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13-03-2020, Amit Yadav, Section 40(a)(ia), 139, Tribunal Delhi

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1 year 7 months ago #12368 by amit
Section - 40(a)(ia), 139
Order Date - 13-03-2020
Favouring - Revenue
Court - Tribunal Delhi
Appellant - Amit Yadav
Respondent - ITO
Justice - N. K. BILLAIYA AM
Citation - 320Taxpundit590
Appeal No. - ITA No.3257/DEL/2019
Asstt. Year - 2015-16

Order

PER : N. K. BILLAIYA, AM

This appeal by the assessee is preferred against the order of the CIT(A)-15, New Delhi dated 20.11.2018 pertaining to A.Y. 2015-16.

2. The sum and substance of the grievance of the assessee is that the CIT(A) erred in upholding the disallowance of Rs.18.55 lacs made by the AO u/s. 40 (a) (ia) of the Act.

3. None appeared on behalf of the assessee. The notice issued by the registry returned un-served. I decide to proceed exparte. The DR was heard at length who placed strong reliance on the orders of the authorities below.

4. Briefly stated the facts of the case are that during the course of the scrutiny assessment proceedings the AO noticed that the assessee has made payments to M/s. Rising overseas amounting to Rs.61.85 lacs without deducting tax at source. The assessee was asked to explain why d sallowance should not be made u/s.40(a)(ia) of the Act on payment of shipment expenses of Rs.61.85 lacs. The assessee filed a detailed reply objecting for the proposed disallowance. The reply of the assessee did not find any favour of the AO to proceeded by dismissing 30% of expenses paid Rs.61.85 lacs and made addition of Rs.18,55,500/-

5. The assessee agitated the matter before the CIT(A) but without any success.

6. The relevant findings of the CIT(A) read as under :-

DECISION : The contention of the Appellant has been considered and the order of AO has also been perused. It is seen from the order of the AO it is an admitted fact that the assessee had made payment of Rs. 61,85,000/- to M/s. Rising Overseas, on which no TDS was deducted. The appellant is relying on the decision of M/s. Vector Shipping Service Pvt. Ltd. Of Hon'ble Allahabad High Court. Regarding the above judgment, the Hon'ble ITAT, Lucknow Bench ’B’ vide order dated 11.04.2014 in the case of DCIT Vs. Ama Medical & Diagnostic Centre, [2014] 45 taxmann.com 405 (Lucknow - Trib.) / [2014] 63 SOT 136, have analyzed the order of the Hon'ble High Court and has observed that:

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) of the Act but no ques ion of law with regard to the ratio laid down by the Tribunal in the case of Merilyn Shipping & Transports (supra) was raised before the Hon'ble High Court. The question of law before the Hon'ble High Court is as under: Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40(a){ia) of the I.T. Act, 1961 by
ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s. Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition f memorandum of understanding, it included contract also.

7.4 The main thrust of the argument before the Hon'ble High Court was that M/s Mercator Lines Ltd. had deducted TDS on salaries paid by it on behalf of the assessee. Under such circumstances, the assessee was not required to deduct TDS on reimbursement being made by it to M/s Mercator Lines Ltd. Besides reference was also made about the order of the Special Bench in the case of Merilyn Shipping & Transports (supra) wherein it has been held that if no amount remained payable at the year end, there would not be any disallowance as the provision of section 40(a)(ia) are not applicable. After recording the finding of the Tribunal and the CIT(A), the Hon'ble High Court has observed in last two paras that the provision of 40(a)(ia) 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 and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Their Lordships have further observed that in the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. In last few lines, the Hon'ble High Court has made a reference to the ratio laid down by the Special Bench of the Tribunal and observed that it is noted that for disallowing 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 & Transport v. Add!. CIT [20121 136 1TD 23 (Visakha) 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

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