RASTOGI, J. - (1.) AS directed by this Court the Tribunal, Allahabad Bench, Allahabad, has referred the following question to us: "Whether, on the facts and in the circumstances of the case, S. 40A(3) of the Act is applicable to the facts of the present case ?"
(2.) THE brief facts are these. M/s H.A. Nek Mohd. and Sons, a registered firm, was engaged in the business of purchase and sale of Banarasi sarees. During its assessment for the asst. year 1970 -71, the ITO found that the assessee had made the following payments exceeding Rs. 2,500 at a time to 12 parties for purchase of resham, etc.: Some of the payments had been made by post -dated bearer cheques, received from the customers and some in cash. When called upon to explain the circumstances in which these payments were made, the assessee explained that it was ignorant of the relevant provisions of the IT Act and Rules. It did not produce any evidence in this behalf and hence the ITO added the total amount of such payments amounting to Rs. 49,902, in round figures, under S. 40A(3) of the IT Act. On appeal, the AAC being of the opinion that none of these payments had exceeded Rs. 2,500 in . . Rs. 20 -10 -1969 Mr. Gopal Das Lalta Pd. 7,150.12 20 -10 -1969 Sri Gulam Nabi 3,522.19 20 -10 -1969 M/s Burma Silk Centre 2,807.50 20 -10 -1969 Sri Babu Nandan 4,388.22 14 -1 -1970 Sri Tara Sao 6,060.35 8 -2 -1970 Sri Parmanand 3,841.00 8 -2 -1970 Mr. Gopal Das Lalta Pd. 5,394.63 23 -3 -1970 Sri Tara Sao 6,634.92 23 -3 -1970 Sri Jagarnath 2,862.00 23 -3 -1970 Sri Bismillah 3,335.70 23 -3 -1970 M/s Gopal Das Lalta Pd. 4,880.00 31 -3 -1970 M/s Jawahar Silk Centre 3,025.00 . Total 53,901.63 cash at a time, held that the provision contained in S. 40A(3) was not applicable and hence deleted the addition. The Department then took up the matter in appeal before the Tribunal. In the opinion of the Tribunal since the payments by post -dated cheques and in cash were made on the same date and the sum so paid exceeded Rs. 2,500 at one time, it was a clear device to defeat the provisions contained in S. 40A(3) and that being so restored the addition.
(3.) WE were referred to the details of the disputed payments which are contained in Annexure "A" to the statement of the case and they go to show that the payment made in cash at one time did not exceed the statutory amount of Rs. 2,500. Of course, if the amount paid in cash is added to the amount mentioned in the post -dated cheques received by the assessee from the customers, the total amount exceeds the above figure, paid at one time. The question, however, is as to whether payment made by a post -dated cheque is a payment made on the date on which the cheque is given or it would be a payment made on the date on which the cheque matures and is encashed. We do not think that it admits of any doubt that payment by post -dated bearer cheques is a recognized mode of making payments in business circle. It is certainly not a device to defeat any provision of law and the view taken by the Tribunal is absolutely erroneous. What sub -s. (3) of s. 40 requires is that where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs. 2,500 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. This sub -section, thus, enjoins a particular mode for making payments in a sum exceeding Rs. 2,500 at a time. Now, such payment is required to be made either by a crossed cheque drawn on a bank or a crossed bank draft. If a payment in a sum exceeding Rs. 2,500 at a time is made in cash, such expenditure is liable to be disallowed. It would be clear from the details of the disputed payments that the amount paid in cash at one time did not exceed Rs. 2,500. Some of the payments were made by post -dated bearer cheques as well. If these cheques were not post -dated, then certainly these payments would have been caught within the mischief of this provision. They were, however, made by post -dated bearer cheques. In other words, they were not payments made on the date on which the cheque was issued or given. The payment of the money mentioned therein would be taken to have been made on the date on which the cheque matured and was encashed. The AAC was, thus, right in holding that S. 40A(3) was not attracted to the disputed payments and the Tribunal in taking a contrary view acted against the provisions of law.;