2023 (3) TMI 215 - HC - Income Tax

Addition u/s 40(a)(ia) - Non deduction of TDS on freight expense - assessee failed to bring any evidence on record to the effect that the payments made are covered under circular No.723 of 1995 and that the non-residents ship owners/charters had filed returns u/s 172 - HELD THAT:- Shoes of the principal and hence, the provision of Section 172 would apply and not the provision of Sections 194C and 195 - Therefore, the action on the part of the CIT (Appeals) which had been confirmed by the ITAT of not having endorsed to the views of AO of adding the dis-allowance claimed under Section 41(a) would not deserve any interference as is quite clear the authority concerned has already taken the note of the fact that the assessee had deducted the tax at source on terminal handling charges, documentation charges, etc. however, when they acted as the principal for and on behalf of the assessee and paid the amount, it was essentially the reimbursement for which there cannot be any TDS required to be deducted.

No reason as to why we should also not be followed the ratio laid down by this Court in [2014 (4) TMI 235 - GUJARAT HIGH COURT] where the assessee had claimed the deduction u/s 40(a)(ia) towards the reimbursement of charges paid to C & F agent and also the reimbursement of the expenses towards consignment agents, which were disallowed by the Assessing Officer solely on the ground that the assessee had not deducted TDS on the said amount.

We found that the relation between the assessee and the agent was that of a principal and agent. The ITAT in that matter had held that there was an obligation to deduct the tax at source from the payment of transfer charges and other charges were concerned, which had been complied with by the agent. This Court had not interefered with when the CIT (Appeals) had quashed and set aside the order passed by the AO of deleting the dis-allowance claimed by the assessee under Section 40(a)(ia) and confirmed by the ITAT. Applying the same to the instant case also, it does not arise any substantial question of law and hence, question (A) is not entertained.

Addition on account of the interest and of insurance expenses so also the depreciation, petrol and repair expenses - HELD THAT:- This relates to the deletion of the disallowance made in respect of the interest and insurance expenses claimed on vehicle and part dis-allowance in respect of depreciation and incidental expenses claimed on vehicle. The car since has been reflected as an asset in the balance sheet of the company and the car loan also appeared as a liability in the company’s balance sheet, which would have its dominion over the car although the resolution for registration of the said car was in the name of the director and the same was used wholly and exclusively for the business of the company, on the ground that the company was eligible for claiming the depreciation, the additions were made in respect of insurance interest, insurance, have been held to be rightly deleted by the ITAT. In respect of depreciation of Rs.1,36,000/- and the car expenses of Rs.28,995/- have been partly deleted to the extent of 75% and 25% had been continued being unambiguous taking into consideration the assesses’ books of accounts maintained in regard to the asset.

It has also struck a good balance after looking at the entire set of facts and even otherwise the tax effect if is looked at then also, this does not require any interference nor any admission as the substantial question of law.

Dis-allowance of expense of the web designing and development for the market survey and production of commercial films for broadcasting on T.V. channel and for the advertisement of the film - HELD THAT:- This issue is also covered by the decision of this Court in case of Zydus Wellness Ltd [2017 (4) TMI 920 - GUJARAT HIGH COURT] - We are in complete agreement with the findings of both the CIT(Appeals) and the ITAT that all these expenditures will not have any enduring benefits to the assessee to be termed as Capital Expenses as they are being used in connection with the running of business of the assessee and they will need to be essentially held to be revenue in nature.

Under invoicing of the sales made to the sister concern - HELD THAT:- AO failed to appreciate that difference in sales price could be on account of various factors such as “strength of the product, terms of payment, the concerned country being the final destination, stability of political conditions in those countries, quantity supplied, quality supplied, creditworthiness of parties, market conditions, risk factor, etc.” Under invoicing of the export since was by a huge sum almost 5.54 times of exports to the sister concern, it was held that the same is not possible as the under invoicing the Gross Profit rate and Net Profit rate by this method would work out to be 64.79% and 46.38%.

Considering strongly acceptable reasonings of both the CIT(A) and the ITAT, it could be noticed that when the assessee’s books of account had been duly audited and at no stage, the Tax Auditor had questioned its books of accounts or the method used by the assessee with the AO having not referred this to the Transfer Pricing Officer and instead having adopted a method which is alien to the statute, both authorities have rightly held this to be the method and act non-acceptable.