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2019 (12) TMI 591 - AT - Income TaxRevision u/s 263 - Addition u/s 40(a)(ia) - amount paid or payable during year - HELD THAT:- In the present case, the assessee is covered by jurisdiction of Hon'ble Allahabad High Court and in the case of Vector Shipping Services Hon'ble Allahabad High Court [2013 (9) TMI 1073 - ALLAHABAD HIGH COURT] had held that tax is required to be deducted only on the amounts payable and assessee is not required to deduct tax on the amounts paid during the year. In the present case, the assessee had credited the interest amount to the credit of the parties and to examine as to whether such credit to the account of a party amounts to payment or not, the definition of word ‘paid’ as per section 43(2) has to be analyzed. Definition of amount paid, clearly demonstrates that in case the assessee is following the mercantile system of accounting, which system records revenues and expenses when they are incurred, regardless of when cash is exchanged, therefore, the amount credited to the payee account will also amount to payment. Since the assessee was following the mercantile system of accounting, the entries of interest credited by him to the payees’ accounts were entries of accrual in the absence of cash transactions, which amounted to payment and, therefore, the Assessing Officer had rightly not made the disallowance as per the judgment of the jurisdictional Hon'ble Allahabad High Court and as per the Board Circular, which was binding on him. In view of the above, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, as the AO had rightly not made the disallowance. In view of the above, the appeal of the assessee is allowed and the order passed by learned CIT u/s 263 is quashed. - Decided in favour of assessee.
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