Sec 40(a)(ia) of the Income Tax Act is applicable in case of Expenditure ‘payable’ only: ITAT Hyderabad [Read Order]


In a recent ruling in ITO v. M/s. Amardeep Textiles, the Hyderabad ITAT ruled that s. 40(a)(ia) of the Income Tax Act can be invoked only in case of expenditure which are incurred and payable only.

The Single Member, while upholding the order of the first appellate authority, clarified that the provision cannot be invoked in case of payments already made by the assessee for the relevant assessment year.

In the instant case, the AO found that the assessee had paid rent to a person which falls within the purview of s. 194I of the Income Tax Act, for which tax has been not deducted.

Therefore, addition was made against the reported income of the assessee by invoking s. 40(a)(ia). The assessee maintained that s. 40(a)(ia) cannot be invoked in cases where amount had already been paid.

The CIT(A), deleted the addition in the light of the decision of the co-ordinate bench of the Hyderabad ITAT and observed that section 40(a)(ia) is applicable only to the expenditure which is incurred and‘Payable’ as on 31st March of every year and cannot be invoked when it has already been paid during the previous year without deducting tax at source.

The Single Member noticed that the decision in the Merilyin Shipping & Transport vs. Addl. CIT, Range-1, Visakhapatnam, was confirmed by the Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd.,and held that for disallowance u/s. 40(a)(ia) of the Act, the amount should be payable and not which has been paid during the year. This fact was also accepted by the CBDT in Circular No. 10/DV/2013 dt. 16-12-2013. It was further noted that the Supreme Court of India has affirmed the decision of the Hon’ble High Court of Allahabad as regards the applicability of Section 40 (a) (ia) of the Act. Accordingly, the assessment order was quashed.

Read the full text of the order below.