2012 (4) TMI 690 - AT - Income Tax

Provisions of sec.40(a)(ia) - all payments made during the course of the year or it would apply only to the expenditure which remain payable as at the end of relevant year - Held that - Accordingly, by following the decision rendered by the Special bench referred Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) we hold that the provisions of sec.40(a)(ia) would apply only to the expenditure which remain payable as at the end of the relevant financial year. In the instant case, the entire expenditure has been paid during the course of the previous year and no amount remains payable as at the year end. Accordingly, we set aside the order of CIT(A) on this issue and direct the Assessing Officer to delete both the additions referred.

Summary

Issues:
- Appeal against order confirming addition under section 40(a)(ia) for non-deduction of tax at source from Transport charges and Commission.

Analysis:
The appeal before the Appellate Tribunal ITAT Visakhapatnam pertained to the assessment year 2006-07 and challenged the decision of the Learned CIT(A) regarding the addition made under section 40(a)(ia) of the Act for non-deduction of tax at source from Transport charges and Commission. The assessee contended that the amounts in question were fully paid during the year, and nothing remained payable at the end of the financial year. The assessee relied on a previous decision of the Visakhapatnam Special bench of Tribunal related to the assessment year 2005-06 to argue that the provisions of sec.40(a)(ia) cannot be applied to disallow amounts already paid without tax deduction at source.

The Learned D.R, on the other hand, argued that sec. 40(a)(ia) of the Act should be applicable to all payments covered by sec. 194C, irrespective of whether they were already paid or remained payable by the end of the financial year. The D.R cited relevant case laws to support this argument. The Tribunal considered the conflicting contentions and referred to the decision of the Visakhapatnam Special Bench in the case of Merilyn Shipping & Transports. The Special bench held that sec.40(a)(ia) would only apply to expenditure payable as of 31st March of each year and not to amounts already paid during the previous year without tax deduction at source.

The Tribunal, following the Special bench decision, concluded that sec.40(a)(ia) would apply only to expenditure remaining payable at the end of the financial year. Since the entire expenditure in question had been paid during the previous year and no amount remained payable at the year-end, the Tribunal directed the Assessing Officer to delete both the additions made by the Learned CIT(A) under sec.40(a)(ia). Consequently, the appeal of the assessee was allowed, and the order of the Learned CIT(A) was set aside on this issue.

In summary, the Tribunal's decision clarified the application of sec.40(a)(ia) in cases where payments were made without tax deduction at source, emphasizing that the provision applies to expenditure remaining payable at the end of the financial year. The judgment highlighted the importance of distinguishing between payments already made and those still outstanding to determine the applicability of tax deduction requirements under the Income Tax Act.