Law:

Section:

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits - Assessment year 1974-75 - Whether statutory limit of Rs 2500 under section 40A(3) applies to payments made to party at a time and not to aggregate of payment made to a party in course of a day as recorded in cash book - Held, yes Words and Phrases : Word 'sum' as occurring in section 40A(3) of the Income-tax Act, 1961. FACTS The assessee firm dealing on wholesale and commission basis in potato and onion, had paid to the tune of Rs. 1,10,024 in cash to different persons. On explanation sought for by ITO regarding contravention of section 40A(3), the assessee explained that payments were made in cash because of exceptional and unavoidable circumstances and the payment in any other manner was not practicable having regard to the nature of the transactions and so they came under the exception envisaged under rule 6DD(j) of the Rules. The explanation was not accepted and the expenditure was disallowed. The AAC sustained the disallowance to the tune of Rs. 43,524 and allowed Rs. 21,500 to be deducted on the finding that the said amount related to commission business of the assessee. On second, appeal, the assessee explained that the amounts were paid on different occasions in a day and no single item was in excess of Rs. 2,500, that only one entry was made in the cash book at the end of the day relating to all the payments made to that party and that the payees belonged to distant places and there agents came to collect the money. The Tribunal accepted the contentions of the assessee and held that the mere fact that the assessee made one entry in the cash book for all the payments made to a single party in the course of the day did not lead to the conclusion that the assessee knew at the beginning of the day all the payments that it would make to that party in the course of the day and, accordingly, it allowed assessee's claim. On reference: HELD It is one of the well settled rules of interpretation that where a word used in a statute carries more than one meaning, that meaning which makes the provision…

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