The DCIT, Circle-2, Surat V. Madhusudan Silk Mills, Surat

ITA 1085/AHD/2011

• Counselvise Citation: 108520514 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 13-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Rectification of order
• Section: 194C; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO . 1085 / AHD/ 20 11 A. Y .20 0 5 - 0 6 DY. CIT, SURAT. VS M/S. MADHUSUDAN SILK MILLS, PROP. MADHUSUDAN INTERNATIONAL, 2 ND FLOOR, KAJIWALA COMPLEX, RING ROAD, SURAT. PAN: A AEFM 2037K (APPELLANT) (RESPONDENT) REVENUE BY : S HRI KAMLESH MAKWANA, SR. D.R. , ASSESSEE(S) BY : SHRI J.P. SHAH , A.R. / DATE OF HEARING : 2 4 / 0 7 /201 5 / DATE OF PRONOUNCEMENT: 05 / 0 8 /201 5 / O R D E R PER S.S. GODARA , JUDICIAL MEMBER THIS REVENUE S APPEAL FOR A.Y .200 5 - 0 6 , ARISE S FROM ORDER OF THE CIT(A) - I I , SURAT, DATED 19 . 01 .20 11 PASSED I N CASE NO .CAS - I I/ 29 / 10 - 11/239 , IN PROCEEDINGS UNDER SECTION 143(3 ) OF THE INCOME TAX ACT , IN SHORT THE ACT . 2. THE REVENUE S SOLE SUBSTANTIVE GROUND PLEADS AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF SALES ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 2 - FREIGHT PAID TO C&F AGENT INSPITE OF THE ASSESSEE S FAILURE TO FURNISH PROOF OF THE C&F AGENT FIRM IS ASSESSED U/S.172 OF THE ACT AND TO PROVIDE DOCUMENTARY EVIDEN CES TO SUBSTANTIATE ITS CLAIM NO TDS WAS REQUIRED TO BE DEDUCTED ON PAYMENT OF RS.38,81,623/ - 3. THE ASSESSEE - FIRM IS AN EXPORTER OF ART SILK FABRIC S . IT FILED ITS RETURN ON 31.10.2005 ADMITTING INCOME OF RS.14,76,693/ - . THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 26.12.2007 ADDING TO SUMS OF RS.86,884/ - AND RS.86,908/ - OUT OF TRAVELLING AND PERSONAL EXPENDITURE HEADS. THE ASSESSEE DOES NOT SEEM TO HAVE FILED ANY APPEAL AGAINST THE SAME. THEREAFTER, THE ASSESSING OFFICER INTERALIA NOTICED THE ASSESSEE NOT TO HAVE DEDUCTED TDS UPON SALES FREIGHT CHARGES OF RS.38,81,683/ - PAID TO SHRI GOVIND JI NARSINH AND SONS. HE PASSED RECTIFICATION ORDER U/ S . 154 DATED 1.10.2008 DISALLOWING THE ABOVESTATED SUM FOR WANT OF TDS DEDUCTION. 4. THE ASSESSEE PREF ERRED APPEAL. THE CIT(A) REMITTED THIS ISSUE BACK TO THE ASSESSING OFFICER AS UNDER: 5.2 THE NEXT DISALLOWANCE WAS OF THE SUM OF RS . 38,81,683 / - BEING THE EXPENDITURE INCURRED ON 'SALES FREIGHT' WHICH WAS PAID TO THE SAME FIRM, M/S . SHREE GOVINJI NARSINH & SONS. IT HAS BEEN CLAIMED THAT THE SAID PAYMENT REPRESENTED THE REIMBURSEMENT OF EXPENSES INCURRED BY THE CLEARING AND FORWARDING AGENT WHO HAD PAID THE SAME SUM TO FOREIGN SHIPPING COMPANIES, AND THAT, NO TAX WAS DEDUCTIBLE AT SOURCE FROM ANY PAYMENT MA DE TO A FOREIGN COMPANY. I FIND FROM THE ORDER U/S 154 THAT, WHILE THE AO DEALT WITH THE ASSESSEE'S SUBMISSION WITH REGARD TO THE OTHER PAYMENTS, SHE APPEARS TO IGNORED THE ASSESSEE'S SUBMISSION REGARDING THE SALES FREIGHT . THE ASSESSING OFFICER IS THERE FORE DIRECTED TO RE - EXAMINE THE FACTS CONCERNING SUCH PAYMENTS, MORE SPECIFICALLY AS TO WHETHER SUCH SUM ACTUALLY REPRESENTED THE ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 3 - REIMBURSEMENT OF EXPENSES INCURRED BY THE CLEARING AGENT AND PAID TO FOREIGN COMPANIES. IF THE ASSESSEE'S CLAIM IS FOUND TO, B E CORRECT THEN, IN VIEW OF CBDT; CIRCULAR NO 723 DATED 19 - 09 - 2005, NO TAX WOULD HAVE BEEN DEDUCTIBLE AT SOURCE AND CONSEQUENTLY, NO ADDITION COULD BE MADE U/S 40(A)(IA) OF THE IT ACT. IF THE FACTS OF THE CASE ARE NOT WHAT HAS BEEN CLAIMED BY THE ASSESSES A ND THE AR THE DISALLOWANCE OF THE SUM OF RS 38,81,683 WILL STAND CONFIRMED. 5. THE ASSESSING OFFICER TOOK UP CONSEQUENTIAL PROCEEDINGS. THE ASSESSEE PLEADED TO HAVE MADE THE IMPUGNED FREIGHT PAYMENTS AMOUNTING TO RS.38,81,683/ - TO ITS PAYEE AGENTS WHO IN TURN ENGAGED SERVICES OF THE FOREIGN SHIPPING COMPANIES IN QUESTION NOT TO REQUIRE ANY TDS DEDUCTION U/S.172 OF THE ACT AND AS PER THE BOARD S CIRCULAR NO.723 DATED 19.9.1995. THE ASSESSING OFFICER REJECTED TH IS PLEA BY HOLDING THAT IT HAD ONLY PRODUCE D C OPY OF LEDGER AND BILLS WITH ITS PAYEE AGENTS WITHOUT ANY PROOF THAT THE ULTIMATE BENEFICIARY/FOREIGN SHIPPING COMPANY WAS ASSESSED U/S.172 OF THE ACT . A ND ALSO OBSERVED THAT IT HAD NOT PRODUCED BANK STATEMENT S AND OTHER PARTICULARS OF ITS AGENT HA VING REI MBURSED FOR FREIGHT EXPENSES INCURRED ON ITS BEHALF. HE REITERATED THE IMPUGNED DISALLOWANCE IN CONSEQUENTIAL ORDER DATED 22.6.2009. 6. THE ASSESSEE PREFERRED YET ANOTHER APPEAL. THE CIT(A) HAS ACCEPTED ITS CONTENTIONS AS UNDER: 6.1 I HAVE DULY CONSIDER ED THE SUBMISSION OF THE APPELLANT AND ALSO PERUSED COPIES OF BILLS OF LADING ENCLOSED ALONG WITH THE BILLS RAISED BY SHRI GOVINDJI NARSINH & SONS UPON THE APPELLANT FOR REIMBURSEMENT OF FREIGHT CHARGES, AS PER THE BILLS OF LADING. THE ASSESSING OFFICER HA S ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 4 - NOT DISPUTED THAT THE FREIGHT CHARGES HAVE BEEN PAID TO THE C&F AGENT OF THE APPELLANT, VIZ. SHRI GOVINDJI NARSINH & SONS. HE HAS OR LY HELD THAT NO PROOF HAS BEEN FURNISHED TO SHOW THAT THE SHIPPING FIRMS TO WHOM, FREIGHT CHARGES HAVE BEEN PAID BY THE A BOVE AGENT, HAVE BEEN ASSESSED U/S. 172 OF THE ACT. IN THIS REGARD, IT IS NOTICED THAT THE ABOVE AGENT IS BASED AT MUMBAI AND THE GOODS EXPORTED BY THE APPELLANT HAVE BEEN LOADED AT THE PORT OF MUMBAI, AND IT IS ALSO MENT I ONED IN THE BILLS OF LADING THAT T HE FREIGHT AMOUNT IS PAYABLE AT MUMBAI, WHEREAS, THE APPELLANT IS BASED AT SURAT. IT IS. THEREFORE OBVIOUS THAT THE FREIGHT CHARGES HAVE BEEN PAID BY THE C&F AGENT AND THEREAFTER, THE BILL FOR THE FREIGHT AMOUNT HAVE BEEN RAISED BY THE SAID AGENT UPON THE APPELLANT, WHICH IS ALSO EVIDENCED FROM THE ABOVE DOCUMENTS. THEREFORE, AS FAR AS THE APPELLANT IS CONCERNED, IT REIMBURSED FREIGHT CHARGES, INCURRED ON ITS BEHALF BY THE C&F AGENT. ALL THE ABOVE DOCUMENTS WERE ALSO PRODUCED BEFORE THE ASSESSING OFFICER. 6.2 AS SO FAR AS THE QUESTION, AS TO WHETHER, ORDER U/S. 172 HAS BEEN PASSED OR NOT IN THE CASE OF FOREIGN SHIPPING COMPANIES, THE SAME IS IRRELEVANT, FIRSTLY, BECAUSE IT IS NOT IN DISPUTE THAT THE FREIGHT CHARGES HAVE BEEN PAID TO NON RESIDENT SHIPPING CO MPANIES THROUGH THE C&F AGENT, AND, SECONDLY, THE APPELLANT IS NOT AGENT FOR THE FOREIGN SHIPPING COMPANIES AND, THEREFORE, NOT IN A POSITION TO PRODUCE COPY OF ORDERS PASSED U/S. 172 OF THE ACT, IN THE CASE OF THE SHIPPING COMPANIES TO WHOM FREIGHT CHARGE S HAVE BEEN PAID THROUGH THE C&F AGENTS. AS REGARDS THE OTHER ARGUMENT TAKEN BY THE ASSESSING OFFICER THAT THE APPELLANT HAS NOT FURNISHED COPY OF BANK STATEMENT TO PROVE PAYMENT OF THE FREIGHT AMOUNT, I AGREE WITH THE SUBMISSION OF THE APPELLANT THAT IN T HE ORIGINAL ASSESSMENT ORDER DATED 26 - 12 - 2007, PAYMENT OF? 38.81 LAC HAS NOT BEEN DOUBTED AND IN THE ORDER U/S. 154 OF THE ACT, THE ABOVE AMOUNT HAS BEE N ADDED U/S. 40(A)(IA) OF THE ACT. THEREFORE, THE DIRECTIONS OF THE CIT(A) WERE ONLY RELATING TO THE VER IFICATION FOR THE PURPOSES OF ADDITION U/S. 40(A)(IA), ONLY AND NOT AS TO WHETHER - THE PAYMENT HAS ACTUALLY BEEN MADE OR NOT. IN ANY CASE, THE VERIFICATION OF PAYMENT OF FREIGHT CHARGES COULD NOT HAVE BEEN A SUBJECT MATTER OF RECTIFICATION U/S. 154 OF THE ACT, ARID, THEREFORE, NOT BEING PART OF THE APPEAL, NO DIRECTION WAS ISSUED BY THE CIT(A) AS TO VERIFICATION OF THE PAYMENT. IN SHORT, THE ISSUE FOR VERIFICATION BEFORE THE ASSESSING OFFICER AS PER THE DIRECTIONS OF THE CIT(A) WAS WHETHER THE FREIGHT PAYME NTS MADE REPRESENTED THE REIMBURSEMENT OF THE EXPENSES INCURRED BY THE CLEARING AGENT AND PAID TO FOREIGN COMPANIES. THE FACTS DISCUSSED ABOVE SHOW THAT PAYMENTS WERE MADE TO THE CLEARING AGENT AND PAID TO THE FOREIGN COMPANIES. THE APPELLANT HAS ALSO ENCL OSED A COPY OF LEDGER ACCOUNT OF SHRI GOVINDJI NARSINH & SONS, EVIDENCING PAYMENT OF RS.34,87,879/ - DURING THE YEAR AGAINST ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 5 - TOTAL BILL RAISED OF RS.43,97,097/ - DURING THE YEAR, OUT OF WHICH RS.5,15,440/ - RELATED TO CLEARING AND FORWARDING CHARGES AND THE B ALANCE RS.38,81,683/ - TOWARD SEA FREIGHT CHARGES, AND, AT THE END OF THE YEAR, THE ABOVE ACCOUNT HAD A CREDIT BALANCE OF RS.15,51,837/ - . I ALSO FIND THAT THE CIT(A) HAD ISSUED UNAMBIGUOUS DIRECTIONS THAT IF THE ABOVE TWO CONDITIONS ARE MET, I.E. THE ABOVE AMOUNT OF RS.38.81 LAC REPRESENTED REIMBURSEMENT OF EXPENSES INCURRED BY CLEARING AGENT AND PAID TO FO REIGN COMPANIES, NO ADDITION COULD BE MADE U/S. 40(A)(IA) OF THE ACT. THE BILLS OF LADING; SHOW THAT ABOVE AMOUNT WAS PAID TO FOREIGN COMPANIES., AND THE INVOICES RAISED BY SHRI GOVINDJI NARSINH & SONS UPON THE APPELLANT ALONG WITH COPY OF LEDGER ACCOUNT OF THE SAID C&F AGENT IN THE BOOKS OF THE APPELLANT SHOW THAT IT IS REIMBURSEMENT OF EXPENSES. I, THEREFORE, IN TERMS OF THE CBDT CIRCULAR NO. 723 DATED 19 - 09 - 2005, AND THE DIRECTIONS OF THE THEN CIT(A) VIDE HIS ORDER DATED 29 - 03 - 2009, HOLD THAT THE ASSESSING OFFICER HAS, WHILE GIVING EFFECT TO THE ABOVE ORDER OF THE CIT(A). ACCORDINGLY, WRONGLY MADE THE ADDITION OF RS. 38,81,863 / - U/S. 40(A)(IA) OF THE ACT, I DELETE THE ADDITION, AND ALLOW THE GROUNDS OF APPEAL. THIS LEAVES THE REVENUE AGGRIEVED. 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CASE FILE. RELEVANT FACTS ALREADY STAND NARRATED. THE REVENUE S ENDEAVOUR IS TO GET RESTORED THE IMPUGNED DISAL LOWANCE OF RS.38,81,683/ - QUA ASSESSEE S FREIGHT PAYMENTS MADE TO ITS AGENTS FOR ENGAGING FOREIGN SHIPPING COMPANIES FOR NON DEDUCTION OF TDS. THE VERY FACTUM OF PAYMENT BEING MADE OR CHANNEL ADOPTED THEREOF IS NOWHERE IN DISPUTE. THE ASSESSEE S LEDGER FOR MING PART OF THE CASE FILE CATEGORIZES THE SAME UNDER THE HEAD FREIGHT CHARGES . THERE IS NO QUARREL THAT IT HAS OTHERWISE BEEN SHIPPING ITS PRODUCE OUT OF INDIA FROM MUMBAI. THE REVENUE DOES NOT RAISE ANY ARGUMENT THAT IT HAS NOT UTILIZED THE SAID LOCATI ON FOR ITS EXPORT ACTIVITY OR ANY OTHER CHANNEL IS BEING ADOPTED. NOR DOES ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 6 - IT PROVE THAT THE ASSESSEE S AGENT/PAYEE M/S. GOVINDJI NARSINH HAS RENDERED ANY OTHER SERVICES. THAT BEING THE CASE, THE PRESENT IS AN INSTANCE OF REIMBURSEMENT OF FREIGHT CHARGES O NLY . A CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.827/AHD/2007 DECIDED ON 14.9.2010 HOLDS NO TDS TO BE DEDUCTIBLE IN CASE OF A PURE REIMBURSEMENT OF EXPENSES SO AS TO INVOKE SECTION 40(A)(IA) OF THE ACT. THE HON BLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 315 OF 2013 DECIDED ON 25.6.2013 HAS AFFIRMED THE SA ID VIEW. THE REVENUE DOES NOT POINT OUT ANY LEGAL OR FACTUAL EXCEPTION THERETO. THUS, ITS FIRST ARGUMENT INVOKING SECTION 40(A)(IA) DISALLOWANCE FAILS. 8. NOW, WE COME TO REVENUE S SECOND ARGUMENT T HAT THE ASSESSEE S DOES NOT FULFILL THE CONDITIONS STIPULATED IN SECTION 172 OF THE ACT QUA THE IMPUGNED FREIGHT PAYMENTS AND NON DEDUCTION OF TDS. THE BOARD S CIRCULAR (SUPRA) CLARIFIES SECTIONS 194C AND 195 PRESCRIBING TDS DEDUCTION IN CASE OF CONTRACTUA L AND OTHER SUMS TO BE NOT APPLICABLE IN CASE OF PAYMENTS MADE TO FOREIGN SHIPPING COMPANIES. WE FIND THAT THE ISSUE OF NON PRODUCTION OF ASSESSMENT ORDER OF THE PAYEE FOREIGN SHIPPING COMPANIES U/S.172 OF THE ACT THAT THE SAME DOES NOT APPLY IN AS SESSEE S CASE AS IT DOES NOT ACT AS AN AGENT OF THE ULTIMATE PAYEE/FOREIGN SHIPPING COMPANY IN QUESTION. THE REVENUE S GROUNDS FAIL ACCORDINGLY. ITA NO. 1085 /AHD/ 20 11 M/S. MADHUSUDAN SILK MILLS FOR A.Y. 200 5 - 0 6 - 7 - 9. THIS REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON THIS DAY, THE 5TH AUGUST , 201 5 AT AHM EDABAD . SD/ - SD/ - ( PRAMOD KUMAR ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 05 / 0 8 / 20 1 5 PRABHAT KR. KESARWANI , SR. P . S . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD