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2012 (12) TMI 527 - AT - Income TaxDisallowance of expenses on which assessee failed to deduct on TDS - When the provision of Section 40(a)ia)is attracted on the expenses which are paid or payable without deducting TDS as on balance sheet date - Held that - Provisions of section 40(a)(ia), provided in non-deduction of amount which remains payable to a resident in respect of fees for technical services, commission etc.; that it is not applicable where expenditure is paid as decided by Special Bench of the ITAT in Merilyn Shipping & Transport (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). The expression implied in section 40(a)(ia) of the Act, is payable and not paid . In the present case, the commission involved undisputedly stands paid. Therefore expression payable has been used which suggests that disallowance would be made of those expenses which are payable on 31st of March of every Year. Hence disallowance in the case of the assessee is not sustainable. Appeal decided in favour of assessee.
Issues: Disallowance of courier charges and convention charges under sec. 40(a)(ia) for non-deduction of TDS.
Analysis: 1. The appellant contested the disallowance of Rs.6,52,955 and Rs.4,05,200 for courier and convention charges due to non-deduction of TDS under sec. 40(a)(ia) for the assessment year 2006-07. The appellant argued that the issue was favorably decided in the case of M/s. SRS Real Estates Ltd. vs. Addl. CIT and Merilyn Shipping & Transport Vs. ACIT by ITAT, Delhi Benches. The appellant relied on the interpretation that "payable" in sec. 40(a)(ia) implies expenses due on 31st March and not already paid. The respondent, however, supported the decision of the Learned CIT(Appeals) by highlighting potential absurdities if the appellant's interpretation was accepted. 2. The ITAT, Delhi Bench in the case of SRS Real Estates emphasized that sec. 40(a)(ia) does not apply to expenses already paid, only to those outstanding. Citing Jaipur Vidyut Vitran Nigam Ltd., it was clarified that "payable" does not encompass "paid," and strict construction of the provision is required. The judgment was followed in subsequent cases like K. Srinivas Naidu. The ITAT found the CIT(A) erred in not following the precedent of Jaipur Vidyut Vitran Nigam Ltd. and held that sec. 40(a)(ia) pertains to payable amounts, not paid ones. As the commission in question was already paid, the disallowance was unjustified, leading to the cancellation of the CIT(A)'s order. 3. Subsequently, the Special Bench of the ITAT in the case of Marlin Shipping upheld the view that sec. 40(a)(ia) does not apply to expenses already paid before 31st March. Considering both the Special Bench and Co-ordinate Bench decisions, the ITAT concluded that the disallowance in the appellant's case was unsustainable as the payments were made before the specified date, rendering sec. 40(a)(ia) inapplicable. 4. Consequently, the appeal by the assessee was allowed, and the disallowance of the commission paid was revoked based on the interpretation that sec. 40(a)(ia) does not cover expenses already paid before the due date. The judgments of the ITAT, Delhi Benches and the Special Bench supported this interpretation, leading to the cancellation of the CIT(A)'s order.
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