M/S. FAIRMACS SHIPPING TRANSPORT CO. PVT. LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The assessee filed this appeal against the order of Commissioner

of Income Tax (Appeals)-6, Chennai in ITA No. 196/CIT(A)-6/2015-16 dated

12.07.2016 for assessment year 2009-10.

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engaged in the business of Coastal Cargo, Air Cargo, Transport & Clearing &

Forwarding Container and Freight Forwarding. In the assessment made u/s.

143(3) r.w.s. 147 for the assessment year 2009-10, the AO found that for the

payments made at Rs. 15,78,00,945/- TDS was not made, the assessee could

not produce any documents till the time of passing the assessment order and

hence the AO added Rs. 15,78,00,945/- u/s. 40(a)(ia) for non-deduction of

TDS. Aggrieved, the assessee filed an appeal before the CIT(A). In the

return submissions filed before the CIT(A), the assessee included the

following documents:

i. Exemption Certificate for freight charges paid Rs. 6,58,84,521/-

ii. Payments which are exempted from TDS Rs. 3,95,49,095/-

iii. Payments made to parties less than threshold limits Rs 17,05,967/-

iv. Form 26A Rs. 1,21,23,290/-

After considering such claim, the CIT(A) directed the AO to undertake

necessary verifications with regard to the documents furnished at (i), (ii) &

(iii) supra, i.e., the exemption certificates for freight charges, the payments

which are exempted from TDS and payments to parties less than threshold

limits. The CIT(A) also held that after necessary due diligence and

verification, the AO may allow relief to the appellant as per law. The

appellant is directed to produce all the necessary evidences before the AO for

verification. However, with regard to Form No. 26A submitted by the

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assessee, the CIT(A) held that the assessee’s case is for assessment year

2009-10, prior to insertion of second proviso to section 40(a)(ia) w.e.f.

01.04.2013. Hence, the relief sought at Rs. 1,21,23,290/-,for which the

assessee has submitted and Form 26A, was not allowable and accordingly

confirmed the disallowance made by the AO. While doing so, the CIT(A)

relied on the decision of the Hon’ble Kerala High Court in Thomas George

Muthoot vs CIT in ITA No. 278, 279, 282, 283, 288, 289 290 &292/2014.

Further, he confirmed the disallowance made at Rs 3,85,38,072/- for which no

details has been furnished by the assessee.

“1. The learned Commissioner of Income Tax (Appeals)-6 has disallowed a sum of Rs. 5,06,61,632/- being expenses incurred during the relevant previous year towards Freight and other related expenses under section 40(a)(ia) of the Act. 2. The learned CIT(A) has erred in applying the provisions of section 40(a)(ia) of the Act. The appellant in this case does not have any outstanding balance payable to the Sundry Creditors providing Freight and other related services. In such a case, where there is no outstanding balance as at the end of the close of the year relevant to the assessment outstanding balance as at the end of the close of the year relevant to the assessment year, the section shall not apply in the appellant’s case. 3. The appellant craves leave to adduce additional grounds of appeal at the time of hearing.”

3.1 Later on, the assessee filed additional grounds of appeal, the relevant

portions are extracted as under:

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“4. The Commissioner of Income Tax (Appeals) erred in concluding that second proviso to section 40(a)(ia) read with proviso to section 201(1) of the Act is not retrospective in operation i.e., applicable only with effect from 1st April 2013.

7.(i) the reassessment be annulled as the same is not in accordance with the provisions of the Act;

(ii) The disallowance of freight charges paid Rs. 5,06,61,362 u/s. 40(a)(ia) of the Act be deleted; and

(iii) The provisions of the second proviso to section 40(a)(ia) be held as applicable retrospectively.”

At the time of hearing the AR did not press for the grounds relating to the

validity of re-opening the assessment. In view of that the corresponding

grounds are not extracted, supra, and hence those grounds are treated as

dismissed. With regard to other grounds, we heard the rival contentions and

admit them.

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in respect of payment of Rs. 1,21,23,290/-. The CIT(A) upheld the

disallowance made by the AO on the ground that second provisio of section

40(a)(ia) does not have retrospective operations i.e., it is applicable only

w.e.f. 01.04.2013 only. The AR further submitted that the second provisio of

section 40(a)(ia) r.w. Provisio of section 201(1) is declarative and curative in

nature and hence it is applicable w.e.f. 01.04.2005 and relied on the Delhi

High Court decision in the case of CIT-1 vs Ansal Land Mark Township (P)

Ltd., in ITA No. 160/2015 dated 26.08.2015. In view of that if the amount

paid by the payer has been included by the payee in his return of income for

relevant assessment year and the payee has filed the return of income u/s.

139 and has paid the taxes, no disallowance u/s. 40(a)(ia) could be made.

Relying on the Delhi High Court decision, supra, the AR pleaded that the

payments covered in Form No. 26A at Rs. 1,21,23,290/- mad kindly be

allowed.

4.1 In respect of Rs. 3,85,38,072/-, the disallowance sustained by the

CIT(A) for the reason that the assessee has not furnished details about them,

the AR submitted that out of the above: • Sums aggregating to Rs. 47,62,602 represents amounts paid to various

parties which are individually less than Rs. 50,000;

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• Sums aggregating to Rs. 13,93,151 represents amounts paid to various

parties who have obtained non-deduction of TDS from the tax

department; • Sums aggregating to Rs. 6,18,771 represents amounts paid to various

parties who have furnished Form 26A.

Further, the AR submitted that in the present case there is written or oral

agreement between the assessee and the recipients of goods for

transportation or carriage thereof, or that the payments of freight had been

made in pursuance of a contract of transportation of goods for a specific

period, quantity or price, that none of the individual payments exceeded Rs. 20,000. In this regard, he submitted that the CBDT Circular No 715 dated 8th

August, 1995 is applicable only where consolidated bills were raised inclusive

of contractual payments and reimbursement of actual expenditure. Similar

view has been held by the Delhi High Court in the case of CIT vs Career

Launcher India Limited (250 CTR 240). Notwithstanding the above, the AR

submitted that the scope of section 40(a) of the Act is limited to expenditure

u/s.s 30 to 38 in view of the non obstante preamble to the section and not in

respect of payments covered by trading and manufacturing account i.e. direct

expenditure. In other words, only if there is default in respect of tax

deduction viz. Non-deduction or failure to deposit after deduction thereof in

respect of sums referred in sections 30 to 38, the provisions of section

40(a)(ia) could be invoked to disallow such sums in that year where default

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has occurred. Lastly, the AR submitted that the CIT(A) failed to appreciate

that the assessee being a freight forwarder, the freight and other related

charges paid by the assessee on behalf of the exporter and importer are

deductable u/s.s 28 /29 of the Act and u/s.s 30 to 38 of the Act and hence the

provisions of section 40(a)(ia) of the Act is not applicable to such items of

expenditure which are deductable u/s.s 30 to 38 of the Act. Per contra, the

DR supported the order of the CIT(A).

In respect of the payments covered in Form 26A, the CIT(A) refused to allow

the claim on the basis of the Hon’ble Kerala High Court’s decision in Thomas

George Muthoot vs CIT, supra. On the other hand, the assessee is seeking

relief based on the ratio of the Delhi High Court, supra. We have gone

through the judgements. Neither the assessee nor the Revenue brought to

our notice any of the decision of the Jurisdictional High Court. The decision

relied on by the assessee is the latest and is in favour of the assessee. The

Delhi High Court after considering the reasoning of the Agra Bench of ITAT,

held as under:

“14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards as the rationale behind the insertion of the second proviso to section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005- merits acceptance.

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Following it, the issue is remitted back to the AO for re-examination and if the

assessee makes out the case in accordance with Delhi High Court’s decision

the AO is directed to allow the deduction claimed to that extent. To this

extent, the assessee’s appeal is allowed.

Rs. 3,85,38,072/- extracted, supra, and the assessee’s claim that the

assessee being a freight forwarder, freight and other charges paid by the

assessee on behalf of the exporter and importer and are deductable under

sections 28/29 of the Act and not under sections 30 to 38 of the Act etc., we

are of the view that the relevant facts require re-examination and hence, this

issue is remitted back to the AO for a fresh examination. After affording a

due opportunity to the assessee, the AO shall pass a speaking order. Thus,

corresponding grounds of the appeal filed by the assessee are treated as

allowed for statistical purposes.

statistical purposes.

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Order pronounced on Wednesday, the 27th day of December, 2017 at Chennai.

Sd/- Sd/- (धु�वु आर.एल रे"डी) (एस जयरामन) (DUVVURU RL REDDY) (S. JAYARAMAN) $या�यक सद%य/JUDICIAL MEMBER लेखा सद%य/Accountant Member

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