2015 (1) TMI 1208 - AT - Income Tax

Disallowance under S.40(a)(ia) - Held that - We respectfully follow the decision of Special Bench in the case of Merylin Shipping and Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) and hold that the provisions of S.40(a)(ia) cannot be invoked where the payments were already made by the assessee. We direct the Assessing Officer accordingly. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of S.40(a)(ia) of the Income Tax Act, 1961 regarding disallowance of payments.
2. Binding nature of Special Bench decisions and the impact of High Court stays on such decisions.
3. Jurisdiction of High Courts in clarifying legal precedents and remanding issues to lower tribunals.

Analysis:
1. The Appellate Tribunal in Hyderabad addressed the issue of additions made under S.40(a)(ia) of the Income Tax Act, 1961. The Tribunal set aside the order of the CIT(A) based on a Special Bench decision that had been stayed by the High Court. The matter was remanded to the Assessing Officer for reconsideration in light of the potential High Court decision. The Tribunal emphasized the importance of following legal precedents until they are overturned by higher courts.

2. The Revenue appealed to the High Court, arguing that the Tribunal's order could not be implemented until the High Court's decision was known. The High Court clarified that Special Bench decisions are binding on other benches unless overturned by the High Court or Supreme Court. The High Court emphasized that the Tribunal must follow the Special Bench decision unless a different view is taken by the High Court or Supreme Court, and remanding based on pending High Court decisions is not permissible.

3. The matter was remanded to the Tribunal for fresh adjudication in accordance with the High Court's directions. The Tribunal, after considering relevant decisions, including those from other benches, upheld the Special Bench decision regarding S.40(a)(ia). The Tribunal held that the provision cannot be invoked if payments were already made by the assessee. The Tribunal dismissed the Revenue's appeals on this issue, following the Special Bench decision and the clarificatory order of the High Court.

In conclusion, the judgment highlights the significance of legal precedents, the binding nature of Special Bench decisions, and the importance of following established legal principles until they are overturned by higher authorities. The Tribunal's decision to uphold the Special Bench ruling emphasizes consistency in legal interpretation and application.