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Income Tax Appellate Tribunal, “ C” BENCH, KOLKATA
Before: Shri M. Balaganesh
This appeal of the assessee arises out of the order of the Learned CIT(A), Durgapur in Appeal No. 426/CIT(A)/ASL/Wd-3(2)/Purulia/2010-11 dated 24-01- 2013 for the Asst Year 2008-09 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The first issue to be decided in this appeal is with regard to disallowance made u/s. 40(a)(ia) of the Act in respect of freight charges amounting to Rs.12,87,328/-.
The brief facts of this issue are that the ld.AO had made an addition of Rs.12,87,328/- u/s. 40(a)(ia) of the Act on the premise that tax is not deducted at source(TDS) in terms of provisions of section 194C of the Act. The break up of the said addition is as below:- 1) Shri Gurudutt Industries(Transport Agent) Rs. 6,39,883/- -C-AM 1 Shri Ashok Kumar Budhia
2a) M/s. Sangam Transport Rs. 32,440/- b) M/s. Ganpati Road Lines Rs. 25,000/- Rs. 57,440/- 3) Shri Gautom Majee (Transport Agent) Rs. 3,94,045/- 4) Against Shri Gautam Majee Rs. 1,96,000/- Total Rs.12,87,328/-
This action of the ld.AO in making addition was confirmed by the ld.CIT(A) on 1st appeal. Aggrieved, the assessee is in appeal before us on the following ground:- “1. That on the facts and circumstances of the case ld. Commissioner (Appeals) erred in setting aside the matter of disallowance of Rs.12,87,328/- u/s. 40(a)(ia) of the Income Tax Act, 1961 for fresh verification of claim of ‘ a’ back to the ld.AO.”
The ld.AR argued that in respect of addition/disallowance made u/s. 40(a)(ia) of the Act for the payments made to M/s. Guru Dutt Industries. The assessee has made purchase of goods from M/s. Guru Dutt Industries ( supplier of goods of the assessee) and as per the terms of the contract with the said supplier, the freight is to borne by the said supplier and in case if the same is is paid by the assessee, the same would be reduced from the amounts payable by the assessee towards purchase of goods. Accordingly, the assessee as and when the freight charges has been paid by him on behalf of the supplier, chose to debit the supplier’s ledger account and payment for purchase of goods is made only for the balance portion i.e. after deducting the freight payments. Hence, it was argued by him that there was no freight expenditure incurred by the assessee warranting deduction of tax at source. The ld.DR was not able to controvert this argument of the ld.AR before us.
We have heard the rival submissions and perused the material available on record including the details filed in the paper book before us. We find that the assessee had only made purchase of goods and there was no freight charges incurred by the assessee on these purchases, which is evident from the ledger account as filed at pages 33-39 of the paper book. We also verified the sample invoices, that are kept -C-AM 2 Shri Ashok Kumar Budhia at pages 40-47 of the paper book containing the freight charges and the details of the freight charges payable by the assessee on behalf of the said supplier. Hence, we are satisfied that the provisions of section 194C are not at all attracted to the present facts of the case and consequently, the disallowances/additions made u/s. 40(a)(ia) is not warranted.
In respect of freight charges paid to M/s. Sangam Transport amounting to Rs.32,440/- and M/s. Ganpati Road Lines amounting to Rs.25,000/-, the ld.AR argued that no payment is made to a single party exceeding Rs. 20,000/- on a single date and exceeding Rs.50,000/- in the aggregate during the previous year relating to the assessment year under appeal.
We have heard the rival submissions. We have gone through the details of payments made by the assessee to M/s. Sangam and M/s. Ganpati Road Lines, which are extracted in page 7 of the impugned assessment order. We find that the provisions of section 194C are not at all applicable in the facts of the present case. Hence, the disallowance made u/s. 40(a)(ia) of the Act in respect of the above said parties is not also warranted.
In respect of freight charges paid to Shri Gautom Majee amounting to Rs.3,94,045/-, the ld.AR pleaded that the same may be set aside to the file of the ld.AO for verification in the hands of the payees as to whether the payee had considered the said receipts in its books of account and paid taxes thereon, if any. We find lot of force in the arguments of the ld.AR in this regard that in view of the second proviso to section 40(a)(ia) of the Act and in view of the decision of the Hon’ble Delhi High Court in the case of decision of the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd reported in (2015) 61 taxmann.com 45/ 377 ITR 635(Del)., wherein the question raised before their Lordships and their decision rendered thereon is as under:- -C-AM 3 Shri Ashok Kumar Budhia
Question: The issue that arose before the High Court was- “Whether the second proviso to Section 40(a)(ia)( inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not ?”
Held : “Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS on amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount. The penalty for tax withholding lapse per se is separately provided under section 271C, and, therefore, section 40(a)(ia) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal v. ACIT [2014] 45 taxmann. com 555 (Agra-Trib) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No.2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature. The High Court affirmed the ratio laid down by The Agra Tribunal and held that said proviso is declaratory and curative in nature and has retrospective effect from 1st April 2005”.
In view of the aforesaid decision of Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd (supra), we deem it fit and appropriate to set aside the issue to the file of the ld.AO to decide the same made u/s. 40(a)(ia) in the light of applicability of second proviso to section 40(a)(ia) as mentioned herein above and in the light of said decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd (supra). The assessee is at liberty to adduce fresh evidences, if any, to -C-AM 4 Shri Ashok Kumar Budhia substantiate its contentions. Accordingly, this portion of the addition u/s 40(a)(ia) amounting to Rs. 3,94,045/- raised by the assessee is allowed for statistical purpose.
In respect of freight charges of Rs. 1,96,000/- paid to Shri Gautom Majee, we find from the pages 32-32A of the assessee’s paper book containing the ledger account of carriage inwards shown in the books of account of the assessee that sum of Rs.1,96,000/- was indeed recovered from Shri Gautom Majee and the same is in the nature of income of the assessee. Accordingly, no expenditure towards freight charges was claimed by the assessee amounting to Rs. 1,96,000/- warranting the compliance of TDS provision at his side. Hence, the disallowance made u/s. 40(a)(ia) of the Act thereon is not warranted. Accordingly, ground no.1 raised by the assessee in this appeal is allowed for statistical purpose.
Next ground is with regard to disallowance made u/s. 40(a)(ia) amounting to Rs.67,300/- during the course of hearing before us the ld.AR stated that this issue is not pressed by him. The same is taken as statement from the bar. Accordingly, Ground no. 2 raised by the assessee is dismissed as not pressed.
Last ground to be decided in this appeal is as to whether the disallowance of interest amounting to rs. 67,650/-, we find that the assessee has borrowed certain sums from Smt. Anita Budhia, Mr. Sunil Kumar Budhia on his personal account in the assessment year 2004-05 and invested the same in his proprietary concern, M/s. Ashok Trading Co. The assessee paid interest to these parties from the business account of the assessee ( i.e out of M/s. Ashok Trading Co.’s profit) commencing from assessment year 2004-05. During the assessment year under appeal a sum of Rs.67,652/- was paid as interest to these parties by the assessee out of his business account and the same was claimed as deduction, which was disallowed by the ld.AO. On 1st appeal, the same was confirmed by the ld.CIT(A). Aggrieved, the assessee is in appeal before us on the following ground: -
C-AM
5. Shri Ashok Kumar Budhia
“ 3. That on the facts and circumstances of the case ld. Commissioner (Appeals) erred in confirming disallowance of rs. 67, 652/0 under Section 37(1) of the Income Tax Act, 1961.”
We find from pages 52-55 of the paper book containing personal balance sheet and the business balance sheet of the assessee, that the assessee has borrowed monies from said two private individuals (supra) on his personal account in the assessment year 2004-05 and invested the same in his proprietary concern of the assessee, which is evident from the pages 53-55 of the paper book. Hence, it is proved beyond doubt that borrowings made by the assessee are only for the purpose of his business. Accordingly, interest thereon is squarely allowable as deduction. There is no reason to disallow the subject mentioned interest. The ground no.3 as raised by the assessee before us is allowed.
In the result, the appeal of the assessee is partly allowed for statistical purpose as stated above.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 03-02-2016