Commissioner of Income Tax vs Kothari Sanitation and Tiles (P) Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Tribunal in ITA No. 879/Mad/2000, dt. 15th July,

2005, raising the following substantial questions of law :

(a) Whether, in the facts and circumstances of the case, the Tribunal was right in interpreting the provisions of Section 40A(3) with regard to the

word ''sum'' used therein, i.e., as to whether it would indicate total sum or would it refer to each payment ?

(b) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that there was no violation of Section 40A(3), even

though the payments in . respect of each invoice exceeded Rs. 20,000 ?

The brief facts of the case are stated as under.

The assessee is engaged in the business of sanitary fittings and tiles. For the asst. yr. 1997-98, the AO disallowed the claim for certain expenditure

u/s 40A(3) of the Act on the ground that the payments were made in cash and exceeded Rs. 20,000. Aggrieved by the order of the AO, the

assessee preferred an appeal before the CIT(A) on the ground that no single transaction exceeded the prescribed limit u/s 40A(3) of the Act and

the appeal was allowed. Hence, the Revenue preferred an appeal before the Tribunal, which upheld the order of the CIT(A). Hence, the present

appeal.

Heard Mr. J. Narayanaswamy, learned Counsel appearing for the Revenue at length.

In this regard, it would be apt to refer Section 40A(3) of the Act, which reads as follows :

Expenses or payments not deductible in certain circumstances.-(1)....

(3) 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 twenty thousand

rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, twenty per cent of such expenditure shall not be allowed

as a deduction :

Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of

April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the. assessee makes

any payment in respect thereof in a sum exceeding twenty thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed

bank draft, the allowance originally made shall be deemed to have been wrongly made and the AO may recompute the total income of the

assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of Section 154 shall, so

far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the assessment

year next following the previous year in which the payment was so made :

Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding twenty thousand 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.

Learned Counsel for the Revenue invited our attention to the decision of this Court in Additional Commissioner of Income Tax, Madras-II Vs.

Shree Shanmuga Gunny Stores, wherein the question was whether the Tribunal was right in holding that Section 40A(3) of the Act would apply

only if each item of the expenditure involved in a single bill for several items exceeds Rs. 2,500.

It is true that this Court answered the said question in favour of the Revenue. But, concededly, the facts and circumstances of the said case are

with reference to the payment made in cash for each item of expenditure involved in a single bill, but not with reference to the payment of cash

made for several bills for several transactions, as in the instant case. Therefore, the decision cited supra is, in no way, helpful to the case of the

appellant. In the instant case, it is not in dispute that the perusal of the cash book of the assessee reveals that cash payments were made in respect

of each invoice separately and the payments were not made separately for each item of the same invoice.

One such issue came up for consideration before the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Triveniprasad Pannalal,

wherein it is held that Section 40A(3) of the Act only says that the amount exceeding Rs. 2,500 as then, should not be paid except by way of

cheque drawn on a bank or by a crossed bank draft and if it exceeds that amount, then such expenditure shall not be allowed as deduction. It does

not say that the aggregate of the amount should not exceed Rs. 2,500. The words used are ""in a sum"", i.e., single sum has been used. Therefore,

irrespective of any number of transactions, where the amount does not exceed Rs. 2,500 as above, the rigours of Section 40A(3) will not apply.

Now, the amount should not exceed Rs. 20,000. That apart, practicability of the payment has also to be judged from the point of view of a

businessman.

Finding no merit to entertain the above appeal, the same is dismissed.