2012 (8) TMI 1102 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of tax on a payment of rent made to one Sh. Irfan Ahged Narwaroo - Held that - Section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the year previous year without deducting tax at source. AO is not justified in disallowing the expenditure. Accordingly, the order of the Ld. CIT(A) is reversed. Thus, all the grounds of the assessee are allowed.

Summary

Issues Involved:
Disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax on lease rent payment.

Analysis:
The appeal arose from the order of the CIT(A) for the assessment year 2008-09, where the assessee contested the addition made by the Assessing Officer under section 40(a)(ia) of the Act for not deducting tax on a lease rent payment. The CIT(A) upheld the AO's decision.

The assessee contended that section 40(a)(ia) is applicable only to expenditure payable as of 31st March each year and should not apply to amounts already paid during the previous year without tax deduction. The assessee relied on a decision by the Special Bench of ITAT Visakhapatnam in a similar case.

The counsel for the assessee referenced the decision of the Special Bench of ITAT Visakhapatnam in the case of M/s. Merilyn Shipping & Transports, where it was held that section 40(a)(ia) applies only to expenditure payable as of 31st March each year and not to amounts already paid during the previous year without tax deduction. The Tribunal noted that the CIT(A) had made the disallowance without the benefit of this decision, which was pronounced after the CIT(A)'s order.

Considering the decision of the Special Bench, the Tribunal concluded that the disallowance was not justified in the present case as it involved a payment already made without tax deduction. Therefore, the Tribunal reversed the CIT(A)'s order and allowed all grounds of the assessee.

In the final pronouncement, the Tribunal allowed the appeal of the assessee, emphasizing that the disallowance under section 40(a)(ia) was not warranted in this case based on the principles established by the Special Bench decision.

This detailed analysis of the judgment highlights the key arguments, legal interpretations, and the ultimate decision reached by the Appellate Tribunal ITAT Amritsar in the case involving the disallowance under section 40(a)(ia) of the Income-tax Act, 1961.