Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM Asstt. Year : 2009-10 Income Tax Officer, Vs Sh. Arun Kumar Ward-1(1), 281, Boundry Road, Meerut Meerut (APPELLANT) (RESPONDENT) PAN No. AAYPK1784D Assessee by : Sh. O. P. Sapra, Adv. Revenue by : Sh. K. K. Jaiswal, DR Date of Hearing : 30.09.2015 Date of Pronouncement : 04.12.2015 ORDER PER N. K. Saini, AM:
This is an appeal by the department against the order dated 06.07.2012 of ld. ld. CIT(A), Meerut.
Following grounds have been raised in this appeal:
“1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in facts and law in deleting the addition of Rs. 12,44,115/- made by the AO u/s 40(a)(ia) of the IT Act, 1961 for non deducting TDS on air freight charges which he was required to deduct as per provisions of section 194C of the IT Act, 1961.
2 Arun Kumar Reliance is placed on the following judicial pronouncement and circulars:- (i) Associated Cement Co. Ltd. Vs Cit (1993) 201 ITR 435 (SC) (ii) CBDT circular no. 681 dt. 08.03.1994 (iii) CBDT circular no. 715 dt. 08.0.1995 (Question no. 30) 2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in facts and law in deleting the addition of Rs. 1,87,912/- made by the AO u/s 40(a)(ia) of the IT Act, 1961 for non making of TDS on sea freight which he was required to deduct as per provisions of section 194C of the IT Act, 1961 and payment made by the assessee squarely fell under the ambit of section 40(a)(ia) of the IT Act, 1961. Reliance is again placed on the judicial pronouncement/circulars as mentioned in ground no. 1.
That the appellant craves leave to add, modify and/or delete any grounds of appeal
4. In the facts and circumstances of the case, the order of the Commissioner of Income Tax (Appeals) may be set aside and that of the AO restored.”
3. The grievance of the assessee relates to deletion of addition of Rs. 12,44,115/- and Rs. Rs. 1,87,912/- made by the AO u/s 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as the Act)
3 Arun Kumar 4. Facts of the case in brief are that the assessee was earning the income from export of garments and running of hostel. He filed his return of income on 30.09.2009 declaring an income of Rs. 3,18,480/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee had debited air freight of Rs. 12,44,115/- and sea freight of Rs. 1,87,912/- totaling to Rs. 14,32,027/- in the trading account but no TDS was deducted on the said amounts. The AO asked the assessee to show cause as to why those expenses be not disallowed u/s 40(a)(ia) of the Act due to non-deduction of TDS. The submissions of the assessee were as under:
“Regarding your query of non deduction of TDS on Air freight and sea freight I have to state that TDS on sea freight is not applicable. In this reference kindly see the following case law: DCITC v Hasmukh J Patel 10 Taxmann.com 229-provision of sec 194C do not apply to shipping freight charges paid by an exporter to shipping agents of non-resident shipping companies. And for air freight is paid as reimbursement of expenses to the cargo and TDS is not to be deducted on reimbursement of expenses as per Circular No. 715 dated 08.08.1995. Regarding this I am enclosing herewith a copy of bill of the party and cargo bill. In this bill cargo agent also charged service tax on the amount of their service charges and not on the whole bill amount i.e. Air freight plus service charges because it is reimbursement of expenses. So the TDS provision is applicable only the amount of their service charges and this amount is less than the prescribed limit for deduction of TDS i.e. Rs. 75000/- in a year.”
4 Arun Kumar Regarding your query the non deduction of TDS on sea freight paid it is submitted that as the freight paid to shipping agent of non-resident shipping companies, so TDS provision is not applicable. The Movers International is a shipping agent of swift connection which is a non-resident shipping company. Refer DSCIT V Hasmukh J Patel 10 Taxman 229. Copy of case and copy of bills are enclosed herewith. Regarding your query the non deduction of TDS on Air Freight it is submitted that this expenses is of the nature of Reimbursement of expenses and TDS is not applicable on Reimbursement of expenses. Refer ITA No. 1335/Ahd/2010. Copy of case and copy of bills are enclosed herewith.” It was also submitted as under: “Regarding non deduction of TDS on Air freight and Ship freight the assessee has explained that as per the provisions of Sec. 197(2) of the Income Tax Act, in case of “DTAA” with consignee country, they have not deduction TDS and in support two Xerox copies of exemptions certification in identical case are being annexed as per annexure no. 2 along with other details of freights.”
The AO was not satisfied from the submissions of the assessee and made the additions of Rs. 12,44,115/- and Rs. 1,87,912/- by invoking the provisions of Section 194C r.w.s. 40(a)(ia) of the Act.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
5 Arun Kumar “In this connection, respectful submissions of the appellant are as under:- “1. Provisions of section 194C were not applicable to air freight of R. 12,44,115/- and shipping charges (Sea Freight) of Rs. 1,87,912/-. This issue is covered by the order dated 10.03.2011 of ITAT Ahmadabad C Bench in the case of DCIT Vs Shri Hasmukh J. Patel, Prop. Jayshree Industries, Ankleshwar reported in 10 Taxman.com 229. Copy of this judgment is placed on record & relevant portion of is reproduced below:- “The AO invoked the provisions of section 40(a)(ia) of the IT Act for non-deduction of TDS as required u/s 194C of the IT Act. However, the above provision is applicable for the amount payable to the resident or the amounts payable to contractors or sub-contractors being resident. Similarly, the provisions of section 194C of IT Act apply to the area of operation of TDS which is confined to payments made to any resident. The assessee in his reply specifically pleaded that the amount in question is nothing but reimbursement of freight charges which was paid to the shipping agents for carrying materials for sale. Thus, the assessee made the payment to the shipping of non-resident through shipping agent. A special procedure is provided u/s 172 of the IT Act for payment of taxes in case of any ship belonging to or chartered by a non-resident which carries passenger, livestock, material or goods shipped at a port in India. It has nothing to do with the activity carried out by the assessee. The Board circular No. 723 (supra) clarifies both the provisions of section 172 of the IT Act and section 194C of the Act and it is provided that in such case the provisions of section 172 of the IT Act would apply and no deduction of tax is required as 6 Arun Kumar per the non-resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C of the IT Act would not apply in the case of the assessee. The AO has also not made out any case that the assessee has paid any amount to the residents. Therefore, provisions of the section 194C of the IT Act have been wrongly applied in the case of the assessee.” Copy of the above judgment was duly filed before the learned AO along with letters dated 28.11.2011 & 16.12.2011 including other judgments placed on record as also considered by him in para 1 at page 2 of assessment order. The learned AO is factually incorrect in making the following observation at page 5 para 1:- “Thus, it is clear that where consolidated bills have been raised, TDS was to be deducted. In the case of assessee, cargo agent has no where mentioned that bills issued by it include payment in the nature of reimbursement. Assessee has argued that M/s Movers International Pvt. Ltd. has not paid Service Tax on freight amount and charges service Tax only on their service charges which shows that Air freight charged by the agent was in the nature of reimbursement. This plea is not acceptable because charging of Service Tax is entirely a different issue. Merely not charging of Service Tax by agent on freight does not prove that the freight was in the nature of reimbursement because there is no such clear mentioning in freight invoice.” Your kind attention is drawn to the following documents filed as under:-
7 Arun Kumar a) Bills issued by Movers International Pvt., Canin Express Logistics Pvt. Ltd., Nex Logistics India, online courier service New Delhi at page 38-107. b) Freight bills issued by Oman Air, Kuwait Airways, Gulf Air, Page 49-93. c) Copy of account of air freight – service charges and reimbursement accounts maintained by the assessee & duly filed before the AO copies at page 23-37. From the above documents it is quite evident that the payments were in the nature of reimbursements. The learned AO is also incorrect in saying “that charge of service tax is entirely a different issue” In the next para at page 5, the learned AO himself concedes that various case laws given by the assessee gives relief only in a such situation where freight was actually paid as reimbursement & separate bills for freight & service charges were issued by the agents. It is respectful submission of the appellant that the documentary evidence referred above placed at page 23-37 clearly proved that the payment made by the assessee was of reimbursement of freight. It is not necessary that separate bills for freight & service charges were to be make the disallowance u/s 40(a)(ia) of the IT Act. In the alternative without prejudice, it is submitted that the observations of the learned AO in last para at page 5 are also not fully correct because in the following cases amount of Service charges are less than 50,000/-. a) Canin Express Logistics (P) Ltd. b) Nex Logistics India, Meerut c) Online Courier Services, New Delhi 8 Arun Kumar 7. The reliance was placed on the following case laws: � ACIT Vs Grandprix Fab. (P) Ltd. (2010) 128 TTJ(Delhi ‘D’- Trib) � CIT(TDS) Vs Asstt. Manager (Accounts) Food Corporation of India 326 ITR 106 (P&H) � CIT Vs Bhagwati Steels 326 ITR 108 (P&H) � Merilyn Shipping & Transports Vs ACIT, Range Visakhapatnam (2012) 136 ITD 23 (SB) 8. The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing that the payments made on account of air freight were actually reimbursement of expenses and that the assessee had filed plethora of material on record including the ledger of air freight reimbursement along with the copies of the agents bill and the carriers/airways to show that the payments made were only reimbursement of the air freight. Therefore, the provisions of Section 194C of the Act were not applicable. Accordingly, addition of Rs. 12,44,115/- was deleted. As regards to the other addition of Rs. 1,87,912/-, the ld. CIT(A) observed that the payments made on account of shipping charges (sea freight) were also the reimbursement of expenses and even the service charges were less than Rs. 50,000/-. Therefore, the provisions of Section 194C of the Act were not applicable. Accordingly, the addition of Rs. 1,87,912/- was also deleted.
Now the department is in appeal. The ld. DR strongly supported the order of the AO and further submitted that the assessee was required 9 Arun Kumar to deduct the TDS u/s 194C of the Act on the payment made for the air freight. As regards to the payment for sea freight, it was stated that the deduction was to be made on the composite payment and not on the individual payment.
In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the issue under consideration is squarely covered in favour of the assessee by the judgment of the Hon’ble Allahabad High Court in the case of CIT Vs Vector Shipping Services Pvt. Ltd. 357 ITR 642. It was also pointed out that the SLP filed by the department against the said order was dismissed by the Hon’ble Supreme Court. It was contended that the Circular No. 10/DV of 2013 dated 16.12.2013 issued by the CBDT and reported in 360 ITR 36 (St) explained that the provisions of Section 40(a)(ia) of the Act would not be applicable to the amount payable in State of Uttar Pradesh due to the judgment of the Hon’ble Allahabad High Court. It was also contended that the issue is squarely covered by the decision of this Bench of the Tribunal in for the assessment year 2008-09 in the case of ITO, Ward- 27(1), New Delhi Vs Sh. Anoop Khandelwal, New Delhi (copy of the said order was furnished).
We have considered the submissions of both the parties and perused the material available on the record. In the present case, the AO 10 Arun Kumar invoked the provisions of Section 194C of the Act on the reimbursement of air freight made by the assessee. The Hon’ble Jurisdictional High Court on a similar issue in the case of CIT Vs Vector Shipping Services Pvt. Ltd. (supra) held as under:
For disallowing expenses from business and profession on the ground that tax has not been deducted at source, the amount should be payable and not which has been paid by the end of the year. The Tribunal had not committed any error in recording the finding on the facts, and no question of law arose for consideration in the appeal.
In the present case also the assessee made the payment on account of reimbursement of the air freight expenses and nothing was payable at the year end. Therefore, the disallowance made by the AO was rightly deleted by the ld. CIT(A). Similarly the disallowance on account of sea freight was wrongly made by the AO by invoking the provisions of Section 194C of the Act which were not applicable, since the individual payment were less than Rs. 50,000/- by different companies and moreover those payments were only the reimbursement of expenses and nothing was payable. Therefore, the disallowance made by the AO was not justified and the ld. CIT(A) rightly deleted the addition made by the AO on account of the disallowance of sea freight expenses. We do not see any infirmity in the impugned order passed by the ld. CIT(A).
11 Arun Kumar 13. In the result, the appeal of the department is dismissed. (Order Pronounced in the Court on 04/12/2015)