INCOME TAX OFFICER, CIVIC CENTRE, NEW DELHI vs. NAVEEN ARORA, LAJPAT NAGAR, DELHI

This Revenue’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2024-25/1064892539(1), dated 15.05.2024 involving proceedings under section 144 of the Income- tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.

Coming to the Revenue’s former substantive ground that the CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action treating the assessee expenditure of Rs.2,79,47,174/- as unexplained under section 69C of the Act; we note that his lower appellate discussion to this effect reads as under: “3.1 The assessee is engaged in the business of console agents for International freight forwarding. The name of the proprietorship concern of the assessee Pawansoot Freight Solutions. The Assessment Year 2017-18, an ex-parte assessment order u/s.144 was passed by the Assessing Officer on 17.12.2018. In such order two additions were made by the Assessing Officer. The first being addition u/s.69A of unexplained money for Rs.26,52,500/-, which was deposited by the assessee in its bank accounts with HDFC bank and ICICI bank respectively during the demonetization period. The other issue was of disallowance of Rs.2,79,47,174/- on account of unexplained expenditure u/s.69C of the Act as the assessee failed to deduct tax at source on the remittances made by it to foreign nationals/entities. Aggrieved with the order the assessee has raised this appeal. 3.3 For clarity of the issue ground No.2 raised by the assessee against unexplained expenditure for lack of deduction of tax at source u/s.195 is analysed and discussed first. The assessee during the appeal proceedings has stated that to understand the reasons for the remittance in foreign currency the steps involved in his business has to be understood first. 3.4 As explained by the assessee when a customer approaches the assessee to get their goods from outside India to any sea port or airport in India as import the assessee arranges for such transportation and the cost is got reimbursed from the client. In addition to the reimbursement of freight charges, the assessee further charges his service charge and the handling charges [on actual basis). At first, it raises bill to the consignee and sends debit note to the consignee at the same time it approaches the foreign cargo handler situated at the foreign country who arranges the transport. The foreign cargo handler issue debit note to the assessee who after 2 | P a g e getting the fund from the client remit it to the cargo handling at such foreign country in foreign currency. Upon arrival of the goods in Indian port/airport, the assessee gives 10642539) Intimation to the Customs Department for inspection for such imported goods. Thereafter, on receipt of the clearance and payment of dues to the Government, he arranges to get the goods from the port/airport and arranges for further transport to the client consignee. Upon completion of the service, it raises bills charging the service charges and actual cost incurred at the port/airport. 3.5 From the above flow of events, it is understood that the foreign remittance made by the assessee are on behalf of its client and the payments are made to the transporters of the origin country from where the goods are imported. Now the Assessing Officer in the assessment order found that there had been such remittance to the tune of Rs.2,79,47,174/- in Indian currency. The remittances were made in foreign currencies in US Dollar. 3.6 The Assessing Officer found that for procuring such services, the assessee had to deduct tax at source u/s.195 of the Act, failure to which renders such purchase or service as unexplained expenditure. 3.7 The assessee during the appeal submitted that the income of the foreign transporter comes under purview of taxation in India u/s.172 of the Act. He relied on the case of Elve Corporation case of Mumbai ITAT, wherein it was held that there is no warrant for application for section 195 in case of any income covered by Section 172. 3.8 I find that the Department has challenged the said decision of the Mumbai ITAT before High Court at Bombay. In the reported decision dated 22.10.2016, relying on the case of CIT Vs. V. S. Dempo & Co. Pvt. Ltd. [reported in 66 Taxmann.com 93], the Bombay High Court decided the issue in favour of the assessee. It is further seen that the Department's SLP was withdrawn due to low tax effect and Hon'ble Supreme Court allowed such withdrawal. Therefore, the principle laid down in the V. S. Dempo & Co. Pvt. Ltd. case is the guiding interpretation of law in this regard. In the order in the case of V. S. Dempo & Co. Pvt. Ltd. dated 05.02.2016, the High Court of Bombay categorically found that there is no need to recover tax at source u/s.195 for cases of non-residents whose income is covered u/s.172. The said decision has been followed in other Tribunals too including ITAT Amritsar Bench in the reported decision in 70 Taxmann.com 83. Respectfully following the above-mentioned decision, I agreed with the contention of the assessee and find that the addition made by the Assessing Officer as unexplained expenditure due to non-deduction of 3 | P a g e tax at source on the remittance made by the assessee to foreign transporter is unreasonable and fir to be deleted. 3.9 The appeal of the assessee is, therefore, allowed.”

The Revenue vehemently argues that the Assessing Officer had rightly disallowed the assessee’s entire impugned claim for low TDS deduction thereof at the assessee’s behest. We find no merit in the Revenue’s instant vehement contentions as it has failed to prove taxability of the impugned expenditure as income in the foreign recipient’s hands which could attract TDS provisions going by GE India Technology Centre Pvt. Ltd. Vs. CIT (2010) 327 ITR 456 (SC). We thus see no reason to interfere with the learned CIT(A)’s action deleting the impugned expenditure disallowance.

We next come to the Revenue’s latter issue of section 68/69A unexplained cash deposits during demonetization amounting to Rs.26,52,500/- made in assessment order dated 17.12.2019 and deleted in the lower appellate discussion. There could be hardly any dispute that the assessee is engaged in freight forwarding business wherein possibility of such a cash turnover in ordinary course could not be altogether denied although it had failed to plead and prove the necessary reconciliation and verification before the Assessing Officer. Learned counsel has further referred to the 4 | P a g e assessee’s cash balances from time to time in the relevant financial year as well. Be that as it may, we are of the considered view in this factual backdrop that a lumpsum addition of Rs.2 lakhs only in the given facts would be just and proper with a rider that the same shall not be treated as a precedent. The leaned CIT(A)’s detailed discussion deleting the impugned entire addition of Rs. 26,52,500/- is confirmed to the extent of Rs.24,52,500/- in very terms. Necessary computation shall follow as per rules.

So far as assessee’s assessment under section 115BBE is concerned, we quote S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. The assessee is accordingly directed to be assessed under the normal provision as per law.