WELSET PLAST EXTRUSIONS P.LTD,MUMBAI vs. ASST CIT (OSD) RG 8(1), MUMBAI

The present appeal is filed by the assessee against the order of CIT(A)-18, Mumbai dated 02.11.2012 on the following grounds of appeal.

The learned CIT(A) erred in not allowing Rs.46,644/- treating it as prior period expenses without appreciating that the expenditure was wholly and exclusively incurred for business purpose during the relevant year.

The C IT(A) erred in not admitting the additional evidence filed under Rule 46A of the Income Tax Rules without appreciating that the same ought to party (agent) was not responding to the notice u/s 133(6) of the Act. II. Disallowance of freight and Octroi Charges u/s. 40(a)(ia) 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of freight & octroi charges paid of Rs.27,69,384/- u/s.40(a)(ia) of the Act for non deduction of TDS u/s.194C of the Act without appreciating that the said amount was reimbursement of expenses to the supplier of goods. therefore TDS was not deductible.

The lamed CIT(A) also failed to appreciate that the payee are assessed to tax an already paid taxes on the said amount and therefore there should not be any disallowance, the aforesaid view is also supported by the amendment made by the Finance Act 2012 inserting proviso to section 40(a)(ia) of the Act which is clarificatory in nature and ought to be applied retrospectively.

The appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal. Welset Plast Extrusions Pvt. Ltd. 2

We have heard the Authorized Representative (AR) of the assessee and Departmental Representative (DR) of the revenue. At the beginning of making statement, AR of the assessee argued that assessee is not pressing the ground no. 2.

The AR further argued in respect of ground no. 1 & 3 are in respect of commission of Rs. 13,12,258/- which was paid to one Rajesh Singh, who is one of the commission agent, the AO while dealing with the disallowance in para 4 of its order has observed that notice u/s 133(6) of the Act issued to the Rajesh Singh, remained un-complied and the assessee was asked to prove the identity of the parties and genuineness of the transaction. The assessee provided his PAN number and address of Rajesh Singh and shown the Ledger Account about the nature of transaction on which the commission to be paid and date of payment and TDS deducted, the assessee further explained that commission was paid through Account Payee Cheque and even Rajesh Singh was communicated to compliance the notice of Income- tax Department and copy of material forwarded to the party were placed on record, however, the submission made by the assessee was not accepted observing that mere filing of Ledger Account does not prove the identity of the person and the nature of services rendered by the said party and thus disallowed the said commission of Rs. 13,12,258/-.

DR of the revenue relied upon the order of authorities below on this ground and argued that this addition/disallowance does not require any interference from this Tribunal.

We have perused the material available on record and considered the rival contention of the parties and find that the AO has not examined the transaction which was made through banking channel nor discussed it in its order whether the cheque through which the payment was made was clear in the account of assessee or not ?

The assessee seeks opportunity to lead the additional evidence before the CIT(A) to prove the identity of the person and genuineness of the transaction but the same was rejected in a mechanical way without giving any reason, hence, we are of the considered opinion that this issue be remanded to the file of AO, the matter is restored and send to the files of the AO. The AO is directed to decide the issue afresh giving reasonable and sufficient opportunity of being heard to the assessee. The assessee is directed to furnish necessary documents in support of its claim. Thus, ground no.1 is allowed for statistical purpose.

The next ground for our consideration is disallowance of Freight & Octroi charges u/s 40(a)(ia) of the Act. The AO while dealing with this disallowance has observed that assessee claimed freight reimbursement of (1) Haldia Petrochemicals Ltd. o f Rs. 21,68,662/- ,(2) Neno Marketing & Trading Co. of Rs. 1,26,940/- (3) Umya India Pvt. Limited of Rs. 3,75,742/- & (4) Reliance Industries Limited of Rs. 80,040/- totaling of Rs. 27,69,384/- in respect of which the assessee was asked to specify if TDS has been deducted in respect of the said amount or not and the assessee vide its reply dated 07.11.2011, explained that the freight & octroi charges were separately charged in the purchase invoice by the supplier. While in booking purchase invoice, it is shown separately under the head “Freight & Octroi Charges”, the payment is actually towards purchase invoice and that assessee has not made any payment to the transporter, freight charges are recovered by the supplier in the purchase invoice itself, hence, assessee is not required to deduct the TDS on such payment. The contention of the assessee was not accepted by the AO on the ground that as per the provision of section 194 of the Act any person responsible for paying any sum to any resident for carrying out any work in pursuance of contract between the contractor and specified person shall deduct in context on income comprised and the assessee had not deducted tax on reimbursement on freight charges and the Welset Plast Extrusions Pvt. Ltd. 4 same is not allowable as expenditure in view of the provision of section 40(a)(ia).

The CIT(A) while dealing with this ground has observed that assessee- company has made disbursement of expenses on account of freight and further noticed that assessee-company has made arrangement with the supplier that transport payment on account of freight is paid by supplier and the assessee-company has made the reimbursement on freight charges with the supplier company and further discussed the Circular No. 715 dated 08.08.1995 issued by the CBDT which clarifies that goods are received on freight to pay basis the TDS provision would be applicable irrespective of actual payment. The CIT(A) concluded that arrangement made by assessee clearly shown that it was made only to avoid TDS provision and that no doubt that payment made to the transporter is made by assessee-company nor directly but through supplier and the provision of section 194C applicable on freight to pay basis irrespective of actual payment and that the provision of section 40(a)(ia) are clearly applicable.

The AR of the assessee is argued that the AO well as CIT(A) misconceived by considering the case of assessee and argued that assessee-company has placed order for purchase of raw-material from supplier to complete the term in many cases including delivery of materials, the supplier charged the transport charge in their invoices whereas between the assessee and its supplier there is understanding for supply of the raw-materials on various terms and conditions and the supplier is not in the business of transportation and in fact, the supplier uses the services of goods of transport agency to fulfill the commitment of supply of material to the assessee and further argued that transportation charges are part of cost of goods and the freight charge was not paid separately.

The AR of the assessee relied upon the judgment of Punjab & Haryana High Court titled as CIT(TDS) vs. Asst. Manager (Accounts) Food Corporation of India, reported vide 326 ITR 106 (P&H) & CIT vs. Bhagwati Steel 326 ITR 108(P&H).

AR of the assessee relied upon the order of authorities below.

We have perused the various purchase order which are available on page nos. 67 to 113 of Paper Book which contains the reference and details of freight and forwarding charges in respect of the items/material purchased by the assessee.

. In CIT vs. Asst. Manager (Accounts), FCI, the Hon’ble P&H High Court has held: that assessee has not paid any amount to procurement on account of transportation, interest on storage charges, no liability for deduction of tax by considering the fact that if expenses incurred by the person on Welset Plast Extrusions Pvt. Ltd. 5 account of transportation charges, interest on storage are added to the cost of the goods it cannot be inferred that the person who is billed had paid certain amount on account of those services separately, the same become part of commodity, further in CIT vs. Bhagwati Steel, the same ratio was accepted by the Hon’ble P&H High Court.

Hence the contention of the assessee that no payment was made to the transporter by the assessee and thus the assessee is not liable to pay/ deduct the TDS is convincing, hence the present appeal on this ground is accepted.