2009 (10) TMI 414 - HC - Income Tax

Business Expenditure- During the course of assessment for the assessment year 1986-87 it was found that the assessee made payment in cash exceeding Rs. 2500. The assessing authority disallowed the amounts by invoking section 40A(3). The Tribunal held that the disallowance under section 40A(3) was not justified as no single payment was more that Rs.2, 500. Held that- the latest amendment pointed out on behalf of the revenue was not available during the relevant assessment year and the amendment was not retrospective in nature. Thus there was no infirmity in the order of the Tribunal.

Summary

Issues:
Interpretation of section 40A (3) of the Income-tax Act regarding cash payments exceeding Rs. 2,500 during assessment year 1986-87.

Analysis:
The dispute in this case revolves around the interpretation of section 40A (3) of the Income-tax Act concerning cash payments exceeding Rs. 2,500 made by the assessee during the assessment year 1986-87. The assessing authority disallowed these payments under section 40A (3) due to non-compliance with the provision. However, the Tribunal, after considering the matter, allowed the deduction by referring to a decision of the Orissa High Court, stating that as no single payment exceeded Rs. 2,500, the disallowance was not justified. The Tribunal's decision was based on the interpretation that the phrase "in a sum" used in the section does not refer to the total aggregate amount but rather to individual payments not exceeding Rs. 2,500 each. This interpretation was supported by previous judgments of various High Courts, including the Madhya Pradesh High Court and the Orissa High Court.

The Department, represented by the learned standing counsel, argued that a recent amendment in section 40A (3) should affect the Tribunal's decision. However, the Court noted that the amendment was not applicable during the relevant assessment year and was not retrospective. The Court further emphasized that the phrase "in a sum" should be understood in its common parlance meaning, referring to individual amounts and not the total expenditure. The Court also highlighted that the Orissa High Court's judgment on this matter had been upheld by the apex court, reinforcing the validity of the interpretation provided.

In conclusion, the Court found no legal infirmity in the Tribunal's order and answered the question of law in favor of the assessee and against the Department. The judgment underscores the importance of interpreting statutory provisions in line with legislative intent and established legal principles, especially when dealing with tax matters.