1. We have heard Shri Shambhu Chopra, learned counsel for the appellant.
2. This income-tax appeal under section 260A of the Income-tax Act, 1961 arises out of the judgment and order of the Income-tax Appellate Tribunal in I.T.A No. 5219.Del/2012—since reported in Commissioner Of Income-Tax v. Vector Shipping Services (P.) Ltd., [2013] 1 ITR (Trib)-OL 422 (Delhi) for the assessment year 2009-10. The Department has pressed the only question of law as follows:
“(a) Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal has rightly confirmed the order of the Commissioner of Income-tax (Appeals) and thereby deleting the disallowance of Rs. 1,17,68,621 made by the Assessing Officer under section 40(a)(ia) of the Income-tax 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 of memorandum of understanding, it included contract also?”
3. In the present case, the Assessing Officer disallowed expenses on the ground that under section 40(a)(ia) expenses could not be allowed as rio tax was deducted at source under Chapter XVII-B.
4. The Commissioner of Income-tax (Appeals) reversed the findings, which have been affirmed by the Tribunal in paragraph 7 as follows:
“7. We have considered the submissions of both the parties and have perused the record of the case. The submissions made before the learned Commissioner of Income-tax (Appeals), as noted earlier, have not been controverted by the Department. It is not disputed that M/s. Mercator Lines Ltd. had deducted TDS on salaries paid by it on behalf of assessee. Under such circumstances, the assessee was not required to deduct TDS on reimbursement being made by it to M/s. Mercator Lines Ltd. Further, in any view of the matter, since it is not disputed that no amount remained payable at the year end, therefore, in view of the Special Bench decision in the case of Merilyn Shipping and Transports v. Addl. CIT, [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]; 136 ITD 23 (Vishakapatnam) [SB] addition could not be made. In this case, it was held as under (page 32):
‘Section 40(a)(ia) of the Act was introduced in the Act, by the Finance (No. 2) Act, 2004, with effect from April 1, 2005. with a view to augment the Revenue through the mechanism of tax deduction at source. This provision was brought on the statute to disallow the claim of even genuine and admissible expenses of the assessee under the head “Income from business or profession” in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible’.”
5. On the remaining questions the Tribunal remanded the matter to the Assessing Officer.
6. Shri Shambhu Chopra, learned counsel for the Department, states that the Assessing Officer had recorded findings that on the services for which the assessee was claiming allowance of the expenses, tax was not deducted at source and thus the expenses on salaries to the employees could not be claimed. He submits that expenses were clearly disallowable under section 40(a)(ia) of the Act.
7. We find that the Commissioner of Income-tax (Appeals) has recorded finding that the allowance was claiming for salaries on which TDS was deducted by M/s. Mercator Lines Ltd. for the assessee. The circumstances in which salaries were paid by M/s. Mercator Lines Ltd. were sufficiently explained and the explanation was accepted by the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held:
“In the light of the above facts and following the ratio decidende of the hon'ble courts (supra), it is held that, firstly, the provisions of section 194C read with section 40(a)(ia) of the Act are not applicable to the case of the appellant. Secondly, nature of expenses incurred by the assessee do not form part of expenses disallowable under section 40(a)(ia) of the Act. Thirdly, when such type of expenses incurred by the appellant were totally paid and not remained payable as at the end of the relevant accounting period, provisions of section 40(a)(ia) of the Act are not applicable. Further, the appellant has clarified all the five questions raised as above and its clarifications are found satisfactory and convincing. Thus no adverse inference could be drawn on the issues even after making intrusive inquiries in respect of the transition of business made by the appellant. Thus, it is held that the Assessing Officer was not justified in making addition of Rs. 1,17,68,621 on account of disallowance made under section 40(a)(ia) of the Income-tax Act, 1961. The same is directed to be deleted. Grounds Nos. 2 and 3 are allowed.”
8. 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 and Transports v. Addl. CYT, [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]; 136 ITD 23 (Visakhapatnam) [SB] quoted as above to the effect section 40(a)(ia) was introduced in the Act by the Finance (No. 2) Act, 2004, with effect from April 1, 2005, with a view to augment the Revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head “Income from business or profession” in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. 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 in which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained.
9. It is to be 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. We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the Department and thus the question of law as framed does not arise for consideration in the appeal.
10. The income-tax appeal is dismissed.