M/s Bhogal Export, Ludhiana V. ITO, Ludhiana

CO 3/CHANDI/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8908 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: S R CHHABRA
• Keywords: Recovery proceedings
• Section: 194C; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1218/CHD/2011 ASSESSMENT YEAR: 2008-09 THE ITO, VS. M/S BHOGAL EXPORT WARD-V(1) 1104/1 DANDHARI KALAN G.T. ROAD, LUDHIANA DHANDHARI KALAN LUDHIANA PAN NO. AABFB3442J CROSS-OBJECTIONS NO. 3/CHD/2012 ARISING OUT OF ITA NO. 1218/CHD/2011 ASSESSMENT YEAR: 2008-09 M/S BHOGAL EXPORT VS. I.T.O. WARD V(1), 1104/1 LUDHIANA G.T. ROAD, DHANDHARI KALAN LUDHIANA (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI. J.S. NAGAR ASSESSEE BY : SHRI S.R. CHHABRA DATE OF HEARING : 30.07.2013 DATE OF PRONOUNCEMENT : 23.08.2013 ORDER PER T.R.SOOD, A.M. ITA NO. 1218/CHD/2011 THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 4.10.2011 PASSED BY THE CIT(A)- II, LUDHIANA. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL: 1 THAT THE LD. CIT(A)-II, LUDHIANA, ON FACTS AS WE LL AS IN LAW HAS ERRED IN PARTLY DELETING THE ADDITION OF RS. 29,68, 618/- OUT OF TOTAL ADDITION OF RS. 34,55,352/- MADE BY THE A.O ON A/C OF VIOLAT ION OF SECTION 40(A)(IA) OF THE I.T. ACT, 1961. 2 THAT THE ORDER OF THE CIT(A)-II, LUDHIANA BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAD MADE PAYMENTS TOWARDS FREIGHT AND CARTAGE CHARGES AMOUNTING TO RS . 36,70,608/-.. WHEN THE DETAILS WERE FILED IT WAS NOTICED THAT TDS HAS BEEN DEDUCTED ONLY FROM JAI BHAWANI AND TDS HAS NOT BEEN DEDUCTED FROM OTHER PA RTIES. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE WAS DUTY BOUND TO DE DUCT TDS FROM OTHER PARTIES U/S 194C OF THE ACT. THEREFORE, A SHOW C AUSE NOTICE WAS ISSUED TO THE ASSESSEE THAT WHY PROVISIONS OF SECTION 40(A)(IA) S HOULD NOT BE APPLIED FOR FAILURE TO DEDUCT THE TAX. IN RESPONSE THE ASSESSEE REPLIE D AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, YOU R HONOUR HAS ASKED US TO EXPLAIN THE REASONS AS TO WHY TDS HAS NOT BEE N DEDUCTED AGAINST OCEAN FREIGHTS AND OTHER CHARGES LIKE, INLAND HAULA GE CHARGES (IIHC) PAID TO EMU LINES PVT. LTD. & CROSS LINK CARGO MANA GEMENT PVT. LTD. IN THIS REGARD WE RESPECTFULLY SUBMIT AS UNDER:- IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAS MAINTAINE D ONE ACCOUNT NAMED AS CARTAGE & FREIGHT IN WHICH TOTAL EXPENDI TURE, ON ACCOUNT OF INLAND FREIGHT, OCEAN FREIGHT, INLAND HAULAGE CHARG ES AND OTHER EXPENDITURE, HAS BEEN DEBITED. THE TOTAL EXPENDITUR E IS RS. 3670608.87. THE BREAKUP OF TOTAL EXPENDITURE PARTY WISE IS ENCL OSED. THE ASSESSEE HAS DEDUCTED TDS AGAINST INLAND FREIGHT CHARGES PAI D TO JAI BHAWANI CARGO CARRIER & DHL EXPRESS. THE ASSESSEE HAS NOT D EDUCTED TDS AGAINST OCEAN FREIGHT AND INLAND HAULAGE CHARGES AN D OTHER CHARGES PAID TO AGENT OR PERSON ACTING ON BEHALF OF FOREIGN SHIPPING COMPANIES. IN VIEW OF CIRCULAR NO. 723 DATED 19.09.1995 THE PR OVISIONS OF SECTION 194C OR 195 IS NOT APPLICABLE WHERE PROVISION OF SE CTION 172 IS APPLICABLE. SECTION 172 IS GOVERNING SECTION FOR FOREIGN SHIPPI NG COMPANIES TO COLLECT TAX SHIP WISE. FOR APPLYING THE SCOPE OF CIRCULAR NO. 723 THERE AR E TWO FACTORS WHICH SHOULD BE AVAILABLE I.E. THE PERSON WHO IS GETTING PAYMENT MUST BE OF AGENT ACTING ON THE BEHALF OF FOREIGN SHIPPING COMP ANIES AND THE SHIPS CARRYING THE GOODS MUST BE BELONGING TO FOREIGN SHI PPING COMPANIES. M/S EMU LINES PVT. LTD. & CROSS LINK CARGO MANAGEME NT PVT. LTD. ARE SERVICE PROVIDES THEREFORE ACTING AS A AGENT FOR FO REIGN SHIPPING COMPANIES. THESE COMPANIES CANNOT BE SHIPPING COMPA NIES BECAUSE OF THEIR MEANS AND AVAILABLE FUNDS. FOR OWING SHIPS LA RGE AMOUNT OF FUND IS NEEDED. TO ESTABLISH THE FACT THAT THE SHIP WHICH IS HANDLI NG THE GOODS BELONGS TO FOREIGN SHIPPING COMPANIES WE ARE ENCLOSING THE COP Y OF BILL OF LADING (BL). THE BILL OF LADING IS A RECEIPT TO CONSIGNOR BY THE SHIP MASTER MAKING HIMSELF RESPONSIBLE FOR THE SAFE DELIVERY OF GOODS. THE BILL OF LADING IS SHOWING THE NAME OF CARRIER, THE NAME OF SHIPPERS ( EXPORTERS), THE NAME OF CONSIGNEE AND PLACE OF DESTINATION AND ALSO DETA ILS OF GOODS. THE BILL OF LADING IS THE MAIN DOCUMENT ON THE BASIS OF WHICH R ELATED DOCUMENTS IS GENERATED. SINCE THE GOODS IS BEING TRANSPORTED BY THE SHIP HENCE THE CHARGES HAS NOT BEEN PAID TO THE OWNER OF THE SHIP. THE AGENTS ARE COLLECTING THE CHARGES AND REMITTING THE SAME TO TH E FOREIGN SHIPPING COMPANIES THEREFORE ACTING AN AGENT. ONCE IT IS ESTABLISH THAT THE SHIP BELONGS TO FOREI GN SHIPPING COMPANIES AND PAYMENT IS MADE TO AGENTS THEN AUTOMATICALLY CI RCULAR NO. 723 WILL COME INTO ACTION. THE CIRCULAR IS VERY CLEAR ABOUT THE TAX REGULATION OF FOREIGN SHIPPING COMPANIES. SECTION 172 IS TAKING C ARE OF TAX COLLECTION OF FOREIGN SHIPPING COMPANIES OPERATING IN INDIA. A S PER SECTION 172(8) DEMURRAGE CHARGES/HANDLING CHARGES OR ANY OTHER AMO UNT OF SIMILAR NATURE IS A PART OF AMOUNT AGAINST WHICH TAX HAS TO BE PAID U/S 172(2). THE HONBLE BENCH OF DELHI TRIBUNAL HAS HELD IN THE CAS E OF ITO VS. FREIGHT SYSTEM INDIA PVT. LTD. (2006)103 TTJ 103, THAT PAYM ENT OF OCEAN FREIGHTS AND INLAND HAULAGE CHARGES CANNOT BE SUBJE CTED TO TDS BY VIRTUE OF THE PROVISION OF SECTION 172. THIS POSITI ON IS CLARIFIED BY THE CBDT CIRCULAR NO. 723. ASSESSEE THEREFORE CANNOT BE TREA TED TO BE IN DEFAULT FOR NON DEDUCTION OF TDS. IN VIEW OF THE ABOVE SUBMISSION IT IS SUBMITTED THA T THE TOTAL PAYMENT ON ACCOUNT OF OCEAN FREIGHTS AND HAULAGE CHARGES WHICH IS PAID TO EMU LINES PVT. LTD. CROSS LINK CARGE MANAGEMENT PVT. LT D. IS OUT OF THE PURVIEW OF SECTION 194C OF THE ACT. IT IS THEREFORE REQUESTED THAT KINDLY DONT DRAW ANY ADVERSE VIEW ON THIS SUBJECT MATTER AS THE SAME IS SQUARELY COVERED UNDER CBDT CIRCULAR NO. 723. 4 THE ASSESSING OFFICER EXAMINED THE CIRCULAR NO. 7 23 AND OBSERVED THAT THE CIRCULAR WOULD APPLY IN CASES WHERE THE PAYMENT S WERE MADE TO NON RESIDENT SHIPPING COMPANIES. OR THEIR RESIDENT AGEN TS, THEREFORE, THE CIRCULAR WAS NOT APPLICABLE. ACCORDINGLY HE INVOKED PROVIS IONS OF SECTION 40(A)(IA) AND ADDED A SUM OF RS. 34,55,352/- TO THE INCOME OF THE ASSESSEE. 5 ON APPEAL THE SUBMISSIONS MADE BEFORE THE ASSESSI NG OFFICER WERE REITERATED. THE LD. CIT(A) AFTER EXAMINING THE SUBM ISSIONS AND FOUND MERIT ONLY IN RESPECT OF PAYMENTS FOR SHIPPING BILL AND ALLOW ED RELIEF TO THE EXTENT OF RS. 29,68,618.75 AND CONFIRMED THE BALANCE ADDITION OF RS. 4,44,368.06. 6 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY SU PPORTED THE ORDER OF THE ASSESSING OFFICER. 7 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND T HE LD. CIT(A). HE ALSO REFERRED TO THE COPIES OF THE BILLS. SOME OF WHICH HAVE BEEN ENCLOSED ALONG WITH THE REPLY FILED BEFORE THE LD. CIT(A) (COPY OF THE SAME AVAILABLE AT PAGES 15-23 OF THE PAPER BOOK) AND POINTED OUT THAT BILLS CLEARLY SHOW THAT THE GOODS WERE SENT TO GERMANY THROUGH FOREIGN SHIPPING LINE. 8 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY . THIS ISSUE HAS BEEN ADJUDICATED BY THE LD. CIT(A) VIDE PARAS 4 & 4.1 WH ICH READS AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE AO H AS OBSERVED THAT FORM THE PERUSAL OF THE WORDING OF CBDT CIRCULAR NO . 723, IT IS CRYSTAL CLEAR THAT THE CIRCULAR TALKS ABOUT THE PAYMENTS MA DE OR TO BE MADE TO NON-RESIDENT SHIPPING COMPANIES OR THEIR RESIDENT A GENTS COVERED U/S 172 OF THE INCOME TAX ACT 1961. HOWEVER THE ASSESSEE HA S NEITHER MADE ANY PAYMENT TO ANY NON-RESIDENT SHIPPING COMPANY OR THE IR RESIDENT AGENTS ACTING ON BEHALF OF NON/RESIDENT SHIPPING COMPANIE S. NOTHING HAS BEEN BROUGHT ON THE RECORDS BY THE ASSESSEE BY ADDUCING ANY EVIDENCE THAT THE PARTIES TO WHOM THE PAYMENTS OF FREIGHT IS BEIN G MADE ARE NON- RESIDENTS OR ACTING AS AGENTS OF NON-RESIDENT SHIPP ING COMPANIES. THEREFORE, THE PROVISION OF SECTION 172 OF THE ACT DOES NOT COME INTO PICTURE AND ASSESSEE. HOWEVER, THE APPELLANTS COUN SEL CONTENDED THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE FACTS OF THE CASE IN THE LIGHT OF CIRCULAR NO. 723 READ WITH SECTION 172. TH E COUNSEL OF THE ASSESSEE HAS GIVEN EMPHASIS ON THE IMPORTANCE OF TH E BILL OF LADING WHICH IS THE BASE DOCUMENT WHICH CLARIFIES THE TWO MAJOR INGREDIENTS CONTAINED IN SECTION 172 OF THE ACT. BILL OF LADING CLEARLY MENTIONED THE NAME OF THE CARRIER AND THE NAME OF THE PORT IN IND IA. THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED IN DETAIL AS TO WHY SECT ION 194C SHOULD NOT BE APPLIED. 4.1 KEEPING IN VIEW THE ABOVE DISCUSSED POSITION OF THE CASE AND ON THE BASIS OF FACTS AVAILABLE IN THE ASSESSMENT RECO RDS AND ALSO THE DETAIL SUBMISSION SUBMITTED BY THE COUNSEL OF THE ASSESSEE IT IS CLEAR THAT THE OCEAN FREIGHTS AND INLAND HAULAGE CHARGES ARE OUT O F PURVIEW OF SECTION 194C. THEREFORE, I DELETE THE ADDITION OF RS. 29,68 ,618.75 AND UPHOLD THE ADDITION OF RS. 4,44,368.06. THIS GROUND OF APPEAL OF THE APPELLANT IS, THEREFORE, PARTLY ALLOWED. WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS CORRE CTLY ADJUDICATED THE ISSUE. WE HAVE ALSO VERIFIED THE COPIES OF THE BILLS OF LADIN G WHICH CLEARLY MENTION THE NAME OF CARRIER WHICH SHOWS THAT SUCH CARRIER ARE NON RE SIDENT COMPANIES. WE HAVE ALSO PERUSED CIRCULAR NO. 723 DATED 19.9.1995 WHICH READS AS UNDER: CIRCULAR NO. 723 DATED 19 TH SEPTEMBER, 1995 1. REPRESENTATIONS HAVE BEEN RECEIVED REGARDING THE SCOPE OF SECTIONS 172, 194C OF THE INCOME-TAX ACT, 1961 IN CONNECTION WITH TAX DEDUCTION AT SOURCE FROM PAYMENTS MADE TO FOREIGN SHIPPING COMPANIES OR THEI R AGENTS. 2. SECTION 172 DEALS WITH SHIPPING BUSINESS OF NON- RESIDENTS. SECTION 172(1) PROVIDES THE MODE OF LEVY AND RECOVERY OF TAX IN T HE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT, WHICH CARRIES PASSANGERS, LIVESTOCK, MIL OR GOODS SHIPPED AT A PART IN INDIA. AN ANALYSIS OF THE PROVISIONS OF SECTION 172 WOULD SHOW THAT THESE PROVISIONS HA VE TO BE APPLIED TO EVERY JOURNEY A SHIP, BELONGING TO OR CHARTERED BY NON-RE SIDENT, UNDERTAKES FROM ANY PART IN INDIA, SECTION 172 IS A SELF-CONTAINED CODE FOR THE LEVY AND RECOVERY OF THE TAX, SHIP WISE AND JOURNEY WISE, AN D REQUIRED THE FILING OF THE RETURN WITHIN A MAXIMUM TIME OF THIRTY DAYS OF FORM THE DATE OF DEPARTURE OF THE SHIP. 3. THE PROVISIONS OF SECTION 172 ARE TO APPLY, NOTW ITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT. THERE FORE, I SUCH CASES THE PROVISIONS OF SECTION 194 C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULA TED, FOR A VOYAGE UNDERTAKEN FROM ANY PART IN INDIA BY A SHIP, UNDER THE PROVISIONS OF SECTION 171. ABOVE MAKES IT CLEAR WHY THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE IF THE GOODS ARE DISPATCHED THROUGH THE NON RESIDENT SHIPP ING COMPANIES OR THROUGH THEIR RESIDENT AGENTS. ACCORDINGLY WE FIND NOTHIN G WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRMED THE SAME. 9 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . CROSS-OBJECTIONS NO. 3/CHD/2012 10 IN THE CROSS-OBJECTIONS ONLY ISSUE RAISED IS REG ARDING CONFIRMATION OF ADDITION IN RESPECT OF RS. 4,40,368/- PAID TO LEGA L AGENTS. 11 AFTER HEARING BOTH THE PARTIES WE FIND THAT THIS PORTION OF AMOUNT WAS NOT RELATED TO THE PAYMENTS TO BE MADE TO NON RESIDENT COMPANIES AND THIS WAS TOWARDS VARIOUS CHARGES CHARGED BY CARGO CONSULTANT S. 12 BOTH THE PARTIES WERE HEARD. 13 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS PORTION OF THE AMOUNT PAID TO VARIOUS CARGO CONSULTANTS TOWARDS CO NSULTANCY CHARGES RECOVERED FROM THE ASSESSEE. SOME PORTION OF THE A MOUNT IS TOWARDS REIMBURSEMENT OF EXPENSES BUT THE DETAILS ARE NOT A VAILABLE READILY, THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS CORRECTL Y CONFIRMED THE ADDITION OF THIS AMOUNT AND ACCORDINGLY WE DISMISS THIS GROUND OF T HE CROSS-OBJECTIONS. 14 ONE ADDITIONAL GROUND HAS ALSO BEEN TAKEN IN THE CROSS-OBJECTIONS WHICH READS AS UNDER: GROUND NO. 1 (B):- WITHOUT PREJUDICE TO THE GROUND NO. 1(A) AND THE GROUNDS OF APPEAL TAKEN BEFORE THE CIT(A) LUDHIANA, IT IS SUBMITTED THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN MAKING THE DISALLOWANCE U/S 40(A)(IA) EVEN IN RESPECT OF PAYMENTS MADE DURING T HE F.Y. 2007-08 AND WHICH WERE NOT OUTSTANDING AS ON 31.03.2008 AS WAS CLEAR FROM THE COPIES OF ACCOUNTS OF THE CONCERNED PARTIES AVAILAB LE WITH THE A.O. AT THE TIME OF ASSESSMENT, IN VIEW OF THE SPEICAL BENCH DE CISION OF THE VISAKHAPATNAM INCOME TAX APPELLATE TRIBUNAL DATED 0 9.04.2012 REPORTED IN (2012) 136 ITD 23. 15 BOTH THE PARTIES WERE HEARD. 16 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE DECISION OF SPECIAL BENCH IN CASE OF MERILYN SHIPPING & TRANSPO RT VS. ADDL CIT, 136 ITD 23 (VISAKHAPATNAM )(SB) HAS ALREADY BEEN OVERULEDL BY HON'BLE GAUHATI HIGH COURT IN CASE OF CIT V. SIKANDER KHAN, ITA NO. 905 OF 201 2 ORDER DATED 2.5.2013. SAME VIEW HAS BEEN TAKEN BY HON'BLE CALCUTTA HIGH C OURT IN CASE OF CIT V. CRESENT EXPORT SYNDICATE, ITA NO. 20 OF 2013. IN V IEW OF ALL THESE JUDGMENTS WE DISMISS THIS GROUND. 17 IN THE RESULT, CROSS-OBJECTIONS ARE REJECTED. 18 IN THE RESULT, APPEAL OF THE REVENUE AND THE CRO SS-OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.20 13. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 23.8, 2013 SURESH COPY TO:THE APPELLANT/THE RESPONDENT/THE CIT/THE CI T(A)/THE DR