ACIT 23(3), MUMBAI vs. S.R. BROTHERS, MUMBAI

ORDER PER G.S.PANNU,A.M:

The captioned appeal by the Revenue and Cross-objection by the assessee are directed against the order of CIT(A)-34, Mumbai dated 02/08/2016, pertaining to Assessment Year 2006-07, which in turn has arisen from the order dated 31/01/2014 passed by the Assessing Officer under section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (in short ‘the Act’).

by the assessee read as under:- “1. On the facts and circumstances of the case and in Law, Hon.CIT(A) has erred in confirming the disallowance of Rs.7,53,143/- in respect of the payments made to the Transport Agent.

2. On the facts and circumstances of the case and in law, Hon.CIT(A) has disregarded the fact that the payments made to the Transport agents are largely for shipping Charges or Octroi charges and Agency Commission was below the threshold limit.”

4. Although the assessee has raised two Grounds, but the solitary issue is with regard to disallowance of Rs.7,53,143/- sustained by the CIT(A) under section 40(a)(ia) of the Act. The Ld. Representative for the assessee pointed out that the instant appeal is a second round of litigation as a consequence of the earlier order of the Tribunal in ITA No.

(A.Y. 2006-07) C.O.NO.97/MUM/2018 5361/Mum/2009 for assessment year 2006-07 dated 30/03/2012, wherein the matter relating to the disallowance under section 40(a)(ia) of the Act was restored back to the file of the Assessing Officer. In the instant remand proceedings, the Assessing Officer made a disallowance of Rs.50,91,206/- under section 40(a)(ia) of the Act purportedly for non- deduction of tax at source on freight charges. The CIT(A) allowed major relief, however, to the extent of Rs. 7,53,143/- the addition has been sustained by him, against which assessee has filed the captioned cross objection. In this context, the Ld. Representative for the assessee has referred to para 12.6 of the order of the CIT(A), which reads as under:-

“12.6 As far as payments made to City Transport Syndicate Pvt Ltd. and Delux Roadways are concerned, it is observed that the payments are made for freight against Shipping Bills and against Octroi Bills. Such payments are clearly covered by that portion of the aforesaid judgments, where Hon'ble High Court has held that payments made to the resident agents otherwise than on account of airfreight payable to his principal are open to deduction at source under section 194(C). In this regard, I do not find any merit in the argument of the Ld. AR that these payments are exempted under circular no. 723, dated 19/09/1995. As discussed in the preceding paragraphs, the CBDT circular is applicable only in the cases of shipping companies covered u/s 172 of the IT. Act. Such benefits cannot be extended for other payments Hence, it is concluded that the benefits of no-deduction of tax at source is not applicable to City Transport Syndicate Pvt. Ltd. and Delux Roadways. Therefore, it is held that the AO has correctly disallowed the expenses with respect to payments of Rs. 7.53.143/- made to City Transport Syndicate Pvt. Ltd. and Delux Roadways u/s 40(a)(ia) of the IT. Act.”

The Ld.Representative for the assessee pointed out that the disallowance of Rs.7,53,143/- comprises of payments to three concerns namely, (i) City Transport Syndicate Pvt. Ltd. – Rs.5,49,834/-, (ii) OMX – Rs.1,15,324/- and (iii)Delux Roadways Rs.87,985/-. It is pointed out that the CIT(A) has erred in noting that the impugned payments are liable for deduction of (A.Y. 2006-07) C.O.NO.97/MUM/2018 tax under section 194(C) of the Act. The Ld.Representative for the assessee submitted that the CIT(A) notes that Circular No. 723 dated 19/09/1995 was applicable only in the case of Shipping Companies covered under section 172 of the Act; but the CIT(A) has wrongly not considered the payment to M/s.City Transport Syndicate Pvt. Ltd. to be covered by such circular as such payments are for contract of shipping. In this context, he has referred to page – 7 of the Paper Book, wherein the relevant details alongwith sample invoices are placed, which shows that the payments are made for shipping freight. Secondly, with regard to the payments to M/s.Delux Roadways and M/.OMX, our attention has been drawn to the relevant pages of the Paper Book to point out that the major payments are towards octroi amounts and the balance of the payments are towards freight charges, which are below the threshold limit requiring deduction of tax at source under section 194(C) of the Act. In the context of Delux Roadways, our attention has been drawn to page – 35 of the Paper Book, wherein is placed the relevant details. Similar position has been asserted with regard to the payments to M/s.OMX also.

(A.Y. 2006-07) C.O.NO.97/MUM/2018 authorities. We find that the CIT(A) notes that the payment to M/s.City Transport Syndicate Pvt. Ltd. is not covered by Circular No.723(supra) on account of it, not being a shipping company. Be that as it may, the details referred to by the appellant show that prima-facie, such payments are for the shipping freight. Even in the case of M/s.Delux Roadways and M/s.OMX, the plea is that major amounts are on account of octroi payments, which do not require deduction of tax at source under section 194(C) of the Act. Therefore, considering the entirety of facts and circumstances, in our view, it would be in the fitness of things that the Assessing Officer shall verify the aforesaid aspects and thereafter, work out the disallowance under section 40(a)(ia) of the Act, if any, qua the payments to the three parties in question. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter, pass an order afresh as per law. Accordingly, the cross objection of the assessee is partly allowed, as above.

Above decision was pronounced in the open court in the presence of both the parties at the conclusion of hearing on 07/08/2018.