TDS disallowance under section 40(a)(ia) applies to paid amounts too when tax was not deducted on deductible expenditure.

Section 40(a)(ia) applies to expenditure on which tax was deductible under Chapter XVII-B but was not deducted, or was not paid within the prescribed time, even if the amount was actually paid during the year. The word "payable" was read in its statutory context and not as limiting disallowance only to year-end outstanding balances. The provision was treated as a TDS compliance measure, and the distinction between paid and payable amounts was rejected as unsupported by the text. On that interpretation, the disallowance was sustained and the issue was decided in favour of the Revenue.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made only in respect of amounts outstanding as payable at the year end, or whether it also applies to amounts actually paid during the year on which tax was deductible at source but not deducted.

Analysis: The Tribunal followed the binding line of authority holding that section 40(a)(ia) is attracted whenever an expenditure falls within the class of sums on which tax is deductible under Chapter XVII-B and the tax has not been deducted or, after deduction, paid within the prescribed time. The word "payable" was read in its statutory context and not as excluding amounts already paid during the year. The provision was treated as a compliance measure linked to the TDS regime, and the distinction between amounts paid and amounts payable at year end was rejected as unsupported by the text of the section.

Conclusion: The disallowance was correctly sustained even though the expenditure had been paid during the previous year. The issue was decided against the assessee and in favour of the Revenue.

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