Appeal allowed by ITAT Hyderabad under Income Tax Act, disallowance deleted, judicial discipline upheld.

The ITAT Hyderabad allowed the appeal, directing the AO to delete the disallowance under section 40(a)(ia) of the Income Tax Act due to lease rentals already paid, following the Special Bench decision. The tribunal emphasized judicial discipline and overturned the AO and CIT(A)'s decisions based on High Court judgments. As the main appeal was decided in favor of the assessee, the Stay Application for the outstanding demand was dismissed as academic.

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Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act.
2. Stay application for outstanding demand.

Analysis:
1. The appeal was against the disallowance made under section 40(a)(ia) of the Income Tax Act. The assessee filed a return declaring total income of Rs. 3,44,566, but the assessment completed by the AO assessed the income at Rs. 16,17,570 by disallowing Rs. 11,68,000 being lease rentals paid. The CIT(A) deleted the disallowance based on the ITAT decision, stating that section 40(a)(ia) applies only to amounts payable without deducting taxes. The ITAT set aside the matter to the AO to decide in light of the Special Bench decision in the case of Merilyn Shipping and Transport Ltd. The AO, during reassessment, noted the Special Bench decision was under interim suspension by the High Court. Despite arguments from the assessee, the AO and CIT(A) upheld the disallowance based on High Court judgments. However, the ITAT, considering the payment was already made and following judicial discipline, directed the AO to delete the addition based on the Special Bench decision, allowing the appeal.

2. The assessee had also filed a Stay Application for the outstanding demand of Rs. 7,19,653. However, since the issue in the main appeal was decided in favor of the assessee, the appeal itself was disposed of along with the Stay Petition. The ITAT allowed the appeal, rendering the Stay Application academic and dismissing it accordingly.

In conclusion, the ITAT Hyderabad, in the cited judgment, addressed the disallowance under section 40(a)(ia) of the Income Tax Act, emphasizing the importance of judicial discipline and following Special Bench decisions. The tribunal directed the AO to delete the addition as the amount was already paid, aligning with the principles laid down by the Special Bench. The appeal was allowed, and the Stay Application was dismissed as academic.

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