Ya , totally agreed with shashi.

It is a front of healthy discussion of youg  ca troops, and every body should appreciate it. No personal.

 The explanation given by reetika is clear and self explanatory to any one who didnt even know this section earlier....as regards Mr. G.K , i respect your veiws but i woyld also like to bring to notice what has been written by Retika ....' law is interpreted literally unless and until there is some ambiguity in it or it gives absurd meaning.'...the interpretation of statutes say the same and hence when the Income Tax Act itself is clear why would you want the interpretation of any other Act.. As per my knowlege ,I have known till date that any single expenditure to the amount of Rs.20000 would be an allowable expense..expenditure and payment dont mean the same....till the payment for the single expenditure doesnot exceed Rs.20000 it would be an allowable expense as per the section provided the payment is made through an account payee cheque.

 Dear Ms. Khushboo, Shashi, Reetika, all others,

My challenge is to convince you of my stance.... Its conclusion can be anything... it’s only a discussion of which I took one side…

This could take a while, but I urge you to please go thru this post fully

I appreciate your explanation to me. We are unanimous that there will be no disallowance if the payment or aggregate payment in a day is below Rs.20,000/- for expenditure allowed as a deduction (leave singular or plural at this stage)

I/We are debating, what is “any expenditure”; is it one or is it many? Agreed?

Your question to me first - why are you bringing in a different law altogether to interpret what the phrase “any expenditure” means?

 My answer is in this case law. CIT Vs Ananda basappa, [Karnataka] 309 ITR 329 (2009). This is a case law in income tax, not any other legislation. It applies the same General Clauses Act to interpret the law enshrined in the Act, in favour of the assessee. Dont click the hyperlink till I tell you.

https://www.blonnet.com/2009/03/14/stories/2009031450050900.htm

This following para is giving you some information you already know, yet is request you to read it for me

Profit on sale of property used for residence

[(1)] Subject to the provisions of sub-section (2), where, in the case of an assessee; being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say –

Ok.. thank you. You may note that the word “a residential house” is used. The stance of revenue, in brief, is that the phrase means ONE residential house. To a CA student, it is a very valid stance, that “a” should mean “one”, or there is plenty of room for tax avoidance. But not to the HC of Karnataka (in the case law to which the hyperlink is provided). Please click the hyperlink

It has applied the same general clauses act, to say that “a” denotes the plural. I am providing section 13 of that act for you

13.  Gender and number -

In all (Central Acts) and Regulations, unless there is anything repugnant in the subject or context - Words importing the masculine gender shall be taken to include females, and words in the singular shall include the plural, and vice versa.

You may note that there is something in section 54 of the act to say “a residential house”, but it does not deter the HC of Karnataka. The word is “a” “residential house”, which is one house, LITERALLY, not houses. But the HC has given the assessee the exemption by buying 2 residential houses

I would like to point out that the law in section 54 is clear, not ambiguous, it does not give absurd meanings, yet the general clauses act has been applied. The income tax act has given very clear provisions. Yet the general clauses act has been applied.

And I accept that the intention of statute, is not above the law as it comes out in the act. Still, just think, friends, if a court of law can interpret “a”, which denotes the singular, as “many” what about a word like “any”, which denotes both singular and plural? Giving you accepted definitions of  ANY

ANY

1.        The word ‘any’ means ‘one or same or all’. Lucknow Development Authority v.M.K.Gupta, AIR 1994 SC 787, 793. [Consumer Protection Act (section 68 of 1986), S.2(10)]

SOURCE: LAW LEXICON BY P. RAMANATHA AIYAR, WADHWA AND COMPANY NAGPUR, 2^ndEDITION

2.        Word ‘any’ has a diversity of meaning and may be employed to indicate ‘all’ or ‘every’ as well as ‘some’ or ‘one’ and its meaning in a given statute depends upon the context and the subject matter of the statute. Donohue v. Zoning Bd. Of Appeals of town of Norwalk, 155 Conn. 550, 235 A.2d 643, 646, 64. It is often synonymous with ‘either’, ‘every’ or ‘all’.

SOURCE: BLACK’S LAW DICTIONARY, WEST PUBLISHING CO., 6^TH EDITION, relied on in various SC decisions

3.        The word ‘any’  according to the dictionary meaning indicates ‘all’ or ‘every’ as well as ‘some’ or ‘one’, depending on the context and the subject matter of the statute. Balaganesan Metals v. M. N. Shanmugham Chetty, (1987) 2 SCC 707; AIR 1987 SC 1668 [T. N. Buildings (Lease and Rent Control) Act, 1960, S.10(3)(c)]

SOURCE: SUPREME COURT ON WORDS AND PHRASES, SURENDRA MALIK, EASTERN BOOK COMPANY 1993.

EVERY

Each one of all; all the separate individuals who constitute the whole, regarded one by one. The term is sometimes equivalent to “all”; and sometimes to “each”.

SOURCE: BLACK’S LAW DICTIONARY, WEST PUBLISHING CO., 6TH EDITION, relied on in various SC decisions

Dear Friends, if a decision has been made in favour of the assessee applying a statute, why won’t it work against him? Why can’t even “an expenditure” mean “many expenditures”?

 So why should a court of law (or in a worst case scenario, the harassing AO) not hold that “any expenditure” should mean “all expenditures”?

I want to tell you that I am not placing all bets on a case law that you may feel is heretic to logical interpretation of law.

I spoke to CAs, faculty of ICAI, and audit managers of well known firms, who have told me that the number of bills is not relevant, nor is the requirement for the expenditures individually being above Rs.20,000; that rule of a clear one to one relationship is not relevant any longer since the amendment by Finance act of 2008. (note that) T N Manoharan, the past President of ICAI has also adopted the same view in his books for the CA course.

[If you are using the taxmann’s  ready reckoner, please don’t use it for section 40A(3), it says the section even covers depreciable assets]

My case rests. If you ever find it useful, please use it. Else, I thank you for a patient hearing.

Yours Truly,

G.K.

Dear Mr. G.K.,

I appreciate your efforts made for convincing the other person before you. It seems, you have really worked alot to gather material on this for proving your point.

For being a true professional, you must have skills so that you can leave an impression on others showing some weight in your debate. You seem to have that quality.

But, still i would like to say that law is not to be interpreted as per authors thinking rather it is interpreted as per the circumstances which existed at the time of its enactment and intention of lawmakers.

If some authors don't understand the spirit of law and interpret it in their own way even then true meaning can't be changed. (please don't take it personally)

An elderly advice, if you want to interpret the law, read the bare act and then try to interpret it in the best way possible. If difficulty arises, then refer expert opinion and authors comment for further clarification.

Hi G.K.

Before I try to convince you let me ask a Qs. to you.

Say, M Ltd. is a Company Assessee which has two employees Mr. A and Mr. B.

Mr A& Mr B has 500000/-& 600000/- Salary Incomes respectively & TDS required to be deducted and deposited is-50000/-& 60000/- accordingly.(pls dont go into calulation since these are imaginary figures)

Now M Ltd. has deposited TDS 50000/- in respect of Mr.A but couldn't deposited60000/- in res. of Mr. B.

Now how much disallowances u/s 40(a) will be there. Whether 600000/- or 1100000/- according to you because according to your explanation "any means all expenditures"

Dear friends

My answer to Abhishek’s query will come later. I am sorry for the delay. I just got home from office. I want to say at this point, do not imagine me a yelling, control freak harping on some freaky case law.

Imagine me in a slow, deep voice that asks you to put on your thinking hats. I am giving you food for thought.

(Again this could take a while, but thanks. Don’t open the case law till I tell u)

First of all, thanks for ur response. It’s very encouraging to see intelligent responses after so many days on a thread like this.

I am personally of the view I had taken at the beginning; I would have been in deep doubt if some one had not supported my stance during audits, but almost everyone where I come from share the same view on the subject.

I asked some experts' opinion on "any expenditure" because that was the only thing that stood between the assessee's money and revenue's clutches.

Invariably, I was told that 40A(3) is an anti-evasion measure, and only the total payment to a party in a day had to be considered...

I am not the gullible type who wants spoon fed solutions. I did look up the bare act.

But I wanted case laws as well, and I found two cases of which one was in favour of the assessee, and the other wasn’t. But both of them will help me convince you of my stance.

In favour

“The statutory limit of Rs. 10,000 (now Rs. 20,000) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. The word ‘sum’ in section 40A(3) is used only to indicate an amount of money and does not refer to the totality of the expend­iture.” - CIT v. Aloo Supply Co. [1980] 121 ITR 680 (Ori.).

Now, you may note that the Act was amended to close the loophole of splitting payments.

In Today’s circumstances, the judgement would not have been valid.

But still what interested me was the phrase – “The word ‘sum’ in section 40A(3) is used only to indicate an amount of money and does not refer to the totality of the expend­iture.”

In the light of the amendment, the judgement would be that the phrase “any payment or aggregate payment” in section 40A(3) is used only to indicate an amount of money and does not refer to the totality of the expend­iture.

OK… so what indicates that we should consider the totality of the expenditure for section 40A(3)? Next case.

Against

“Section 40A(3) concentrates on the size of the payment and the manner of the payment. If different items are included in a single bill, it would not be right to dissect the bill and find out whether each item of expenditure is above Rs. 10,000; (now Rs. 20,000) the proper way is to read the entries in a wholesome fashion” - Addl. CIT v. Shree Shanmuga Gunny Stores [1984] 146 ITR 600 (Mad.).

I want you to please give equal importance to the sentence which is not underlined. The judiciary is hinting that the expenditures need to be considered in totality. (I am attaching the judgement, which gives clear details including the bill, pls open in a new window). You can see that the HC of Madras is considering the totality of different expenditures to make the decision in favour of revenue.

Will splitting the bills work? It is not at all a risk worth taking. The principle applicable will be that expenditures will be considered in totality; splitting bills in all probability won’t stand judicial scrutiny and/or intelligence.

Legislative Intent

Legislative intent, the purpose of introducing section 40A, was to be the final stumbling block in the circulation of black money, even though it depends to a great extent on taxpayer’s honesty about cash payments.

You may note that a payment in excess of Rs.20,000 would normally strike some of the sections on TDS. Section 40(a) is an overriding provision that would disallow most payments that seep out of the system on account of non deduction of tax at source.

If, after all compliances with TDS, which itself is tiresome, you pay money in cash, the expense is going to be disallowed u/s 40A(3)

Extra reading to help me convince you.

“Yet another overriding provision”

I paid Rs.20,751/- to my landlord in cash after deducting Rs.4,249/- as TDS. Rs.4,249/- has reached the bank account of the Government by 7^th of the next month. The Department can track the income to the landlord, no problems (for the dept!). Still during any assessment, the AO points out that I have paid Rs.20,751/- in cash, so I am eligible to pay tax on that money.

If there is any indication of the gravity of the issue of black money, Please see the new Direct Taxes code. Till now, IFOS says no deduction will be allowed for any expense to earn IFOS if it is of the type in section 40A(12)[now omitted]. Mr. Pranab Mukherjee, has decided that 40A(3) can be copied and pasted under IFOS as well.

“Is this heading in a cruel direction?”

Not at all. For people who demand cash urgently, we pay Rs.19,900/- in cash, and give crossed checks today, or the balance on some other day. All’s fair in tax and war.

Not to mention Rule 6DD, Business expediency conditions.

To beat the taxman, you just have to play his rules.

Please give your response. I will be posting my response to Abhishek’s question within 24 hours -  I have people at home to talk to :)

Hi friends,

Hope u were able to open the case law file. 

1.In the file, you will see that the expenditures were not above Rs.2500 individually, but aggregated to more than that.

2.These were not just different expenditures, they were billed as different types of expenses as well.

You have to remember that an invoice is only proof of expenditure. Invoice is not the expenditure by itself. 

Splitting invoices will not say that those are different expenditures. Even if you could conclusively prove that they were different expenditures, the above case will operate against the assessee.

My answer to Abhishek's query next.

DISALLOWANCE'S THEIR U/S 40A(3) IS ANY PAYMENT IS MADE IN A SINGLE DAY IS EXCEEDING RS. 20000 AGAINST A SINGLE BILL. IF THEIR ARE MORE THAN ONE BILL OF RS. MORE THAN 20000 THAN DISALLOWANCE.

Dear friends please clarify me as to this case law about 40 A 3

check this site https://www.bcasonline.org

in that check out the 19th or so page in recent case laws..there is a case on march 09 which i think has same doubt with regard to 40 A 3

Disallowance u/s. 40A( 3) is applicable for each payment and not for the aggregate of the various payments made to same party during one day: The Assessee’s plea against the disallowance u/s. 40A(3) was that each payment was below, Rs.20,000/-, and, therefore, Sec. 40A(3) is not applicable. However, as per the A.O., since the payment of one day exceeded Rs. 20,000/-, therefore, Sec. 40A( 3) was applicable.

this was the short descriptttion abt the case...i wud really appreciate it if u can gimme further details abt this case

 https://www.simpletaxindia.org/2008/03/budget-changes-missed-by-u-40a3-cash.html

Dear G. K. and Others!

If payment of ONE EXPENDITURE exceeds 20000 then it will be disallowed.

EVERYBODY PLEASE NOTE IT. this is now case decided. i will mention the name soon. thanks.

Please give at the earliest Shashi... need it...

Originally posted by : G.K..
	Please give at the earliest Shashi... need it...

"Where the assessee was doing more than one transaction in a day but if the amount in each transaction does not exceed the limit prescribed in section 40 A (3). the rigors of section 40 A (3) will not apply."

case:  KOTHARI SANITATION & TILES (P) LTD. (MAD)

Earlier we were having confusion now its clear.

 But shashi wasnt it a case in 2006?? before the amendment

 The words used are ‘in a sum’, i.e., single sum. Therefore, irrespective of any number of transactions, where the amount does not exceed the above amount in each transaction, the rigours of section 40A(3) will not apply - CIT v. Triveniprasad Pannalal [1997] 94 Taxman 381 (MP)./CIT v. Kothari Sanitation & Tiles (P.) Ltd. [2006] 282 ITR 117 (Mad.).