ARVINDER SINGH,NEW DELHI vs. ACIT, CIRCLE- 34(1), NEW DELHI

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals]-12, New Delhi dated 20.09.2017 pertaining to assessment year 2013-14.

The grievances raised by the assessee read as under:

Briefly stated, the facts of the case are that the assessee is engaged in the business of export of automotive under the name and style of M/s Haks International. During the course of assessment proceedings, the A.O observed that the assessee has claimed expenses of Rs. 18.49 lakhs under the head freight on export. The details of freight on export revealed that the assessee has made payments to M/s Velji Dosabhai & Sons Pvt. Ltd. amounting to Rs. 9,73,167/- of which no tax was deducted at source. The assessee was asked to explain why tax was not deducted at source on the said payment. In his reply, the assessee stated that the ships used by M/s Velji Dosabhai & Sons Pvt. Ltd belonged to non-residents or were chartered by non residents.

It was explained that the payment of Rs. 9,73,167/- represents payments made for remittances to agents of non-resident shipping companies. Therefore, the assessee is not obliged to deduct tax u/s 194C of the Act. It was, therefore, explained that the said payment is nothing but reimbursement of expenses and on that count also, the assessee is not liable for TDS. The Assessing Officer observed that M/s Velji Dosabhai & Sons Pvt. Ltd is not acting in the capacity as an agent of NRI Shipping Company and, therefore, CBDT Circular No.723 dated 19.09.1995 is not applicable. The Assessing Officer further observed that the assessee is making payments to its agent M/s Velji Dosabhai & Sons Pvt. Ltd, who in turn, is making payment to agent of non-resident shipping companies. The Assessing Officer was of the opinion that the provisions of section 172 of the Act are applicable only when the payment is made to the non-resident shipping company or its agent.

The Assessing Officer was of the firm belief that the provisions of section 194C of the Act squarely apply on the facts of the case and since the assessee has not deducted tax at source, he made the addition u/s 40(a)(ia) of the Act amounting to Rs. 9,73,167/-.

The assessee agitated the matter before the ld. CIT(A) but without any success.

Before me, the ld. counsel for the assessee drew my attention to the chart of freight for the year under consideration and pointed out that the amount paid to M/s Velji Dosabhai & Sons Pvt. Ltd is nothing but reimbursement of expenses incurred by him. The ld. counsel for the assessee further pointed out that only handling charges amounting to 41,950/- is not reimbursement, since the same is less than Rs. 75,000/-, the same is not liable for deducting tax at source within the provisions of section 194C of the Act.

The ld. counsel for the assessee further drew my attention to the details of TDS made by M/s Velji Dosabhai & Sons Pvt. Ltd which are exhibited at pages 324 to 335 of the paper book. It is the say of the ld. counsel for the assessee that since M/s Velji Dosabhai & Sons Pvt. Ltd has deducted tax at source, there is no revenue leakage.

Per contra, the ld. DR supported the findings of the ld. DR.

I have carefully considered the orders of the authorities below. Without going into the merits of applicability of section 172 of the Act, I find that Exhibits 52 and 53 of the paper book shows payment made by the assessee to M/s Velji Dosabhai & Sons Pvt. Ltd. From this chart, which is supported by relevant bills, I find that except for handling charges, all other payments are nothing but reimbursement of expenses. In my considered opinion, on reimbursement of expenses, there is no liability for deducting tax at source. In so far as handling charges are considered, same totals to Rs. 41,950/- and as per the provisions of the Act, if total payment during the year does not exceed Rs. 75,000/, there is no liability to deduct tax at source, I, therefore, agree with the contention of the ld. counsel for the assessee. On the given facts, the assessee is not liable for deducting tax at source. Therefore, disallowance made u/s 40(a)(ia) of the Act is uncalled for. The Assessing Officer is directed to delete the addition of Rs. 9,73,167/-.

Ground No. 2 relates to addition of Rs. 6 lakhs being commission paid to Smt. Vibha Arora and Smt. Uma Rani as sales commission.

The Assessing Officer has disallowed the commission paid to these two persons because he was of the opinion that in A.Y 2011-12 similar commissions was claimed by the assessee. The Assessing Officer examined these two persons under oath and after examining them, sales commission paid to these two persons was disallowed. Taking a leaf out of the findings given in A.Y 2011-12, the Assessing Officer disallowed sales commission paid to these two persons. The assessee could not get any relief from the CIT(A) and is, therefore, before me.

The ld. AR drew my attention to the relevant documentary evidences in support of the claim of payment of sales commission. It is the say of the ld. AR that both the persons are assessed to tax. The payments have been made through account payee cheques on which tax has been deducted at source at applicable rates and payment is reflected in their respective bank statements. It is the say of the ld. AR that the Assessing Officer cannot question the reasonableness of the expenses, in as much as, he cannot put himself in the armchair of a business man and decide how much is a reasonable expenditure having regard to the circumstances of the case.

The ld. AR further drew my attention to the statements of the two persons and pointed out that while examining these two persons on oath, the Assessing Officer had asked specific questions relating to the receipt of commission from the assessee and what business these recipients have procured for the assessee.

The ld. AR stated that both the ladies have given specific and direct answers to the Assessing Officer. It is the say of the ld. AR that the recipients of commission have explained the nature of transaction entered into by them and thus the genuineness of the transactions has been established.

Per contra, the ld. DR could not add anything on what the Assessing Officer has observed.

I have carefully considered the orders of the authorities below qua the issue. I have also gone through the relevant documentary evidences brought to my notice by the Assessing Officer which are placed in the paper book. Firstly, there is no dispute that both the persons are assessed to tax and they have shown the sales commission in their respective return of income. There is also no dispute that the assessee has deducted tax at source as per the applicable rates.

The only dispute is in relation to the genuineness of the transaction and the purpose of paying sales commission to these two ladies. In my considered opinion, the Assessing Officer is not the right person to decide which expenditure the assessee should incur in furtherance of his business.

Ground No. 3 relates to adhoc disallowance made on account of expenses under the heard vehicle maintenance, interest on car loan, telephone expenses, travelling expenses and depreciation on car.

Total expenditure claimed under these heads is Rs. 29.36 lakhs. The Assessing Officer has disallowed 1/8 th of the expenses so claimed and has made addition of Rs. 3,67,103/- which was considered by the CIT(A) who restricted the disallowance to the extent of 1/10th of the expenses and disallowance was restricted to Rs. 2,06,727/-. In my considered opinion, personal element cannot be ruled out as observed by the CIT(A) and the first appellate authority has already given relief to assessee on this count. No interference is called for. Addition of Rs. 2,06,727/- is confirmed.

In the result, the appeal filed by the assessee in is partly allowed.