TMI Blog2020 (1) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ember And Shri N.K. Pradhan, Accountant Member For the Appellant : Shrim H.P. Mahajani, A.R. For the Respondent : Shri Manjunath Swami, CIT D.R ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee company is directed against the order passed by the Principal Commissioner of Income Tax (Central)-4, Mumbai (for short Pr. CIT ) under Sec. 263 of the Income Tax Act, 1961 (for short Act ), dated 14.03.2018 for A.Y. 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us : The appellant, M/s Deepak Fertilizers Petrochemicals Ltd, filed its return of income on 29 November 2013 declaring total income of ₹ 1,03,99,28,820/-. The AO passed the assessment order dated 25 January 201 7. The Principal Commissioner of Income Tax (Central)-4, Mumbai ('Pr. CIT(A)', for short) vide order dated 14 March 2018 invoked provisions of section 263 and disallowed demurrage expenses debited by the appellant. Being aggrieved by the order passed by the Pr. CIT, your appellant submits the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce had paid demurrage charges to its foreign supplier on delayed discharge of material. Observing, that the A.O had erred in not disallowing the demurrage expenses of ₹ 4,94,33,000/- under Sec.40(a)(i) of the Act, the Pr. CIT was of the view that the order passed by the A.O under Sec. 143(3) r.w.s 144C(3), dated 25.01.2017 was erroneous insofar it was prejudicial to the interest of the revenue. Accordingly, the Pr. CIT issued a Show Cause notice (for short SCN ), dated 22.02.2018, therein calling upon the assessee to explain as to why the demurrage charges of ₹ 4,94,33,000/- paid to the foreign supplier de hors deduction of any tax at source may not be disallowed under Sec.40(a)(i) of the Act. In reply, it was inter alia submitted by the assessee, viz. (i) that, the demurrage charges were paid to the foreign supplier on delayed discharge of material purely on reimbursement basis on the basis of a debit Note raised by the said supplier and the same formed part of the ocean freight; and (ii) that, as the levy and recovery of tax on the profits of a non-resident from occasional shipping business is regulated Sec. 172 which falls in Chapter XV of the Act titled as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x at source on the demurrage charges, therefore, the order passed by him under Sec. 143(3) r.w.s 144C(3), dated 25.01.2017 was rendered as erroneous and prejudicial to the interest of the revenue. It was observed by the Pr. CIT, that the failure on the part of the A.O to disallow under Sec.40(a)(i) the assesses claim of demurrage expenses of ₹ 4,94,33,000/- on which no tax was deducted at source, had rendered the order passed by him under Sec. 143(3) r.w.s 144C(3), dated 25.01.2017 as erroneous in so far it was prejudicial to the interest of the revenue in terms of Explanation 2 to Sec. 263 of the Act. Accordingly, the Pr. CIT set aside the assessment order passed by the A.O under Sec. 143(3) r.w.s. 144C(3), dated 25.01.2017 to his file for giving effect to the aforesaid directions. 4. The assessee being aggrieved with the order passed by the Pr.CIT under Sec.263, dated 14.03.2018, has carried the matter in appeal before us. The ld. Authorized Representative (for short A.R ) for the assessee took us through the facts of the case. It was submitted by the ld. A.R, that the assessee during the year had paid demurrage charges of ₹ 4,94,33,000/-on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (1) of Sec.195 while making payment to such non-resident shipping company. Accordingly, it was submitted by the ld. A.R, that as no obligation was cast upon the assessee for deducting tax at source in respect of the reimbursement of the demurrage charges paid to the foreign supplier, therefore, no disallowance of the said amount was made by the A.O under Sec. 40(a)(i) of the Act. 5. Per contra, the ld. Departmental Representative (for short D.R ) relied on the order passed by the Pr. CIT. It was submitted by the ld. D.R, that the A.O while framing the assessment under Sec.143(3) r.w.s 144C(3) had failed to take notice of the fact that as the assessee had not complied with the statutory requirement of deducting tax at source in respect of demurrage charges of ₹ 4,94,33,000/-, therefore, the same was liable to be disallowed under Sec. 40(a)(i) of the Act. It was submitted by the ld. D.R that the Pr. CIT observing that the order passed by the A.O was erroneous in so far it was prejudicial to the interest of the revenue had rightly set aside the same to his file with a direction to re-adjudicate the same. It was submitted by the ld. D.R, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act could be invoked. However, we find that the aforesaid view taken by the Division Bench of the Hon ble High Court was thereafter reversed by the Full Bench of the Hon ble High Court of Bombay in the case of CIT Vs. V.S. Dempo Co. Pvt. Ltd. (ITA No. 989/2015 991/2016), dated 05.02.2016. In the aforesaid judgment it was observed by the Hon ble High Court, that as the sub-sections of Sec.172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered in the case of any ship belonging to or chartered by a non-resident and operated from India, therefore, there was no warrant in applying the provisions of Chapter XVII for collection and recovery of the tax, and deduction at source under Sec.195 of the Act. We find that the Hon ble High Court not being persuaded to subscribe to the view earlier taken by the Division bench in the case of CIT Vs. Orient (Goa) Pvt. Ltd. (2010) 325 ITR 554 (Bom) , had observed, that it could not be comprehended as to how any obligation was cast upon a resident assessee/Indian company to deduct tax at source at the time of making payment to a non-resident shipping c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Apart there from, we are unable to comprehend the view taken by the Pr. CIT that though the issue had been adjudicated by the Full Bench of the Hon ble High Court of Bombay in the case of CIT Vs. V.S. Dempo Co. Pvt. Ltd. (ITA No. 989 of 2015), dated 05.02.2016 , however, as the said issue was to be evaluated for referring the matter to the Hon ble Supreme Court, therefore, the view therein taken would not be binding. In our considered view, as per the principle of judicial discipline the Pr.CIT remained under a statutory obligation to have ritually followed the view taken by the Full bench of the Hon ble High Court of Bombay in the case of CIT Vs. V.S. Dempo Co. Pvt. (ITA No. 989 of 2015), dated 05.02.2016, and could not have bypassed the same, for the reason, that a reference is to be made to the Hon ble Apex Court. Be that as it may, we are of a strong conviction that the implicit view taken by the A.O while framing the assessment under Sec.143(3) r.w.s. 144C(3), dated 25.01.2017, that in the absence of any obligation cast upon the assessee to deduct tax at source under Sec. 195 in respect of the demurrage charges of ₹ 4,94,33,000/- the said amount could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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