The following disallowances were made by the AO by invoking provisions of section 40(a)(ia) of the Act: –
1 Disallowance on account of transportation charges paid to M/s. Lalji Mulji – Rs. 1 ,59,386/-
2 Disallowance on account of export freight charges paid – Rs. 6, 17,830/ –
3 Disallowance on account of export freight paid to Indian agents of foreign shipping companies – Rs. 3,70,062/-
In the opinion of the AO as well as the CIT(A), non-deduction of tax at source attracts provisions of section 40(a)(ia) of the Act and accordingly added the amount paid by the assessee as income of the assessee for the year under consideration.
Learned counsel for the assessee submitted that the assessee having made the payment, section 40(a)(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. In this regard he relied upon the following decisions of the ITAT Chennai Benches wherein the Bench had taken into consideration the decision of the ITAT Special Bench in the case of Merilyn Shipping & Transports, the order of which was suspended by the High Court but at the same time there was a subsequent judgement of the Hon’ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd . wherein it was held that section 40(a)(ia) applies only to those amount which remains payable by the end of the previous year. In other words, in respect of payments already made section 40(a) (ia) is not attracted: –
