Income Tax Appellate Tribunal (ITAT) Jaipur in a recent judgment reiterated the proposition laid down by Allahabad High Court in Vector Shipping Services Pv. Ltd . (also supported in the case of Merilyn Shipping and transport Pvt. Ltd)  that Section 40(a)(ia) disallowance can be made only in respect of amount outstanding (remaining payable) at the end of the year on which TDS is not deducted.

Case Details:
ITA No. 391/JP/2013 AY : 2008-09
M/s Herbicides (India) Ltd (Appellants) vs Assistant Commissioner of Income Tax (Respondent)
Date of Order: 23-10-2015

Brief Facts of the Case:
The appellant assessee was aggrieved that the income tax authorities erred in disallowing a sum of Rs. 11,59,210/- for non deduction of TDS u/s 40a(ia) on account of commission expenses claimed. The assessee placed reliance on the decision of Hon’ble Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) (2013) 357 ITR 642 (All) which held the proposition that Section 40(a)(ia) disallowance can be made only in respect of amount remaining payable at the end of the year on which TDS is not deducted. According to assessee there was no dispute that the entire amount of commission was paid during the year itself and no amount was payable as at the year end.

It was contended that the Special Leave Petition (SLP) of the Income Tax Department  against the judgment of Hon’ble Allahabad High Court in case of Vector Shipping Services Pvt. Ltd. has been dismissed by the Supreme Court. Therefore, the issue should have been decided in favour of the assessee.

The assessee also contended that in his own case in the immediate preceding AY 2007-08, CIT(A) the addition by following observations:

“However, Sg. N.J. Vyas AR of the assessee has submitted that Hon’ble Apex Court approves the Hon’ble Court’s ruling that disallowance U/s 40(a)(ia) applies only to amounts payable as on 31st March and met to amounts already paid during the year. Further, it is also seen that department’s SLP against this order of Hon’ble Allahabad High court in case of Vector Shipping Services Pvt. Ltd. (supra) has already been dismissed, meaning thereby, Hon’ble Apex Court has approved the judgment of Hon’ble Allahabad High Court in case of Vector Shipping Services Pvt. Ltd. and also the case of Merilyn Shipping and transport Pvt. Ltd., wherein it has been held that disallowance U/s 40(a)(ia) applies only to amounts payable as on 31st March but not to amounts already paid during the year.”

Excerpt from ITAT Judgment
Apropos second ground, I find merit in the argument of the ld counsel for the assessee, it has not been disputed that the entire amount of commission was paid during the year and there was no payable amount at the end of the year. In view thereof, the Hon’ble Allahabad High Court judgment in case of Vector Shipping Services Pvt. Ltd. (supra) is fully applicable. By respectfully following the same, ground No. 2 of the appeal is allowed.

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