DCIT,CIRCLE-15(2), KOLKATA, KOLKATA vs. M/S L.G.W. LIMITED, NORTH 24 PARGANAS

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.1786/Kol/2016 Assessment Year :2012-13 DCIT, Circle-15(2), V/s. M/s L.G.W. Ltd., 10, Shantipally, EM Vill. Narayanpur, P.O. Bypass, Aayakar Rajarhat, Gopalpur, 24- Bhawan, Poorva, 6th Parganas (North), West Floor, R.No.615, Bengal-700136 Kolkata-700 107 [PAN No.AAACL 4670 N] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri G. Mallikarjuna, CIT- अपीलाथ� क� ओर से/By Appellant DR Shri A.K. Tibrerwal, AR ��यथ� क� ओर से/By Respondent 09-07-2018 सुनवाई क� तार�ख/Date of Hearing 05-10-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2012-13 is directed against the Commissioner of Income Tax (Appeals)-5, Kolkata’s order dated 29.06.2016, passed in case No.47/CIT(A)-5/Cir.14(1)/15-16, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties Case file perused. 2. The Revenue’s first substantive ground challenges correctness of the CIT(A)’s action reversing assessment findings disallowing the taxpayer’s commission payments made to foreign export agents amounting to ₹257,60,898/- for non deduction of TDS u/s 40(a)(i) as follows:- “1. Commission to Foreign agents - Rs.2,57,60,898/- The AO has added sum of Rs.2,57,60,898/- by holding that the said amounts were paid to foreign agents without deduction of TDS u/s.195. The addition has been made u/s

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 2 40a(i). There is no dispute about the nature of payment being commission paid to foreign agents except for small amount of Rs.36,30,643j -, which is claimed by the appellant to have been paid to Indian agents after deduction of tax at source. The AO has proceeded by assuming that all the amounts are commission paid to foreign agents and that no TDS was effected u/s.195 of the I.T. Act, 1961. 1 2. A part of the AR's submission dated 14-03-2015 has been reproduced on page 2 of the AO's order, which claims that the commission was paid to overseas brokers for obtaining order outside India in respect of exports of raw cotton as well as other items. There is further plea from the appellant's AR that the income of those brokers did not accrue in India or was not deemed to accrue in India and thus the amounts were not liable to TDS as no business connection or establishment is claimed to be in existence in India. 1.3. The AO has not recorded any finding on the nature or details this commission claimed to have been paid to foreign agents. But, he has dealt at length with the provisions of Section 9(1) of the Income Tax Act and some circulars such as Circular No.786 of 2000 and Circular No.7 of 2009 and has concluded on page 3 of his order to the effect that income of a non-resident shall be deemed to accrue or arise in India in cases where business connection exists even if the said non-residents (foreign commission agents) have not rendered services in India. The relevant observation on page 3 is reproduced as under: “In other words, from the above specific provisions of Section 9 as amended by Finance Act 2010, it is clear that income of a non-resident (foreign commission agents) shall be deemed to accrue or arise in India in cases where it has accrued or arisen whether directly or indirectly through or from any business connection in India or from other source of income in India even if the these non-residents (foreign commission agents) have not rendered services in India or do not have a residence or business place in India." 1.4. The AO has not supported his case by any details or findings that there was business connection in India in cases of commission agents rendering services outside India. From the Assessment Order it appears that the AO has applied wrong clauses to the issue at hand. For example, Clause No.VI of sub-section 1 produced on page No.3 is not under sub-section 1 as noted but appears in the Act under Explanation 2 to Sec.9(1)(vi) which applies for royalty whereas the payments involved commission to foreign agents. Thus, reading from this clause which appears under Explanation 2 and which applies in cases of royalty, is bound to lead to wrong results. 1.5. The AR's submission on the point vide his submission dated 18-04-2016 is reproduced as under: GROUND NOs. 1, 2 and 3 1.0 The Appellant has taken all the aforesaid three grounds together since common issues are involved. The Appellant Company has challenged the disallowance of Rs.2,57,60,898 made by the Assessing Officer relying on the provision of section 40(a)(ia) of the Act, on the

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 3 alleged ground that the Appellant Company failed to deduct TDS under section 195 of the Act on the amounts of Commission allegedly paid to its foreign agents. Before going into the merits of the said disallowance, the appellant submits that the aforesaid sum of Rs.2,57,60,898 included an aggregate sum of Rs.36,30,643 paid to the Indian agents and on such payment of commission tax was duly deducted by assessee company and paid to the credit central government before the due date of furnishing the return of income of income. thus the disallowance of the aforesaid amount of Rs.36,30,643 which sum included in the sum of Rs.2,57,60,898 has wrongly been made by the Assessing Officer on assumption of facts contrary to records. 1.1 The Appellant Company submits that it had claimed an aggregate sum of Rs.2,57,60,898 towards commission paid to its agents for procuring business which sum included the sum of Rs.2,21,30,255 to its foreign agents having no place of business, (commonly referred to as PE, in India and a sum of Rs.36,30,643 to its Indian agents. 1.2 It is most respectfully submitted that the Appellant Company was not statutorily required to deduct tax at source on commission paid to its overseas agents since they did not have any place of business in India. The commission of Rs.2,21,30,255 was paid to them for their services rendered outside India mainly for procurement of orders. It is settled law that no TDS is required to be deducted by an assessee on any amount paid to non-resident, having no PE in India, since such payment does not constitute income chargeable to tax in mote. Reference is made to the following judgments in support of the aforesaid submissions. (i) CIT vs. EON Technology (P) Ltd. [2011J 203 Taxman 266(Del) (ii) DCIT vs. Divi's Laboratories Ltd. [2011J 1311TD 271 (Hyd) (iii) Commissioner of Income Tax vs. Toshoku Ltd. [1980J 125 ITR 525 (SC) (iv) Vijay Ship Breaking Corporation & Others vs. CIT [2009J 314 ITR 309 (SC) (v) G E India Technology Centre P. Ltd. vs. CIT [2010J 327 ITR 456 (SC) (vi) Commissioner of Income Tax vs. Faizen Shoes Pvt Ltd. [2014J 367 ITR 155 (Mad) (vii) CT vs. Fluidtherm Technology Pvt. Ltd. [2015J 57 taxmann.com 87 (Mad) 1.3 However the Id. DCIT did not agree with the submission of the assessee as aforesaid and disallowed the amount of commission paid to overseas agents by wrongly invoked the provisions of Sec 40(a)(i) and by alleging that the assessee was responsible for deduction of TDS on such payments on the grounds stated hereunder. The Appellant most humbly and respectfully submits that these ground were never raised by the AO in tile assessment proceedings but has been raised in the assessment order for the first time

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 4 without allowing any opportunity to the Appellant to submit its explanation on the same. (i) When the source of income emanated from business activities of the assessee in India the taxability of income is governed by Section 9 of the Act. As the assessee company has not deducted tax at source on the payments made for service rendered by the foreign agents, the rigours of section 40(a)(i) are attracted. (ii) All the cases relied upon by the assessee company as above pertained to the period when the circular No. 786 of 2000 issued by CBDT was in existence. According to him the subsequent Circular bearing No. 712009 issued by CBDT on 22-10-2009, would mean and imply withdrawal of the benefit of Non deduction of TDS contained in Circular No. 786 of 2000. According to him subsequent to issue of the aforesaid circular 712009 the assessee is obliged in law to deduct Tds while making payments to foreign agents. (iii) By virtue of substitution of Explanation below section 9(2) by Finance Act 2010 with retrospective effect, the requirement of having a residence or place of business or business connection in India has been dispensed with. And according to him, now the assessee is required to deduct TDS in all cases of payment to non- residents irrespective of the fact as to whether such non- residents are having any place of business in India or not. Thus the AO was of the opinion that payment made to foreign agents for commission in respect of service rendered by them outside the territory of India is now liable for TDS in India and failure to deduct TDS would attract provision of section 40(a)(i) of the Act. 1.4 The Appellant, in response to the aforesaid grounds raised by the Assessing Officer, in the impugned assessment order submits that the Ld. Assessing Officer has not understood the meaning of Explanation below section 9(2) of the Act and also misunderstood the content of CBDT Circular No. 7/2009. The Appellant most respectfully submits as under: (i) The provisions of section 9 and/or substitution of Explanation to section 9(2) of the Act does not change the existing law relating to non- deduction of TDS on payment of commission to overseas commission agents having no place of business or PE in India. This issue has been dealt in by various decisions of Appellate Courts including those cited herein above. Reference is made to the recent judgment of Hon'ble Madras High Court in the case of CIT vs. Faizan Shoes (P) Ltd. [2014J 48 taxmann.com 48 (Mad) equivalent to [2014J 367 ITR 155 (Mad). In this case the Hon Hon'ble High Court, after referring to the Explanation to Section 9(2) of the Act inserted by Finance Act 2010 and also the Circular No. 7/2009 dated 22.10.2009 and also the provisions of sec. 9 of the Act, held that the services rendered by the non-resident agent can at best be called service for completion of the export commitments and would not failed within the definition of "fees for technical service" or "royalty" or "interest" within the meaning of the Section 9(2) read with clause (v), (iv) or (vii) to section 9(1) of the Act. The Honble Madras High Court therefore held that the position of law in relation to deduction of TDS on payment of commission to overseas

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 5 agent would continue as before and Circular No. 786 of 2000 still holds good. It was ultimately held that the law pronounced by Hon 'b!e Supreme Court in the case of G E India Technology Centre P. Ltd. Vs. CIT [2010J 327 ITR 456 (SC) still hold the field and therefore there is no liability of an Indian assessee to deduct TDS on payment of commission to overseas agents having no PE in India. The aforesaid judgement has been followed in the following cases – (i) CIT vs. Fluidtherm Technology (P) Ltd. [2015] 57 taxmann.com 87 (MAD) (ii) CIT vs. Farida Leather Company [2016] 66 taxmann.com 321 (MAD) (iii) CIT vs. Kikani Exports (P) Ltd [2014] 49 taxmann.com 601 (MAD) (iv) CIT vs. Orient Express [2015] 56 taxmann.com 331 (MAD) (v) ACIT vs. India Shoes exports (P) Ltd [2015] 57 taxmann.com 303 (Chennai) (vi) ITO vs. Trident Exports [2014] 44 txmann.com 297 (Chennai) (vii) ACIT vs. Vilas N Tamhankar [2015] 55 taxmann.com 413(Mum) (viii) DCIT vs. Divi’s Laboratories Ltd [2011] 12 taxmann.com 103 (Hyd) (ix) Armayesh Global vs. ACIT [2012] 51 SOT 564 (Mum) 1.5 The appellant most humbly submits that once it is found that the amendment to sec. 9(2) of the Act by Finance Act 2010 and/or Circular No.7/2009 does not chande the existing situation then the celebrated judgement of Hon'ble Supreme Court in the case of G E India Technology (P) Ltd. vs. CIT (2010) 327 ITR 456 (SC) hold the field and is squarely applicable to the facts of the cases and the assessee cannot be said to be guilty of non- deduction of TDS on commission payments to its overseas agents having no PE in India. 1.6 The Appellant mist humbly and respectfully submits that the Assessing Officer was not justified in law in disallowing the amounts of commissions paid by the assessee company to its overseas agents. 1.7 With regard to payment of commissions of Rs.36,30,643 to the Indiana agents of the Appellant, tax at source was duly deducted and therefore the Assessing Officer was not justified in disallowing the same. Details of Commission paid, tax at source deducted and TDS certificates issued to the Indian agents are enclosed in the Paper book in support of the aforesaid submissions made by the assessee. 1. 6. It would be apposite to refer to relevant sections 9(1((i), 9( 1 )(vii) and 9(2) of the Act, which read as under: (1) all income accruing or arising, whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India; (vii) income by way of fees for technical services payable by - (a) the Government; or

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 6 (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) A person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day April, 1976, and approved by the Central Government. Explanation 1. - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2. - For the purposes of this clause, ''fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to, accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before !:he 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation. - For the removal of doubts, it is hereby declared that from the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, - (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India." 1 7. On similar facts the decision of the Apex Court in case of CIT vs. Toshoku Ltd. [1980] 125 ITR 525 (SC) is reproduced as under: "8. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assesses during the relevant year. This takes us to s.9 of the Act. It is urged that the commission amounts should be

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 7 treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non- resident: assesses and the statutory agent. This contention overlooks the effects of Cl. (a) of the Explanation to cl.(i) of sub-s.(l) of s.9 of the Act which provided that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing there from shall be deemed to have accrued in India. If however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonable attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India (See CIT v R.D.Aggarwal and CO. [1965J 56 ITR 20 (SC) and Carborandum Co. v. CIT [1977] 108 ITR 335 (SC) which are decided on the basis of s.42 of the Indian I. T. Act , 192, which corresponds to s. 9( l)(i) of the Act). 9. In the instant case, the non-resident assesses did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an opera ion carne out y the assesses in India as contemplated by cl. (a) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assesses for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the department." 1.8. The decision of the High Court of Madras in the case of CIT vs, Faizan Shoes P. Ltd. {[2014] 48 Taxmann Corn. 48 (Madras)} applies in the present case also as facts and legal issues are similar. A portion of the said decision as in para - 12 is reproduced as under: "12. In the light of the above said decisions and the finding rendered by us on the earlier issue that the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of ''fees for technical services", we are the firm view that Section 9 of the Act is not applicable to the case on hand and consequently, Section 195 of the Act does not come into play. In view of the above finding, the decision of the Supreme Court in Transmission Corpn. of A.P. Ltd.'s. case (supra), relied upon by the learned Standing Counsel for the Revenue is not applicable to the facts of the present case. We find no infirmity in the order of the Tribunal in confirming the order of the Commissioner of Income Tax (Appeals)."

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 8 1.9. What was required on the part of the AO in the present case was to demonstrate that the income accrued or arose in India or is deemed to accrue or arise in India. There is no finding in the assessment order on this requirement of law whether income accrued or is deemed to have accrued in India in cases of payments of commissions to foreign agents. Similarly, it has not been shown by the AO that these foreign agents were residents in India. On the contrary, the AO has presumed that the said foreign agents were non- residents as is clear from various clauses or parts of the assessment order. Once the payees are non-residents and the income does not arise in India or is not deemed to accrue in India the said income cannot be taxed under I.T Act. The test of business connection also becomes irrelevant once the income, whole of the business operation [Clause (a) of Explanation 1 under Sec.9(1)(i)] and the payees are outside Indi. The Assessing Officer's decision, therefore, cannot be sustained. Thus grounds No.1 2 and 3 are allowed.” 3. We have given our thoughtful consideration to rival contentions. There is no dispute so far as the basic facts pertaining to the instant issue are concerned. The assessee has made commission payments to overseas agents in lieu of procuring export orders for outside markets. There is no material in case file which could suggest either of these to have received any service in details. It is in this backdrop of facts that CIT(A) has held the said overseas commission agents not to have rendered any service in India giving rise to taxability of their commission income in India. Hon'ble apex court’s decision in G.E. India Technology Centre Pvt. Ltd. vs. CIT (2010) 327 ITR 456 (SC) has settled the law that TDS deduction comes into play only if the corresponding income is taxable in the recipients’ hands in India. The assessee’s payees / agents neither have any permanent establishment in India u/s 9(1)(i) of the Act nor they have any commission activity performed in India so as to be exigible to assessment in India. We therefore uphold CIT(A);s detailed findings extracted hereinabove based on correct appreciation of facts in light of various judicial precedents to conclude that he has rightly deleted the impugned foreign agents commission disallowance of ₹257,60,898/- made in the course of assessment. The Revenue fails in its first substantive ground. 4. Next comes the Revenue’s second substantive ground seeking to revive sec.14A r.w. Rule 8D disallowance of ₹20,48,875/- made in the course of assessment comprising of proportionate interest and administrative

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 9 expenditure under second and third limb of Rule 8D computation involving corresponding sums of ₹90,53,109/- and ₹95,770/-; respectively. The CIT(A) has deleted only former of said two components as follows:- “3.0 Ground Nos. 4 & 5 – Section 14A: As per page 23 and 27 of the Paper Book the investment picked up by the AO and the borrowing are summed up as under:- Non-current investment 192.81 190.27 (31.03.2012) (31.03.2011) Note: 6: Short Term Borrowings: Loan from Bank-Secured Export 3,697.62 3,481.07 Packing credit (31.03.2012) (31.03.2011) The above figures are balance sheet items of the respective dates. A copy of CIT(A)’s order for Assessment Year 2010-11 in the appellant’s case has been appended on page 71 to 78 of the Paper Book. It is seen that the CIT(A) in the said appellate order has decided the issue. The relevant portion of the said decision is reproduced as under:- After careful consideration of the facts of the case, it is observed that the AO has merely applied the formula provided in the Rule 8D in a mechanical manner by taking the average of total investment whereas appellant company has in its disallowance taken the average of those investment exempted within the relevant previous year. Hence, there is force in the appellant’s contention has to determine and bifurcate the expenses between those relatable to taxable income and non-taxable and to disallow those which are relatable to non-taxable income. it is observed that the appellant company having sufficient own funds and there is force in the contention of the appellant that the total amount of Rss.8,78,92,349/- debited as finance cost in the P&L A/c represented interest on packing credit it was for the purpose of the business. Considering the above discussion and the ratio of the cited case laws, it is found that the AO was unable to establish nexus between interests related to non-exempt income. Hence, the disallowance of Rs.28,68,411/- by invoking the provisions of sec. 14A read with Rule 8D(2)9ii) is found to be not justified. The AO is directed to delete the disallowance amounting to Rs.28,68,411/-‘ 3.1 In the current year the AO has made the same disallowance by apportioning the finance cost in accordance to Rule 8D2(ii). The facts are identical. I have no reason to take a different view in the current year. The Assessing Officer's action, therefore, cannot be sustained. The grounds 4 & 5 have to allowed except for the addition made under Rule 8D(2)(ii), which has been offered by the appellant as is clear from page 4 of the assessment order. In other words disallowance made

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 10 under Rule 8D(2)(ii) is deleted. The ground Nos. 4 & 5 are thus partly allowed.” 5. Heard rival contentions. It has come on record that Revenue’s only endeavour is to revive proportionate interest expenditure disallowance only. It fails to rebut the CIT(A)’s clinching findings that the instant taxpayer had sufficient interest free funds and also that the issue has attained finality in preceding assessment year. We therefore reject Revenue’s second substantive ground as well by adopting judicial consistency. 6. The Revenue’s third substantive ground pleads that CIT(A) has erred in law as well as on facts in deleting transportation charges disallowance of ₹16,91,03,135/- u/s 40(a)(ia) of the Act made in the course of assessment vide following detailed discussion:- “2. Transportation Expenses – Section 40a(ia) 16,91,03,135/-. The AO noted that the appellant claimed expenditure on freight and transportation of Rs.16,91,03,135/- and did not effect TDS. The appellant's plea before the AO was that in terms of Section 194C(6) TDSs was not required to be deducted from payments made to transporters wherever PAN No. was made available to the appellant. Details of payments made to transporters showing PAN Numbers is claimed to have been enclosed to the AR's submission dated 14-03-2015. In other words the appellant's plea is that once transporters furnished PAN Numbers Section 194C(6) did not allow the appellant to deduct TDS. It is seen that the appellant did not file or fill instances of Nil deduction from payments to transporters in Form 26Q originally filed by the appellant. The AO's case is that since the appellant did not comply with the provisions of Section 194C(7) read with Rule 31A within the prescribed time the liability ix] s.194C(6) would come back or resurrect itself. In other words the AO's case is that in cases Section 194C(7) are violated the waiver of tax deductions provided u/s. 194C(6) gets withdrawn. The AO has on this logic held the appellant liable to deduct TDS and since it failed to deduct the AO applied Section 40a(ia) to make additions of all the above sum of transportation and freight charges. 2.1 The appellant’s plea as contained in its AR’s submission dated 18-04-2016 is reproduced as under: GROUND NO. 6 & 7: 3.The issue raised in the aforesaid ground relate to disallowance of a sum of Rs.16,91,03,135 paid by the payment of freight charges to Transporter for alleged failure to deduct TDS and/or failure to file the statutory return in time. For making such disallowance the Assessing Officer relied on the provision of section 40(a)(ia) of the Income Tax Act, 1961 read with section 194c(6) and section 194(7) of the said Act. He has disallowed the same only on the ground that the Appellant Company failed to submit return in Form No. 26Q within the time allowed under section 194(7) of the Act read with Rule 31A of the Income Tax Rules, 1962, although he was

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 11 satisfied that the provision of section 194(6) were applicable to the case of the appellant company. 3.1 The Appellant Company refers to the following provision contained in Section 40(a)(ia) read as under: Notwithstanding anything to the contrary in section 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profit and gains of business or profession - (a) in the case of any assessee- (ia) any interest, commission or brokerage, rent, royalty, fees for professional service or fees for technical service payable to a resident or amounts payable to a contractor or sub contractor, being resident, for carrying out any work, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction has not been paid on or before the due date after deduction, has not been paid or before the due date specified in sub section (1) of section 139; 3.2: in the appellant case no tax was required to be deducted in view of the provisions contained in section 194C(6) of the Act. The aforesaid fact has been accepted by the assessing officer, but he has disallowed the payment of freight on the simple ground that the appellant has not complied with the provisions of section 194C(7) i.e figures of freight has not been reflected in Form 26Q. He has also accepted that Form 26Q was revised by the appellant company at a later date i.e before the completion of assessment. 3.3 The Appellant Company most humbly and respectfully submits that it is an admitted fact that it was not liable to-deduct tax at source on payment of freight charges. The law is very clear on this issue. The provision of Section 40(a)(ia) clearly say that the disallowance for payment to contractors (which includes freight payment) would be made if the assessee (i) did not deducted the tax which is deductible under Chapter XVIIB; or (ii) fails to pay the amount of tax deducted at source within the stipulated time. The law does not say that the sums so deducted or not deducted by the assessee in accordance with law could be disallowed for failure to furnish the statutory returns of TDS or any other returns relating to the provisions contained in Chapter XVIIB. 3.4 In support of the aforesaid submissions, the assessee company refers to and relies on the following judgments of High Court as well as the judgment of jurisdictional High Court which is binding on all the authorities below: (i) CIT Vs. Valibhai Khanbhai Mankad. (2012) 28 taxmann.com 119 (Guj) - In this Honble High Court held that on disallowance could be made under section 40(a)(ia) of the Act for failure to submit Form No. 15J as was required to submitted under Rule 29D. (ii) CIT vs. Sri Marikamba Trenspor: Co. (2015) 57 txmann.com 273 (Karnataka) - In this case also aforesaid view was taken and it was held that non-filing of Form No. 15-I/J is only a technical defect and the provision of Section 40(a)(ia) are not attracted in such a case. (iii) ITO, Ward 9(2) vs. Gautam Roadways (P) Ltd. ITA No.1290/Kol/2011 (Kolkata Tribunal) - In this case Hon'ble Tribunal in Para 5 of the order held that once the specified form have been collected under Rule 290(4)(J7) by the assessee even if the same is not submitted to the CIT for one reason or another, the assessee is not

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 12 required to deduct tax at source u/s 194C of the Act and therefore provisions of section 40(a)(ia) cannot be applicable. 3.5 The appellant company most respectfully submits that the facts of the instant case are identical and therefore the Assessing Officer was not justified in invoking the provisions or section 40(a)(ia) to disallow the freight paid by the assessee without deduction of TDS simply for the reasons that the assessee failed to furnish necessary return in time. 2.2. In my view once the transporters furnish PAN to the appellant deductor the provisions of 194C(6) mandates that no TDS is to be effected. Liability to deduct is at the time when the payments are made. On furnishing of PANs by the transporters such liability ceases by virtue of Section 194C(6). In such cases deducting TDS by the appellant would have been illegal. Filing of PAN or other details in prescribed form in terms or 194C(7) is the requirement coming in time much after dates of payments or deductibility. Omission to file relevant details in required forms is default of different requirement and cannot affect the lack of liability u/s.194C(6). The later act of not filing forms or relevant details in terms of section 194C(7) is a different default. Such default cannot hold the appellant liable again for deduction of TDS. The AO's action of holding the appellant, in the facts and circumstances of the case, liable to deduct TDS cannot be sustained. Accordingly the application by the AO of Section 40a(ia) cannot thus be upheld. These grounds (6&7), therefore, are allowed.” 7. We have considered rival submissions. The Revenue’s only argument during the course of hearing is that although assessee had complied with the relevant conditions u/s 194(6) of obtaining the necessary declaration alongwith PAN No. of the payees, it has failed to satisfy all the necessary condition enshrined in sec. 194(7) of the Act. We find no merit in the instant argument since the CIT(A) has considered a catena of case law (supra) vis-à- vis sec. 194(6) of the Act to conclude that assessee’s liability to deduct TDS arises at the time of payments as against that envisaged in sec. 194C(7) of the Act. This tribunal’s decision in ITA No. 1420/Kol/2015 dated 09.009.2016 Soma Rani Ghosh vs. DCIT also reiterates the very principle. We therefore uphold the CIT(A)’s findings deleting the impugned disallowance qua the instant issue as well.

ITA No.1786/Kol/2016 A.Y. 2012-13 DCIT Cir-15(2), Kol. Vs. M/s L.G.W. Ltd. Page 13 that the impugned disallowance is not sustainable in case the assessee deposits the impugned contribution the same before the due date filing its return. There is no exception pointed out to this legal position during the course of hearing. We decline Revenue’s instant last substantive ground as well. 9. This Revenue’s appeal is dismissed. Order pronounced in the open court 05/10/2018 Sd/- Sd/- (लेखा सद%य) (�या'यक सद%य) (Dr. A.L. Saini) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 05/10/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-DCIT, Circle-15(2), 110, Shantipally, EM Bypass, Ayakar Bhawan Poorva, 6th Floor, Room No. 615, Kolkata-107 2. ��यथ� / Respondent 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �'त'न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।