ITO, CHENNAI vs. FRIENDS CLEARING & SHIPPING AGENCY PVT LTD., CHENNAI

The appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-6, Chennai, dated 23.03.2017 in for the assessment year 2011-12 passed U/s.250(6) r.w.s. 143(3) of the CO No.105/Chny/2017 Act. The assessee has also raised cross objections against the order of the Ld.CIT(A).

Revenue’s Appeal:- The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in restricting the disallowance to Rs.17,09,735/- U/s.37 of the Act towards clearing and forwarding charges as against the addition made by the Ld.AO amounting to Rs.68,38,941/- invoking the provisions of Section 40(a)(ia) of the Act.

Assessee’s Cross Objection:- The assessee has raised five grounds in its cross objection however the crux of the issue is that the Ld.CIT(A) has erred by not deleting the entire addition of Rs.68,38,941/- made by the Ld.AO towards labour charges instead of restricting the disallowance U/s.37 of the Act to 25% of the same.

The brief facts of the case are that the assessee is a private limited company engaged in the business of logistic services filed its return of income for the assessment year 2011-12

On appeal, the Ld.CIT(A) after examining the materials on record arrived at the conclusion that towards the expenses incurred on customs duty amounting to Rs.5,89,412/-, provisions of TDS are not applicable, the expense incurred towards CFS charges amounting to Rs.2,67,63,967/- the importers had directly made the payment hence the assessee was not bound to deduct TDS. Further the expenses incurred towards steamer agent charges amounting to Rs.4,82,97,712/- the circular No.723 dated 19.09.1995 is applicable and hence the assessee was not bound to CO No.105/Chny/2017 deduct TDS. However with respect to the other clearing and forwarding charges amounting to Rs.68,38,941/-, the Ld.CIT(A) held that the assessee was not liable to deduct tax because those payments had been made without any contract or subcontract. However, since the assessee was not able to produce any evidence with respect to the genuineness of payment due to lack of external vouchers, the Ld.CIT(A) restricted the disallowance invoking the provisions of Section 37 of the Act to 25% of Rs.68,38,941/-. Accordingly an amount of Rs.17,09,735/- was sustained by the Ld.CIT(A), aggrieved by which the Revenue as well as the assessee are in appeal before us.

At the outset, we do not find any infirmity in the order of the Ld.CIT(A), because the Ld.CIT(A) after obtaining the materials on record and remand report had arrived at the conclusion that the expenditure incurred towards forwarding and clearing charges were labour charges paid to labourers wherein there was no contract or sub-contract existing between the assessee and the receipants of the wages. Further the Ld.CIT(A) had disallowance 25% of the aggregate expenditure of Rs.68,38,941/- because there were no proper external vouchers to justify the entire expenditure, which CO No.105/Chny/2017 seems to be justifiable. Hence we hereby uphold the order of the Ld.CIT(A) on this issue.

Since we have upheld the order of the Ld.CIT(A) by sustaining the addition of Rs.17,09,735/-, the cross objection raised by the assessee does not survive, which is against sustaining the addition of Rs.17,09,735/-.

In the result the appeal of the Revenue as well as the cross objection of the assessee are dismissed.