DCIT 12(2), MUMBAI vs. S.R. PUSALKAR AND CO., MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

3.1. We have heard both the parties on this issue. Ld. DR has relied upon the order of the AO whereas the assessee has placed reliance on the order of Ld. CIT(A), containing detailed findings and reference to various judgments.

3.2. We have gone through the orders of lower authorities as well as judgments relied upon by Ld. CIT(A) in his order while deciding this issue in favour of the assessee. The brief facts are that the assessee firm is clearing and forwarding agent engaged in the business of customs clearance of import and export consignments of its clients. During the course of the assessment proceedings, the assessee was required to 3 S.R. Pusalkar and Co. submit the details of the tax deducted at source and deposited along-with a note on the applicability of provisions of section 40(a)(ia) of the Act. The assessee, vide submission dated 14-01-2013, submitted the details of TDS made on various items of expenditure like rent, computer repairs and maintenance, CWC rent, etc. However, the note on applicability of provisions of section 40(a)(ia) in respect of the balance expenses on which TDS was not made was not submitted to AO. Therefore, the assessee was asked by the AO to submit the requisite details for considering the allowbility of corresponding expenditure in view of the provisions of section 40(a)(ia) of the Act. In the meantime, it was gathered by the A.O. that the TDS scrutiny assessment in the case of the assessee for the same assessment year was completed vide order dated 30-03-2012 holding the assessee as "an assessee in default" for non deduction of tax as per the provisions of Chapter XVIIB of the Act on payments of steamer charges, air freight charges, Air India charges, Air India! IAAI charges, warehousing charges, detention charges, demurrage charges, CFS charges and Terminal Handling charges. In view of the above, the assessee was again asked by the AO to justify the claim in respect of non-applicability of provisions of section 40(a)(ia) in respect of the above mentioned items of expenditure, and was also given show cause notice as to why the same should not be disallowed.

3.3. In response, the assessee made following submissions:-

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"a. Payments to different parties are made on behalf of the clients and there is no privity of contracts with different parties. We act as the intermediaries between the importer / exporter and these parties, b. Payments made are strictly as per the fixed tariffs. The assessee has no choice in their appointments nor in amounts to be paid to them, c. There is no contract or agreement (written or oral) between the service provider (ports, air ports, custom authorities etc.) and service, receiver (importer or exporter). d. The ports, airports, custom authorities, CFSs are appointed by and are functioning under the authority of the Government of India and not for/under any exporter, importer or CHA. e. The payments made to the parties are compulsory as they have the custody of the goods and will not release the some without full payment. f. The bills issued by the parties for these expenses are in the name of our client." The A.O. took note of the assessee's submission that the order of the CIT(A) against section 201(1)/201(IA) of the Act was in favour of the assessee. But he observed in the order that the Department had filed an appeal against the said order before the Hon'ble ITAT. Therefore, relying upon the detailed reasons given by the A.O. of the TDS Wing for holding the assessee as “an assessee in default”, the expenditure of Rs.13,72,99,544.11 was disallowed u/s 40(a)(ia) and the addition of the above amount was made to the total income of the assessee.

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3.4. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein the assessee made detailed submissions elaborating the submissions made before the AO. It was submitted that during the course of its business assessee was required to defray various expenses at the time of clearing, forwarding and delivering goods, for and on behalf of its clients. The expenses which the assessee defrays on its client's account are claimed from them as reimbursements. In the invoice raised on the clients the assessee raises separate claims for reimbursement of expenses defrayed on client's behalf and fees for the services rendered are claimed separately. The AO had rejected the submissions of the assessee on the ground that the assessee was held to be in default by ITO-TDS for not deducting taxes on such expenses vide order u/s 201(1)/201(1A) dated 30.03.2012 for the relevant AY 2010-11. The AO also noted the fact that in first appeal the CIT(A)-24, Mumbai in Appeal No. No.CIT(A)-14/IT-155/TDS Rg.3/12-13 dated 29.09.2012 had decided the issue in favour of the assessee. The CIT(Appeals) held that the provisions of Chapter XVII-B was not applicable to such reimbursements and quashed the order passed by the ITO-TDS, Ward 3(2) u/s 201 (1)/(1A) in the appellant's own case for AY 2010-11. But, the AO disallowed the expenses of Rs.13,72,99,544/- by invoking provisions of Section 40(a)(ia) of the Income-tax Act, 1961 on the sole ground that the Department had filed an appeal before the 6 S.R. Pusalkar and Co. Tribunal had not attained finality. In support of his contentions, the assessee submitted documentary evidences in support of the factual assertions made in the written submissions and also filed copies of various judgments in its favour in support of the claim made by the assessee.

3.5. The Ld. CIT(A) considered detailed submissions as well as judgments relied upon by the assessee and found that disallowance made by the AO was not sustainable both on facts as well as in law. First of all, it was noted by the Ld. CIT(A) that the basis, on which, Ld. AO had made the disallowance no more existed. The impugned disallowance was made by the AO mainly for the reasons that ITO-TDS has held the assessee to be “assessee-in-default”. But the Ld. CIT(A), in the appeal passed u/s 201(1)/201(1A) of the Act to deduct tax at source u/s 194C in respect of impugned payments and this order of Ld. CIT(A) had attained finality. The relevant para of the impugned order wherein these facts have been analysed is reproduced below:

“3.3.6. it is also pertinent to note that the ITO, TDS had held the assessee to be an “assessee in default” in respect of the same amount which has been disallowed u/s 40(a)(ia) of the Act in the assessment proceedings, and which is the subject matter of the present appeal. In the order passed u/s 201(1)/201(A) of the Act dated 30/03/2012, the ITO(TDS) had held that the assessee was required to deduct tax at source and, since, the 7 S.R. Pusalkar and Co. assessee had failed to do so, it was held to be an "assessee in default". However, in his appellate order for the A.Y. 2010-11 in Appeal No.CIT(A)-14/IT. 1 55/TDS Rg.3/1 2-13 dated 21/09/2012, Ld. CIT(A) has held that the appellant had no liability to deduct tax at source u/s 194C in respect of the payments of steamer charges/air freight charges as also in respect of warehousing charges and CFS charges, etc. This order of the Ld CIT(A) has not been set aside by any higher appellate authority. In the order u/s 143(3) dated 31/03/2013, the A.O. has stated that the Department had preferred an appeal before the Hon'ble ITAT against the said order of the Ld. CIT(A) and it is only for the reasons given by the A.O. of the TDS Wing for holding the assessee as "an assessee in default" for non-deduction of tax that the expenditure of Rs.13,72,99,544.11 is disallowed u/s 40(a)(ia). No other reason has been given by the A.O. for justifying the disallowance made by him u/s 40(a)(ia). Hence, when the order of the ITO(TDS) of holding the assessee as "an assessee in default" has itself been held to be not justified and correct, and the Ld. CIT(A) has held that the assessee did not violate the provisions of Chapter XVII B, then for the same alleged default, the disallowance u/s 40(a)(ia) of the Act, 1961 cannot be upheld.”

Thus, it may be noted from the above discussion that it has been held that the assessee was not liable for deduction of tax

8 S.R. Pusalkar and Co. at source, then no question would arise for making disallowance u/s 40(a)(ia), and on this ground itself the impugned disallowance deserves to be deleted.

3.6. In addition to the above, it is also noted by us that the detailed findings have been recorded by the Ld. CIT(A) wherein Ld. CIT(A) has independently examined this issue on facts with the help of documentary evidences before arriving at the conclusion that in these transactions no profit element was embedded and it was a case of reimbursement of expenses and thus assessee’s claim that he was simply facilitator was found to be factually correct. It is noted that Ld. CIT(A) has personally examined sample bills/invoices and other documents before recording the factual findings. It is further noted that he has relied upon various judgments wherein it has been held that in these types of transactions TDS is not required to be deducted. Concluding para of Ld. CIT(A) are reproduced below:

“3.3.20. I have also perused some of the documents in this connection. For eg., the assessee has raised a Bill. No.1/0/09/100399 dated 14/05/2009 on M/s Cummins India Ltd. (Import), Pune in respect of Job No.1/07116/09-10 on account of "steamer freight" paid to CEVA for Rs.65,086.10. This is in respect of the invoice dated 01/05/2009 CEVA Ref M01001742 raised by CEVA Freight (India) Pvt. Ltd., Mumbai on Cummins India Ltd. for Rs.65,086.10. The payment of Rs.65,086.10

9 S.R. Pusalkar and Co. has been made by the assessee on account-of steamer freight to CEVA Freight (India) Pvt. Ltd. A/c Cummins India Ltd. vide cheque No.678427 vide payment voucher dated 11th May, 2009. The consignee in the invoice raised by CEVA Freight (India) Pvt. Ltd. is shown as Cummins India Ltd., Pune. Similarly, UPS SCS (India) Pvt. Ltd., Mumbai has raised tax invoice UB00026732 dated 3rd August, 2009 on account of air freight etc. on Cummins India Ltd. for Rs.51,672.29. The assessee has made a payment of Rs.51,672.29 to UPS SCS (India) Pvt. Ltd., Mumbai by cheque No.807785 vide payment voucher dated 7th August, 2009 and has raised a bill No.1/0/09101 387 dated 10/08/2009 for this amount of Rs.51,672.29 on Cummins India Ltd., Pune. Here again, the consignee is Cummins India Ltd. and not the assessee. The assessee is raising the bill on its client for the exact amount of payments made on behalf of the client. 3.3.21. From a perusal of the sample bills, it is clear that the goods are being imported/exported by the clients of the assessee and the assessee is merely acting as an intermediary on behalf of its clients in terms of the business arrangement between them. The expenditure incurred in respect of the airlines/shipping lines, etc. would, therefore, represent the expenditure of the clients and it is only the actual consignees or consignors (i.e., clients of the assessee) who can claim such expenditures as deduction in computing their total

10 S.R. Pusalkar and Co. income from business. The perusal of the sample bills also shows that the reimbursements of the payments made by the assessee on behalf of its clients is being claimed by the assessee on actuals.

3.3.22 In view of the aforesaid reasons, the action of the A.O. of making the addition of Rs.13,72,99,544/- to the total income of the assessee u/s 40(a)(ia) of the I.T. Act, 1961 cannot be upheld when the payments have been made by the assessee to the airlines/shipping lines/CFSs/ICDs, etc. for and on behalf of its clients and when the expenditure relates to these clients and the assessee has merely acted as an intermediary and facilitator for its clients and the payments are reimbursable to the assessee on actuals without any element of profit and when the privity of contract is between the clients of the assessee and the airlines/ shipping tines /CFSs/ICDs, etc. In such a situation the assessee is not the person responsible for deduction of tax at source in terms of either sec. 194C or in terms of sec.1941 of the I.T. Act, 1961 as held in the various decisions discussed herein above as also the decision of the Ld. CIT(A)-14, Mumbai in respect of the same assessee and the same amount. The expenditure also does not belong to the assessee and, hence, the provisions of sec.40(a)(ia) cannot be made applicable in the case of the assessee,the disallowance of Rs.13,72,99,544/- made by the Assessing Officer u/s 11 S.R. Pusalkar and Co. 40(a)(ia) of the I.T. Act, 1961 is, therefore, directed to be deleted. The grounds of appeal filed by the assessee are allowed.”

3.7. We have gone through the findings recorded by the Ld. CIT(A). We have also gone through the judgments relied by him while deciding this issue. These factual findings were not controverted by the Ld. DR. During the course of hearing, no contrary judgment has been brought to our notice. In view of the same, we find that no interference is called for in the order of Ld. CIT(A). Same is upheld.