Judgment:
A.K. Mathur, C.J.
1. This is an application under Section 256(1) of the Income-tax Act, 1961 (for short 'the Act'), at the instance of the Revenue and the following question of law has been referred for answer by this court ;
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting the disallowance of Rs. 48,854 which had been made by the Income-tax Officer under Section 40A(3) of the Income-tax Act, 1961 ?'
2. The question is what is the correct interpretation of Section 40A(3) of the Act. Section 40A(3) says that the assessee should not incur any expenditure in a sum exceeding Rs. 2,500 otherwise than by a crossed cheque drawn on a bank or by crossed bank draft. Such expenditure shall not be allowed as deduction. Therefore, the law only says 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 this amount, then such expenditure shall not be allowed as deduction.
3. In the present case, the payment has not exceeded Rs. 2,500, but it was break up of three or four transactions. The Tribunal interpreted Section 40A(3) to mean that any transaction shall not exceed Rs. 2,500. In the present case, such is not the case. Therefore, construing this provision, the Tribunal has allowed the deduction as claimed by the assessee.
4. Shri Tankha, learned counsel for the Revenue, submitted that if 10 transactions in a sum of Rs. 2,500 are permitted on the same day with the same party, then it would amount to defeating the purpose of the provision and its object of check on transactions in sums exceeding Rs. 2,500. If it is permitted, then virtually it will frustrate the very purpose of the enactment. That is true, but at the same time, we cannot cause violence to the language which has been used in the statute. 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 in each transaction, the rigours of Section 40A(3) will not apply. This is a technical lacuna in the provision for which we cannot supply the omission and put the provision in a proper form so that this kind of loophole may not be left. This view has been taken in the case of CIT v. Aloo Supply Co. : [1980]121ITR680(Orissa) .
5. Hence, we answer the above question against the Revenue and in favour of the assessee.