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Issues Involved: Interpretation of u/s 40A(3) of the Income-tax Act, 1961 regarding disallowance of expenditure exceeding Rs. 2,500 not paid by crossed cheque or bank draft.
The judgment pertains to an application u/s 256(1) of the Income-tax Act, 1961, where the question of law referred to the court was whether the Appellate Tribunal was justified in deleting the disallowance of expenditure made by the Income-tax Officer u/s 40A(3) of the Act. The crux of the issue lies in the correct interpretation of u/s 40A(3), which mandates that any expenditure exceeding Rs. 2,500 should only be paid through a crossed cheque drawn on a bank or by a crossed bank draft to be allowed as a deduction. The Tribunal's interpretation focused on individual transactions not exceeding Rs. 2,500 each, leading to the allowance of the deduction claimed by the assessee. In the present case, the Tribunal's interpretation of u/s 40A(3) emphasized that each transaction should not exceed Rs. 2,500, rather than considering the aggregate amount of multiple transactions. Despite the potential loophole in the provision, which could allow for multiple transactions of Rs. 2,500 each on the same day with the same party, the court emphasized that the statute specifies "in a sum," indicating a single sum in each transaction should not exceed Rs. 2,500 for the provision to apply. The court cited precedents to support this technical interpretation, highlighting that the language of the law must be adhered to, even if it results in potential gaps or unintended consequences. Therefore, the court ultimately ruled against the Revenue and in favor of the assessee, based on the strict interpretation of u/s 40A(3) of the Income-tax Act, 1961, emphasizing the importance of adhering to the specific wording of the statute despite potential loopholes or lacunae.
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