2016 (7) TMI 1269 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Special Bench decision of the Tribunal in Merilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM on the issue though the appeal against the same is pending adjudication before the hon ble court - section 40(a)(ia) applicablilty only to the expenditure which is payable as on the balance sheet date or on the expenditure already during the year - Held that - In light of decision of Hon ble Andhra Pradesh High Court in case of Janapriya Engineers Syndicate (2015 (5) TMI 309 - ANDHRA PRADESH HIGH COURT ), it is thus clear that the decision of the Special Bench of the Tribunal in case of M/s Merilyn Shipping & Transport (supra) continues to bind the Coordinate Benches till the time the same is not overruled by the Hon ble High Court wherein held that the provisions of section 40(a)(ia) are applicable only to the expenditure which is payable as on the balance sheet date and cannot be applied on the expenditure already during the year Further, it is noted that the special Bench decision in case of M/s Merilyn Shipping & Transport (supra) has been approved and referred by the Allahabad High Court in case of Vector Shipping Services (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT . At the same time, there are decisions of Calcutta High Court in case of Crescent Exports Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT and Sikandarkhan N Tanvar 2013 (5) TMI 457 - GUJARAT HIGH COURT where the High Courts have disagreed with the view of the Special Bench in case of M/s Merilyn Shipping & Transport (supra). It is thus evident that the view of the Allahabad High Court and other two High Courts are in direct conflict with each other. The question that arises for consideration is where there is no decision of a jurisdictional High Court and there are conflicting views of the different High Court, which view should be followed. In this regard, we draw support from the judgement of Hon ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ) wherein laid down the principle that f two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. - Decided in favour of assessee

Summary

Issues Involved:
Appeal against disallowance u/s 40(a)(ia) of the IT Act, 1961.

Detailed Analysis:

1. Background of the Case:
The appellant, a company engaged in manufacturing, filed its income tax return for the assessment year 2009-10, declaring total income. The assessing officer disallowed a sum under section 40(a)(ia) of the IT Act for non-deduction of TDS. The appellant appealed against this decision.

2. Appellant's Arguments:
The appellant contended that the entire amount had been paid during the relevant year, relying on precedents like the Special Bench decision in the case of Merilyn Shipping and the Allahabad High Court decision in the case of Vector Shipping. The appellant argued that section 40(a)(ia) applies only to payable expenditure, not already paid during the year.

3. Judicial Precedents and Legal Developments:
The appellant cited various judgments supporting their position, including decisions by the Allahabad High Court, Tribunal cases, and the Andhra Pradesh High Court. These judgments emphasized the binding nature of the Special Bench decision until overruled by a higher court.

4. High Court Decisions and Conflict:
The High Courts of Allahabad, Calcutta, and Gujarat had differing views on the applicability of section 40(a)(ia), creating a conflict. In such situations, the principle favoring the assessee, as per the Supreme Court in CIT vs. Vegetable Products Ltd., should be adopted.

5. Final Decision:
Considering the legal precedents, conflicting High Court views, and the principle favoring the assessee, the ITAT Jaipur ruled in favor of the appellant. The disallowance under section 40(a)(ia) was deleted, and the appeal was allowed.

6. Conclusion:
The judgment highlighted the importance of following binding precedents, the significance of conflicting High Court views, and the principle of favoring the assessee in tax matters. The decision provided clarity on the interpretation of section 40(a)(ia) and its application to paid expenditures, ultimately resulting in the allowance of the appellant's appeal.