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Issues involved: Disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 for failure to deduct tax at source on service charges paid to KEM Hospital.
Summary: The appeal was against the order of the Commissioner of Income-tax (Appeals)-III Pune, arising from the Assessing Officer's order u/s 143(3) of the Income-tax Act, 1961 for the assessment year 2007-08. The dispute centered around the disallowance of &8377; 46,92,094/- under section 40(a)(ia) of the Act due to the assessee's failure to deduct tax at source on service charges paid to KEM Hospital. The assessee, a partnership firm running a Diagnostic Centre in KEM Hospital, contended that the payment made was akin to 'rent' under sec. 194-I and not subject to TDS. However, both the Assessing Officer and CIT(A) deemed it as 'fees for professional services' u/s 194-J, necessitating TDS. The CIT(A) upheld the disallowance u/s 40(a)(ia), leading to the appeal. During the appeal, the assessee argued that since the entire amount was paid by the due date and no outstanding amount existed, sec. 40(a)(ia) should not apply. Citing the Vishakhapatnam Tribunal's decision in Merilyn Shipping & Transports, the assessee sought deletion of the addition. The Tribunal noted that sec. 40(a)(ia) disallows deductions when TDS is not deducted or paid within the prescribed period. As the amount in question was fully paid by the due date, the Tribunal ruled in favor of the assessee, following the Vishakhapatnam Tribunal's decision. Consequently, the order of the CIT(A) was set aside, directing the Assessing Officer to delete the disallowance. In conclusion, the appeal of the assessee was allowed, and the decision was pronounced on 20th November 2012.
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