Benefit Of S. 40(a)(ia) TDS Disallowance Controversy Must Go To The Assessee: ITAT Chennai

ITO vs. M/s.Theekathir Press (ITAT Chennai)

S. 40(a)(ia) TDS Disallowance: View in favour of the assessee should be followed

The assessee paid an amount without deducting TDS. The AO held that as there was no TDS, the deduction for the amount could not be allowed u/s 40(a)(ia). However, the CIT(A) reversed the AO on the ground that the word “payable” in s. 40(a)(ia) did not apply to amounts that had already been “paid” during the year. On appeal by the department to the Tribunal HELD dismissing the appeal:

There is a judicial controversy on whether s. 40(a)(ia) applies to amounts that have already been “paid” or it is confined to amounts that are “payable” as at the end of the year. The Special Bench in Merilyn Shipping and Transports 16 ITR (Trib) 1 (Vizag) and the Allahabad High Court in Vector Shipping Services have taken the view that s. 40(a)(ia) applies only to amounts remaining “payable” at the end of the previous year and does not apply to amounts already “paid” before the close of the relevant previous year. However, the Calcutta High Court in Crescent Export Syndicates & Md. Jakir Hossain Mondal and the Gujarat High Court in Sikandarkhan N.Tunvar have taken a contrary view that even amounts already “paid” have to be disallowed u/s 40(a)(ia). In such circumstances, the rule of Judicial Precedence demands that the view favourable to the assessee must be adopted as held by the Supreme Court in CIT vs. Vegetable Products Ltd 88 ITR 192. Following the said fundamental rule declared by the Supreme Court, the judgment of the Allahabad High Court in Vector Shipping which is in favour of the assessee has to be followed and it has to be held that disallowance u/s 40(a)(ia) applies only to amounts “payable” and not to amounts “paid”.

Note: In Pradip J. Mehta 300 ITR 231 (SC) it was held that the benefit of doubt should invariably go to the taxpayer. This has been followed in Eskay Designs (attached). Contrast with the view taken in Rishti Stock and Shares (ITAT Mumbai) and the Department’s Circular No. 10/DV/2013 dated 15.12.2013