SRI. B. RAGHAVENDRA,HOSPET vs. D.C.I.T., BELLARY

The assessee has filed this appeal challenging the order dated 27.1.2016 passed by Ld. CIT(A), Gulbarga and it relates to assessment year 2007-08. None appeared on behalf of the assessee, even though the adjournment was granted on the earlier occasion at the specific request of the counsel of the assessee. Accordingly, we proceeded to dispose of the appeal ex-parte, without presence of the assessee.

The facts relating to the case are stated in brief. The assessee carries on different type of activities which includes trading in steel rods under the name and style “M/s. Srikant Traders”. During the year under consideration, the assessee has reported turnover of Rs.9.47 crores and shown purchases of Rs.9.09 crores. The assessee has also claimed a sum of Rs.34,63,085/- as carriage outward expenditure. The A.O. noticed that the assessee has claimed above said expenditure by debiting carriage outward account and crediting M/s. Rukmini Rama Steel Rollings Pvt. Ltd. The A.O. asked the assessee with regard to the deduction of tax at source from the freight charges so debited. The assessee explained that the selling price by the supplier included cost, freight, taxes and other duties. It was submitted that the freight was shown separately in order to avoid litigation with the excise authorities. Accordingly, it was submitted that though the freight was shown separately in the books of accounts, it forms part of cost of purchases. It was also submitted that freight charges was actually paid by M/s. Rukmini Rama Steel Rollings Pvt. Ltd. and in most of the cases, the actual freight paid by the above said company does not tally with the amount collected from the party. It was submitted that the business model of the assessee is that it places order with M/s. Rukmini Rama Steel Rollings Pvt. Ltd. and request them to supply the materials directly to its customers. Hence, the materials go directly to the customer’s place and accordingly, the freight charges are actually paid by M/s. Rukmini Rama Steel Rollings Pvt. Ltd. Accordingly, it was submitted that the above said company has taken responsibility to identify the transporter and Page 3 of 5 pay freight charges. Further, the selling price charged to the assessee included freight charges. Accordingly, it was submitted that there is no requirement for the assessee to deduct TDS. In support of the above said contentions, the assessee also filed a letter obtained from M/s. Rukmini Rama Steel Rollings Pvt. Ltd. stating that the prices charged by them to the assessee are inclusive of all duties and freight.

The A.O. however did not accept the explanations of the assessee. He took the view that the supplier is showing freight charges separately only to avoid payment of excise duty thereon. Accordingly, he took the view that the freight charges are paid by the supplier on behalf of the assessee and hence TDS would have been deducted therefrom. Since the assessee has not deducted tax at source from the freight payments, the A.O. disallowed the claim of Rs.34,63,085/- u/s 40(a)(ia) of the Act. The Ld CIT(A) also confirmed the same.

We heard rival contentions and perused the record. It is the submission of the assessee that selling price charged to it by M/s. Rukmini Rama Steel Rollings Pvt. Ltd. includes cost, freight, taxes and other duties. We notice that the assessee has furnished a letter from the above said company confirming the above fact. It is stated that the business model of the assessee is that order placed by the assessee is directly dispatched by the above said company to the assessee’s customer place. Accordingly, when the goods are forwarded, it is the supplier i.e. M/s. Rukmini Rama Steel Rollings Pvt. Ltd. which books the lorry and forward the goods to the customer place of the assessee. So there should not be any doubt that it is the above said company which engages the lorry and not the assessee. The question that arises is whether M/s. Rukmini

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 21st Feb, 2022.