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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM
O R D E R PER R.C.SHARMA (A.M.) : These are the cross appeals filed by the assessee and revenue against the order of CIT(A), for the assessment year 2008-2009, in the matter of order passed under Section 143(3) of the I.T. Act.
Rival contentions have been heard and record perused. Facts of the case are that assessee is engaged in the business of transport. During the course of scrutiny assessment the AO made various disallowance u/s.40(a)(ia), on account of consignment and handling charges, telephone and conveyance expenses, staff welfare and sales promotion, sundry expenses. By the impugned order CIT(A) allowed part relief, against which both assessee and revenue are in appeal before us.
We have considered rival contentions and carefully gone through the orders of authorities below and found from record that the AO had disallowed expenditure of Rs.1,34,16,341/- u/s.40(a)(ia) on account of terminal handling charges and freight charges. By the impugned order the CIT(A) after recording detailed finding allowed partial relief after observing as under :- 6.1.12 have also examined some of the bills raised by the non- resident/their agents in respect to which the assessee has claimed that no tax was required to be deducted at source in view of the provisions of section 172 and the Board's Circular. For eg., expenditure of Rs. 1,02,19,720/- has been claimed by the assessee under the head 'Terminal Handling charges' on account of the client Alok Industries Ltd. for carriage of goods by H & H Unes, a foreign shipping line i.e., a non-resident. Debit Note no.104 dtd.01/02/2008 raised by the assessee on M/s. Alok Industries Ltd. for Rs.1,72,417/- for carriage of goods by M/s.H & H Lines to Pakistan includes freight of Rs.1,41,321, The (terminal handling charges) of Rs.26,925/-, Documentation charges of Rs.750/-,Service tax on THC of Rs. 3,328/- and Service tax on documentation charges of Rs.93/-. These payments made by the assessee as C & F agents for M/s. A/ok Industries Ltd. was reimbursed by the said A10k Industries Ltd. These sums dearly fall under the nature specified in Section 172(2) r.w.s. 172(8). Similarly, the assessee has debited on expenditure of Rs.4.7,30,543/- on account of terminal handling charges and freight charges consisting of Rs.46,96,386/- paid to RCL Feeder Pte Ltd., Singapore and Rs. 34,157/- paid to RCL Feeder Maritime Services Pvt. Ltd., agents for RCL Feeder Pte Ltd., Singapore, the foreign shipping line. The invoices of the shipping line show that the payments of Rs.46,96,386/- consists of Ocean Freight, THC (terminal handling charges) and BAF (Bunker Adjustment factor which is part of freight). These payments are also in the nature of payments specified in Section 172 on which the provisions of Section 194C and 195 would not apply as mandated by Circular No.
The assessee has debited an amount of Rs. 99,02,144/- as terminal handling and freight paid/payable to Seabridge Maritime Agencies Pvt. Ltd. as agents of foreign shipping lines. ITO (TDS)-3(2) has issued a general certificate dt. 05/04/2007 u/s 197 authorizing payment of freight, handling charges, detention charges, tug and charter wire charges to M/s Seabridge Maritime Agencies M. Ltd. without deduction of income tax. A test check of the bills show that the payments are generally on account of Ocean Freight, bunker adjustment factor, currency adjustment factor, documentation charges, ship security surcharge, terminal handling surcharge, etc. on which no tax is required to be deducted in view of the provisions of Section 172 and Circular No.723 of the Board. 6.1.13 In view of the above, I am of the opinion that no tax is required to be deducted at source in respect of amounts paid/payable to the non-resident ship owners or charterers and/or their agents on their behalf for carriage of passengers, livestock, mail or goods shipped at a port in India by a ship belonging to or chartered by such non-resident. Such amounts would include freight, demurrage, handling charges, terminal handling charges or any amount of similar nature. The Assessing Officer is therefore, not justified in holding that the assessee was not liable to deduct tax at source only on the amounts paid/payable as freight while the remaining expenses in the nature of demurrages, handling charges and other amounts of similar nature would not be allowable as deduction u/s 40(a)(ia) since the assessee had not deducted tax at source on such payments on the ground that these payments are not covered by the Board's Circular No.
723. The Assessing Officer is, therefore, directed to verify the issue accordingly, and in light of my above findings and disallow only those expenses which are not covered by the provisions of Section 172 or by non-deduction tax certificate. At the same' time, if it is found that any amount is required to be disallowed u/s 40(a)(ia) for the reason that tax had not been deducted at source, the Assessing Officer is directed to disallow only that amount which remains payable as on 31/03/2008 and the amount which stands paid during the year is not tobe disallowed in view of the decision of the Hon'ble Special Bench in the case of Merylin Shipping & Transport (supra). 6.1.14 With respect to payments made to Orient Transport Co. Ltd., Kolkata, S & R Pest Control and Shreyas Consultancy Services, it has been submitted by the assessee that these payments are not in the nature of payments made to the non-resident ship owners or charterers or their agents for the purposes specified in sec.
172. In my opinion, therefore, the provisions relating to tax deduction at source would be applicable in respect of these payments/expenditures and the Board's Circular No. 723 would not be applicable in respect of these payments/expenditure. The assessee has submitted that tax has been deducted at source on such payments and, therefore, no disallowance is called for in respect of these payments. The Assessing Officer is directed to verify this contention of the assessee. If the assessee has, in fact, deducted tax at source on the amounts pertaining to the said concerns as required by law and has paid the same as per the provisions of sec. 40(a)(ia), the disallowance should be deleted. If tax has not been deducted at source on such amounts, the AD will make the disallowance u/s 40(a)(ia). However, such disallowance shall be restricted only to the amount which remains payable as on 31/03/2008 and the amount which stands paid during the year is not to be disallowed in view of the decision of the Hon'ble Special Bench of Vishakapatnam Tribunal in the case of Merylin Shipping and Transport (supra). 6.1.15 There are other concerns to whom the assessee has claimed to have made payments on account of handling charges and freight, etc. For eg., the assessee has claimed to have made such payments to Shipping Corporation of India and has contended that no tax was deducted at source since it was a public sector company. This contention 'of the assessee cannot be accepted since there is no exemption provided in the Act from deduction of tax at source on payments made to public sector undertakings, if tax was required to be deducted at source. In the course of the appellate proceedings, the assessee has given details of the parties to whom sec. 172 is not applicable. Such parties are as follows :- Amount of payment (Rs.) i) Mehta Brothers 3,02,055/- ii) All cargo Global Logistics Ltd. 2,60,557/- iii) Aeromar cargo 3,08,749/- iv) Balmer Lawrie and Co. Ltd. 7,95,320/- v) LCL Agencies 1,13,264 vi) Globe Unk WW India Pvt. Ltd. 1,85,314/- vii) Associated Groupage 4,73,198/- viii) Gateway Distripark (South) Pvt. Ltd. 5,61,173/- ix) --do-- 41,52,115/- x) Renuka Logistic India Pvt. Ltd. 6,11,633/- xi) Sanco CFS 1,00,431/- xii) UT Worldwide India pvt. Ltd. 1,25,805/- xiii) Jeena & Co. 26,091 xiv) Other miscellaneous parties for freight, THC and provisions 6.1.16 Since the above payments have been made to residents for freight and terminal handling, etc. as claimed by the assessee and no tax has been deducted at source by the assessee as required by the Act, the above amounts are to be disallowed u/s 4O(a)(ia) of the I.T. Act, 1961 as these payments, as per the assessee's own admission, are not covered by the provisions of sec.
However, in such cases, the Assessing Officer will make the disallowance only as per the ratio of the decision of the Hon'ble Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra) and as discussed hereinabove.”
We have considered rival contentions and do not find any infirmity in the direction given by the CIT(A) to verify the expenses and to delete the disallowance in respect of expenditure actually paid before the end of Merilyn Shipping & Transport, 136 ITD 23. The CIT(A) observed that freight and other expenses which had been disallowed by invoking provisions u/s.40(a)(ia), if actually paid before the end of financial year, no disallowance is warranted. We do not find any infirmity in the order of CIT(A).
The CIT(A) has upheld the addition of Rs.46,96,818/- out of interest u/s.40(b) by observing as under :- 7.3.1 I have considered the facts of the case and the submissions made by the assessee. On a consideration of the facts of the case and the submissions made by the assessee, I find that the assessee has not been able to show that all the loans on which interest was claimed as an expenditure was utilized for the business of the assessee. In the appellate proceedings, other than making general statements, the assessee has not shown as to how the action of the AD of making the disallowance was not correct. As regards the working of the disallowance, the assessee's contention that business loans of Rs. 60.61 lakhs, vehicle loans of Rs. 33.35 lakhs and Book 00 of Rs. 23.94 lakhs should be reduced from the total loans for the purpose of working out the proportionate disallowance of interest is not acceptable because the AO has himself considered loan of only Rs. 4.51 crores out of the total loan of Rs. 6.26 crores taken by the assessee for working out the disallowance of proportionate interest. The action of the AO of making the disallowance of Rs. 46,96,819/- u/s 40(b) of the IT. Act, 1961 is, therefore, upheld. This ground of appeal
filed by the assessee is dismissed.
6. We have considered rival contentions and found that the AO has already excluded interest on the loans taken for business purpose, vehicle loan and bank OD. After recording detailed finding at para 7.3.1 the CIT(A) has upheld the disallowance. Hence, we do not find any infirmity in the order of CIT(A).
7. With regard to disallowance of consignment handling charges of Rs.60,42,305/-, the CIT(A) has allowed assessee’s claim to the extent of Rs.36,25,343/- and upheld disallowance to the extent of Rs.24,16,962/- after having following observations :- 8.3 I have considered the facts of the case and the submissions made by the assessee. I find that the Assessing Officer has made the addition on an ad hoc basis only on the ground that these expenses were not supported by external documents. However, I find that the assessee had given the purpose and the reasons for incurring the expenses. The AO has not found these reasons and, the purpose for which the expenses had been incurred and claimed, to be incorrect or false. Considering the nature of the expenses, it may not always be feasible to have external evidences in the form of bills, etc., for all the expenses. It is also pertinent to note that these expenses are incurred by the assessee on behalf of the clients and are claimed from them and shown an income by the assessee in its P&L A/c. It is also pertinent to note that these expenses are incurred by the assessee on behalf of the clients and are claimed from them and shown an income by the assessee in its P&L A/c. It is also pertinent to note that the assessee has been claiming these expenses in the earlier years as well as in the A.Y. 2009-10 subsequent to the A.Y. 2008-09. In the A.Yrs. 2006-07, 2007-08 and 2009-10, the assessee had claimed consignment handling charges of Rs. 88.94 lakhs on gross billing of 9.75 crores, Rs. 51.34 lakhs on gross billing of 8.26 crores and Rs. 1.38 crores on gross billing of 15.33 crores. These have been allowed by the Assessing Officers in scrutiny assessments and no disallowance has been made in any of these assessment years. As against this, in the A.Y. 2008-09, the assessee has claimed consignment handling charges of Rs. 1.2 crores on gross billing of 17.31 crores. However, at the same time, it is also unbelievable that the assessee will not have bills for 100% of the expenses claimed under the head. It is possible that there may be no external bills available for expenses like labour, conveyance, etc. considering the nature of expenses and the place of incurring of the expenses. However, to say that no bills at all would be available for all the expenses cannot be accepted. Considering the totality of the facts and circumstances of the case, I am of the opinion that it would be fair and reasonable to make an ad-hoc disallowance of 20% of the expenses claimed under the head since in the absence of any bills and documents at all, it can be safely presumed that the assessee has not been able to conclusively show that all the expenses had been actually incurred by it. Accordingly, the disallowance would work out to Rs.24,16,922/- The AO is, therefore, directed to restrict the disallowance to Rs.24,16,962/-. The balance disallowance is directed to be deleted. This ground of appeal filed by the assessee is treated as partly allowed.”
8. We have considered rival contentions and found that after verification of all the records the CIT(A) after giving detailed finding at para 8.3 restricted the disallowance to Rs.24,16,962/-. The finding recorded by CIT(A) are as per material on record. Therefore, do not require any interference on our part.
9. In the result, grounds taken by the assessee and revenue are dismissed.
10. The AO has also made adhoc disallowance of Rs.1,60,533/- @10% of expenditure claimed on account of staff welfare, sales promotion and conveyance. By the impugned order the CIT(A) restricted the disallowance in respect of conveyance expenses only after having observation at para 10.3, which reads as under :- 10.3 I have considered the facts of the case and the submissions made by the assessee. As regards Gr. No. 5, I find that the AD has made the disallowance in a routine manner in respect of the expenses on account of staff welfare, sales promotion and repairs and maintenance without bringing on record any material to show that such ad-hoc addition was justified. Also, the expenditure has not been shown to be not justified or that the same was not incurred for business purposes. However, I also find that the Assessing Officer had called for the supporting documents in respect of conveyance expenses and which were not furnished by the assessee in the course of the assessment proceedings. Considering the facts of the case, the submissions of the assessee and the totality of the circumstances, I am of the opinion that the ad- hoc disallowance in respect of staff welfare, sales promotion and repairs and maintenance cannot be sustained. However, in the absence of the assessee furnishing the supporting documents in respect of the conveyance expenses, the ad-hoc disallowance in respect of this expenditure @ 10% is upheld. The disallowance would, accordingly, work out to Rs.76,544/-. The balance disallowance of Rs. 83,989/- is directed to be deleted. This ground of appeal filed by the assessee is treated as partly allowed.”