2016 (4) TMI 1419 - AT - Income Tax

Addition u/s 40(a)(ia) - Whether provision of section 40(a)(ia) would apply on both paid and payable ? - CIT-A restricting addition relying on the judgment of Merlyn Shipping Agency Pvt. Ltd. 2012 (3) TMI 402 - ITAT VISAKHAPATNAM wherein, it is held disallowance under section 40(a)(ia) can be made on payable amount - HELD THAT - We find that the CIT(A) has given part relief following the ratio laid down by the Special Bench decision in the case of Merlyn Shipping Transport Private Limited (supra). The contrary view has been taken by the Hon ble Calcutta High Court in the case of Crescent Exports 2013 (5) TMI 510 - CALCUTTA HIGH COURT disapproving the decision of the Special Bench and held that, provision of section 40(a)(ia) would apply on both paid and payable . The decision of Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT is not a ratio approving the decision of Special Bench and this has been elaborately dealt by the Tribunal in the case of M/s Pratibhuti Viniyog Ltd. 2014 (11) TMI 8 - ITAT MUMBAI . Now, Hon ble P H High court also in the case of PMS Diesel 2015 (5) TMI 617 - PUNJAB HARYANA HIGH COURT have reinforced the aforesaid view taken by the Tribunal by concurring with the decision of Hon ble Calcutta High Court and explaining the decision of the Hon ble Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT and specifically held that the decision of Special Bench in the case of M/s. Merilyn Shipping Transports is not a correct decision. Accordingly, the order of the CIT(A) is reversed. TDS u/s 194C - As payment made by the assessee towards freight was within the statutory limits of attracting TDS provision and in support, assessee has disclosed and filed the details of payments, party-wise and month-wise payments; secondly, the assessee has also filed the copy of vehicle registration certificate, PAN card of the parties to substantiate the contention raised before the AO, who has held that, no details were filed - the assessee has also filed Form 15-I and 15-J to show that, the income of the transporters were below taxable limits. CIT(A) without any proper reason and analysis has dismissed the assessee s contention. In the interest of justice, we are of the opinion that, the issue of disallowance under section 40(a)(ia) should be examined afresh on merits and after examining the details furnished by the assessee with regard to the claim that the individual payment did not exceed ₹ 50,000/- to a single party during the year and also the Form 15-I and 15-J submitted in support of various transporters to whom the assessee has paid freight charges. Accordingly, the matter is remanded back to the file of the AO who shall examine the issue on merits

Summary

Issues Involved:
1. Restriction of disallowance under section 40(a)(ia) of the IT Act.
2. Non-appearance of the respondent.
3. Failure to deduct TDS under section 194C(2).
4. Submission of Form 15-I and 15-J.
5. Interpretation of "payable" vs. "paid" under section 40(a)(ia).

Detailed Analysis:

1. Restriction of Disallowance under Section 40(a)(ia):
The primary issue in this appeal was whether the CIT(A) erred in restricting the disallowance from ?3,39,60,169/- to ?36,18,386/- under section 40(a)(ia) of the IT Act. The AO had initially disallowed the entire amount due to the assessee's failure to deduct TDS on freight charges paid. The CIT(A) partially allowed the assessee's appeal, restricting the disallowance based on the amount payable as of 31.03.2009, in line with the Special Bench decision in Merlyn Shipping Transport Private Limited vs. ACIT.

2. Non-Appearance of the Respondent:
Despite the service of notice, the respondent did not appear for the hearing. Consequently, the appeal was disposed of after hearing the learned Departmental Representative (DR) and considering the facts discussed by the authorities below.

3. Failure to Deduct TDS under Section 194C(2):
The assessee, acting as a commission agent in the transport business, paid freight charges without deducting TDS as required under section 194C(2). The AO noted that the assessee failed to provide the necessary details and documentation to justify the non-deduction of TDS, leading to the disallowance of ?3,39,60,169/-.

4. Submission of Form 15-I and 15-J:
The assessee contended that they had submitted lists of vehicle numbers, amounts paid, and copies of Form 15-I, which exempts certain payments from TDS. However, the AO found these submissions inadequate and inconsistent, leading to the disallowance. The CIT(A) noted discrepancies in the audit report and the figures provided by the assessee, ultimately accepting the alternative plea based on the payable amount as of 31.03.2009.

5. Interpretation of "Payable" vs. "Paid" under Section 40(a)(ia):
The CIT(A) relied on the Special Bench decision in Merlyn Shipping, which held that disallowance under section 40(a)(ia) applies only to amounts "payable" and not "paid." However, the learned DR argued that subsequent High Court decisions, including those from Calcutta and Gujarat, have held that section 40(a)(ia) applies to both "paid" and "payable" amounts. The Tribunal found merit in the DR's argument, noting that the Calcutta and Gujarat High Courts' decisions constitute binding precedents, thereby disapproving the Special Bench's interpretation.

Conclusion:
The Tribunal concluded that the CIT(A) erred in restricting the disallowance based on the Special Bench decision in Merlyn Shipping. The Tribunal reversed the CIT(A)'s order, holding that section 40(a)(ia) applies to both "paid" and "payable" amounts. However, on merits, the Tribunal found that the assessee had raised valid contentions regarding individual payments and submission of Form 15-I and 15-J, which the CIT(A) had dismissed without proper analysis. Therefore, the Tribunal remanded the matter back to the AO for a fresh examination of the disallowance under section 40(a)(ia), directing the AO to consider the details and submissions provided by the assessee and decide the issue in accordance with the law.

Order Pronounced:
The order was pronounced in the open court on 7th April 2016.