Section 40(a)(ia) disallowance applies to TDS-default expenditure even if the amount was already paid during the year.

Crushing charges paid for job work were held disallowable under section 40(a)(ia) because the computation of business income operates as an integrated scheme and section 40 overrides sections 30 to 38. The Tribunal rejected the argument that section 28 insulated the expenditure from disallowance, and also rejected the view that section 40(a)(ia) applies only to amounts outstanding as payable at year-end. It held that the provision covers expenditure on which tax was deductible under Chapter XVII-B during the year but was not deducted, including amounts already paid. The disallowance was therefore upheld.

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Issues: Whether crushing charges paid for job work were disallowable under section 40(a)(ia) of the Income-tax Act, 1961 notwithstanding the assessee's contention that the expenditure fell under section 28 and that disallowance under section 40(a)(ia) was confined only to amounts remaining payable at year-end.

Analysis: The Tribunal held that the computation provisions for business income must be read as an integrated scheme and that section 40 opens with a non obstante clause overriding sections 30 to 38. It rejected the contention that section 28 could be treated as a stand-alone provision insulating the expenditure from disallowance. The Tribunal further held that section 40(a)(ia) is not confined to amounts shown as payable on the balance-sheet date, and that the word "payable" cannot be read to exclude amounts already paid during the year where tax was deductible at source under Chapter XVII-B but was not deducted. In applying this view, the Tribunal also held that the majority view in Merilyn Shipping was not acceptable and that the statutory disallowance operated on the full expenditure on which TDS was required.

Conclusion: The disallowance under section 40(a)(ia) was upheld and the Revenue's appeal succeeded.

Ratio Decidendi: Section 40(a)(ia) applies to expenditure on which tax is deductible at source under Chapter XVII-B during the relevant year, and the disallowance is not restricted to amounts outstanding as payable at the year end.

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