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2014 (12) TMI 1105 - AT - Income TaxDisallowance u/s 40(a)(ia) - outstanding balance as on 31st March Failure to TDS u/s 194H - Held that - As decided in DCIT vs. Shri Ananda Marakala 2014 (12) TMI 613 - ITAT BANGALORE wherein the applicability of section 40(a)(ia) has been discussed and held that the provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year without deduction of TDS Hon ble Allahabad High Court has however upheld the view taken by the Special Bench ITAT in the case of Merilyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) in the case of M/s. Vector Shipping Services Pvt. Ltd. (2013 (7) TMI 622 - ALLAHABAD HIGH COURT) Thus there are two views on the issue one in favour of the assessee expressed by the Hon ble Allahabad High Court and the other against the assessee expressed by the Hon ble Gujarat & Calcutta High Courts. - following the decision of the Hon ble Supreme Court in the case of Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court) we hold that where two views are possible on an issue the view in favour of the assessee has to be preferred. - Decided in favour of assessee.
Issues:
1. Disallowance of expenses under section 40(a)(ia) of the Income Tax Act due to failure to deduct TDS u/s 194H. Detailed Analysis: The appellant, an individual engaged in manufacturing and trading bakery products, appealed against the CIT (A)'s order upholding the disallowance of Rs. 21,62,784 for assessment year 2006-07 under section 40(a)(ia) of the Income Tax Act. The disallowance was based on the Assessing Officer's finding that the appellant failed to deduct TDS u/s 194H on a payment made to Deccan Aviation Ltd for services provided by cabin attendants in Air Deccan Aircraft. The appellant contended that the payment was not a commission but a license fee, and relied on precedents to support the argument that disallowance should not apply when the payment has been made, rather than being payable only. The appellant's counsel argued that since the payment had already been made, disallowance under section 40(a)(ia) should not apply. Citing a Special Bench decision, it was emphasized that disallowance should only occur when the amounts are payable, not when they have been paid. The counsel also highlighted a case where the payee had already paid taxes on the amount, relieving the appellant from further liability. The appellant disputed the nature of the payment, asserting it was a license fee, not a commission, and questioned the applicability of TDS deduction u/s 194H. The Tribunal considered conflicting decisions on the interpretation of section 40(a)(ia), particularly regarding whether "payable" includes amounts paid during the year. Various High Courts had differing views on the matter, with some holding that disallowance applies only to amounts outstanding as of 31st March. Ultimately, the Tribunal relied on the principle that when two views are possible, the one favoring the assessee should be preferred. In this case, following the decision of the Allahabad High Court, the Tribunal upheld the appellant's claim, setting aside the issue for the Assessing Officer to verify whether the payments had been made to Air Deccan. In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to reexamine the issue in light of the Tribunal's findings unless overturned by higher courts. The order emphasized the need for verification of payments made by the appellant and clarified that the decision did not prejudice either party's position.
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