Case Law Details
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: –
- ACIT vs. M/s. Eskay Designs – ITA No. 1951/Mds/2012 date 09.12.2013.
- ITO vs. Theekathir Press – ITA No. 2076/Mds/2012 & CO No. 155/Mds/2013 dated 18.09.2013.
The learned counsel for the assessee also submitted that though there are contrary decisions of the other Hon’ble High Courts, i.e. Hon’ble Calcutta High Court and Hon’ble Gujarat High Court, in the light of the decision of the Hon’ble Allabahad High Court it can be said the there can be two views possible in this matter in which event the one which is in favour of the assessee has to be followed in the light of the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. 88 ITR 192. Accordingly the Chennai Bench held that section 40(a)(ia) is not attracted in respect of the amount already paid by the assessee.
The learned D.R., on the other hand, could not place before us any contrary judgement on this issue. Though the learned D.R. promised to file written submissions within one day, it was not filed. In other words, there is no contrary decision on this issue.
Having regard to the circumstances of the case, without going into the other aspects, which were in fact not argued either by the assessee or by the Revenue, we hold that section 40(a)(ia) is not attracted in respect of payment already made by the end of the previous year.
As SLP on the case of vector shipping by the Revenue was dismissed by the Apex court, it is a settled law that the expenses paid during the previous year does not attract disallowance under section 40(a)( ia).