Section 40a(3)

"any expenditure for which payment is made"- it means any expenditure which requires payment..

take the case of depreciation.it is also a business expenditure but does not require payment .hence it is outside the scope of sec 40A(3).

hence the term expenditure shall not be construed bill wise.

Totally agree with Mr. Sumit.

It is held by various Courts that the disallowance would not attract where payments are made for different expenditure (different bills). Below is the gist of some of the decisions;

Provisions does not say that the aggreate of the amount should not exceed Rs. 2,500 (Now Rs.20,000). 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 Rs. 2,500 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.).

But Section 40A(3) was amended by Finance Act,, 2008. So, dont know if we can rely on these case laws now.

Are the years (1997 and 2006) mentioned in these case laws the years when the decisions were given? If yes, then i dont think these case laws will hold good now as the Act has been amended post these decisions.

those case laws have lost relevance after the amendment in 2008..the amendment was specifically done to curb the above mentioned transactions

I Stand corrected.. Agree with Mr. Shobhit and Ms. Pooja...

Mr. Sumit..

Thanks for your interpretation..

I totally agree with your view. If two different bills below Rs. 20000 are raised, these should be construed as two expenditure for the purpose of section 40A(3) and one invoice is equal to one expenditure.

Therefore if assessee makes payment of two different bills, this section will not be invoked..

CA Pooja, Thanks for your opinion..

But my opinion is different and it is backed by the interpretation given in the book of Mr. Vinod Singhania. If you disagree with this, please reply.