TMI Blog2014 (4) TMI 1143X X X X Extracts X X X X X X X X Extracts X X X X ..... Per Sanjay Garg, Judicial Member: The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] dated 10.01.10. The assessee has taken the following revised grounds of appeal: I. Disallowance of freight expenses u/s. 40(a)(ia): 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of freight paid of ₹ 1,73,49,873/- u/s.4O(a)(ia) of the Income tax Act 1961 for non deduction of TDS u/s. 194C of the Act. 2. The learned CIT(A) failed to appreciate that only amount 'payable' and not amount 'paid' could be disallowed u/s. 40(a)(ia) of the Act. 3. The learned CIT(A) also failed to appreciate that the payee are assessed to tax and already paid taxes on the said amount and therefore there should not be any disallowance, the aforesaid view is also supported by the subsequent amendment made by the Finance Act 2012 inserting proviso to section 40(a)(ia) of the Act which is clarificatory in nature and inserted with a view to rationalize the provisions of disallowance. II. Disallowance of out of pocket Expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Draft Cargoways Mumbai Pvt. Ltd. 14170978 4. Everqreen India Pvt Ltd. 22830 5. Aqurius Logistics Pvt Ltd. 25009 6. Lirin Roadways Pvt Ltd. 323416 7. Reliance Freight Forwarders Pvt Ltd. 150500 8. Sheriff Express Travels Cargo Pvt Ltd. 2909967 9. Shree Ganesh Pelletising Allied Services 57428 10. Silverline Logistics Pvt. Ltd. 25500 11. WSA Shipping Bombay Pvt. Ltd. 38964 12 Chunnilal Clearing Forwarding Pvt.Ltd. 455050* Total 1 90,00 742 *Apart from this M/s. Chunnilal Clearing Forwardin g Pvt. Ltd. had been paid Rs.l,84,853/- for documentation expenses. The AO noticed that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act were applicable and therefore, the assessee was liable to deduct tax at source on the payments so made. Thereafter he concluded that the assessee had paid ₹ 14170978/- to Draft Cargoways Mumbai Pvt. Ltd. and ₹ 2909967/- to Sheriff Express travels Cargo ep) Ltd. during the F.Y 2006-07. The payment made to Draft Cargoways Mumbai P Ltd. was towards handling as well as Freight Charges, where as payment made to M/s. Sheriff Express travels and Cargo P Ltd. was only on account of Freight Charges. There was no evidence to prove that M/s. Sheriff express travels cargo P. Ltd. was an agent of foreign ship owner and as the assessee had neither deducted tax at source on these payments nor proved that TDS was not deductible on the payment made, the amount claimed was not allowable in view of the provisions of section 40(a) (ia). As regards to the payments made to other parties mentioned in the table above, no details of TDS and payment thereof was produced. Hence, he added the amount claimed as freight forward payments, clearing charges and documentation expenses of ₹ 1,91,85,595/- to the total income. Addition so made worked out at ₹ 1,91,85,595/-. 4. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the party could not be verified. In view of the same, the disallowance on account of payment made to Reliance Freight Forwarders P.Ltd. of ₹ 1,50,500/- was also upheld by him. Further in the cases of Shree Ganesh Pelletising Allied Services and Sheriff Express Travels Cargo P. Ltd. , he observed that the decision of the Supreme Court in the case of Hindustan Cocacola , relied upon by the assessee, was not applicable as it was not a case of refund of taxes. The decision given by Hon'ble Supreme Court was regarding imposition of penalty u/s.201 and 210(1A) of the Income Tax Act 1961. He observed that Sec.201 and 201(1A) deal with consequence of failure to deduct or pay whereas sec.40(a)(ia) deals with disallowance of expenses in case of non deduction of tax or non payment of deducted tax. He therefore held that the said decision was not applicable to the disallowance made u/s 40(a)(ia). He therefore upheld the disallowance made by the AO in the cases of DN International [Rs,61,000], Sheriff Express Travels Cargo P,Ltd. [Rs.2909967/-] and Shree Ganesh Pelletising Allied Services [Rs.57,428/-]. Being aggrieved from the order of the CIT(A), the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st March of the relevant financial year. No disallowance could have been made on the sums which were already paid by the assessee as on 31st March of the said financial year. In this regard he has relied upon the Special Bench verdict of ITAT in the case of Merlyn Shipping and Transports in ITA No.477/Viz./2008 dated 29.03.2013, wherein it has been so held by the Special Bench of the ITAT. He has further relied upon an authority of the Hon'ble Allahabad High Court styled as CIT vs. M/s. Vector shipping Services (P) Ltd. Muzaffarnagar (ITA No.122 of 2013 decided on 9.7.13) 9. We have gone through the judgment of Hon'ble Allahabad High Court in the case of M/s. Vector shipping Services )P) Ltd. Muzaffarnagar (supra). The question of law framed by the Hon'ble High Court for adjudication in the said appeal was as under :- Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of ₹ 1,17,68,621/- made by AO under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s. Mercator Lines Ltd. had performed ship management work on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable and not which had been paid by the end of the year. The Hon'ble High Court has further held that question of law as framed in the said judgement (as reproduced above) does not arise for consideration in the appeal. Hence the Hon'ble Allahabad High Court in the said case did not answer any question of law rather the findings of the Tribunal were upheld being factual and not legal. 11. On the other hand this issue has been discussed in detail and specifically adjudicated by the Hon'ble High Court of Calcutta as well as the Hon'ble High Court of Gujarat. This question came for consideration before the Hon'ble Calcutta High Court in Commissioner Of Income Tax, Kolkata-Xi Versus Crescent Export Syndicate (Appeal No. -ITAT 20 OF 2013, GA 190 OF 2013) wherin the honble High court has held that the provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance- sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. The Hon'ble High Court further observed that the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble must remain so payable throughout during the year. The Honble Gujarat High Court further observed that if the assessee's interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). The Hon'ble Gujarat high Court thus held that 'Merilyn Shipping' (Supra) does not lay down correct law. The correct law is that s. 40(a)(ia) covers not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t if the assessee fails to deduct TDS in respect of any payment to which the TDS provisions apply but he is not deemed to be an assessee in default under section 201 of the Act, which provides that if the payee of the such amount computed the same into his income tax return and has paid the due taxes, then such an assessee will not be deemed to be an assessee in default. The relevant provisions of section 40 (a)(ia) including the newly inserted proviso, for the sake of convenience are reproduced as under: Amounts not deductible: 40. Notwithstanding anything to the contrary in sections 30 to 64, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) ................ (ia) any interest, commission or brokerage, 67[rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, 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, 68[has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in such form as may be prescribed]........................... --------------------------------------------------------------------------------------------- 21. Inserted by the Finance Act, 2012, w.e.f. 1-7-2012 ---------------------------------------------------------------------------------------------- 11. The ld. counsel for the assessee has relied upon various case laws of the Hon ble Supreme Court and of the Hon ble High Courts to press the point that the newly inserted proviso to section 40(a)(ia) is in fact clarificatory in nature and should be applied/retrospectively. On the other hand, the ld. D.R. has also relied upon various judgments of the Hon ble Supreme Court as well that of the Hon ble High Courts of the country to press the point that it has been specifically provided in the Act that the said proviso comes into operation w.e.f. 01.04.13 and that where the language of the section as well as the date of operation of such provisions has been mentioned specifically the courts cannot supply words to the provisions or amend the provisions to give it a different meaning and further that the newly inserted proviso under such circumstances is prospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er read as under: 7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25-09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work would be clearly understood by both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also. 7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd(supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act, 7.4 The last contention of the assessee is that the second proviso to sec, 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 is clarificatory in nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ror in recording the figure of the amount. The ld. D.R. has also fairly admitted that there is a clerical error in recording the figure. 16. We have also perused the order of the ld. CIT(A). It appears that the ld. CIT(A) while allowing the ground No.II in relation to reimbursement of out of pocket expenses has wrongly mentioned the figure of ₹ 7,42,554/- instead of ₹ 20,64,401/-. In view of the above, this ground of the appeal is allowed and the amount of disallowance deleted by the ld. CIT(A) is ordered to be read as ₹ 20,64,401/- instead of ₹ 7,42,554/-. Ground No.III: 17. Vide ground No.III, the assessee has agitated the disallowance of ₹ 1,22,286/- as rent expenses. The ld. counsel for the assessee has contended that the ld. CIT(A) while deciding this issue has failed to take into consideration the remand report of the AO in this respect. 18. We have perused the remand report in question, wherein he has reported that the assessee had incurred the rent expenses in question for business purpose but has wrongly debited the expenses of ₹ 23,682/- pertaining to society charges of residential house and other personal expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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