Judgment:
1. The Income-tax Appellate Tribunal, Allahabad Bench has referred the following question of law for opinion of this court:
Whether, on the facts and circumstances of the case, the Tribunal was justified on facts and in law in deleting an addition of Rs. 23,236 under Section 40A(3) even though the assessee made several payments to the same person on the same day which aggregate exceeded Rs. 2,500 and did not take any plea of any hardship or exceptional circumstances or that they had no idea that they would have to pay to the same person on more than one occasion during the course of a particular day.
2. The dispute relates to the assessment year 1986-87. It was found that the assessee made payments in cash exceeding Rs. 2,500 during the course of the assessment. The assessing authority consequently by invoking Section 40(3) disallowed them.
3. The assessing authority was not satisfied with the reply given by the assessee and, therefore, disallowed the aforesaid amounts by invoking Section 40A(3) of the Income-tax Act. The matter ultimately reached to the Tribunal and the Tribunal allowed the deduction and held as under:
After hearing the learned Departmental representative on the point, who has vehemently opposed it, we have perused the list given at page 3 and we are of the opinion that the decision of the hon'ble Orissa High Court squarely covers up the case of the assessee. As no single payment was more than Rs. 2,500, we hold that the disallowance under Section 40A(3) of the said amount was not justified. We, therefore, delete the said addition.
4. Heard the learned Counsel for the parties and perused the record. Sri A.N. Mahajan, learned standing Counsel on behalf of the Department submits that in view of the latest amendment in Section 40A(3) of the Act, the order of the Tribunal cannot be allowed to stand. However, we find that Section 40A(3) of the Act, as it then stood at the relevant point of time, provided that the amount exceeding Rs. 2,500 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 20 per cent, of the expenditure shall not be allowed as deduction. It does not say that the aggregate of the amounts should not exceed Rs. 2,500. The words used are 'in a sum'. The said phrase has been interpreted by various High Courts and it has been held that irrespective of any number of transactions, where the amount does not exceed Rs. 2,500, the rigour of Section 40A(3) of the Act will not apply. The said view has been taken by the Madhya Pradesh High Court in CIT v. Triveniprasad Pannalal : [1997] 228 ITR 680. Identical view has been taken in CIT v. Kothari Sanitation and Tiles P. Ltd. : [2006] 282 ITR 117 (Mad). It was further pointed out that similar view was taken by the Orissa High Court in CIT v. Aloo Supply Co. : [1980] 121 ITR 680. The relevant portion of the said judgment is reproduced below (headnote):
The word 'sum' has no statutory definition and must have the common parlance meaning. While legislating, Parliament tries to convey its intention through express words. It is one of the well settled rules of interpretation that where a word used in a statute carries more than one meaning, that meaning which makes the provision workable and is nearest to the legislative intention, has to be adopted. The word 'sum' in Section 40A(3), second proviso, of the Income-tax Act, 1961, is used only to indicate an amount of money and does not refer to the totality of the expenditure.
5. Against the said judgment of the Orissa High Court, a special appeal was preferred before the apex court and the said special appeal has been dismissed by the apex court as reported in [1983] 143 ITR (St.) 67.
6. Learned standing Counsel for the Department could not place any decision contrary to the above. Only submission which he could make is that in view of the amendment in law, the view of the Tribunal cannot be allowed to stand. Obviously, the said amendment was not available during the relevant assessment year and the said amendment was not retrospective in nature.
7. In view of the above, there is no legal infirmity in the order of the Tribunal. The question of law is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Department.
8. No order as to costs.