2016 (3) TMI 906 - AT - Income Tax

Disallowance made under section 40(a)(ia) - non-deduction of tax on the rent and advertisement charges paid by the assessee - Held that - This Bench is consistently holding that in case of disallowance under section 40(a)(ia) for non-deduction of tax at source the amounts outstanding as on 31st March of the accounting year only have to be disallowed and not the amounts which were already paid during the year, in view of the decision of Special Bench of the Tribunal in the case of Merliyn Shipping & Transports Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM).Respectfully following the said decision, we restore this issue for limited purpose of verification to the Assessing Officer as to whether the amounts were paid during the year or outstanding as on 31st March of the accounting year. The Assessing Officer is directed to verify and disallow only the outstanding amounts as on 31st March of the accounting year. Disallowance under section 10B of the Act - delay in filing return - Held that - As in this case assessee filed return of income on 15.10.2010 which is beyond the due date for filing return of income i.e. 30.09.2009 under section 139(1) of the Act for the assessment year 2009-10. Thus, respectfully following the Special Bench decision in the case of M/s. Saffire Garments Saffire Garments wherein held wherein it is held that proviso to section 10A(1A) and section 10B is mandatory and not merely directory, we reject the grounds of the assessee and sustain the order of the Commissioner of Income Tax (Appeals) in rejecting the claim for deduction under section 10B of the Act. - Decided against assessee

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act for non-deduction of tax on rent and advertisement charges.
2. Disallowance of deduction under section 10B of the Income Tax Act due to the belated filing of the return of income.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax:

The assessee challenged the order of the Commissioner of Income Tax (Appeals) in sustaining the disallowance made under section 40(a)(ia) for non-deduction of tax on rent and advertisement charges. The assessee argued that the disallowance should only apply to payments outstanding as of 31st March, the end of the accounting year, and not to payments already made during the year. This argument was supported by the decision of the co-ordinate Bench of the Tribunal in the case of N. Palanivelu Vs. ITO (40 ITR (Trib) 325 [Chennai]).

The Departmental Representative contended that no details were provided regarding whether the payments were made during the year or were outstanding at the end of the accounting year. Hence, the matter should be sent back to the Assessing Officer for verification.

The Tribunal noted that it has consistently held that disallowance under section 40(a)(ia) should only apply to amounts outstanding as of 31st March, referencing the decision of the Special Bench of the Tribunal in Merliyn Shipping & Transports Vs. ACIT (136 ITD 23). Consequently, the Tribunal restored the issue to the Assessing Officer for verification of whether the amounts were paid during the year or were outstanding as of 31st March, directing the Assessing Officer to disallow only the outstanding amounts.

2. Disallowance of Deduction under Section 10B for Belated Filing of Return:

The assessee also contested the disallowance of the deduction claimed under section 10B on the grounds of filing the return of income belatedly. The counsel for the assessee requested that the matter be restored to the Assessing Officer, indicating that the assessee was contemplating seeking permission from the Board for condonation of delay in filing the return.

The Tribunal rejected this argument, noting that there was no record suggesting that the assessee was approaching the Board for condonation of delay. The Departmental Representative relied on the Rajkot Special Bench decision in the case of M/s. Saffire Garments Vs. ITO (140 ITD 6), which had decided a similar issue in favor of the Revenue.

The Tribunal considered whether the assessee was entitled to deduction under section 10B despite filing the return of income belatedly. The Special Bench in the case of M/s. Saffire Garments had held that the proviso to section 10A(1A) is mandatory and not merely directory, and this decision was found applicable to the proviso to section 10B. The Tribunal cited the Special Bench's detailed analysis, which concluded that the filing of the return within the due date specified under section 139(1) is mandatory for claiming deductions under section 10A and 10B.

The Tribunal noted that the assessee had filed the return of income on 15.10.2010, beyond the due date of 30.09.2009 for the assessment year 2009-10. Therefore, following the Special Bench decision, the Tribunal rejected the grounds of the assessee and sustained the order of the Commissioner of Income Tax (Appeals) in rejecting the claim for deduction under section 10B.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with the issue under section 40(a)(ia) remitted back to the Assessing Officer for verification, while the disallowance under section 10B was sustained due to the belated filing of the return. The order was pronounced in the open court on 31.12.2015.

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