2015 (5) TMI 575 - AT - Income Tax

Disallowance u/s 40(a)(ia) - since no additional taxes on the disallowance in question were paid by the assessee in the preceding assessment year, the assessee cannot be allowed to reduce its tax burden by claiming deduction of the said amount against taxable income of the current year by utilizing the proviso to section 40(a)(ia) as per revenue - Held that - Ostensibly, the present claim of the assessee in the current assessment year is for deduction of ₹ 70,35,997/- in terms of the proviso to section 40(a)(ia) of the Act. There is no claim under any of the provisions covered in section 80A(4) of the Act. Therefore, invoking section 80A(4) of the Act in the present case to deny assessee s claim is anyway not justified. So however, even if for a moment, we accept the invoking section 80A(4) of the Act by the Revenue yet it would cover a situation if multiple deductions are claimed for same profits in the same assessment year. Ostensibly, that is not the case in the present situation because there is no multiple deductions claimed by the assessee qua the impugned amount in the assessment year under consideration i.e. 2010-11. Therefore, we find that there is no relevance of section 80A(4) of the Act in order to test the efficacy of the claim for deduction of ₹ 70,35,997/- made by the assessee on the strength of the proviso to section 40(a)(ia) of the Act. Thus, this stand of the Revenue is liable to be rejected. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction for freight charges amounting to Rs. 70,35,997/-.
2. Application of section 40(a)(ia) of the Income-tax Act, 1961.
3. Interpretation and application of section 80A(4) of the Income-tax Act, 1961.
4. Alleged double benefit to the assessee due to deduction under section 10B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Deduction for Freight Charges Amounting to Rs. 70,35,997/-:
The appellant, a company involved in the manufacture and export of hulled sesame seeds and dealing in spices, claimed a deduction of Rs. 70,35,997/- for freight charges incurred in the preceding assessment year 2009-10. The tax deduction at source (TDS) for this amount was deducted in the previous year but paid in the assessment year 2010-11. The assessee contended that under the proviso to section 40(a)(ia) of the Act, the expenditure should be allowed as a deduction in the year the tax was paid. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the deduction, leading to the present appeal.

2. Application of Section 40(a)(ia) of the Income-tax Act, 1961:
Section 40(a)(ia) of the Act disallows certain expenditures if TDS is not deducted or paid within the prescribed time. The proviso to this section allows the deduction in the year the TDS is actually paid. The assessee argued that since the TDS was paid in the assessment year 2010-11, the corresponding expenditure should be allowed as a deduction. The AO did not dispute the factual matrix but denied the deduction on the grounds that the entire income, including the add-back of Rs. 70,35,997/-, was allowed as a deduction under section 10B in the preceding year, thus reducing the tax burden to NIL.

3. Interpretation and Application of Section 80A(4) of the Income-tax Act, 1961:
The Revenue invoked section 80A(4) to deny the deduction, arguing that it prevents multiple deductions for the same profits. Section 80A(4) states that if any amount of profits and gains is claimed and allowed as a deduction under sections 10A, 10AA, 10B, 10BA, or any provisions of Chapter VI-A, no other deduction shall be allowed for the same amount in the same assessment year. The CIT(A) upheld this interpretation, asserting that the deduction under section 10B in the preceding year precluded any further deduction for the same amount in the current year.

4. Alleged Double Benefit to the Assessee Due to Deduction Under Section 10B:
The Revenue contended that allowing the deduction in the current year would result in a double benefit to the assessee, as the amount was already exempt under section 10B in the preceding year. The assessee countered that the legislative intent did not prohibit such a claim and that the claim was within the purview of section 40(a)(ia).

Judgment Analysis:
The Tribunal examined the explicit provisions of section 40(a)(ia) and found no fault with the assessee's claim. The Tribunal noted that section 80A(4) prevents multiple deductions for the same profits in the same assessment year, which was not the case here, as the deduction was claimed in different years. The Tribunal also referred to the Hon'ble Bombay High Court's decision in Elphinstone Spinning And Weaving Mills Co. Ltd. vs. CIT, emphasizing that clear statutory language must be applied even if it results in an illogical or absurd outcome.

Conclusion:
The Tribunal upheld the assessee's plea for deduction under section 40(a)(ia) of Rs. 70,35,997/-, set aside the order of the CIT(A), and directed the AO to delete the impugned addition. The appeal of the assessee was allowed.

Order Pronounced on 10th April, 2015.