2016 (8) TMI 1301 - AT - Income Tax

Disallowance of the expenditure u/s 40(a)(ia) - payment already made by the end of the relevant financial year - Held that - In view of the documents filed by the assessee before us to demonstrate that the payees have offered the said income to tax in their hands, we deem it fit and proper to set aside the orders of the authorities below and remand the issue to the file of the AO for reconsideration and verification of the details filed by the assessee. If the AO finds that the recipients have offered the said income to tax in the relevant A.Y, then no disallowance shall be made in the case of the assessee. Further, the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transport (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ), which has been affirmed by the Hon ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd 2013 (7) TMI 622 - ALLAHABAD HIGH COURT and also the order of the Hon ble Apex Court dismissing the Revenue s appeal against the same, we also hold that if the payments are already made by the end of the relevant financial year, no disallowance shall be made.

Summary

Issues:
- Disallowance of expenditure under section 40(a)(ia) of the Income Tax Act for Assessment Year 2009-10.

Analysis:
1. Background: The assessee, a newspaper publication company, filed its return for A.Y 2009-10, declaring total income. During assessment, it was observed that TDS was not deducted from certain payments, leading to disallowance of expenditure under section 40(a)(ia) by the Assessing Officer (AO).

2. Contentions: The assessee argued that all disallowed expenditures were made by the end of the financial year, with no amount remaining as 'payable.' Citing the Special Bench's decision in Merilyn Shipping & Transport vs. Add. CIT, the assessee claimed that the proviso to section 40(a)(ia) applied, as recipients had offered income for taxation in their returns for the relevant A.Ys. The Departmental Representative (DR) supported the lower authorities' orders.

3. Tribunal's Decision: The Tribunal noted that the documents submitted by the assessee were not discussed in the AO and CIT (A) orders. Referring to the Special Bench's ruling and the second proviso to section 40(a)(ia), the Tribunal held that if payees had offered income for taxation and met specified conditions, no disallowance should be made. It also cited a Bangalore Tribunal decision for the retrospective application of the proviso. Consequently, the Tribunal set aside the lower authorities' orders and remanded the issue to the AO for verification based on the assessee's submissions.

4. Legal Precedents: The Tribunal relied on the decisions of the Special Bench, the Allahabad High Court in Vector Shipping Services (P) Ltd, and the Supreme Court's dismissal of the Revenue's appeal, emphasizing that no disallowance should occur if payments were made by the end of the financial year.

5. Conclusion: The Tribunal allowed the assessee's appeal for statistical purposes, directing the AO to reconsider the issue based on the verification of details provided by the assessee. The judgment was pronounced on August 26, 2016.