Year-end payable balance governs section 40(a)(ia) disallowance; amounts already paid during the year are outside its reach.

Section 40(a)(ia) was construed strictly to apply only to expenditure remaining payable on 31 March, and not to amounts actually paid during the year without TDS deduction. The Tribunal followed the Special Bench view and confined disallowance to the verified year-end payable balance. For one assessment year, the matter was restored for verification of the outstanding amount on the closing date; for the other, the assessee's claim that nothing remained payable as on 31 March was to be verified, which would eliminate disallowance if accepted. The operative principle is that the provision cannot be extended beyond its plain wording.

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Issues: (i) Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made only in respect of amounts outstanding as payable on 31 March, and not in respect of amounts already paid during the previous year without deduction of tax at source. (ii) Whether the disallowance in the two assessment years had to be confined, or deleted, depending upon the amount actually remaining payable on the closing date.

Issue (i): Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made only in respect of amounts outstanding as payable on 31 March, and not in respect of amounts already paid during the previous year without deduction of tax at source.

Analysis: The provision was construed strictly on the basis of its language, especially the use of the word "payable" in the enacted text. On that construction, the disallowance applies only to expenditure remaining unpaid and outstanding as on 31 March, and not to sums that had been actually paid during the year without TDS deduction. The Tribunal followed the Special Bench view and held that the provision could not be extended beyond its plain wording.

Conclusion: The disallowance under section 40(a)(ia) was restricted to the amounts payable as on 31 March and could not be applied to amounts already paid during the year.

Issue (ii): Whether the disallowance in the two assessment years had to be confined, or deleted, depending upon the amount actually remaining payable on the closing date.

Analysis: For one year, the Tribunal directed verification of the amount outstanding on the closing date and confined the disallowance to that verified payable balance. For the other year, the Tribunal directed verification on the assessee's claim that no amount was payable as on 31 March, which would result in no disallowance if accepted on verification.

Conclusion: The matter was restored only for verification of the payable balance, and the disallowance was to be confined accordingly.

Final Conclusion: The assessee obtained substantial relief because the disallowance under section 40(a)(ia) was held to be limited to amounts payable at year-end, with the quantum left to verification for one year and no disallowance warranted if nothing remained payable for the other year.

Ratio Decidendi: Section 40(a)(ia) operates only on expenditure that remains payable on the closing date of the previous year, and cannot be invoked for amounts actually paid during the year without TDS deduction.

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