Section 40(a)(i) [Disallowance for non deduction of TDS ]is not applicable to depreciation. SAB Miller India LtdJULY 3, 2015 [2015] 63 taxmann.com 341 (Mumbai - Trib.) following SKOL Breweries (Mum Trib). Punjab and Haryana High Court in Mark Auto Industries 57/2012 dtd 08-10-12 has pronounced that 40(a)(i) is not applicable to capital expenditure.

Held by Kerala High Court in Thomas George Muthoot on 03-07-2015 that disallowance shall be attracted even on payments not payable on 31st March. High Court has approved Calcutta High Court in Crescent Exports and Gujrat High Court in Sikandarkhan N Tunvar. Allahabad High Court in Vector Shipping Services disapproved by Kerala High Court.

Held by Kerala High Court in Thomas George Muthoot on 03-07-2015, that 40(a)(ia) 2nd Proviso inserted w.e.f AY 2013-14 shall not operate retrospectively. 40(a) (ia) 2nd Proviso says that if assessee furnished a certificate from CA that deductee has paid tax on payment escaping TDS, no disallowance shall be made. Held by High Court that provisions are not curative in nature. Hence Allied Motors (SC) 224 ITR 677 and Alom Extrusion (SC) 317 ITR 306 is not applicable. However subsequent Delhi High Court Judgement in Ansal Land Mark Township dated 26-08-2015 has held the amendmend to be curative and hence held applicable prospectively. It may further be noted that SC in Vegetable Products 88 ITR 192 has held that view favourable to assess should be adopted in case of ambiguity.

40(a) (ia) Ist Proviso amended by FA 2010 permitting allowance of exp for TDS payment till due date u/s 139 has retrospective effect.Virgin creations (KOI- TRIB). However Bharti Shipyard (SB) (OM) says it is prospective. Calcutta High Court in Virgin Creation on 23.11.11 in ITA 302/2011 has approved KOI –Trib decision Karnatka High Court in Santosh Kumar Shelly [497 tmc 47 (kar)] has also taken same view as in Virgin Creation. Hence 40 (a) (ia) is retrospective w.e.f 01-04-05 -BIG BAGS INTERNATIONAL (Bang Trib)

Section 40(a)(ia) 2nd Proviso Inserted by Finance Act wef AY 2013-14 abating TDS disallowance on production of CA certificate attesting payment of tax and filing of return by deductee which was held applicable with retrospective effect by Agra Bench in Rajiv Kumar Agarwal ITA PGB/2013 and confirmed by ITAT Delhi in Ansal Land Mark Township P Ltd also upheld by Delhi High court in ITA 161/2015 dated 26-08-2015. High Court praised ITAT for thorough analysis on the subject

80IB is allowable for disallowance u/s 40(a)(ia) also

 M/s. Kashmir Udyog I.T.A. No.124(Asr)/2011 21-8-2012
M/s. Singla Cabales, Jammu, in ITA No.147(Asr)/2012 1-6-2012
M/s. Sun Pharmaceuticals, in ITA No.184(Asr)/2009, dated 11.06.2010
Sunandan Aggaral ITA 166/2012 dated 26-7-2012

The provisions of section 40(a)(ia) are applicable only to the expenses payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source

•Merlyn Shipping 140 TTJ 1 (SB) Vizag.
Followed by ITAT Asr in Jamkash Vehicleades Pvt. Ltd
 I.T.A. No. 414(Asr)/2010 dated 6-08-2012 
Bright Enterprises Private Limited
Pranik Shipping & Services Ltd. v. Asstt. CIT [2012] 135 ITD 233/19 taxmann.com 107 (Mum.)
Underwater Services Co. [2012] 25 taxmann.com 216 (Mumbai - Trib.)

Section 40(a)(ia) cannot be invoked in respect of reimbursement which are not routed through profit and loss account to be claimed as deduction

[2012] 19 taxmann.com 109 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A'Sharma Kajaria & Co.FEBRUARY 17, 2012

Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable to resident without deduction of tax at source - Assessment year 2006-07 - Whether question of disallowance under section 40(a)(ia) can only arise when something is claimed as a deduction in computation of business income - Held, yes - Whether reimbursements simplicitor, being profit neutral, are not routed through profit and loss account to be claimed as deduction and, therefore, no disallowance under section 40(a)(ia) can be made in respect of reimbursements - Held, yes - Assessee was a firm of solicitors and advocates - During assessment proceedings, Assessing Officer noted that assessee had made payments to various lawyers for their professional services, but had not deducted tax at source under section 194J from same - He, therefore, disallowed such payments under section 40(a)(ia) - Assessee contended that amounts paid to lawyers were reimbursed by assessee's clients and when deduction was not claimed in respect of those amounts, there could not be any occasion to invoke section 40(a)(ia) - Commissioner (Appeals), however, upheld disallowance made by Assessing Officer - Whether without there being any categorical finding to effect that payments to outside lawyers were claimed as deductions in computation of profits, disallowance under section 40(a)(ia) in respect of such payments could be sustained - Held, no [In favour of assessee] 

Assessee has not credited interest in its books of account and such interest has not been paid in relevant year, and assessee claiming deduction in computation if income on merchantile basis, mandate of section 194A cannot be attracted to further invoke disallowance under section 40(a)(ia

Held by ITAT MUMBAI BENCH inPranik Shipping & Services Ltd. on 25-01-2012, [2012] 19 taxmann.com 107 (Mumbai - Trib.

"........................... the assessee did not credit such interest in the books of account under any account. Rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable in an earlier para. In view of the fact that the assessee has not credited the amount of such interest in its books of account and further such interest has not been paid in this year, the mandate of section 194A cannot be attracted. Rather this provision comes into play only when either the amount is credited in the books of account or interest is paid, whichever is earlier. Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted.

14. Probably this loophole was not contemplated by the Legislature while enacting the relevant provisions, which has been exploited by the assessee as a measure of tax planning. We cannot remedy the situation. In this year the deduction has to be allowed. It will be open to the Assessing Officer to consider the later development of actual payment or non-payment of interest to M/s Sahara India Financial Corporation Limited and deal with it as per law in such later years. This ground is allowed.

15. In the result, the appeal is allowed.