ITO, Ward-34(2), Kolkata, Kolkata V. M/S. Ajanta Organisation, Kolkata

ITA 2120/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1662 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Court: TRIBUNAL
• Assessee Lawyers: SAID COM
• Keywords: Non-deduction of tax; Tax effect
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH- C) BEFORE SHRI N. V. VASUDEVAN JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER, I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 ORDER PER M. BALAGANESH, AM THIS IS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA (HEREINAFTER REFERRED TO AS THE LD. CIT(A)), , PASSED UNDER SECTION 250 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), DT. 12.08.2014, RELATING TO ASSESSMENT YEAR 2010-11. I.T.O.- WD-34(2), KOLKATA [PAN : AAFA2933H ] -VS- M/S. AJANTA ORGANISATION (APPELLANT) (RESPONDENT) FOR THE ASSESSEE SHRI MIRAJ D. SHAH, AR FOR THEREVENUE SHRI GOULEN HANGSHING, CIT, DR DATE OF HEARING 02.05.2017 DATE OF PRONOUNCEMENT 02.06.2017 2 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF FREIGHT CHARGES , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE IS A PARTNERSHIP FIRM DEALING IN SPARES AND ELECTRONIC ITEMS OF ORPAT BRAND AND VITRIFIED TILES. THE LD. AO OBSERVED THAT ASSESSEE HAD MADE REIMBURSEMENT OF EXPENSES OF RS 86,86,652/- TO M/S AJANTA MANUFACTURING LTD (AML IN SHORT) TOWARDS FREIGHT CHARGES INCURRED BY THE SAID COMPANY. THE ASSESSEE GAVE A DETAILED EXPLANATION BEFORE THE LD. AO FOR NON-APPLICABILITY OF PROVISIONS OF SECTION 194C OF THE ACT AND CONSEQUENTIAL DISALLOWANCE U/S 40(A)(IA) OF THE ACT AS BELOW:- THAT AJANTA MANUFACTURING LTD (AML) SOLD THE TILES TO AJANTA ORGANISATION, KOLKATA AND SEND THE GOODS THROUGH VARIOUS TRANSPORTERS SO CONTRACT FOR TRANSPORTATION OF GOODS IS BETWEEN AML AND THE TRANSPORTER. THE TRANSPORTER ACCORDINGLY RAISES INVOICES FOR FREIGHT IN THE NAME OF AML AND THE LIABILITY TO MAKE DEDUCTION OF TAX AT SOURCE ON SUCH FREIGHT INVOICES IN THE CASE OF AML NOT IN THE CASE OF THE AJANTA ORGANIZATION AND AML HAS PROPERLY DEDUCTED TAX AT SOURCE U/S 194C FROM THE FREIGHT PAYMENTS MADE TO VARIOUS TRANSPORTERS FOR TRANSPORTATION OF THE SAID GOODS. AFTER PAYING FREIGHT TO THE TRANSPORTER AML HAS SUBSEQUENTLY RAISED DEBIT NOTES TO THE AJANTA ORGANIZATION FOR REIMBURSEMENT OF FREIGHT CHARGES AND SUBSEQUENTLY AFTER VARIOUS DISCUSSIONS WITH AML, AJANTA ORGANISATION CREDITED THOSE DEBIT NOTES INTO THEIR BOOKS OF ACCOUNTS AND PROPERLY REFLECTED THE SAME INTO THEIR FINAL TRADING ACCOUNT IN THE HEAD OF REIMBURSEMENT OF FREIGHT TOTAL RS. 87,13,322/- THE EXPENSESQ1:,PURELY IN THE 3 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION NATURE OF REIMBURSEMENT OF EXPENSES INCURRED BY AML AND NOT FOR ANY 'WORK' WITHIN THE MEANING OF PROVISIONS CONTAINED IN SECTION 194C. FURTHER THE FREIGHT AMOUNT REIMBURSED BY THE AJANTA ORGANISATION TO AML HAS ALREADY BEEN SUBJECTED TO TDS AT ONE POINT OF TIME WHILE MAKING PAYMENT BY AML TO THE CONCERNED TRANSPORTER. THEREFORE, THE QUESTION DOES NOT ARISE TO MAKE DEDUCTION OF TAX AT SOURCE AT THE TIME OF REIMBURSEMENT OF FREIGHT AGAIN IN AS MUCH TDS THEREOF HAS ALREADY BEEN MADE ONCE BY AML. THERE CANNOT BE ANY CIRCUMSTANCES WHERE TDS HAS TO BE MADE TWICE ON THE SAME AMOUNT OF TRANSACTION. IT IS ALSO NOT IN THE CASE THAT AML HAS CARRIED OUT TRANSPORT CONTRACT FOR THE AJANTA ORGANISATION, IT IS THE TRANSPORTER WHO CARRIED OUT TRANSPORT WORK FOR AML AND THEREFORE IN SUBSTANCE THE CONTRACT FOR CARRIAGE OF GOODS IN BETWEEN AML AND RESPECTIVE TRANSPORTERS.' 4. THE LD. AO HOWEVER DID NOT APPRECIATE THE ABOVE SUBMISSIONS AND CONTENDED THAT FOR THE PURPOSE OF MAKING REIMBURSEMENT OF EXPENSES, ACTUAL COPY OF BILL IS REQUIRED AND IT CANNOT BE MADE ON THE BASIS OF DEBIT NOTES. ACCORDINGLY, HE MADE DISALLOWANCE OF REIMBURSEMENT OF FREIGHT EXPENSES OF RS 86,86,652/- U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 194C OF THE ACT. 5. THE ASSESSEE STATED THAT SIMILAR DISALLOWANCE MADE BY THE LD. AO FOR THE ASSESSMENT YEAR 2009-10 WAS DELETED BY THE LD.CIT(A) VIDE HIS ORDER DATED 8.11.2012. IT WAS ALTERNATIVELY PLEADED BEFORE THE LD.CIT(A) THAT NO TDS WAS APPLICABLE ON FREIGHT EXPENSES INCURRED AFTER 1.10.2009 IF PAN IS OBTAINED FROM THE TRANSPORTERS AS PER THE 4 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION AMENDED PROVISIONS OF SECTION 194C(6) OF THE ACT. THE LD.CIT(A) BY PLACING RELIANCE ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2009-10 DELETED THE DISALLOWANCE AND DID NOT GIVE ANY FINDING ON THE ALTERNATIVE ARGUMENT OF THE ASSESSEE AS STATED SUPRA. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE FIRM BY ALLOWING THE DISALLOWANCE OF RS.86,86,652/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF FREIGHT CHARGES PAID BY THE ASSESSEE FIRM TO M/S AJANTA MANUFACTURING LTD. AS REIMBURSEMENT OF THE FREIGHT PAID BY THEM TO THE TRANSPORTERS IN RESPECT OF TRANSPORTATION OF GOODS PURCHASED FROM M/S AJANTA MANUFACTURING LTD. THOUGH THE ASSESSEE FIRM DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS NOT ESTABLISHED THAT THERE ARE REIMBURSEMENT, AS THE PAYMENT IS MADE ON THE BASIS OF DEBIT NOTES AND ACTUAL COPY OF BILL IS RECEIVED BY THE ASSESSEE FIRM. 2. THE LD. CIT(A) ALSO ERRED IN LAW AND WAS NOT JUSTIFIED IN GIVING RELIEF IN FAVOUR OF THE ASSESSEE FIRM IN THE ABSENCE OF ACTUAL BILL, THE PRIMARY CONDITION FOR TREATING THE RECEIPT AS REIMBURSEMENT IS NOT FULFILLED AND THIS BEING SO, THE WORD USED U/S 194C IS ANY SUM PAID ON WHICH TDS IS DEDUCTIBLE AS NO ONE CAN SAFELY SAY THAT THERE WAS NO PROFIT ELEMENT EMBEDDED IN THIS RECEIPT. 3. THE APPELLANT CRAVES LEAVE TO MAKE ANY ADDITION, ALTERATION, MODIFICATION OF GROUNDS AT THE APPELLATE STAGE. 6. THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF THE LD. AO AND STATED THAT THE ASSESSEE HAD NOT PRODUCED THE COPY OF BILLS TO PROVE THAT THE SUBJECT MENTIONED PAYMENTS ARE ONLY IN THE NATURE OF REIMBURSEMENTS EXCEPT PRODUCING DEBIT NOTES RAISED BY AML ON THE ASSESSEE. IN RESPONSE TO THIS, THE LD. AR ARGUED THAT SIMILAR ISSUE HAD CROPPED UP FOR ASSESSMENT YEAR 2009-10 AND THE APPEAL PREFERRED BY THE REVENUE BEFORE THIS TRIBUNAL WAS DISMISSED DUE TO LOW TAX EFFECT BY PLACING RELIANCE ON THE CBDT CIRCULAR. HE PLACED RELIANCE ON THE FINDINGS GIVEN ON THE IMPUGNED ISSUE OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2009-10. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HIGHTENSION SWITCHGEARS PVT LTD VS CIT IN GA NO. 2502 OF 2010 , ITA NO. 8 OF 2011 DATED 24.6.2016 IN SUPPORT OF HIS ARGUMENTS ON MERITS OF THE CASE. 5 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE AML SOLD TILES TO ASSESSEE AND THE GOODS WERE SENT THROUGH VARIOUS TRANSPORTERS. THE LIABILITY TO PAY THE TRANSPORTATION CHARGES WAS OF M/S AML AS CONTRACT WAS ENTERED INTO BY AML WITH THE TRANSPORTERS. THEREFORE THE LIABILITY TO MAKE DEDUCTION OF TAX AT SOURCE ON FREIGHT INVOICES WOULD BE ON AML AND NOT ON ASSESSEE. THE LD. AR STATED THAT AML HAD PROPERLY DEDUCTED TAX AT SOURCE U/S 194C OF THE ACT ON THE FREIGHT PAYMENTS MADE TO VARIOUS TRANSPORTERS FOR TRANSPORTATION OF THE SAID GOODS. AML LATER ON HAD RAISED A DEBIT NOTE ON THE ASSESSEE SEEKING REIMBURSEMENT OF THE FREIGHT CHARGES PAID BY THEM. THE ASSESSEE HAD MERELY REIMBURSED THE SAME TO AML, WHICH, IN OUR CONSIDERED OPINION, WOULD NOT BE SUBJECT TO DEDUCTION OF TAX AT SOURCE. WE HOLD THAT THE CONTRACT FOR CARRIAGE OF GOODS WAS BETWEEN AML AND RESPECTIVE TRANSPORTERS. WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT SUPRA HAD OBSERVED UNDER SIMILAR CIRCUMSTANCES AS UNDER:- 11.FROM A COMBINED READING OF THE PROVISIONS SET OUT ABOVE, IT WOULD APPEAR THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT ON ACCOUNT OF CARRIAGE OF GOODS ' SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, [DEDUCT AN AMOUNT EQUAL TO - (III) ONE PER CENT IN CASE OF ADVERTISING, (IV) IN ANY OTHER CASE TWO PER CENT, OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN.]' 12. THEREFORE, THE RELEVANT QUESTION TO BE ASKED IS, WHO WAS RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRIAGE OF GOODS? THE ANSWER OBVIOUSLY IS THAT IT WAS THE SELLER WHO WAS RESPONSIBLE FOR PAYING AND THE SELLER ADMITS TO HAVE DONE THAT. THEREFORE, THE LIABILITY TO DEDUCT TAX WAS THAT OF THE SELLER. IN CASE SELLER IS UNABLE TO SHOW THAT HE HAD MADE THE DEDUCTION, SECTION 40(A)(IA) MAY BE APPLIED TO HIS CASE BUT NOT TO THE CASE OF THE BUYER/ASSESSEE. 13. EVEN ASSUMING THAT THE SUPPLIER IN TRANSPORTING THE GOODS TO THE ASSESSEE ACTED 'AS AN AGENT OF THE ASSESSEE AND THE ASSESSEE HAS REIMBURSED THE FREIGHT CHARGES TO THE SUPPLIERS, WHO IN TURN HAVE PAID TO THE CONCERNED TRANSPORTERS' AS HELD BY THE LEARNED TRIBUNAL IS CONCEPTUALLY CORRECT, NO OTHER CONCLUSION IS POSSIBLE. THE AGENT BEING THE SUPPLIER IN THIS CASE HAS ADMITTEDLY PAID TO THE TRANSPORTERS AND HAS ALSO DEDUCTED TAX AT SOURCE. WHEN THE AGENT HAS COMPLIED WITH THE PROVISION, THE PRINCIPAL CANNOT BE VISITED WITH PENAL CONSEQUENCES. FOR 6 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION ONE PAYMENT THERE COULD NOT HAVE BEEN TWO DEDUCTIONS. MOREOVER, WHEN A PERSON ACTS THROUGH ANOTHER, IN LAW, HE ACTS HIMSELF. 14. IN THAT VIEW OF THE MATTER, THE QUESTION, QUOTED ABOVE, IS ANSWERED BY HOLDING THAT THE TRIBUNAL WAS WRONG IN HOLDING THAT THE APPELLANT WAS LIABLE TO DEDUCT TAX AT SOURCE IN RESPECT OF THE FREIGHT COMPONENT. WHEN THE ASSESSEE WAS NOT LIABLE TO MAKE ANY DEDUCTION UNDER SECTION 194C, THE RIGOURS OF SECTION 40(A)(IA) COULD NOT HAVE BEEN APPLIED TO HIM. THE QUESTION IS THUS ANSWERED. THE APPEAL IS THUS ALLOWED. IN VIEW OF OUR AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) IN THIS REGARD. HENCE THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 02.06.2017. SD/- SD/- [N. V. VASUDEVAN] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 02.06.2017 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. ASSESSEE- M/S. AJANTA ORGANISATION, 2 LAL BAZAR STREET, 1 ST FLOOR KOLKATA-700001. 2.REVENUE I.T.O. WARD 34(2), KOLKATA. 3.CIT(A)- KOLKATA. 4.CIT , KOLKATA. 5.CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE, DDO, KOLKATA BENCHES, KOLKATA. 7 I.T.A. NO. 2120/KOL/2014 ASSESSMENT YEARS: 2010-11 M/S. AJANTA ORGANISATION