2018 (6) TMI 1453 - AT - Income Tax

TDS u/s 194C - Disallowance u/s. 40(a)(ia) - non deduction of tds on charges paid on shirting - Held that - The assessee has produced copies of invoices raised by the job workers which is in the form of additional evidences filed for the first time before the tribunal and it is claimed that there was no requirement of deduction of income-tax within the provisions of Section 194C as is contained in Chapter XVII-B of the 1961 Act as it is claimed that each payment was below Rs. 20, 000/- and in aggregate amount paid in the year to each of job workers was less than Rs. 50, 000/- to each of the job worker and hence it is claimed that there was no requirement to deduct income-tax at source with in the provisions of the 1961 Act . The assessee did not produce these parties before the AO and as well before the learned CIT(A) . Under these circumstances in our considered view the matter need to be restored to the file of the AO for fresh adjudication Disallowance of reimbursements to custom house agents (CHA) disallowed u/s. 40(a)(ia) - Held that - The disallowance has been made on the grounds that custom duty paid by CHA agent on behalf of the client will also get aggregated and will call for deduction of income-tax at source within the mandate of Chapter XVII-B with which we donot agree and in our considered view payment of custom duty to Government on import of goods even if paid through CHA agent by way of reimbursement will not warrant deduction of income-tax at source within provisions of the 1961 Act and no additions were warranted which we hereby order to be deleted subject to verification to a limited extent by the AO that the amount as were disallowed by the authorities below do actually constitute custom duty paid by CHA to government on behalf of the assessee on import of goods which is to be verified by the AO with reference to books of accounts maintained by the assessee Addition being refund of custom duty (SAD) receivable by the assessee from custom department as at year end - Held that - No additions is warranted so far as refund of custom duties is concerned because it never entered Profit and Loss account and hence no addition is warranted. However material is not placed on record to prove that no deduction whatsoever was claimed of this SAD refund by the assessee while computing income and thus for limited purposes the matter is restored to the file of the AO for verifying the contention of the assessee vis-a-vis its books of accounts that the assessee never claimed the deduction of said custom duty (SAD) component as expenses to the tune of this refund receivable amount of Rs. 6, 40, 888/- of additional custom duty is concerned and only net amount of custom duty paid was claimed as an expense by the assessee in its return of income filed with the Revenue. In any case learned CIT(A) has given direction to the AO for verifying the same Disallowance of purchases made u/s 40A(3) - payments to the said party from whom purchases were made by the assessee namely Flora Texculture P. Ltd. was made by assessee otherwise than through account payee cheque or account payee bank draft - Held that - On evidence on record and keeping in view factual matrix of the case the said payment made directly by assessee s debtor namely M/s Challenger Tradelink P. Ltd. to assessee s creditor namely M/s. Flora Texculture P. Ltd. through approved banking mode as prescribed in Section 40A(3) in settlement of inter-se transaction between debtor and creditor will not trigger provisions of Section40A(3) and hence no disallowance as was made by Revenue is warranted under these circumstances . We hereby order for deletion of the said addition

Summary

Issues Involved:
1. Disallowance of job charges amounting to Rs. 16,06,052 under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Disallowance of reimbursement to Custom House Agent (CHA) amounting to Rs. 26,07,533 under Section 40(a)(ia).
3. Addition of Rs. 6,40,888 as refund of customs duty.
4. Disallowance of purchases amounting to Rs. 10,41,394 under Section 40A(3).

Issue-wise Detailed Analysis:

1. Disallowance of Job Charges:
The assessee claimed job charges of Rs. 16,06,052 for "shirting" without deducting tax at source as required under Section 194C of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the expenses under Section 40(a)(ia) due to non-compliance with TDS provisions and lack of supporting evidence like invoices, bills, and addresses of job workers. The CIT(A) upheld the AO's decision, noting that the assessee failed to establish the genuineness of the claim and did not provide sufficient evidence. The tribunal restored the matter to the AO for fresh adjudication, allowing the assessee to submit additional evidence and ensuring compliance with principles of natural justice.

2. Disallowance of Reimbursement to CHA:
The AO disallowed Rs. 26,07,533 reimbursed to M/s Niranjan Shipping Agency Pvt. Ltd. for customs duty and other charges, citing non-deduction of TDS under Section 194C. The CIT(A) upheld this disallowance, stating that the assessee did not adequately prove that the entire amount was solely for customs duty reimbursement. The tribunal, however, found that the AO made errors in calculating the charges and held that reimbursement of customs duty does not warrant TDS deduction. The tribunal directed the AO to verify that the disallowed amount indeed constituted customs duty paid on behalf of the assessee and then delete the disallowance.

3. Addition of Refund of Customs Duty:
The AO added Rs. 6,40,888 as refund of customs duty (SAD) receivable by the assessee, treating it as income. The assessee argued that this amount was not claimed as an expense in the profit and loss account. The tribunal restored the matter to the AO to verify that the refund was not claimed as an expense and to ensure proper accounting treatment. The tribunal upheld the CIT(A)'s direction for verification.

4. Disallowance of Purchases:
The AO disallowed purchases of Rs. 10,41,394 from Flora Texculture Pvt. Ltd. under Section 40A(3) because the payment was made through journal entries rather than account payee cheques or drafts. The CIT(A) confirmed the disallowance. The tribunal, however, found that the payments were made through approved banking channels by M/s Challenger Trade Link (India) Pvt. Ltd. on behalf of the assessee, and the transactions were genuine and verifiable. The tribunal held that Section 40A(3) was not applicable in this case and ordered the deletion of the disallowance.

Conclusion:
The tribunal partly allowed the assessee's appeal, directing the AO to re-examine the disallowed job charges and customs duty reimbursement while deleting the disallowance of purchases under Section 40A(3). The tribunal emphasized the need for proper verification and compliance with natural justice principles.