ITAT Upholds CIT(A)'s Disallowance of Rs. 18.55 lacs under Section 40(a)(ia)

The Income Tax Appellate Tribunal (ITAT) upheld the decision of the Commissioner of Income Tax (Appeals) (CIT(A)) to disallow an amount of Rs. 18.55 lacs under Section 40(a)(ia) of the Income Tax Act. The ITAT ruled that the provision applies to amounts payable at any time during the year, requiring the deduction of Tax Deducted at Source (TDS) on the full amount paid or payable. The appeal by the assessee was dismissed, affirming the disallowance and emphasizing the broader interpretation of Section 40(a)(ia) by various High Courts.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Applicability of TDS on payments made during the year.
3. Jurisdictional interpretation of Section 40(a)(ia) by different High Courts.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The core issue in this case revolves around the disallowance of Rs. 18.55 lacs under Section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) noticed that the assessee made payments amounting to Rs. 61.85 lacs to M/s. Rising Overseas without deducting tax at source (TDS). Consequently, the AO disallowed 30% of these expenses, leading to an addition of Rs. 18,55,500/-. The assessee's objection to this disallowance was not accepted by the AO, and the CIT(A) upheld the AO's decision.

2. Applicability of TDS on Payments Made During the Year:
The CIT(A) examined whether the provision of Section 40(a)(ia) applies to amounts paid during the year or only to amounts payable at the end of the year. The CIT(A) relied on various judicial pronouncements and a circular from the CBDT dated 16/12/2013, which clarified that the term "payable" includes amounts paid during the year. The CIT(A) referred to the judgments of the Hon’ble Gujarat High Court and Hon’ble Calcutta High Court, which held that Section 40(a)(ia) covers amounts payable at any time during the year, not just at the end of the year.

3. Jurisdictional Interpretation of Section 40(a)(ia) by Different High Courts:
The CIT(A) and the ITAT discussed the conflicting interpretations of Section 40(a)(ia) by different High Courts. The Hon’ble Allahabad High Court, in the case of Vector Shipping Services Pvt. Ltd., suggested that disallowance under Section 40(a)(ia) applies only to amounts payable at the end of the year. However, the ITAT noted that this interpretation was not the main thrust of the argument before the High Court and was merely a passing reference. The ITAT emphasized that the Hon’ble Gujarat and Calcutta High Courts had dealt with the issue in detail and held that Section 40(a)(ia) applies to amounts payable at any time during the year. The ITAT also referred to a CBDT circular which supported this broader interpretation.

The ITAT concluded that the ratio laid down by the Special Bench in the case of Merilyn Shipping & Transports, which was relied upon by the Hon’ble Allahabad High Court, had been overruled by other High Courts. Consequently, the ITAT held that the provision of Section 40(a)(ia) covers amounts payable at any time during the year, and the assessee was required to deduct TDS on the full amount paid or payable during the year.

Final Judgment:
The ITAT upheld the findings of the CIT(A) and dismissed the appeal filed by the assessee. The ITAT found no error or infirmity in the CIT(A)'s decision to uphold the disallowance of Rs. 18.55 lacs under Section 40(a)(ia) of the Income Tax Act. The order was pronounced in the open court on 13.03.2020.

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