M/S. DOABA ROLLING MILLS PVT. LTD.,,MUZAFFARNAGAR vs. JCIT, MUZAFFARNAGAR

This is an appeal filed by the assessee against the order of the ld CIT (A), Muzaffarnagar dated 01.12.2014 dated 2010-11. The assessee has raised the following grounds of appeal:- “1 That, in view of the facts and circumstances, the assessment order passed u/s 143(3) by the assessing officer and the additions made is illegal, bad in law and without jurisdiction. 2) That, in view of the facts and circumstances, the assessing officer has erred in law and on facts in completing the assessment at Rs.32,11,960.00 against the returned income at Rs.10,20,120.00. The addition of Rs.23,71,348.00 made by the assessing officer is unjust, excessive and highly arbitrary. The CIT(A) has also erred in upholding the same. 3) That. The AO has erred in making the disallowance/addition of Rs. 1,05,106 on account of interest on the ground that the assessee company has not charged any interest on the advance given to Smt. Razia Tak and Smt. Shaista Badar. The CIT(A) has also erred in upholding the same. 4) That, the AO/CIT(A) failed to appreciate in making the disallowance of interest at Rs. 1,05,106.00 that the said payment to the parties are in the nature of advance against the purchase of property. 5) That, the Assessing Officer has erred in law and on facts in making the addition/ disallowance of Rs. 1,88,355/- on account of Clearing & Forwarding Charges and Other Expenses on the ground that assessee in default in not deducting the TDS U/s 194C whereas there is no liability of the assessee company to deduct the TDS on the said payment as per the provisions of Section 194C. Page | 1 6) That, the Assessing Officer has erred, in view of the facts and circumstances, in law and on facts in making the addition/ disallowance U/s 40(a)(ia) of the Act of Rs.22,08,831/- on account of Shipping/IHC Charges paid to the foreign shipping company and Clearing & Forwarding Charges on the ground that assessee in default in not deducting the TDS U/s 194C whereas there is no liability of the assessee company to deduct the TDS on the said payment as per the provisions of Section 194C. The CIT(A) has also erred in upholding the same. 7) That the Assessing Officer, in view of the facts and circumstances of the case erred on facts and in law in making the ad-hoc addition/ disallowance on estimated basis, which is unjust, arbitrary, unlawful, highly excessive, based on surmises and conjectures and cannot be justified by any material on 8) The additions made and the observations made are unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record. 9) That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made. 10) That the impugned Assessment Order passed by the Assessing Officer and order passed by CIT(A) are against the principles of natural justice and the same has been passed without affording reasonable and adequate opportunity of being heard. 11) That the interest u/s 234A & 234B has been wrongly and illegally charged as the appellant could not have foreseen the disallowances/additions made and could not have included the same in current income for payment of Advance tax. The interest charged under various sections is also wrongly worked out.”

Brief facts of the case shows that assessee is a company engaged in the business of manufacturing of M S ingots, filed its return of income on 27/9/2010 of Rs. 1020120/–. The assessment under section 143 (3) of the income tax act was made on 28/3/2013 at the total income of ₹ 3 211960/–. The assessee preferred an appeal before the learned commissioner of income tax appeals who wide order dated 1/12/2014 partly allowed the appeal of the assessee. The Page | 2 assessee aggrieved with the order of the Commissioner of income tax appeals preferred an appeal before us. The only 3 issues are involved in this appeal (1) Disallowance of ₹ 1 05106/– confirmed by the learned commissioner of income tax appeals on account of interest for not charging interest on advances given to Mrs. Razia Tak and Shaista Badar. (2) disallowance of ₹ 1 88355/– on account of clearing and forwarding charges and other expenses on the ground that the assessee has not deducted tax at source under section 194C of the income tax act (3) the disallowance confirmed by the learned commissioner of income tax under section 40 (A) (i.e. a) of the act of rupees 2208831 on account of shipping and IHC charges paid to a foreign shipping company and clearing and forwarding charges on the ground that assessee has not deducted tax at source under section 194C of the income tax act.

Vide ground number 3 of the appeal the assessee has challenged the confirmation of the disallowance of ₹ 105106/- on account of disallowance of interest on the ground that the assessee company has advanced interest free loan to two persons. On the perusal of the audited balance sheet of the complete was observed that assessee has shown a sum of rupees for 9937410 under the head loans and advances. On verification of the loan and advances it was open by the learned assessing officer that assessee has advance loan to two persons of ₹ 4 04250 /- each. It was of the also noted that assessee has made payment of ₹ 9 462255/as as interest to bank. The assessee did not give any explanation before the assessing officer and therefore the learned assessing officer disallowed a sum of ₹ 1 05106/– on account of interest-bearing funds diverted to the advances without any purpose. The assessee contested the above disallowance before the learned commissioner of income tax appeals. Before him it was contested that the advances was made to the about to parties for purchase of land situated district Muzaffarnagar and therefore no interest was received from these parties. Before the assessing officer as well as before the learned commissioner appeals the assessee did not furnish any details and evidence regarding advances made to the aforesaid parties for the purchase of the land and therefore the learned commissioner appeals also confirmed the disallowance.

Before us, the learned authorised representative contested that that above advances is for the purchase of the land, therefore these are for the purposes of the business, and hence no disallowance on account of non-charging of interest on these advances can be made.

The learned departmental representative vehemently supported the orders of the lower authorities and submitted that the assessee has not produced any evidence that these advances are given by the assessee for the purchase of land. It is further not stated that when the land has been purchased by the assessee from these parties. He said therefore submitted that the assessee has failed to substantiate the business exigency in giving loans to these parties.

We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee has merely stated that assessee has given in advance to the two women of ₹ 4 04250/– each for the purchase of land. However, no documentary evidence or any agreement to sale was produced. It was also not shown to us that when the land was actually purchased by the assessee. In view of this, the argument of the learned authorised representative remains unsubstantiated. It is also fact that assessee has not charged interest on these advances and has paid huge bank interest. In view of this, we do not find any infirmity in the order of the lower authorities in confirming the disallowance of ₹ 1 05106 on account of interest. Accordingly, ground number 3 and 4 of the appeal of the assessee is dismissed.

The disallowance of ₹ 1 88355/– is challenges per ground number five of the appeal. The learned authorised representative could not show that where the disallowances been made by the learned assessing officer of this amount separately. In view of this, the ground number 5 of the appeal of the assessee is dismissed.

Ground number 6 of the appeal challenges the conformation of disallowance of Rs. 2208831. The learned assessing officer noted during the course of the assessment proceedings that the assessee is importing scrap and assessee has debited the expenses on account of haulage charges and shipping line charges and clearing agent charges in respect of those purchases amounting to Rs. 2208831/- no tax has been deducted thereon. The assessee was asked to explain with respect to the reason for not deducting tax on the above sum. The assessee company submitted that assessee has purchased imported scrap on high seas basis from M/s Utkal steel Ltd and M/s Royal Treximp private limited and all the expenses such as IHC charges and shipping line charges are borne by the above companies. It was stated that Assessee Company has not paid any clearing agent charges during the year. Assessee submitted the copies of the Page | 4 purchase bills from the above parties and the ledger account of those parties. However, the learned assessing officer rejected the contention of the assessee and stated that assessee has made payments to Indian resident companies and from the copy of the invoices produced and placed on record, it is evident that in those invoices it is clearly mentioned that payments have been made on account of haulage charges shipping line Charges and clearing agent charges. The assessee has also not furnished any certificate under section 197 of the income tax act. Therefore, the learned AO held that the payments have been made to the above said companies for various charges on which no tax has been deducted by the assessee. Therefore he disallowed Rs. 2208831/–. The assessee challenged addition before the learned Commissioner of Income Tax Appeals and reiterated the same facts. The learned commissioner appeals held that tax has not been deducted by the assessee on the haulage charges, clearing charges and shipping line charges by the assessee. He further held that provisions of section 172 and the circular relied upon by the assessee is also not applicable to the facts of the case as the assessee has made payment to the parties not in the capacity as an agent of the non-resident. Therefore, he confirmed the disallowance.

The assessee reiterated the same facts as reiterated before the lower authorities. The learned authorised representative also submitted the copies of the bills of Utkal steels Ltd starting from page number 3 – 17 of the paper book and the invoices of Royal Treximp private limited from page number 18 to 28 of the paper book. He also submitted the copy of the ledger account of both these parties. The main contention of the assessee is that that assessee has not paid any sum on account of freight, wholly charges and shipping charges on its own account however it is stated that the charges have been paid to Maersk India private limited on behalf of the seller of the goods. He stated that information contained at para number 7 of the assessment order shows that assessee has credited the account of Royal tax private limited for the entries dated 23/8/2009, 26/8/2009 and 7/9/2009. He further submitted that the other two entries noted by the learned assessing officer are for wholly charges. He further submitted that none of the bills has been raised by the recipient of the income on the assessee but they are on the sellers. Therefore, he submitted that assessee has purchased goods, which included all the expenditure on account of the sellers. As the assessee has paid the purchase price of the goods and not freight haulage Charges et cetera no tax is required to be deducted by the assessee and therefore there cannot be any disallowance.

The learned departmental representative vehemently submitted that if the assessee is not required to make payment then assessee should have made all the payment to the suppliers and wide has made payment to the various parties for freight and wholly charges. He further stated that from the debit note submitted by the assessee it is also not clear whether the charges are to be borne by the assessee or by the seller. He submitted that if the charges are to be borne by the seller there is no need of putting any debit not by those sellers on the assessee. He further referred to the various debit note issued by the seller in the name of the assessee stating the payment for shipping line charges and clearing agent charges. He therefore submitted that these documents clearly show that assessee is responsible for payment to the contractors for all these charges and therefore the assessee should have deducted tax at source. He vehemently relied upon the order of the learned assessing officer and the learned commissioner of income tax appeals stating that they have rightly dealt with the whole issue holding that assessee should have deducted the tax at source, assessee has failed to deduct the tax at source, and therefore there is a disallowance.

We have carefully considered the rival contentions and perused the orders of the lower authorities. On the appreciation of the evidence submitted before us it is apparent that assessee has purchased shredded steels scraps on high seas basis from two parties. Both the parties raised the bill of the goods separately on the assessee, which is placed in the paper book. The customs duty was paid by the assessee as per the bill of entry submitted at page number 10 of the paper book. Various bills of other service providers were though debited by the assessee to the import scrap account but assessee paid them. The suppliers also raised the debit notes for charges on the assessee. This is evident at page number 10 – 13 of the paper book however; bill of Maserk Line is raised on the supplier of the goods as per page number 16 and 17 of the paper book. In case of purchases from the second party the customs duty charges, shipping line charges and clearing agent charges are raised in the separate debit note for high seas sales by the supplier. In the copies of account of the supplier the assessee has credited all the expenditure to their account and ultimately paid by cheque to the supplier therefore, it is apparent that assessee has made the payment not to the agencies who provided the services but to the supplier. Even otherwise, Page | 6