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2018 (7) TMI 132

rline company - violation of the provisions of Section 44B r.w.s. 172 as well as 44BBA - Held that:- It is clear that assessee-company made payments on behalf of its clients as Clearing and Forwarding Agent which were reimbursed to the assessee-company. The assessee-company did not make claim of deduction in the P & L A/c. Similar claim of assessee-company has been allowed in earlier and subsequent year, therefore, rule of consistency do apply to the income tax proceedings. There were no justification for the authorities below to take a different view on same set of facts. Even no action have been taken while scrutinizing the issue of TDS against the assessee-company. The assessee-company has not violated the provisions of Section 44B r.w.s. 172 as well as 44BBA. Since, under the domestic Law as well as under DTAA, the income received by non-resident airline/shipping companies or their Agents, are not taxable in India, therefore, assessee is not liable to deduct TDS. In this view of the matter, we set aside the orders of the authorities below and delete the entire addition. - Scope of auditor's opinion - The opinion of the Auditor is not conclusive because the issue shall have .....

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egard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of ₹ 8,17,807/- u/s 40A(3) of Income Tax Act, 1961. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of the Income tax Act, 1961. 2. We have heard the Learned Representatives of both the parties and perused the material on record. 3. Ground Nos. 1 and 2 have been raised for disallowance on account of non-deduction of TDS on airfreight. 3.1. During the year, the assessee-company was engaged in the business of total logistic solutions providers, general cargo agents, charter party contractors, shipping agents, packing agents, salvors, wreck removers, wreck raisers, auctioneers, baggage transporters, forwarding and clearing agents, wholesale warehousemen, booking agents of goods, articles or things on behalf of customers from one place to another place in any part of the world. 3.2. During the assessment proceedings, the basic financial statements along with computation of income and Tax .....

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ure of the accounts of the assessee, in which, Auditor has mentioned that the payments made to non-residents are inadmissible, therefore, these should have been added back by the assesseecompany. 4. The assessee-company further submitted before A.O. that it has reimbursed air-freight to non-residents on behalf of Indian resident customers without deducting TDS. Section 40(a)(i) of the I.T. Act is not applicable because the assesseecompany has never claimed the airfreight as expenses in the Profit & Loss Account. Such type of payments are also exempt in consonance with India s DTAA. Section 194C is also not applicable because the payments are made to foreign nonresident agents. As per provisions of the respective tax treaties, it has been clearly provided that international traffic are taxable only in the State, in which, respective enterprises are fiscally domicile. The assessee-company has no obligation to deduct tax at source whether under section 194C or under section 195 for the payments made to non-residents towards airfreight. It was submitted that all the payments are towards freight to companies registered outside India and no tax is required to be deducted on payments .....

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r client for the assessee company along with others and 80% of the total business comes from M/s. Samsung India Ltd., for the assessee-company. The assesseecompany handles shipment or cargos arriving at Air Ports and dispatches such shipment to various locations as per client s requirements. The assessee-company in its accounting recognition taking revenue excluding freight charges in its P & L A/c, whereas as per the assessee-company, the client s including M/s. Samsung India Ltd., are deducting TDS on the gross amount. M/s. Samsung India Ltd., and other clients are treating it as reimbursement of expenses under section 194C and deduct TDS accordingly. Whereas the assessee-company is not deducting or withholding tax on the payment made to nonresident agents. The A.O. noted that it has not been established that payments made to non-residents were in the nature of airfreight with any supporting documents. The assesseecompany has failed to establish the fact that whether payments made to foreign agents are related to airfreight or it is mere reimbursement of expenses. The assessee-company failed to provide details. Therefore, in the opinion of the A.O. the assessee-company is req .....

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ties, rather the assessee has acted as a mere facilitator/agent between the parties and the authorities. It is well understood that TDS is deductible under section 194C on the payments made to the contractors/sub-contractors. Thus, the basic premise for deducting tax is on the contracting parties. In the absence of any contractual relationship between the assessee and the airlines/shipping lines/authorities, assessee agent is not liable to withhold tax or deduct tax under section 194C of the I.T. Act. The Apex Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd., vs. CIT (2007) 293 ITR 226 (SC) held that where the deductee concern have already paid tax on the payments made by the assessee-payer, then the department, could not deduct tax from the deductor of this same income by treating the later to be an assessee-in default. In the present case, the payees have offered the corresponding income in the returns, therefore, alleged TDS liability raised upon the assessee was not enforceable. Since the contract was between the exporter and the shipping lines and the assessee merely acted as an Agent, therefore, it is not liable to deduct tax in terms of Section 194C of the I .....

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nagement ( POEM ) was needed to be settled while deciding on the taxability of the profits/income generated. Further for claiming relief under DTAA, Tax Residence Certificate is mandatorily required. The assessee-company filed few TRCs of foreign airlines companies, in which, discrepancies have been noted by the A.O. But some were found in order. The A.O. also reported that total receipts as per 26AS are of ₹ 165.38 crores but the turnover as per Profit & Loss Account is ₹ 35.06 crores. The difference is not reconciled. The assessee-company is required to deduct TDS on such payments. 7. The assessee-company filed rejoinder in which the assessee-company explained the same facts as were explained earlier. It was submitted that the payments have been made to the agents of the airlines, therefore, it should be treated as payments made to airlines. The assessee-company did not claim deduction of the expenditure as the same have been reimbursed by the Principal. For the payments made by M/s. Samsung India Ltd., , they have deducted TDS on the entire amount that is why, the entire figure is coming up in 26AS but the entire amount so received is not income of the assessee-c .....

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ies filed before A.O. on merit for A.Y. 2015-2016, on which, identical claim of assessee company has been allowed. PB-1031 to 1047 are the details of TDS enquiry conducted by the Revenue Department on the same issue and after calling the complete details and information under section 133(6) of the I.T. Act as well, the Department did not take any adverse view against the assesseecompany and similar claim of assessee-company has not been disturbed. PB-1066 to 1095 are the intimation under section 143(1) of I.T. Act issued by the Department for several preceding assessment years under section 143(1), in which, similar claim of assessee-company has been allowed. Learned Counsel for the Assessee submitted that rule of consistency do apply to the income tax proceedings. Therefore, on the same set of facts, when Income Tax Department accepted similar claim of the assessee-company for preceding as well as subsequent assessment years, then, for assessment year under appeal, the similar claim of assessee-company should not be disallowed on account of non-deduction of TDS without bringing any new material on record. In support of this contention, he has relied upon the decisions of the Hon b .....

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e.f. 01.04.1962 which is retrospective in nature. Assessee-Company filed revised audit report without any cause. The client raises invoice for the work assigned to the assessee-company and deducts tax under section 194C for these services and the assessee claims the entire TDS in its return. The Ld. CIT(A), reproduced the remand report furnished by the A.O. in the appellate order in which the A.O. has highlighted the reasons for making the addition against the assessee-company. In the reply of assesseecompany filed at PB-1032, the assessee-company claimed reimbursement of expenses, but, M/s. Samsung India Ltd., treats it as contract and deducts TDS. It is not a case of no profit, therefore, TDS is required to be deducted. The assesseecompany is an Agent of M/s. Samsung India Ltd., who gets profit share from foreign counterparts and there is no reimbursement of expenses between the two parties. It is a service being rendered by the assessee-company, so TDS is liable to be deducted. The rule of res judicata does not apply. Since new facts have been pleaded, so the case may be decided on merits. The Ld. D.R. also filed two written submissions in which the same submissions have been re .....

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company has not made claim of expenses in its P & L A/c. In the instant case, though the payments have been released to foreign shipping/airlines through their non-resident Agents towards freight, but these payments have not been made by the assessee-company on account of its expenses, but, have been made for and on behalf of its clients/customers namely M/s. Samsung India Ltd., and other Companies, for whom, assessee-company does the work of logistics solutions. In fact, the assessee-company is reimbursed on actual basis, the amount of all expenses including freight by M/s. Samsung India Ltd., and others and there is no profit element involved in such reimbursement. The assessee-company explained and proved that payments have been made to non-resident Agents of foreign airline/shipping companies. Freight is paid by the assessee-company on behalf of M/s. Samsung India Ltd., and others. There is no Privity of Contract between the assesseecompany and the non-resident Agents of foreign airlines/shipping companies. Assessee-Company worked as a Facilitator/Agent between the parties. PB-660 to 669 is copy of the chart giving details of payments remitted to non-resident Agents by the .....

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s below on the same set of facts, therefore, the Revenue Authorities should follow the rule of consistency and should not have disallowed the amount in question. The opinion of the Auditor is not conclusive because the issue shall have to be considered and decided as per Law. Further, the assessee-company has filed the revised audit report to clarify the above position. 12. The Hon ble Supreme Court in the case of CIT vs. Mahalaxmi Sugar Mills Co. Ltd., (1986) 160 ITR 920 (SC) held that duty caste on A.O. to apply relevant provisions of Law for the purpose of determining the true figure of assessee s taxable income . The Hon ble Supreme Court in the case of Radhasoami Satsang Saomi Bagh vs. CIT (1992) 193 ITR 321 (SC) held that revenue authorities should follow rule of consistency. The Hon ble Supreme Court in the case of CIT vs. Excel Industries Ltd., (2013) 358 ITR 295 held in para-31 as under : 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but wi .....

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sessee is nothing but an intermediary between the exporters and the shipping lines. The assessee facilitates the contract for carrying goods for and on behalf of its client i.e., exporters or importers, or importers, and the principle contract for carrying goods is between the exporter/importer and the shipping lines. Therefore, deleted the disallowance made under section 40(a)(ia) of the I.T. Act . 18. ITAT, Mumbai Bench in the case of ITO vs. Universal Traffic Co. (2014) 42 CCH 55 (Mum-Tribu.) held as under : A custom house agent (CHA) is not liable to deduct TDS under section 194C, on payment made towards freight charges, detention charges and de-stuffing charges, etc., paid to foreign lines or to their agents or shipping lines for transportation of cargo, since CHA only act as an intermediary and the privity of contract is not between assessee and foreign lines/shipping lines to whom such charges were paid. 19. The assessee-company further submitted that, in this case, it is not in dispute that it is a case of reimbursement only and, therefore, assessee-company is not liable to deduct TDS. In support of this contention, Learned Counsel for the Assessee relied upon the decision .....

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ivestock, mail or goods shipped at a port in India. An analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, belonging to or chartered by a non-resident, undertakes from any port in India. Section 172 is a self-contained code for the levy and recovery of the tax, ship-wise, and journey wise, and requires the filing of the return within a maximum time of thirty days from the date of departure of the ship. 3. The provisions of section 172 are to apply, notwithstanding anything contained in other provisions of the Act. Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated, for a voyage undertaken from any port in India by a ship under the provisions of section 172. 4. Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a ) to (j) of sub-section (1) to any resident (termed as contractor). It is clear from the section that the area of operation of TDS is confined to paym .....

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of Welspring Universal vs. JCIT, Range-27, New Delhi (2015) 56 taxmann.com 174 (Delhi-Trib.) held as under : Where commission paid by assessee to non-resident agent for procuring export orders was not chargeable to tax in hands of said agent, assessee was not liable to deduct tax at source. 19.4. Thus, the impugned payments made by the assesseecompany to such airline companies or its different agents are not liable to be taxed in India even under the domestic Law and therefore, assessee-company was not liable to deduct tax in India. Further, it may be noted that such non-resident entities have not rendered any services in India. They do not have any P.E. in India and they do not have any business connection in India. No such case is also made out by the A.O. 19.5. Assessee-Company also pleaded that freight charges paid to non-resident shipping/airline companies directly or through their agents is exempt under Article-8 of DTAA, copies of various relevant DTAAs are filed at pages 526 to 555 of the paper book, which clearly provides that profits from operation of ships or aircraft, including interest on funds connected with that operation, derived by a resident of one of the Contract .....

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he assessee-company did not make claim of deduction in the P & L A/c. Similar claim of assessee-company has been allowed in earlier and subsequent year, therefore, rule of consistency do apply to the income tax proceedings. There were no justification for the authorities below to take a different view on same set of facts. Even no action have been taken while scrutinizing the issue of TDS against the assessee-company. The assesseecompany has not violated the provisions of Section 44B r.w.s. 172 of the I.T. Act as well as 44BBA of the I.T. Act. Since, under the domestic Law as well as under DTAA, the income received by non-resident airline/shipping companies or their Agents, are not taxable in India, therefore, assessee is not liable to deduct TDS. In this view of the matter, we set aside the orders of the authorities below and delete the entire addition. In the result, ground Nos. 1 and 2 of the appeal of the assessee are allowed. 24. On ground No.3, assessee-company challenged the order of the Ld. CIT(A) in confirming the disallowance of ₹ 8,17,807/- under section 40A(3) of the I.T. Act, 1961. 25. The A.O. noted from the tax audit report that the assessee-company has inc .....

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lished in as much as such amount is found to be withdrawn from the HDFC bank account of the appellant company. The AO's case is that the provisions of sec. 40A(3) are of mandatory nature whereas the assesseerelying on the decision of the Hon ble Jurisdictional Rajasthan High Court in the case of Harshee a Chordia vs. CIT supra has contended that when identity of the payee, genuineness of the transaction and source of payment is established then provision of section 40A(3) cannot be applied. The Hon ble Rajasthan High Court while interpreting the provisions of Sec. 40A(3) in the case of Harshila Chordia vs, ITO supra has clearly held that when the genuineness of the transaction/payment is not disputed and the identity of the payee / received is established then such case will fall under the exceptional circumstances covered under-rule 6DD of IT Rules. The decision of the Hon ble Jurisdictional ITAT in the case of the M/s Ace India Abodes Ltd. vs. ACIT CC-2, Jaipur in ITA no. 79/JP/20110rder dated 12.2.2011 and in the case of the M/s Shree Salaaar Overseas Pvt. Ltd.: vs. DCIT, Circ1e-2 in ITA no. 56/JP/2 10, order dated 21.2.2011 also supported the assessee s contention. The deci .....

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xpenditure in excess of ₹ 2,500 (Rs.10,000/- after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing officer the circums .....

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eal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tete Services vs ITO in (2014) 43 Taxmann.com 199 (Guj) Section 40A( 3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006- 07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account -If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disallowance under section 40A (3) was to be made in respect of payment made to principal- Held, yes [ Paras 21 to 23] [in favour of the assesse] Sri Laxmi Satvanaravana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhrapradesh High .....

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e defaulter. The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s. 57(2). Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as was in the case of Swastik Roadways (3 SCC 640) and the consequence to fall for failure to observe such norms in the present case are much higher than which were prescribed under the Madhya Pradesh Sales Tax Act. Apparently, it is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. We hold that the purpose of .....

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make payment in cash for goods and services on behalf of such person: Admittedly, Shri.Arnit Dutta is only the agent of Hutchison Essar Ltd and not the assessee as could be seen very clearly from the Associate Distributor Agreement entered into by the assessee which is on records before us and before the lower authorities. Hence the payment made by the assessee to Shri.Arnit Dutta would not fall under the exception clause of Rule 6DD(k). 4.9. We find that one of the grounds raised by the assessee is violation of principles of natural justice on the part of the Learned CIT(A) to enhance the assessment without giving enhancement notice to the assessee. But from the order of the Learned CITA, it is specifically mentioned that the assessee was given due opportunity and show cause notice for enhancement of assessment by ₹ 54,01,473/- for making further additions on account of section 40A(3) of the Act. We find that the assessee had not come on any affidavit before us refuting this finding. Hence the enhancement made by the Learned AO cannot be faulted with on violation of principles of natural justice. 4.10. In view of the aforesaid facts and circumstances and respectfully followi .....

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