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TMI Blog1982 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us. At the end of the day, however, we realize that only one of the two questions requires serious consideration. The answer to the question is far too self-evident to merit discussion. We reproduce the question below: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that section 40A(3) would apply only if each item of the expenditure involved in a single bill for several items exceeds Rs. 2,500 ? " The enquiry prompted by the question is about the disallowance made by the ITO of two payments made by the assessee under two bills for purchase of commodities effected by the assessee, in the course of its business. The abstract of the two bills, which are found in the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transportation charges 7 ----- Total 2,518 ----- It will be seen that the payment made for expenditure by way of purchase of the commodities under the first bill was Rs. 2,668. The payment under the other bill was for Rs. 2,518. Both these payments, were admittedly made by the assessee in cash. The ITO, while computing the taxable income of the assessee under the head " Business ", disallowed these two items of payment made by the assessee towards expenditure incurred for purchase of materials. Section 40A(3) of the I.T. Act, 1961, enacts that where an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each constituting a separate item of expenditure, involving a separate outlay and entailing a payment of less than Rs. 2,500 each. We do not think that this is a proper way of understanding and applying the provisions of s. 40A(3). The text of the section is as under: "Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. " (The proviso is not reproduced here as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven the size of the expenditure, the related payment to cover that payment will be neither more nor less, but will only be equal to the size of the expenditure. In the assessee's purchase bills the price of the resins is shown as Rs. 2,000. The Tribunal apparently treated this as separate outgoing or expenditure, and having isolated the expenditure from their focus of attention, the Tribunal proceeded to relate the corresponding payment in cash. This method of concentrating on the expenditure first and then relating the payment to that expenditure would always yield the position that expenditure always equals payment in the same sense as world exports always equal world imports. If the expenditure is less than Rs. 2,500 the payment will al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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