2012 (4) TMI 290 - AT - Income Tax

Whether Section 40(a)(ia) can be invoked only to disallow expenditure of the nature referred to therein which is shown as "payable" as on the date of the balance sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year – A.O. dis-allowed expenses incurred on brokerage and commission on ground of non-deduction of TDS – reference to Special bench - Held that:- The word "payable" used in section 40(a)(ia) is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words "amount credited or paid" to "payable". Further, Circular No. 5 of 2005, date 15th July, 2005 issued by CBDT clarifies that the intention to introduce this provision was brought to curb bogus payments by creating bogus liability.

Therefore, following cardinal principle of interpretation, Special Bench in view of dissenting view expressed by one of its members hold in light of majority view of the Members that section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at source – Decided in favor of assessee.