2012 (6) TMI 183 - HC - Income Tax

Disallow the benefits of section 40A(3),(3A) - fragmented payments made in a day more than Rs. 20,000 Assessee is the liquor contractor Held that - Expenditure incurred by assessee though payment is not exceeding Rs. 20,000 but multiple or fragmented payment is made in a day or short span of time more than Rs 20,000 - the interpretation made of the fact that in the year 2009, the Parliament had amended the provision and added word aggregate in the section 40(3) - Since the benefit of the amended provision was not available during the assessment year and is not retrospective in nature no point of disallowance in favour of assessee.

Summary

Issues:
1. Interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding expenditure incurred by the assessee.
2. Whether fragmented payments exceeding Rs. 20,000 in a day are covered under Section 40A(3)(3A) of the Income Tax Act.

Issue 1: Interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding expenditure incurred by the assessee:
The appeal under section 260A of the Income Tax Act, 1961 was against the judgment passed by the Income Tax Appellate Tribunal, Lucknow Bench 'A', related to assessment years 2004-2005. The dispute revolved around whether expenditure incurred by the assessee, even if individual payments did not exceed Rs. 20,000, but the total cash payment exceeded this limit, should be disallowed under section 40A(3) of the Act. The assessing authority had disallowed a specific amount under section 40A(3) and initiated penalty proceedings under section 271(1)(c) of the Act. The Appellate Authority and the Tribunal affirmed the assessing authority's order. However, the High Court analyzed various judgments, including the Orissa High Court's decision, and held that the phrase "in a sum" in section 40A(3) did not refer to the aggregate amount but to individual transactions not exceeding Rs. 2,500. The Court cited precedents from different High Courts to support this interpretation, emphasizing that the amendment to the law was not retrospective and did not apply to the relevant assessment year.

Issue 2: Whether fragmented payments exceeding Rs. 20,000 in a day are covered under Section 40A(3)(3A) of the Income Tax Act:
The respondent argued that making fragmented payments exceeding Rs. 20,000 in a day to the same entity amounted to an abuse of the law and should not be allowed as a deduction. However, the petitioner relied on the judgments of the Orissa High Court and the Supreme Court, which emphasized that section 40A(3) applied to payments made at a time and not to the aggregate payments made during the day. The High Court, following the principles laid down by the Orissa High Court and other High Courts, held that the word "sum" in the provision referred to an amount of money and not the total expenditure. The Court reiterated that the amendment to the law was prospective and not retrospective, thus ruling in favor of the assessee and against the revenue.

This detailed analysis of the judgment from the Allahabad High Court provides insights into the interpretation of Section 40A(3) of the Income Tax Act, 1961, particularly regarding expenditure incurring by the assessee and the treatment of fragmented payments exceeding Rs. 20,000 in a day.