JUDGMENT
B. P. JEEVAN REDDY C.J. – Heard counsel for the Revenue None appears for the assessee.
Under section 256(1) of the Income-tax Act, 1961, two question are referred by the Tribunal, one at the instance of the assessee and the other at the instance of the Revenue. The question referred at the instance of the assessee reads :
“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the provisions of section 40A(3) were applicable in respect of the cash payments of Rs, 3,800 and Rs. 10,291 made by the assessee to Agra Steel Traders and Iron and Steel Consuming Corporation, Respectively ?”
The question referred at the instance of the Revenue reads :
“Whether, on the facts and circumstances of the case, the payment of Rs. 25,000 made in cash amount to an advance and whether the provision of section 40A(3) are hit ?”
The assessee is a registered firm dealing in purchase and sale of iron, steel sheets and cuttings, etc., The assessment year concerned herein is 1975-76, the previous year being financial year 1974-75. The question referred at the instance of the assessee relates to payments made to two dealers. The payments were made by the assessee in a sum exceeding Rs. 2,500 in cash and that is why they were disallowed by the Income-tax Officer relying upon sub-section (3) of section 40A of the Income-tax Act. We have perused the order of Tribunal, the Tribunal has found as a fact that the payment of Rs. 3,800 made by the assessee to Agra Steel Traders on March 31, 1975, has not been established to have been made under an exceptional or unavoidable circumstances or for other reasons mentioned in clause (j) of rule 6DD of the Income-tax Rules. Similarly, it found that two payments totalling Rs. 10,291, each exceeding Rs. 2,500 made by the assessee to Iron and Steel Consuming Corporation were not made in the circumstances specified in rule 6DD(j), this is a finding of fact recorded by the Tribunal and we see no reason to disturb the said finding. We may also mention that this is the conclusion of all the three authorities under the Act. For the above reasons, question No. 1 is answered in the affirmative, that is, in favour of the Revenue and against the assessee.
Now. Coming to the question referred at the instance of the Revenue, it is necessary to state a few facts. The assessee made a payment of Rs. 25,000 in cash to Agra Steel Traders on December 10, 1974, towards consideration of the goods which were actually supplied to him on December 11, 1974. The Tribunal held that since the payment was made before delivery of the goods, it is in the nature of an advance and does not fall within the meaning of the expression “expenditure” occurring in sub-section (3) of section 40A of the Act. In so far as it is relevant, sub-section (3) reads as follows :
“(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than March 31, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette. In a sum exceeding ten thousand 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.”
Sub-section (3) has been enacted with a view to avoid any factual controversy with respect to the truth or otherwise of expenditure incurred by the assessee in cash. Since the payment by a crossed cheque or crossed bank draft ordinarily ensures its correctness, law insists that 6 such payments exceeding Rs. 2,500 should be made only by way of a crossed cheque drawn on a bank or by a crossed bank draft. In the context of the language employed in the section, the Tribunal is not justified in saying that since the payment was made prior to delivery of the goods, it constitutes an advance and not an expenditure, admittedly, the payment was made towards consideration of the goods which were supplied on the next day. We may also point out that the balance of consideration, namely, Rs. 3,800, paid by the assessee in lieu of the said transaction has been treated as expenditure by the Tribunal itself and has been disallowed, which aspect we have dealt with while dealing with the question referred at the instance of the assessee. We are, therefore, of the opinion that the distinction made by the Tribunal is without a difference, whether the payment is made prior to delivery of goods or after delivery of the goods, it is payment in cash and it is payment of consideration for the goods. We, accordingly, hold that this payment of Rs. 25,000 in cash on December 10, 1974, is hit by sub-section (3) of section 40A. This question is, therefore, answered in the affirmative, that is favour of Revenue and against the assessee.
No order as to costs.