2013 (7) TMI 622 - HC - Income Tax

Disallowance u/s 40(a)(ia) - TDS not deducted by assessee - ship management work - Tribunal deleted disallowance - Held that - Provision of Section 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head Income from Business and Profession in case the assessee does not deduct TDS on such expenses - The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible - TDS deducted from the salaries of the employees paid by M/s Mercator Lines Ltd., and the circumstances in which such salaries were paid by M/s Mercator Lines Ltd., for assessee, were sufficiently explained - For disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year - Decided against Revenue.

Summary

Issues:
Income tax appeal under Section 260 (A) of the Income Tax Act, 1961 arising from the judgment and order of the Income Tax Appellate Tribunal in ITA No.5219/Del/2012 for the assessment year 2009-10. The main question is whether the disallowance of expenses made by the Assessing Officer under section 40 (a) (ia) of the I.T. Act, 1961 is justified.

Analysis:
The department contended that the disallowance of Rs.1,17,68,621/- was made by the Assessing Officer under section 40 (a) (ia) as no tax was deducted at source under Chapter XVII (B). The CIT (A) reversed this finding, which was upheld by the Tribunal. The Tribunal noted that no amount remained payable at the year-end, and as per the Special Bench decision in the case of Merilyn Shipping and Transport Ltd., the addition could not be made under Section 40 (a) (ia). The provision was introduced to disallow expenses if TDS was not deducted, but in this case, TDS was deducted by M/s Mercator Lines Ltd. for the assessee.

The Tribunal remanded the matter to the Assessing Officer on other questions. The department argued that expenses were disallowable under Section 40 (a) (ia) as tax was not deducted at source. However, the CIT (A) found that TDS was deducted by M/s Mercator Lines Ltd. for the assessee, and the explanation for the payment of salaries was accepted. The CIT (A) held that the provisions of section 194C read with section 40 (a) (ia) were not applicable, and the expenses incurred were not disallowable under section 40 (a) (ia) as they were fully paid and not remaining payable at the end of the relevant accounting period.

The Court noted that the revenue could not benefit from the Special Bench decision as TDS was deducted from the salaries paid by M/s Mercator Lines Ltd. The Tribunal's finding was based on uncontested facts, and no error was found. The Court concluded that the question of law framed did not arise for consideration, and hence, the income tax appeal was dismissed.