench of the Income-tax Appellate
Tribunal in I.T.A. No. 5456 of 1972-73 shows that various Benches of the Tribunal have
consistently taken the view that payments made for the purchase of stock-in-trade or raw material is
not "expenditure" within the meaning of section 40A(3). On the other hand, learned counsel for the
revenue has drawn our attention to the judgment of the Orissa High Court in Sajowanlal Jaiswal v.
Commissioner of Income-tax [1976] 103 ITR 706 (Orissa) and of the Allahabad High Court in U.P.
Hardware Store v. Commissioner of Income- tax [1976] 104 ITR 664 (All) which, on a careful
consideration of the matter, have taken a contrary view.

Since the question raised on behalf of the assessee is of general importance and since it appears that
the question was raised before the Tribunal itself, we set aside the judgment of the High Court and
direct that the High Court shall call for a statement of case from the Tribunal on the following
question :

                  "Whether, the amount spent by the assessee in purchasing goods for the purpose of
                  resale is expenditure within the meaning of section 40A(3) of the Income-tax Act,
                  1961 ?"

On receiving the statement of case, the High Court shall hear the parties and dispose of the reference
in accordance with law. There will be no order as to costs. accordance with law. There will be no
order as to costs.

d at by the Gujarat High Court. We allow this appeal and hold that the Income-tax Officer in the
circumstances is entitled to reopen the assessment under section 147 (b) of the Income-tax Act. The
appeal is allowed with costs.

Appeal allowed.

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