Aditya Singhania, Nischal Agarwal

The issue in dispute is that whether disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 applies only to amount ‘payable’ on the year end or whether amount ‘paid’ during the year is also covered within its ambit. In this regard, Hon’ble Allahabad High Court in case of CIT vs. M/s Vector Shipping Services (P) Ltd., (2013) 262 CTR (All) 545 held that for attracting disallowance under the said section, the amount should be payable and not which has been paid by the end of the year. The revenue preferred a SLP against the said judgement which was subsequently dismissed in limine by Hon’ble Apex Court. The industry interpreted the said dismissal to be a law laid down by Hon’ble Apex Court.

Recently, in case of P.M.S. Diesels vs. CIT [ITA No.716 of 2009] Hon’ble P&H High Court had an opportunity to deal with the issue. In the instant case, the appellant pleaded before the Hon’ble Court that disallowance under Section 40(a)(ia) of the Act shall be applicable only on expenses which are payable at the end of the year. In this connection, Hon’ble Court placed reliance in case of V.M. Salgaocar & Bros. (P) Ltd. vs. CIT (2000) 243 ITR 383 (SC) and in Supreme Court Employees Welfare Association vs. Union of India (1989) 4 SCC 187, wherein the position of law has been settled that when an SLP is summarily dismissed under Article 136 of the Constitution, the Court does not lay down any law and that the dismissal of an SLP in limine by a non-speaking order does not justify any inference that the contentions raised on the merits of the case have been rejected and that all that the Supreme Court can be held in such a case to have decided is that it was not a fit case where special leave should be granted. When a special leave petition is dismissed, the Supreme Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. In such a case, what the Court means is that it does not consider it to be a fit case for exercise of its jurisdiction under Article 136 of the Constitution. Accordingly, when an SLP is dismissed in limine without giving any reasons, it cannot be said that there has been a declaration of the law by the Supreme Court. In view of the afore-said, the appeal was answered in favour of the revenue.

Author Comments: Reference can be placed on our article published in taxguru on 4th September 2014 wherein we have explained that the dismissal of SLP by Hon’ble Supreme Court cannot be inferred as approval of decision in case of Vector Shipping (Supra). The link of the said article has been reproduced here-in-below for ease of reference:

https://taxguru.in/income-tax/section-40aia-applies-expenses-payable-year-expenses-paid-year.html

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