Business expenditure – Disallowance u/s. 40(a) (ia) -: Section 40(a)(ia) – Argument that the disallowance for want of TDS can be made only for amounts “payable” as of 31st March and not for those already “paid” is not correct. In Liminie dismissal of SLP in Vector Shipping does not mean Supreme Court has confirmed the view of the HC

Dealing with the scope of section 40(a)(ia) of the Income Tax Act, 1961, the Punjab and Haryana High Court held as under:

“(i) The introduction of Section 40(a)(ia) had achieved the objective of augmenting the TDS to a substantial extent. When the provisions and procedures relating to TDS are scrupulously applied, it also ensured the identification of the payees thereby confirming the network of assessees and that once the assessees are identified it would enable the tax collection machinery to bring within its fold all such persons who are liable to come within the network of tax payers. These objects also indicate the legislative intent that the requirement of deducting tax at source is mandatory.

(ii) The argument that section 40(a)(ia) relates only to assessees who follow the mercantile system and does not pertain to the assessees who follow the cash system is not acceptable. The purpose of the section is to ensure the recovery of tax. We see no indication in the section that this object was confined to the recovery of tax from a particular type of assessee following a particular accounting practice.

(iii) The argument that section 40(a)(ia) applies only to amounts which are “payable” and not to amounts that are already “paid” is also not acceptable (Commissioner of Income Tax vs. Crescent Export Syndicate (2013) 216 Taxman 258 (Cal) and Commissioner of Income Tax vs. Sikandar Khan N. Tunwar (2013) 357 ITR 312 (Guj) followed)

(iv) Though in Commissioner of Income Tax vs. M/s Vector Shipping Services (P) Ltd (2013)262 CTR (All) 545, 357 ITR 642, it was held that no disallowance could be made u/s 40(a)(ia) as no amount remained payable at the year end and the Special Bench decision of the Tribunal in Merilyn Shipping & Transports, 136 ITD 23 (SB) (Vishakhapatnam) was noted, this cannot be agreed with as there is no reasoning for the finding. The dismissal of the department’s petition for special leave to appeal (SLP) was in limine. The dismissal of the SLP, therefore, does not confirm the view of the Allahabad High Court.”