AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (7) TMI 516
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.... addition of Rs. 12,29,404/- without appreciating the fact that the addition was made on account of non confirmation of creditors. 4. Appellant craves leave to add or amend the ground of appeal, as stated above as and when need of doing so arises with the prior permission of the Hon'ble Bench." 3. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT(A). 4. We have considered the rival submissions. Regarding the first ground, we find that this issue was decided by the CIT(A) as per Para 4.4 of his order, which is reproduced below for the sake of ready reference: "4.4 I have considered the matter. It is seen that the commission of Rs. 19,96,700/- has also been disallowed by the AO due to non-deduction of TDS u/s 40(a)(ia). I agree with the submission of the appellant that the commission payable to the persons cannot be disallowed on account of non-verifiability as well as section 40(a)(ia) of the Act as it would amount to taxing the same income twice which is not permissible. I find that the appellant has furnished confirmations and affidavits of twelve persons along with the proof of their identiti....
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.... commission paid to them as genuine whereas in the case of remaining twelve persons, the same have been rejected without conducting any enquiry during the remand proceedings. We also find that the Assessing Officer has noted in the assessment order that commission payment was made to 29 persons of Rs. 19,96,700/- and out of that, no reply was received from 12 persons and the Assessing Officer disallowed the commission payment to those 12 persons by alleging that the same is not verifiable but it is noted by CIT(A) in the above Para that the assessee has furnished the confirmations and affidavits of these 12 persons also along with the proof of identity such as addresses, copy of PAN, ration card, driving license, copy of return etc. He has further noted that the assessee has also furnished the details of payment of commission giving the details of particulars of bill, date of bill, order/indent no., amount, of commission, mode of payment, payee name and their addresses to the AO during the assessment proceedings. The CIT(A) has also obtained remand report from the Assessing Officer in respect of these 12 persons from whom the confirmations and affidavits etc. were not furnished bef....
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....9;ble Allahabad High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports , this Bench of the Tribunal being subordinate to the High Court of Allahabad is bound to follow the same and decide the issue accordingly even without taking cognizance of the judgment of other High Courts in this regard. The subordinate authority has no jurisdiction to question the wisdom of the higher authority and they are required to follows the verdict in its letter and spirit given by higher authority. 7.2 Since the sole controversy is raised with regard to the judgment of Hon'ble Jurisdictional High Court, we have to examine the judgment of Hon'ble Jurisdictional High Court whether there have laid down any law on the impugned issue or a passing reference was made with regard to the aforesaid order in the case of Merilyn Shipping & Transports . 7.3 Having carefully examined the judgment of Hon'ble Allahabad High Court in the case of Vector Shipping Services P. Ltd. (supra), we find that though there was dispute with regard to the disallowance of payment of salaries on account of non deduction of TDS as required u/s 40(a)(ia) o....
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....ng expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. Except these observations, the Hon'ble High Court has not adverted to the legal proposition laid down by the Special Bench of the Tribunal. For the sake of reference, we extract the finding of the judgment of Hon'ble Jurisdictional High Court in this regard as under: "We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 ITD. 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deducted at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure or which such TDS was deductible. In the prese....
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....t any time during the year. The relevant observations of Hon'ble High Court are extracted as under: In addition to such provisions already existing, the Legislature introduced yet another provision for ensuring compliance with the requirement of deducing tax at source and depositing it with the Central Government. Section 40(a)(ia), relevant for our purpose, reads as under : "(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such t....
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....ntion of the Legislature had to be gathered from language used. In their opinion, the provision would apply only to amounts which are payable at the end of the year. Having said so, curiously, it was observed that the proviso to section 40(a)(ia) of the Act lays down that earlier years provision can be allowed in subsequent years only if tax at source is deducted and deposited and, therefore, the Revenue's fear is unfounded as the provision of section 40(a)(ia) of the Act covers the situation. .......................................................................................... .......................................................................................... What this sub-section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can....
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....rtain condition provided under the statute must be judged with reference to the last date of the accounting period. Particularly, in the context of requirements of section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on March 31, of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on March 31." 7.8 Before Hon'ble Calcutta High Court in the case of Crescent Export Syndicate (supra), the following question of law was raised: "If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transports, no addition shall be made. If any amount is found to be payable as on the year end, then the Assessing Officer shall give the assessee adequate opportunity to substantiate his case as to why the disallowance, if any, should not be made by invoking the provisions of section 40(1....
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....eliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010 (2) SCC 273. .......................................................................................... .......................................................................................... The key words used in Section 40(a)(ia), according to us, are "on which tax is deductible at source under Chapter XVII -B". If the question is "which expenses are sought to be disallowed?" The answer is bound to be "those expenses on which tax....
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....y been dealt with and rejected. The appeal is, thus, allowed in favour of the revenue." 7.11 Our attention was also invited to a circular dated 16/12/2013 issued by the CBDT clarifying the stand of the Department in the light of the aforesaid judgments of different High Courts and it has been clarified that statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act, the term payable would include amounts which are paid during the previous year. For the sake of reference, we extract the circular as under: Circular No. 10/DV/2013 (Departmental View) F. No. 279/Misc./M-61/2012-ITJ (Vol.-II) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, the December 16th 2013 Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg. It has been brought to the notice of the Board that there are conflicting interpretations by judicial authorities regarding the applicability of the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (`the Act') with regard to the amount not deductible in computing the income chargeable under the head 'Profits and gains of business or profession'....
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....d. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an "orbiter dicta" while the decisions of the Hon'ble Gujarat and Calcutta High Court (supra) were 'ratio decidendi'. The ITAT accordingly applied the view taken by the Hon'ble Gujarat and Calcutta High Court as ratio decidendi prevails over an orbiter dicta. 4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a) (ia) of the Act would cover not only the amounts which arc payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a) (ia) of the Act the term 'payable' would include 'amounts which are paid during the previous year'. 5. Where any High Court decides an issue contrary to the 'Departmental View', the `Departmental View' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. Ho....
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....iven following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports. Since the CIT(A) has not given any finding on merit, we restore the matter to his file with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are applicable to the present case and for the remaining issue, whether the provision of section 40(a)(ia) is applicable in respect of such amounts, which are payable as on 31st of March of the year under consideration, we hold that the provision of section 40(a)(ia) would cover not only to the amounts which are payable as on 31 st March of a particular year but also which are payable at any time during the year. Accordingly, the matter is restored to the file of the CIT(A) for adjudication on merit." 8. Respectfully following this Tribunal decision, we hold that in the present case also, disallowance made by the Assessing Officer u/s 40(a)(ia) cannot be deleted on this basis alone that the amount in question was not unpaid/payable on the last date of the previous year relevant to the present assessment year. Hence, on this issue, we reverse the order of CIT(A) and restore that of the Assessing....
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....sions of Provident Fund Act would not effect the case of the appellant as the violation of some other Act would not, make him liable to TDS in respect of liasioner remuneration and consequent disallowance under the provisions, of section 40(a)(ia) of the Act." 9.1 From the above Para of CIT(A), we find that it is noted by CIT(A) that on perusal of the salary and daily attendance register for all the employees, it is noted that 15 employees who have been paid liasioner remuneration are listed as marketing staff and their daily attendances have been marked on a register. He has also given a finding that they have been paid monthly salary. Since their total income was below taxable limit, the appellant was not required to deduct any tax u/s 192 of the Act. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue. We also find that it is also observed by CIT(A) that although disallowance was made by the Assessing Officer under the provisions of section 40(a)(ia) of the Act, the Assessing Officer has failed to comment under which section the assessee was liable to deduct TDS so as to attract section 40(a)(ia) of the Act. The Assessing Officer has simply mentioned....