2017 (2) TMI 735 - AT - Income Tax

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 ... Disallowance made u/s. 40(a)(ia) - amount payable - Held that:- We direct the AO to delete the addition so made following the principles laid down by the Hon'ble Special Bench of ITAT in the case of Merilyn Shipping and Transport Ltd., Vs. ACIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] wherein held section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at source – Decided in favor of assessee. 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.