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2015 (11) TMI 536 - ITAT BANGALORE

2015 (11) TMI 536 - ITAT BANGALORE - TMI - TDS u/s 194C - payment for freight charges on goods received by the assessee - Held that:- It is clear from the bill dt.17.04.2004 available on record that Kanakadurga Lorry Office was not the owner of the lorry. For application of Section 194C of the Act, it is essential that there is a contract between the assessee and the person who is transporting the goods. Question before us is whether Shree Gajanan Industries who was the supplier to goods the ass .....

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e and Shree Gajanan Industries, as to how the supplies were to be made, viz., whether it was the responsibility of the seller to find the transporter and transport it to the assessee’s premises, or it was under direction of the latter the former was doing so, was never verified by the lower authorities. We are of the opinion that this issue requires a fresh look by the AO for verifying all aspects of the payment of freight charges.- Decided in favour of assessee for statistical purpose.

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fore that this issue also requires a fresh look by the AO. - Decided in favour of assessee for statistical purpose. - I.T.A No. 426/Bang/2014 - Dated:- 1-10-2015 - Shri. N. V. Vasudevan, Judicial Member And Shri Abraham P. George, Accountant Member For the Petitioner : Shri. V. Srinivasan, CA For the Respondent : Shri. T. N. Prakash, JCIT ORDER Per Abraham P. George, Accountant Member In this appeal filed by the assessee it has altogether taken five grounds of which grounds 1 and 5 are general, .....

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ding the disallowance of ₹ 36,16,957/- being freight forwarding expenses u/s.40(a)(ia) without appreciating that the provisions of section 40(a)(ia) of the Act have no application at all under the facts and in the circumstances of the appellant s case. 03. Facts apropos are that assessee, an exporter of spices and food items had filed its return of income for the impugned assessment year declaring income of ₹ 1,25,16,914/-. During the course of assessment proceedings it was noted by .....

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urchases. Assessee had also paid a sum of ₹ 36,16,957/- to clearing and forwarding agents during the course of its export business. When assessee was put on notice that it had not deducted tax at source as required under law, it replied that the lorries used for transportation of goods were engaged by the suppliers who supplied the commodities. As per the assessee, agencies like M/s. Kanakadurga Lorry Supply Office, engaged several private vehicles and payments to individual lorry drivers .....

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assessee in its return as a part of its income. Thus as per assessee, Section 40(a)(ia) could not be applied either on freight paid for purchases nor on freight and forwarding charges paid to the clearing and forwarding agents. However, AO was not impressed by the above arguments. According to him, circular No.715 (supra) applied for both the above payments. He disallowed freight on purchases of ₹ 10,23,138/- paid by the assessee and freight forwarding expenses of ₹ 36,16,957/-, pai .....

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issued by the concerned transport agencies, they were acting as brokers only. Assessee also produced a copy of lorry receipt issued by M/s. Kanakadurga Lorry Supply Office as a typical and illustrative example. As per the assessee, their contract was with consigners of the goods and it was for the consigners to find the transporters and send the goods to the assessee. Goods were to be delivered at Bangalore. As per the assessee it had never made any payment to the lorry transport office. Payment .....

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d to incur expenditure like documentation charges, Customs charges, transportation charges, fumigation charges taxi charges etc., These were reimbursed to the forwarding agents. Actual charges levied by such forwarding agents was specifically mentioned in the bills raised. One copy of the bill of Hariharan Logistics was also placed before the CIT (A). As per the assessee, payments for services rendered by such forwarding agents never exceeded a sum of Rs.twenty thousand at a given instance. 07. .....

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f the transaction. CIT (A) was of the opinion that assessee was making contradictory submissions. In one place it was telling that the freight charges paid formed a part of the cost of goods. However in a later submission assessee stated that the supplier was identifying the transport agency and was delivering the goods to them. As per the CIT (A), no evidence was adduced by the assessee to show that the supplier of the goods had agreed to arrange for the transportation of the goods and to deliv .....

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sessee should have deducted tax on the payments made to Forwarding agents. He thus applied section 40(a)(ia) of the Act to both the payments, namely freight expenditure and freight and forwarding charges paid to carrying and forwarding agents. 09. Now before us, Ld. AR strongly assailing the order of lower authorities submitted that the bill raised by Kanakadurga Lorry Office clearly indicated the consigner as Shree Gajanan Industries who was the supplier of goods. As per the Ld. AR, assessee ha .....

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itted that goods were despatched by them with a direction to the assessee to pay the balance of the lorry rent. Thus according to him the contract was between the transporter and the consigner and not between the assessee and the lorry owner. Assessee had no choice. In any case, as per the Ld. AR, payment to each of the driver engaged by the consigner was less than ₹ 20,000/- and therefore Section 194C of the Act was not at all attracted. 10. In so far as the second issue of non-deduction .....

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ity for non-deduction of tax at source on the payer could not be fastened. 11. Per contra, Ld. DR strongly supported the orders of lower authorities. 12. We have perused the orders and heard the rival contentions. In so far as the first issue, via., payment for freight charges on goods received by the assessee is concerned, no doubt the receipt of Kanakadurga Lorry Office stated the consigner as Gajanana Industries who was the supplier. Lorry owner s name and lorry driver s name are also mention .....

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on the direction of the assessee that the lorry was engaged by the supplier, then we can construe the contract as one between the assessee and the lorry office. It might be true that the assessee paid to the lorry owner the balance of the amount due for the transportation. However, existence of agreement for transportation, whether oral or written, if any, between the assessee and Shree Gajanan Industries, as to how the supplies were to be made, viz., whether it was the responsibility of the sel .....

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s had accounted the whole of the payments received by the assessee as its income and paid due taxes thereon. Coordinate bench in the case of Adanda Marakala (supra), had held as under at para 14 to 26 of its order dt.13.09.2013 : 14. In order to find answer to this question, it would be relevant to note down the legislative history of the provision. Section 40 has certain clauses providing for the amounts which are not deductible. Sub-clause (ia) of clause (a) of section 40 was inserted by the F .....

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rying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such .....

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o section 194J; (iv) work shall have the same meaning as in Explanation III to section 194C; The Memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in following words :- With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resid .....

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hall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause 11] Thereafter the Finance Act, 2008 made amendment to clause (a) in subclause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read as under:- (ia) any interest, comm .....

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cified in sub-section (1) of section 139 ; or (B) in any other case, on or before the last day of the previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date ; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous yea .....

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he due date specified in sub-section (1) of section 139 of the Act. In other words, if any amount on which tax was deductible during last month of the previous year, that is March 2005, but was paid before 31st October, 2005, being the due date u/s 139(1), the deductibility of the amount was kept intact. The second category included cases other than those given in category first. To put it simply, if tax was deductible and was so deducted during the first eleven months of the previous year, that .....

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for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, su .....

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ch tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the last month of the previous year but there was failure to pay such tax on or before the due date specified in sub-section (1) of section 139. The Finance Act, 2010 has not tinkered with this position. The second category of the Finance Act, 2008 which required the deposit of tax before the close of the previous year in case of deduction during the first eleven m .....

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he new amendment, the disallowance will be made if after deducting tax at source, the assessee fails to pay the amount of tax on or before the due date specified in subsection (1) of section 139 of the Act. The effect of this amendment is that now the assessee deducting tax either in the last month of the previous year or first eleven months of the previous year shall be entitled to deduction of the expenditure in the year of incurring it, if the tax so deducted at source is paid on or before th .....

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l Bench by its order dated 9.9.2011, however, held that the amendment carried out by the Finance Act, 2010 with retrospective effect from assessment year 2010-2011 cannot be held to be retrospective from assessment year 2005- 2006. The Special Bench held that the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) w.e.f. 01.04.2010, is not remedial and curative in nature. 19. Prior to the decision of the Special Bench, identical issue had come up for consideration before the ITAT .....

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y on 28.10.2005 and not within the time contemplated by Section 200(1) of the Act. The dyeing charges were paid between 5.4.2004 to 20.8.2004. Tax was deducted at source but was paid to the Government only on 28.10.2005. Frieght outward charges were paid without deduction of tax at source. Interest on loans were credited to the creditors account on 31.3.2005 to the extent they were paid after the due date for filing return of income u/s.139(1) of the Act, the disallowance was made u/s.40(a)(ia) .....

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the provisions of Sec.40(a)(ia) has to be held to be retrospective w.e.f. 1-4-2005. The ITAT Kolkata Bench by its order dated 15.12.2010, held as follows: 8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that though the Ld.D.R. submitted that the decisions of the Coordinate Benches are not binding and the Kolkata benches may take a different view, since Mumbai Bench after analyzing the provisions of Sec.40(a)9ia) sinc .....

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ssesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns u/s.139(1). In order to remedy this position and to remove the hardships which was being caused to the assessee belonging to such category, amendments have been made in the provisions of Section 40(a)(ia) by the Finance Act, 2010. The said amendments, in our opinion, thus are clearly remedial/c .....

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iven to the section as a whole. In the present case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of Se .....

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essee s appeal. 20. As against the aforesaid decision, the Revenue preferred appeal before the Hon ble Calcutta High Court. The Hon ble Calcutta High Court in ITA No. 302 of 2011, GA 3200/2011 decided on 23.11.2011, held as follows: We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether sectio .....

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lied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot dec .....

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ssee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. 22. Since provisions of Section 40(a)(ia) as amend .....

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required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respec .....

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on 40(a)(ia) in the following words:- In order to rationalise the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing de .....

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d, it would be unjust to disallowance legitimate business expenses of an Assessee. Despite due collection of taxes due, if disallowance of genuine business expenses are made than that would be unjust enrichment on the part of the Government as the payee would have also paid the taxes on such income. In order to remove this anomaly, this amendment has been introduced. In case of payment to non resident, the government does not have any other mechanism to recover the due taxes. Hence, no amendment .....

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rm as may be prescribed. 25. The question is as to whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced. Keeping in view the purpose behind the proviso inserted by the Finance Act, 2012 in section 40(a)(ia) of the Act, it can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inse .....

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y sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment made by the employer towards contribution to provident fund or any other welfare fund was allowable as deduction, if paid before the date for filing the return of income and necessary evidence of such payment was enclosed with the return of income. In other words, .....

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ess, etc., on one hand and contribution made to Employees' Provident Fund, etc., on the other. According to the Department, the omission of the second proviso giving relief to the assessee(s) [employer(s)] operated only w.e.f. 1st April, 2004, whereas, according to the assessee(s)-employer(s), the said Finance Act, 2003, to the extent indicated above, operated w.e.f. 1st April, 1988 (retrospectively). The Hon ble Supreme Court held that the deletion of the second proviso was retrospective w. .....

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that prior to the amendment of 2003, the employer was entitled to deduction only if the contribution stands credited on or before the due date given in the Provident Fund Act on account of second proviso to S. 43B. The situation created further difficulties and as a result of representations made by the industry, the amendment of 2003 was carried out which deleted the second proviso and also made first proviso applicable to contribution to employees welfare funds referred to in S. 43B(b). 15. W .....

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ncome under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing o .....

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second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in .....

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nder s. 43B of the Act while computing the business income of the previous year ? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that th .....

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pra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held t .....

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eover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectiv .....

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the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, opera .....

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e should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not .....

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