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Issue – Disallowance of Rs 52,07,883, in respect of leather testing charges paid to TUV Product Und Umwelt GmbH – a tax resident of Germany, under section 40(a)(i) of the Act, on the ground that the assessee failed to discharge his tax withholding obligations in respect of the same.
The provisions of section 40(a)(ia) as stood prior to the amendments made by the Finance Act 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assessees who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns u/s 139(1).
We find that the judgment of the Hon’ble Allahabad High Court is in favour of the assessee. At the same time, we find that the orders of the Calcutta High Court and the Gujarat High Court are against the assessee.
Honorable Allahabad High Court approves the special bench judgment in the case of Merilyn Shipping and Transport Ltd. and held that disallowance u/s. 40(a)(ia) applies only to amounts ‘payable’ as of 31st March and not to amounts already ‘paid’ during the year.
There is no contract between the assessee and the transporter and the section 194C is applicable to work contract. The learned CIT(A) has found that in the instant case the clearing and forwarding contractor appoints for transportation of goods
The learned Tribunal was of the view that Section 40(a)(ia) of the I.T. Act is applicable only to expenditure payable as on 31st March of every year and cannot be invoked to disallow the amount which had already been paid during the previous year, without deducting tax at sources.
The Mumbai Bench found that short deduction of TDS, if any, could have been considered as liability under the Income-tax Act as due from the assessee. Therefore, the disallowance of the entire expenditure, whose genuineness was not doubted by the assessing officer is not justified. A similar view was also taken by the Kokatta Bench of this Tribunal in the case of CIT vs M/s S.K. Tekriwal (supra).
In the result, we are of the opinion that Section 40(a) (ia) would cover not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision exist.
In the present case, admittedly, assessee made a claim but the same was rejected and disallowed not for the reason that the claim was not genuine or was fabricated but in view of provisions of law that assessee did not deduct TDS thereon.
All Tax Appeals are allowed. Decisions of the Tribunal under challenge are reversed. In the earlier portion of the judgment, we had recorded that the Tribunal in all cases had proceeded only on this short basis without addressing other issues. We, therefore, place all these matters back before the Tribunal for fresh consideration of other issues, if any, regarding disallowance under Section 40(a)(ia) of the Act. All appeals are disposed of accordingly.
