Court upholds dismissal of income tax appeal due to valid TDS deduction, expenses fully paid.

The Court dismissed the income tax appeal, finding that the expenses disallowance under Section 40(a)(ia) was not justified as tax had been deducted at source by M/s Mercator Lines Ltd. The Tribunal's decision was upheld, noting that the expenses were fully paid and not remaining payable at the relevant period end, aligning with the Special Bench decision in Merilyn Shipping and Transport Ltd. The Court concluded that the revenue could not benefit from the disallowance, as TDS had been deducted, and no error was found in the Tribunal's decision.

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Issues:
Income tax appeal under Section 260 (A) of the Income Tax Act, 1961 arising from the judgment and order of the Income Tax Appellate Tribunal in ITA No.5219/Del/2012 for the assessment year 2009-10. The main question is whether the disallowance of expenses made by the Assessing Officer under section 40 (a) (ia) of the I.T. Act, 1961 is justified.

Analysis:
The department contended that the disallowance of Rs.1,17,68,621/- was made by the Assessing Officer under section 40 (a) (ia) as no tax was deducted at source under Chapter XVII (B). The CIT (A) reversed this finding, which was upheld by the Tribunal. The Tribunal noted that no amount remained payable at the year-end, and as per the Special Bench decision in the case of Merilyn Shipping and Transport Ltd., the addition could not be made under Section 40 (a) (ia). The provision was introduced to disallow expenses if TDS was not deducted, but in this case, TDS was deducted by M/s Mercator Lines Ltd. for the assessee.

The Tribunal remanded the matter to the Assessing Officer on other questions. The department argued that expenses were disallowable under Section 40 (a) (ia) as tax was not deducted at source. However, the CIT (A) found that TDS was deducted by M/s Mercator Lines Ltd. for the assessee, and the explanation for the payment of salaries was accepted. The CIT (A) held that the provisions of section 194C read with section 40 (a) (ia) were not applicable, and the expenses incurred were not disallowable under section 40 (a) (ia) as they were fully paid and not remaining payable at the end of the relevant accounting period.

The Court noted that the revenue could not benefit from the Special Bench decision as TDS was deducted from the salaries paid by M/s Mercator Lines Ltd. The Tribunal's finding was based on uncontested facts, and no error was found. The Court concluded that the question of law framed did not arise for consideration, and hence, the income tax appeal was dismissed.

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