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2016 (7) TMI 382

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..... ile for de novo consideration and adjudication thereon after affording the assessee adequate opportunities to make submissions, file details, documents, etc. required in this regard. - Decided in favour of assessee for statistical purposes. Disallowance under section 40(a)(ia) - payments made by the assessee for audit fees, legal fees and professional fees for non-deduction of tax at source - Held that:- While making this disallowance under section 40(a)(ia) of the Act it is seen that neither the AO nor the learned CIT(A) has mentioned under which section of the Act the assessee was required to deduct tax at source on the aforesaid payments. Moreover, as observed that, the assessee’s contentions that no disallowance under section 40(a)(ia) of the Act was called for since the parties to whom such payments were made during the year, i.e. Advocate, Lawyer, etc. had included the same in their respective returns of income; was also brushed aside without being addressed by the learned CIT(A) while recording his finding. We, therefore, in the interest of equity and justice set aside the findings of the authorities below and restore this issue to the file of the learned CIT(A) for de no .....

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..... #8377; 13,39,302/- (iii) Disallowance of expenses ₹ 1,95,395/- 2.2 Aggrieved by the order of assessment dated 29.12.2011 for A.Y. 2009-10, the assessee preferred an appeal before the CIT(A)-24, Mumbai. The learned CIT(A) disposed off the assessee s appeal by the impugned order dated 25.03.2013, dismissing the grounds raised by the assessee in respect of the disallowances listed at (ii) and (iii) at para 2.1 of this order, and enhanced the disallowance on the issue at (i) above from ₹ 30,40,357/- made by the AO to ₹ 81,05,294/- under section 40A(3) of the Act. 3. Aggrieved by the order of the CIT(A)-24, Mumbai dated 25.03.2013, the assessee has preferred this appeal raising the following grounds: - 1) On the facts and circumstances of the case the learned Assessing Officer erred in disallowing 20% of cash paid on account of stevedoring expenses paid on behalf of your appellants principle. Your appellant states that they have not claimed any expenditure in their Profit Loss Account on account of stevedoring charges or handling charges. All payments of stevedoring charges or handling char .....

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..... the learned CIT(A) as erroneous in enhancing the disallowance of ₹ 30,40,357/- made by the Assessing Officer (AO) @20% of cash paid expenses on account of stevedoring expenses paid on behalf of the assessee s principal to ₹ 81,05,294/- on totally different items, being the actual payment of loading charges of ₹ 69,16,056/- and sweeping labour charges of ₹ 11,89,238/-. It is submitted that the aforesaid disallowance be deleted. 5.2 Per contra, the learned D.R. supported the impugned order of the learned CIT(A) on this issue. The learned D.R. submitted that in the impugned order, the learned CIT(A) has correctly held that the action of the AO in disallowing ₹ 30,40,357/- i.e. 20% of payments of stevedoring charges under section 40A(3) of the Act on presumptions, without verifying the details of actual cash paid above ₹ 20,000/-, was erroneous and baseless. In this regard the learned CIT(A) in appellate proceedings had called upon the assessee to file details of stevedoring charges, handling charges and sweeping labour charges. On an examination thereof, the learned CIT(A) was of the view that in respect of stevedoring charges of ₹ 75,32,25 .....

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..... lf prepared unsigned vouchers were available with the assessee. A.O. called for the bills/invoices for these vouchers but assessee could not produce the same on the ground that all bills/invoices along with the vouchers in original were handed over to the principals for verification and payment. It has also been submitted that these stevedoring and handling charges have been paid to gang leader (15 to 20 gangs each consisting of 13 to 15 labourers who work on clearing consignments of goods). Assessee has also paid banking cash transaction tax on withdrawals of cash from the banks. Assessing Officer held that assessee violated the provisions of section 40A(3) of I.T. Act, 1961 and since payments in cash exceeded ₹ 20,000/-, disallowance u/s 40A(3) of I.T. Act, 1961 was justified in the facts of the case. 4.3.2 It appears from records that assessee has incurred expenses in cash exceeding ₹ 20,000/- to various persons for getting goods cleared from docks on behalf of its clients/principals and has billed these to its principals and does not have any proof by way of bills/invoices/recipient signed vouchers in respect of these expenses. Assessee has paid banking cash .....

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..... 4.3.3 The assessee submitted during the appellate proceedings that in the earlier year the CIT(A) deleted similar disallowance made by the Assessing Officer. At this juncture it is relevant to see the decision of the CIT(A), the same is as under: - CIT(A) order No. CIT(A)-24/13(2)(1)/420/09-10 dt. 28.01,2011 The Assessing Officer has adhoc basis has disallowed 2096 of the total amount withdrawn from bank assuming that the amount withdrawn from the bank is for the expenditure of the appellant business to which the provisions of Section 40A(3) are applicable. We submit that provisions of Section 40(A)3 can be applied only in case of an assessee who has claimed deduct/on and the expenditure is incurred in contravention of Section 40A(3). Please refer to Section 40A. This section says that while computing the income under the head Profits Gains of Business or Profession the provisions of Sections 40 A will be applicable. Section 40A(3) is one of the sub-section of Section 40 A. While computing a taxable income under the head Profits Gains of Business or Profess/on the provision of Section 40A(3) are invoked. Our client has not claimed any expenditure to which th .....

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..... Total Payment Out of Total Pay. Paid by Cash 1 Stevedoring Charges 8681435.00 7533257.00 2. Handling Charges 210990112.00 6916056.00 3. Transportation Charges 18654939.00 - 4. Godown Rent 5123220.00 - 5. Tarpaline Purchase 98431.00 6. Custome O.T. Octroi 458954.00 53702991.00 Agency Charges Received 4436255.00 Total 58139246.00 Note: Cash Labour Charges Stevedoring Handling Charges is paid as per vessel wise payment to our labours by cash vouchers submitted to our client for final payme .....

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..... from the details amounts paid basically to a gang leader and intum he distributed the payments whether the gang leader can be treated as person as mentioned in the sub-section (3) of section 404 Case discussed. The assessee submitted the details under headwise. The break-up of these expenses are as under :- Stevedoring charges - Rs.75,33,257/- Handling charges - ₹ 69,16,056/- Sweeping Labour charges - ₹ 11,89,238/- 4.4.2 The same has been examined and found that out of the total expenditure incurred the assessee made cash payments exceeding ₹ 20,000/- directly to a person under the heads handling charges and labour charges. However, with respect to stevedoring expenses of ₹ 75,32,257/- it appears that the assessee made payments directly to labourers as there is no gang leader's name appearing in the vouchers. Thus, it is construed that the assessee made payments less than ₹ 20,000/- to a single person in respect of stevedoring expenses .....

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..... IT(A) rendered the finding that since the payments were made directly by the assessee to the labourers no payment to a single person was made in excess of ₹ 20,000/- and therefore also the disallowance the AO made under section 40A(3) of the Act was not sustainable and accordingly deleted. This issue is not before us in the present appeal. 5.3.3 The issue in dispute before us in this ground is in respect to the enhancement of income by the learned CIT(A) to the extent of ₹ 81,05,294/- under section 40A(3) of the Act comprising the extent of actual payments of handling charges paid, ₹ 69,16,056/- and ₹ 11,89,238/- on account of sweeping labour charges. It is seen from para 4.4.1 of the impugned order, that the learned CIT(A) vide order sheet noting dated 21.03.2013 had merely called for details of stevedoring expenses, handling charges and labourers payment. From a perusal of paras 4.4.2 to 4.4.9 of the impugned order, it is seen that only on the basis of examination of the details filed by the assessee, the learned CIT(A) proceeded to render an adverse finding that led to enhancement of the assessee s income to the extent of ₹ 81,05,294/- by virtue .....

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..... , the above expenses be allowed as the disallowance of ₹ 13,39,322/- in this regard be deleted as it is unsustainable. 6.2 The learned D.R. placed strong reliance on the finding of the learned CIT(A) in the impugned order. Accordingly to the learned D.R., the AO noticed that the assessee had paid the aforesaid expenses comprising legal fees, audit fees and professional fees without deduction of tax at source as required under Chapter XVII of the Act and therefore invoked the provisions of section 40(a)(ia) of the Act and disallowed the expenditure claimed bon the aforesaid expenses amounting to ₹ 13,39,322/-. It is submitted that the aforesaid decision was correctly upheld by the learned CIT(A). 6.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. The issue before us is with respect to the disallowance of ₹ 13,39,322/- made and sustained by the authorities below under section 40(a)(ia) of the Act in respect of payments made by the assessee for audit fees, legal fees and professional fees for non-deduction of tax at source on such payments. At the outset it must be mentioned that while making this disal .....

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..... low. There is no dispute with the fact that the cash expenditure of ₹ 6,51,318/- claimed to have been incurred for clearing and forwarding activities of the employees/ labourers of the assessee firm at Bombay Docks and JNPT, Nava Sheva are only supported by self made vouchers. In our view, the authorities below appear to have been reasonable in allowing 70% of the expenditure claimed and in disallowing only 30% thereof, considering the business activities of the assessee. From the details on record, we find that apart from raising this ground of appeal, the assessee has failed to place on record before us any material evidence to controvert the factual findings rendered by the authorities below on this issue. In this view of the matter, we find no reason to interfere with or deviate from the finding recorded by the learned CIT(A) in the impugned order and therefore uphold the disallowance of 30% of clearing and forwarding expenses. Consequently, ground No. 3 of the assessee s appeal is dismissed. 8. Ground No. 4 of the assessee s appeal being general in nature, no adjudication is called for thereon and consequently the same is dismissed as infructuous. 9. In the resul .....

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