Appeal partly allowed for statistical purposes, disallowance under section 40(a)(ia) remitted for verification. Disallowance under section 10B upheld.

The appeal was partly allowed for statistical purposes. The issue regarding disallowance under section 40(a)(ia) was remitted back to the Assessing Officer for verification, with instructions to disallow only outstanding amounts. However, the disallowance under section 10B was upheld due to the belated filing of the return, following the precedent that timely filing is mandatory for claiming deductions under section 10B. The order was pronounced on 31.12.2015.

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Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act for non-deduction of tax on rent and advertisement charges.
2. Disallowance of deduction under section 10B of the Income Tax Act due to the belated filing of the return of income.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax:

The assessee challenged the order of the Commissioner of Income Tax (Appeals) in sustaining the disallowance made under section 40(a)(ia) for non-deduction of tax on rent and advertisement charges. The assessee argued that the disallowance should only apply to payments outstanding as of 31st March, the end of the accounting year, and not to payments already made during the year. This argument was supported by the decision of the co-ordinate Bench of the Tribunal in the case of N. Palanivelu Vs. ITO (40 ITR (Trib) 325 [Chennai]).

The Departmental Representative contended that no details were provided regarding whether the payments were made during the year or were outstanding at the end of the accounting year. Hence, the matter should be sent back to the Assessing Officer for verification.

The Tribunal noted that it has consistently held that disallowance under section 40(a)(ia) should only apply to amounts outstanding as of 31st March, referencing the decision of the Special Bench of the Tribunal in Merliyn Shipping & Transports Vs. ACIT (136 ITD 23). Consequently, the Tribunal restored the issue to the Assessing Officer for verification of whether the amounts were paid during the year or were outstanding as of 31st March, directing the Assessing Officer to disallow only the outstanding amounts.

2. Disallowance of Deduction under Section 10B for Belated Filing of Return:

The assessee also contested the disallowance of the deduction claimed under section 10B on the grounds of filing the return of income belatedly. The counsel for the assessee requested that the matter be restored to the Assessing Officer, indicating that the assessee was contemplating seeking permission from the Board for condonation of delay in filing the return.

The Tribunal rejected this argument, noting that there was no record suggesting that the assessee was approaching the Board for condonation of delay. The Departmental Representative relied on the Rajkot Special Bench decision in the case of M/s. Saffire Garments Vs. ITO (140 ITD 6), which had decided a similar issue in favor of the Revenue.

The Tribunal considered whether the assessee was entitled to deduction under section 10B despite filing the return of income belatedly. The Special Bench in the case of M/s. Saffire Garments had held that the proviso to section 10A(1A) is mandatory and not merely directory, and this decision was found applicable to the proviso to section 10B. The Tribunal cited the Special Bench's detailed analysis, which concluded that the filing of the return within the due date specified under section 139(1) is mandatory for claiming deductions under section 10A and 10B.

The Tribunal noted that the assessee had filed the return of income on 15.10.2010, beyond the due date of 30.09.2009 for the assessment year 2009-10. Therefore, following the Special Bench decision, the Tribunal rejected the grounds of the assessee and sustained the order of the Commissioner of Income Tax (Appeals) in rejecting the claim for deduction under section 10B.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with the issue under section 40(a)(ia) remitted back to the Assessing Officer for verification, while the disallowance under section 10B was sustained due to the belated filing of the return. The order was pronounced in the open court on 31.12.2015.

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