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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 03.09.2014 of ld. CIT(A)-XXV, New Delhi.
Following grounds have been raised in this appeal: “On the facts and in the circumstances of the case and in law, the CIT(A) was incorrect and unjustified in:- 1) Dismissing the appeal. 2) Holding that action u/s 147 read with section 148 has been rightly taken and consequently also incorrect in dismissing the additional ground taken in this behalf. 3) Holding that the assessee was liable to deduct tax u/s 40(a)(ia).
2 Rajdhani Enterprises 4) Holding that addition of Rs. 11,93,446/- has been rightly made by the AO. 5) Holding that action u/s 147/148 has been rightly taken even when the reasons recorded do not satisfy the necessary condition of "income" escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for such assessment. 6) Confirming the addition of Rs. 11,93,446/- u/s 40(a)(ia) even when such provision are not applicable to the assessee. 7) Confirming the addition of Rs. 11,93,446/- even when alternatively the assessee cannot be held in default in not deducting the tax in view of proviso to section 40(a)(ia) 8) Confirming the addition of Rs. 11,93,446/- even though no such expenses have been claimed by the assessee as expenditure in its profit and loss account.”
The main grievance of the assessee in this appeal relates to the confirmation of addition of Rs.11,93,446/- made by the AO u/s 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Facts of the case in brief are that the assessee filed the return of income on 30.11.2006 declaring an income of Rs.1,79,327;/-. The AO initiated the proceedings u/s 148 of the Act for the reasons that the assessee had incurred an expenditure of Rs.36,97,012/- on direct 3 Rajdhani Enterprises expenses which included freight etc., on which TDS was not deducted. It was further observed that the direct expenses exceeded threshold limit prescribed u/s 194C of the Act and since the assessee had not deducted tax on such payments those were to be disallowed as per the provisions of Section 40(a)(ia) of the Act. The AO made the impugned addition by observing as under: “From the above total expenses of Rs. 36,97,012/-, the assessee has to deduct the tax at source as per the provision of Section 194C on the following payments on account of Freight made on behalf of the Principal company: M/s. Honda Siel Power Products Ltd. Freight Rs. 7,54,058/- M/s. Shriram Automotive Products Ltd., Pasonda Depot. Freight Rs. 9,69,362/- On being asked, the assessee has filed a chart showing the above payment. From the chart filed by the assessee it has been noticed that the assessee was liable to deduct the tax under the preview of Section 194C of the Income Tax Act, 1961 on the followings payments made to the following parties on account of Freight;- In case of M/s. Shriram Automotive Products Ltd. i) Flying Golden Rs.1,85,192/- ii) V.L.T. Rs.1,08,337/- iii) A.R.C Rs.1,66,887/- iv) Singh Carriers Rs.59,563/- v) Patel Roadways Rs.74,909/- vi) Kanpur Delhi Rs.51,541/- Total freight paid Rs. 6,46,429/- In case of M/s. Honda Siel Power Products Ltd. i) Flying Golden - Rs.1,96,270/- ii) V.L.T. - Rs. 99,001/- 4 Rajdhani Enterprises iii) Navrang Rs.1,13,536/- iv) Trains Rs.56,494/- v) Greens Rs.81,716/-" Total Rs.5,47,017/- Grand Total Rs.11,93,446/- From the above it is clear that the assessee has to deduct the tax on account of Freight paid amounting to Rs. 11,93,446/-as detailed above under the provision of Section 194C of the Income Tax Act, 1961 but the same has not been deducted by the assessee. The same is added to the income of the assessee.”
Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the addition by observing in para 4 of the impugned order which read as under: “4. I have given a thoughtful consideration to the written submissions made and the arguments and pleas advanced by the appellant during the course of appellate proceedings. The ground on which Ld. AO founded the addition was also meticulously considered. Having regard to the relevant material aspects having a bearing on the case and all material evidence on record, I am of the considered view that the additions made by the Id. AO on account of non-deduction of tax at source of Rs.11,93,446/- u/s 40(a)(ia) of the Act rested on sound footings. There was no gainsaying the fact that the responsibility to make the payments to the transporter contractors lay on the appellant. Section 40(a)(ia) of the Act applies to persons responsible for making payments to the contractors. In the instant case, it was undeniably the appellant who was responsible for the payments to the transport contractors. Accordingly, the appellant erred in law in not deducting the tax at source u/s 40(a)(ia) while making the payments to the transporters.”
5 Rajdhani Enterprises 6. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that expenses were not claimed in the profits and loss accounts, as alleged by the AO. A reference was made to page no. 30 of the assessee’s paper book which is the copy of the profit and loss account for the year ended on 31.03.2006. It was stated that the assessee was earning the commission and no payment was made either to M/s Shriram Automotive Products Ltd. or M/s Honda Siel Power Products Ltd. It was further stated that the assessee was a clearing and forwarding agent and acting as an intermediary between the principal and the transporter, its total income was only from commission and interest and that the entire operation of the assessee was as per the directions and instructions of the principal. It was also stated that as per the agreement, the assessee first incurred expenditure including expenditure of payment of freight to the transporters which was then reimbursed to the assessee by the principal after deducting TDS and such expenses were never claimed as expenditure of the assessee and hence there was no such debit in the profit and loss accounts. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified. The reliance was placed on the following case laws: � ITO, Co., Ward-1(2) Vs Ahaar Consumer Products (P.) Ltd. (2011) 10 Taxmann.com 181 (Del.) � CIT Vs Hardarshan Singh (2013) 30 Taxmann.com 245 (Del.) � CIT Vs Cargo Linkers (2009) 179 Taxman 151 (Del.)
6 Rajdhani Enterprises � Mohan Gupta (HUF) Vs CIT-XI (2014) 44 Taxmann.com 171 (Del.) � Dr. Bindeshwari Pathak Vs CIT (2012) 20 Taxmann.com 845 (Pat.) � Mahadev Trading Co. Vs ITO, Ward-5(4) (2012) 18 Taxmann.com 353 (Ahd.) 7. In his rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observations made in their respective orders.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee acted only as an intermediary and there was no privity of contract between the assessee and client of carriers of goods. The assessee was clearing and forwarding agent and made the payments to the transporters which were reimbursed by the principal who deducted the TDS. On perusing the copy of profit and loss account placed at page no. 30 of the assessee’s paper book. It is noticed that no such expenses were debited in the profit and loss account. The AO, however, made the disallowance u/s 40(a)(ia) of the Act. The provisions contained in the said Section, relevant to the year under consideration, read as under: “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— 7 Rajdhani Enterprises (a) in the case of any assessee— ………………………………… ………………………………... Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work). On which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139:]”
9. From the aforesaid provisions, it is crystal clear that these provisions are applicable when any amount has been debited in the profit and loss account and deducted in computing the income chargeable under the head profits and gains of business or profession. In the present case, nothing has been deducted by the assessee from the income in the profit and loss account. Therefore, provisions of Section 40(a)(ia) of the Act are not applicable to the facts of the present case. On a similar issue the Hon’ble Jurisdictional High Court in the case of CIT Vs Hardarshan Singh (2013) 30 Taxmann.com 245 (supra) held as under: “8. In Cargo Linkers (supra), it was contended on behalf of the assessee that the assessee was not the 'person responsible' for making payment in terms of section 194C of the said Act. In that case, the Tribunal had also noted and found as a matter of fact that the assessee was nothing but an intermediary between the exporters and the airlines as it booked cargo for and on behalf of the exporters and mainly facilitated the contract for carrying goods. The principal contract was between the exporter and the airline. This court, in Cargo Linker's (supra), agreed with the view of the Tribunal which had mainly decided an issue of fact, 8 Rajdhani Enterprises namely, the nature of the contract between the parties concerned. The Court also observed that it had also been found as a matter of fact that the contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the 'person responsible' for deduction of tax at source in terms of section 194C of the said Act.
We feel that the decision in Cargo Linkers (supra) completely covers the case in favour of the assessee and against the respondent. The Tribunal has already found as a matter of fact that the contract was between the assessee's clients and the transporters and that the assessee had mainly acted as a facilitator or as an intermediary.”
A similar view has been taken by the Hon’ble Jurisdictional High Court in the case of CIT Vs Cargo Linkers (2009) 179 Taxman 151 (supra). I, therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to cases, set aside the impugned order and the addition made by the AO and sustained by the ld. CIT(A) is deleted.
In the result, the appeal of the assessee is allowed. (Order Pronounced in the Court on 30/05/2017)