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2015 (3) TMI 451

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..... ter’s Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word “payable” would not include “paid”. The provisions of section 40(a)(ia) are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee.the majority views expressed in the case of Merilyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] are not acceptable as it does not concludes the correct law in stating that section 40(a)(ia) would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year. See Commissioner of Income-tax, Kolkata - XI Versus Crescent Export Syndicate & Park International [2013 (5) TMI 510 - CALCUTTA HIGH COURT] and COMMISSIO .....

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..... g section 40(a(ia) of the Act on the ground that assessee had failed to deduct the TDS in respect of such payment. The CIT(A) has sustained the addition by making the following discussion : 6. I have carefully considered the facts of the case and the rival contentions. On perusal of the same it has been noticed that during the year under appeal the appellant has not deducted TDS in respect of payment made to Shri Dilip V. Jagtap towards hiring of tankers amounting to ₹ 6,23,861/-. The appellant was liable to deduct tax under Chapter XVII-B of the I.T. Act, 1961. The appellant has claimed that as the amount has been paid during the year under appeal and is not outstanding at the year end, the same cannot be disallowed u/s 40(a)(ia) of the Act. In support of the above contention, the appellant has relied on the decisions of various tribunals and also the decision of Hon'ble Allahabad High Court in the case of CIT, Muzaffarnagar Vs. M/s Vector Shipping Services (P) Ltd., Muzaffarnagar, bearing I.T.A. No.122 of 2013 dated 09/07/2013. As regards appellant's reliance on the Hon'ble High Court, Allahabad, I find that various other Hon'ble High Courts have held th .....

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..... decisions cited before us. There is no dispute to the fact that the Assessing Officer in the body of the assessment order disallowed an amount of ₹ 7,20,252/- u/s.40(a)(ia) for non deduction of tax. We find the Ld.CIT(A) distinguishing various decisions cited before him upheld the disallowance made by the Assessing Officer. It is the case of the Ld. Counsel for the assessee that in view of the decision of Hon ble Allahabad High Court in the case of M/s. Vector Shipping Service Pvt. Ltd. (Supra) no disallowance u/s.40(a)(ia) can be made since no amount was payable at the end of the year. 8.1 We find the Hon ble High Court while deciding the issue has relied on the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. reported in 136 ITD 23 (SC). We find the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (Supra) was reversed by the Hon ble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate vide order dated 03-04-2013 reported in TIOL-404-HC-KOL. The relevant observation of the Hon ble High Court read as under : We requested Mr. Khaitan, learned Senior Advocate .....

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..... ed by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. 13. Section 40(a)(ia) is to be interpreted harmoniously with the TDS provision as its operation solely depends on the provisions contained under Chapter XVII-B. It contemplates one of the consequences of non-deduction of tax and ,therefore, has to be interpreted in the light of mandatory provisions contained under Chapter XVII-B. It would be appropriate to reproduce Section 40(a)(ia), which reads as under:- Section 40(a)(ia):- any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified .....

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..... bsequent year or pay tax deducted during the previous year after the due date specified in Section 139(1). In such a situation, deduction would be allowed in the year in which such tax has been deducted. The explanation to this Section defines various amounts contemplated in this Section. The relevant Sections in Chapter XVII-B are re-produced hereunder:- Interest on securities . 193. The person responsible for paying [to a resident] any income [by way of interest on securities] shall, [at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier], deduct income-tax [***] at the rates in force on the amount of the interest payable: Payments to contractors and sub-contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - ** ** ** shall, at the time of credit of such sum to the account of the contractor or at the time of payment .....

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..... ncome comprised therein: ** ** ** Explanation. - For the purposes of this section,- (a) professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (I) of section9; (ba) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called suspense account or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. If we examine the aforementioned sections, we find that identical considerations permeate through all the aforementioned Sections which are as under:- (i) any pe .....

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..... definition of term 'paid' as contemplated under Section 43(2) which reads as under:- 43(2) : paid means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head profits and gains of business or profession . 16. A bare reading of the above provision would make it clear that the term 'paid' does not only mean actual payment but if the liability has been incurred according to the method of accounting followed by the assessee, then the same also comes within the purview of term 'paid'. If the assessee is following mercantile system of accounting then as soon as the liability accrues in its favour, the same is accounted for by crediting the amount of payee. Thus, it is evident that the emphasis is on liability to pay and not on actual payment. If we accept the contention of assessee, then Section 40(a)(ia) would become otiose and the section will not be attracted where payment is made though without deducting tax at source. Ld. Counsel has referred to the various decisions and in the case of Jaipur Vidyut Vitaran Nigam Limited (supra), the Tribunal had relied on the defini .....

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..... cannot be taxed. No authority is shown providing that such taxation is not permissible in law and is bad even otherwise. 19. Ld. CIT, DR has strongly relied on the decision of the Hon ble Madras High Court in the case of Tube Investments of India Ltd. s case (supra). The contention of Ld. Counsel for the assessee is that this decision was rendered in the context of constitutional validity of the provisions of section 40(a)(ia) and, therefore, in view of the decision of Hon ble Delhi High Court in the case of Lachman Dass Bhatia Hingwala (P) Ltd. s case (supra), the said decision is not relevant. It is true that this decision has been rendered in the context of examining of constitutional validity of the provisions of section 40(a)(ia) of the Act but in course of examining the constitutional validity, Hon ble Madras High Court has extensively considered the import of section 40(a)(ia) and, therefore, in our opinion, this decision has strong bearing on the present issue. 20. Hon ble Madras High Court has noticed various contentions of assessee. We re-produce some contentions, which have direct bearing on the present issue:- At para 5 of judgment: Mr. C. Natarajan, learned se .....

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..... of judgment: According to the learned counsel a comparative reading of s.40(a)(ia) and s. 198 would show that while under s. 198, the non-deduction of TDS would result in deemed income in the hands of the assessee, there is no such expression in s. 40(a)(ia) and consequently the non-income viz., the expenditure cannot be treated as deemed income in the hands of the assessee. The learned counsel also contended that since the recipient of the expenditure of the assessee is also taxed, the imposition of tax by invoking s. 40(a)(ia) would result in double taxation which cannot be permitted. At para 25 of judgment: The learned counsel by pointing out ss. 205 and 64 of the Act contended that in similar situations the legislature has made specific exoneration of double taxation. The learned counsel relied upon: (i) CIT v. Indo Nippon Chemicals co. Ltd. [2003] 182 CTR 291/[2003] 261 ITR 275 (SC); (ii) K.P. Varghese v. CIT [1981] 24 CTR 358 [1981] 131 ITR 597 (SC); (iii) Navnit Lai C. Javeri v. K.K.Sen, AAC [1065] 56 ITR 198 (SC); (iv) Govind Saran Ganga Saran v. CST [1985] 155 ITR 144 (SC); (v) Godhira Electricity Co. Ltd. v. CIT [1997] 139 (JR 564/ [1997] 225 ITR 746 (S .....

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..... ons then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are inter vires and what are not. Thus, section 40(a)(ia) could not be viewed independently and had to be considered along with other provisions. (ii) The provisions of section 40(a)(ia) were compared with the provisions of section 201 of the Income Tax Act and, it was, inter alia, observed that as far as section 201 is concerned that would relate to the amount of tax that could be deducted by way of TDS. However, as far as section 40(a)(ia) is concerned, which would result in the disallowance of whole of the expenditure and thereby the entire sum expended would attract the levy of tax at a prescribed rate with all other conditions such as surcharge, etc. Thus, Hon ble Madras High Court has also held in para 61 of its judgment that whole of the expenditure claimed without making TDS is to be disallowed and not only part of the expenditure . (iii) The Finance Bill No.2 of 2004 states that the insertion of clause (ia) in clause (a) to section 40 of the Act was with a view to augment compliance of TDS provisions. ( .....

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..... provisions of section 40(a)(ia) will be applicable with respect to entire expenditure. It is true that specific issue regarding paid , credited and payable has not been considered but from the judgment it is evident that if assessee s contention is accepted then the very object of incorporation of section 40(a)(ia) would be frustrated. 21. In view of above discussion, we answer the question as under:- The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee. Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have to examine the correctness of the majority views in the case of Merilyn Shipping. We already have quoted extensively both the majority and the minority views expressed in the aforesaid case. The main thrust of the majority view is based on the fact that the L .....

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..... y be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron Steel Labour Board reported in 2010 (2) SCC 273. Unprotected worker was finally defined in Section 2 (II) of the Mathadi Act as follows:- unprotected worker means a manual worker who is engaged or to be engaged in any scheduled employment. The contention raised with reference to what was there in the bill was rejected by the Supreme Court by holding as follows:- It must, at this juncture, be noted that in spite of Section 2(11), which included the words but for the provisions of this Act is not adequately protected by legislation for welfare and benefits of the labour force in the State , these precise words were removed by the legislature and the definition was made limited as it has been finally legislated upon. It is to be noted that when the Bill came to be passed and received the assent of the Vice- President on 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06-1969, the aforementioned words were omitted. Therefore, this would be a clear pointer to the legislative intent that the legislature being conscious of the fact .....

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..... nguage used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected. The appeal is, thus, allowed in favour of the revenue. 8.2 We find the Hon ble Gujarat High Court in .....

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..... ional construction. (3) In the case of C.W.S.(India) Ltd. vs. Commissioner of Income-Tax reported in [1994] 208 ITR 649, in which it was observed that While we agree that literal construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. 8. Counsel also contended that interpretation made by the Tribunal leads to results wholly unintended by the legislature. If disallowance under Section 40(a)(ia) is applied only in case of amounts payable as on 31st March of the year under consideration, in large number of cases where the assessees might have actually paid the amounts but might not have either deducted tax at source though required under the Act or even after deduction not deposited with the Government, would escape the consequences envisaged under the said provision. It was further contended that Section 40(a)(ia) of the Act in its plain language does not permit such interpretation adopted by the Tribunal in the case of M/s. Merilyn Shipping Transports vs. ACIT(supra). Even on the premise of literal .....

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..... Income-Tax reported in [2007] 290 ITR 282 (Guj), in which the Division Bench of this Court in the context of Section 43B of the Act observed that the expression employed in the said section is actually paid and in view of the non-obstante clause contained in the said Section, it would not be permissible to refer to the expression paid as defined under section 43(2) of the Act. This decision, however, was rendered in the background of Section 43B of the Act, which used the expression actually paid . Reliance was placed in the case of Commissioner of Income-Tax vs. Upnishad Investment P. Ltd and others reported in [2003] 260 ITR 532, wherein the Division Bench of this Court had an occasion to interpret expressions receivable and due . It was observed that expressions receivable is used with reference to the recipient and the word payable is used with reference to the payer. 13. Our attention was drawn to the decision of the Supreme Court in the case of Commissioner of Income- Tax, Gujarat vs. Ashokbhai Chimanbhai reported in [1965] 56 ITR 42, wherein while explaining the concept of taxability of income, when it accrues, arises or is received, it was observed that th .....

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..... (1) thereof provides that any person deducting any sum in accordance with the foregoing provisions of the Chapter, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Section 201 provides for consequences of failure to deduct or pay tax at source. Sub-Section (1) thereof, in essence, provides that any person, who is required to deduct any sum in accordance with the provisions of the Act or referred to in sub-Section (1) of Section 192 being an employer but does not deduct or does not pay or after so deducting fails to pay whole or part of the tax as required under the Act, then such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the said tax. Section 271C of the Act provides for penalty for failure to deduct tax at source. 16. In addition to such provisions already existing, the legislature introduced yet another provision for ensuring compliance with the requirement of deducing tax at source and depositing it with the Central Government. Section 40(a) (ia) relevant for our purpose reads as under:- (ia) any interest, commi .....

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..... ommissioner of Income-Tax (TDS) and others reported in [2010] 325 ITR 610 (Mad) = (2O09-TIOL-529-HC-MAD-IT). Learned Judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the Court in the process useful and applicable. Learned Judge rejected the theory of narrow interpretation of term payable and observed as under: 12.4 In our considered opinion, there is no ambiguity in the section and term 'payable' cannot be ascribed narrow interpretation as contended by assessee. Had the intentions of the legislature were to disallow only items outstanding as on 31st March, then the term 'payable' would have been qualified by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. 20. On the other hand, learned Judicial Member speaking for majority adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in Section 40 and the ultimate amendment which actually was passed by the .....

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..... me or occasion or any specified manner. In the context of section 40(a)(ia), the word payable would not include paid . In other words, therefore, an amount which is already paid over ceases to be payable and conversely what is payable cannot be one that is already paid. When as rightly pointed out by Counsel Mr. Hemani, the Act uses terms paid and payable at different places in different context differently, for the purpose of Section 40(a)(ia) of the Act, term payable cannot be seen to be including the expression paid . The term paid and payable in the context of Section 40(a)(ia) are not used interchangably. In the case of Birla Cement Works and another vs. State of Rajasthan and another reported in AIR 1994 (SC) 2393, the Apex Court observed that the word payable is a descriptive word, which ordinarily means that which must be paid or is due or may be paid but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to due . 23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if .....

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..... d. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the legislature desired t .....

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..... adopted to cure the disease and (4) true reason of the remedy. 28. In such context, the position prevailing prior to the amendment introduced in Section 40(a) would certainly be a relevant factor. However, the proceedings in the Parliament, its debates and even the speeches made by the proposer of a bill are ordinarily not considered as relevant or safe tools for interpretation of a statute. In the case of Aswini Kumar Chose and another vs. Arabinda Bose and another reported in A.I.R. 1952 SC 369 in a Constitution Bench decision of (Coram: Patanjali Sastri, CJ.), observed that:- 33. .....It was urged that acceptance or rejection of amendments to a Bill in the course of Parliamentary proceedings forms part of the pre-enactment history of a statute and as such might throw valuable light on the intention of the Legislature when the language used in the statue admitted of more than one construction. We are unable to assent to this preposition. The reason why a particular amendment was proposed or accepted or rejected is often a matter of controversy, as it happened to be in this case, and without the speeches bearing upon the motion, it cannot be ascertained with any reasonab .....

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..... r interpreting the provisions, particularly when the provisions are plain. We are conscious that departure is made in two exceptional cases, namely, the debates in the Constituent Assembly and in case of Finance Minister's speech explaining the reason for introduction of a certain provision. The reason why a certain language was used in a draft bill and why the provision ultimately enacted carried a different expression cannot be gathered from mere comparison of the two sets of provisions. There may be variety of reasons why the ultimate provision may vary from the original draft. In the Parliamentary system, two Houses separately debate the legislations under consideration. It would all the more be unsafe to refer to or rely upon the drafts, amendments, debates etc for interpretation of a statutory provision when the language used is not capable of several meanings. In the present case the Tribunal in case of M/s. Merilyn Shipping Transports vs. ACIT (supra) fell in a serious error in merely comparing the language used in the draft bill and final enactment to assign a particular meaning to the statutory provision. 32. It is, of course, true that the Courts in India have b .....

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..... in glaring features can be deciphered from the above comparative chart. Under Section 3(31) of the General Clauses Act, 1897, local authority was defined to mean a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a municipal or local fund. The words other authority in Section 3(31) of the 1897 Act has been omitted by Parliament in the Explanation/ definition clause inserted in Section 10(20) of the 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that the entire definition of the word local authority is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important. 34. The Apex Court in the case of Greater Bombay Cooperative Bank Ltd. vs. M/s. United Yarn Tex. Pvt. Ltd Ors. reported in AIR 2007 SC 1584, in the context of question whether the Cooperative Banks transacting business of banking fall within the meaning of 'banking company' defined in the Banking Regulation Act, 1949, observed as under:- 59. The RDB Act was pa .....

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..... make provision for the quantification being awaited until the emergence of lumps, fines and concentrates. Having done so the Parliament has not said fines including slimes . Though 'slimes' are not 'fines' the Parliament could have assigned an artificial or extended meaning to 'fines' for the purpose of levy of Royalty which it has chosen not to do. It is clearly suggestive of its intention not to take into consideration 'slimes' for quantifying the amount of royalty. This deliberate omission of Parliament cannot be made good by interpretative process so as to charge royalty on 'slimes' by reading Section 9 of the Act divorced from the provisions of the Second Schedule. Even if slimes were to be held liable to charge of royalty, the question would still have remained at what rate and on what quantity which questions cannot be answered by Section 9. 36. In the case of Gopal Sardar, vs. Karuna Sardar reported in AIR 2004 SC 3068, the Apex . Court in the context of limitation within which right of preemption must be exercised and whether in the context of the relevant provisions contained in West Bengal Land Reforms and Limitation Act, 196 .....

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..... ment, we had recorded that the Tribunal in all cases had proceeded only on this short basis without addressing other issues. We, therefore, place all these matters back before the Tribunal for fresh consideration of other issues, if any, regarding disallowance under Section 40(a)(ia) of the Act. All appeals are disposed of accordingly. 8.3 However, we find although the above 2 decisions were rendered prior to the hearing before the Hon ble Allahabad High Court the same were not brought to the notice of the Hon ble Bench and the Bench relying on the decision of the Special Bench in the case of Merilyn Shipping and Transport Ltd. (Supra) upheld the decision of the Tribunal. Under these circumstances, following the decision of the Hon ble Gujarat High Court and Hon ble Calcutta High Court (Supra) we uphold the order of the CIT(A) sustaining the disallowance made by the Assessing Officer. We further find the Co-ordinate Bench of the Tribunal in the case of ACIT Vs. Shri Bharat Dhanpal Patil vide ITA No.600/PN/2012 order dated 30-07- 2013 following the decision of Hon ble Calcutta High Court and Gujarat High Court cited (Supra) had allowed the appeal filed by the revenue wherein the .....

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