2015 (12) TMI 1520 - AT - Income Tax

Disallowance vls 40(a)(ia) - amount payable or paid by the end of the year - Held that - Supreme Court in Vector Shipping Services (P) Ltd. 2015 (12) TMI 1131 - SUPREME COURT OF INDIA has approved the special bench judgment in the case of Merilyn Shipping and Transport Ltd. 2012 (4) TMI 290 - ITAT VISAKHAPATNAM in which it was held that disallowance u/s. 40(a)(ia) applies only to amounts payable as of 31st March and not to amounts already paid during the year. Since the said matter has now reached finality, it is held that the disallowance made by the AO u/s 40(a)(ia) would apply only to amounts which are payable as on 31st of March 2006.

Summary

Issues involved:
1. Interpretation of section 40(a)(ia) of the Income Tax Act.
2. Application of judicial decisions on the disallowance of expenses.
3. Consideration of circulars issued by the CBDT.
4. Adherence to decisions of higher authorities in similar cases.

Detailed Analysis:
1. The primary issue in this case was the interpretation of section 40(a)(ia) of the Income Tax Act, specifically regarding the timing of when expenses are considered "payable" for the purpose of tax deduction at source. The Revenue Department contested the decision of the CIT(A) based on a non-speaking order of the Supreme Court, arguing that the doctrine of merger did not apply to cases where reasons for dismissing a special leave petition were not provided. Additionally, the Revenue Department challenged the CIT(A)'s interpretation that section 40(a)(ia) only covers amounts payable as of 31st March, excluding payments already made during the accounting year.

2. The Tribunal considered various judicial decisions, including the case of Merilyn Shipping and Transport Ltd., to determine the correct application of section 40(a)(ia). The Tribunal noted that the Allahabad High Court had ruled in favor of the Revenue Department in a similar case, emphasizing that expenses disallowed under section 40(a)(ia) should be amounts payable, not amounts already paid by the end of the year. The Tribunal also referenced circulars issued by the CBDT that nullified certain case laws relied upon by the CIT(A).

3. The Tribunal analyzed the arguments presented by both sides and concluded that the issue was now covered by multiple decisions, such as Merilyn Shipping and Transports and Victor Shipping Services (P) Ltd. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of following decisions of superior authorities when the issue is identical. The Tribunal found no merit in the grounds raised by the Revenue Department and rejected the appeal accordingly.

4. Finally, the Tribunal dismissed the cross objection raised by the respondent-assessee, as no specific grievance was raised that required adjudication. The Tribunal ultimately dismissed both the appeal of the Revenue Department and the cross objection of the assessee. The judgment was pronounced in open court on December 31, 2015, bringing the legal proceedings to a close.