ORDER
G.E. Veerabhadrappa, Accountant Member
1. This appeal by the asses-see arises out of the order, dated January 6, 1995, of the Commissioner of Income-tax (Appeals), Belgaum, for the assessment year 1993-94.
2. The main dispute, in this appeal, relates to disallowance under Section 40A(3) of the Act to the extent of Rs. 7,15,650. Learned counsel for the assessee drew our attention to para. 4 of the assessment order and pointed out that the assessee has not contravened any of the provisions of Section 40A(3) of the Act. According to him, on each of the occasion, the payment did not exceed Rs. 10,000. The fact that the payments have been made on different dates has been confirmed by the accounting notes in the books of the recipients. These have been discussed in the order of the assessment. The assessee has also filed a paper book containing all these details. According to learned counsel for the assessee disallowance under Section 40A(3) is not applicable to the total of the payments in a year but applies only to individual payments. According to learned counsel, the words “in a sum” in Section 40A(3) of the Act clearly indicate that the disallowance has to be determined with respect to each payment. Only if the payment exceeds a sum of Rs. 10,000 the provisions would apply. In each of these cases, the payment did not exceed Rs. 10,000 and, therefore, the provisions of Section 40A(3), according to learned counsel, are not correctly invoked. Learned counsel for the assessee relied upon the decision of the Orissa High Court in the case of CIT v. Aloo Supply Co. [1980] 121 ITR 680 for the above proposition. Learned counsel also pointed out that special leave petition against the decision of the Orissa High Court in the above case filed by the Department has been dismissed as reported in [1983] 143 ITR (St.) 67 and 68. It was also pointed out that substantial amount to the extent of Rs. 3,17,140, as per annexure A to the paper book, have been made on Saturdays and Sundays and as per the provisions of Rule 6DD(k) of the Income-tax Rules, the above payments should have been excluded out of the disallowances under Section 40A(3) of the Act.
3. The learned Departmental Representative, on the other hand, has strongly supported the disallowances.
4. We have carefully considered the rival contentions and gone through the record. The provisions of Section 40A(3) states that where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than March 31, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a
crossed bank draft . . . The above words clearly show that the words “in a sum” in Section 40A(3) denote the payment at any one time and not the sum total of payments made to a particular person during the course of any one day. The Orissa High Court had occasion to consider a similar situation in the case of Aloo Supply Co. [1980] 121 ITR 680, wherein the High Court has clearly held that the ban in Section 40A(3) of the Act cannot go into operation on the ground that the aggregate exceeds the sum specified. To the same effect is the decision of the Madhya Pradesh High Court in the case of CIT v. Triveniprasad Pannalal [1997] 228 ITR 680, wherein their Lordships have also held that the words used are “in a sum”, i.e., single sum has been used. Therefore, irrespective of any number of transactions, where the amount does not exceed the specified monetary limit in each transaction, the rigours of Section 40A(3) will not apply. Applying the ratio of these decisions, we are of the view that the disallowance is totally uncalled for in respect of the impugned payments. The disallowance is, therefore, deleted. In the light of the above, we do not wish to express any opinion as regards the other contentions taken on behalf of the assessee.
5. The next disallowance in this appeal relates to disallowance of loss of Rs. 3,456 and Rs. 9,250 claimed in respect of coconut oil and edible oil account. The Assessing Officer appears to have disallowed on the ground that the assessee had valued the closing stock at cost price instead of sale price, which, according to him, was higher. We have heard the parties at length and gone through the records. Although the assessee, in the earlier years, has been valuing the closing stock inventory at sale price, nothing prevents him from changing this method to cost price or sale price whichever is lower which is the proper method in arriving at the value of closing stock. In this view of the matter, the Department is not justified in disallowing any part of the losses only on the ground that there is a loss due to the change of accounting in respect of closing stock.
6. In the result, the appeal of the assessee stands allowed.