M/s. Fairmacs Shipping Transport Co. Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2672/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5557 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 15-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDI
• Section: 143(3); 201(1); 28; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY , JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 2672/MDS/2016 / ASSESSMENT YEAR : 2009-10 M/S. FAIRMACS SHIPPING & TRANSPORT SERVICES PVT. LTD., 31, MOORES STREET, CHENNAI 600 001. [PAN: AAACE 2126J] VS. DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI. ( / APPELLANT) ( / RESPONDENT) ' ( / APPELLANT BY : SHRI. S. SEETHARAMAN, CA SHRI. B. GOWTHAMAN, CA +,' ( / RESPONDENT BY : SHRI. SAILENDRA MAMIDI, CIT ( /DATE OF HEARING : 26.10.2017 ( /DATE OF PRONOUNCEMENT : 27.12.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI IN ITA NO. 196/C IT(A)-6/2015-16 DATED 12.07.2016 FOR ASSESSMENT YEAR 2009-10. :-2-: ITA NO. 2672/MDS/2016 2. M/S. FAIRMACS SHIPPING & TRANSPORT SERVICES PVT. LTD., THE ASSESSEE, IS ENGAGED IN THE BUSINESS OF COASTAL CARGO, AIR CARGO , TRANSPORT & CLEARING & FORWARDING CONTAINER AND FREIGHT FORWARDING. IN TH E ASSESSMENT MADE U/S. 143(3) R.W.S. 147 FOR THE ASSESSMENT YEAR 2009-10, THE AO FOUND THAT FOR THE PAYMENTS MADE AT RS. 15,78,00,945/- TDS WAS NOT MAD E, THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENTS TILL THE TIME OF PASSING THE ASSESSMENT ORDER AND HENCE THE AO ADDED RS. 15,78,00,945/- U/S. 40(A)(IA ) FOR NON-DEDUCTION OF TDS. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE CIT(A). IN THE RETURN SUBMISSIONS FILED BEFORE THE CIT(A), THE ASS ESSEE INCLUDED THE FOLLOWING DOCUMENTS: I. EXEMPTION CERTIFICATE FOR FREIGHT CHARGES PAID RS. 6,58,84,521/- II. PAYMENTS WHICH ARE EXEMPTED FROM TDS RS. 3,95 ,49,095/- III. PAYMENTS MADE TO PARTIES LESS THAN THRESHOLD LIMITS RS 17,05,967/- IV. FORM 26A RS. 1,21,23,290/- AFTER CONSIDERING SUCH CLAIM, THE CIT(A) DIRECTED T HE AO TO UNDERTAKE NECESSARY VERIFICATIONS WITH REGARD TO THE DOCUMENT S FURNISHED AT (I), (II) & (III) SUPRA, I.E., THE EXEMPTION CERTIFICATES FOR F REIGHT CHARGES, THE PAYMENTS WHICH ARE EXEMPTED FROM TDS AND PAYMENTS TO PARTIES LESS THAN THRESHOLD LIMITS. THE CIT(A) ALSO HELD THAT AFTER NECESSARY DUE DILIGENCE AND VERIFICATION, THE AO MAY ALLOW RELIEF TO THE APPELL ANT AS PER LAW. THE APPELLANT IS DIRECTED TO PRODUCE ALL THE NECESSARY EVIDENCES BEFORE THE AO FOR VERIFICATION. HOWEVER, WITH REGARD TO FORM NO. 26A SUBMITTED BY THE :-3-: ITA NO. 2672/MDS/2016 ASSESSEE, THE CIT(A) HELD THAT THE ASSESSEES CASE IS FOR ASSESSMENT YEAR 2009-10, PRIOR TO INSERTION OF SECOND PROVISO TO SE CTION 40(A)(IA) W.E.F. 01.04.2013. HENCE, THE RELIEF SOUGHT AT RS. 1,21,2 3,290/-,FOR WHICH THE ASSESSEE HAS SUBMITTED AND FORM 26A, WAS NOT ALLOWA BLE AND ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. WHILE D OING SO, THE CIT(A) RELIED ON THE DECISION OF THE HONBLE KERALA HIGH C OURT IN THOMAS GEORGE MUTHOOT VS CIT IN ITA NO. 278, 279, 282, 283, 288, 289 290 &292/2014. FURTHER, HE CONFIRMED THE DISALLOWANCE MADE AT RS 3 ,85,38,072/- FOR WHICH NO DETAILS HAS BEEN FURNISHED BY THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-6 HAS DISALLOWED A SUM OF RS. 5,06,61,632/- BEING EXPENSE S INCURRED DURING THE RELEVANT PREVIOUS YEAR TOWARDS FREIGHT AND OTHER RE LATED EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT. 2. THE LEARNED CIT(A) HAS ERRED IN APPLYING THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. THE APPELLANT IN THIS CASE D OES NOT HAVE ANY OUTSTANDING BALANCE PAYABLE TO THE SUNDRY CREDITORS PROVIDING FREIGHT AND OTHER RELATED SERVICES. IN SUCH A CASE, WHERE THER E IS NO OUTSTANDING BALANCE AS AT THE END OF THE CLOSE OF THE YEAR RELE VANT TO THE ASSESSMENT OUTSTANDING BALANCE AS AT THE END OF THE CLOSE OF T HE YEAR RELEVANT TO THE ASSESSMENT YEAR, THE SECTION SHALL NOT APPLY IN THE APPELLANTS CASE. 3. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL GROUNDS OF APPEAL AT THE TIME OF HEARING. 3.1 LATER ON, THE ASSESSEE FILED ADDITIONAL GROUNDS OF APPEAL, THE RELEVANT PORTIONS ARE EXTRACTED AS UNDER: :-4-: ITA NO. 2672/MDS/2016 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONCLUDING THAT SECOND PROVISO TO SECTION 40(A)(IA) READ WITH PROVISO TO SECTION 201(1) OF THE ACT IS NOT RETROSPECTIVE IN O PERATION I.E., APPLICABLE ONLY WITH EFFECT FROM 1 ST APRIL 2013. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE SECOND PROVISO TO SECTION 40(A)(IA) R EAD WITH PROVISO TO SECTION 201(1) OF THE ACT BEING DECLARATORY AND CURATIVE IN NATURE IS APPLICABLE WITH EFFECT FROM 1 ST APRIL 2005 AND NOT FROM 1 ST APRIL 2013. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT APPELLANT BEING A FREIGHT FORWARDER OTHER RELATED C HARGES PAID BY THE APPELLANT (ON BEHALF OF THE EXPORTERS AND IMPORTERS ) ARE DEDUCTIBLE U/S. 28/29 OF THE ACT AND NOT U/S. 30 TO 38 OF THE ACT A ND SECTION 40(A)(IA) OF THE ACT IS APPLICABLE TO ITEMS OF EXPENDITURE WHICH ARE DEDUCTIBLE U/S. 30 TO 38 OF THE ACT. 7.(I) THE REASSESSMENT BE ANNULLED AS THE SAME IS N OT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT; (II) THE DISALLOWANCE OF FREIGHT CHARGES PAID RS. 5,06,61,362 U/S. 40(A)(IA) OF THE ACT BE DELETED; AND (III) THE PROVISIONS OF THE SECOND PROVISO TO SECT ION 40(A)(IA) BE HELD AS APPLICABLE RETROSPECTIVELY. AT THE TIME OF HEARING THE AR DID NOT PRESS FOR THE GROUNDS RELATING TO THE VALIDITY OF RE-OPENING THE ASSESSMENT. IN VIEW OF THAT THE CORRESPONDING GROUNDS ARE NOT EXTRACTED, SUPRA, AND HENCE THOSE G ROUNDS ARE TREATED AS DISMISSED. WITH REGARD TO OTHER GROUNDS, WE HEARD THE RIVAL CONTENTIONS AND ADMIT THEM. :-5-: ITA NO. 2672/MDS/2016 4. THE AR SUBMITTED THAT THE ASSESSEE SUBMITTED THE REQUIRED PARTICULARS IN RESPECT OF PAYMENT OF RS. 1,21,23,290/-. THE CI T(A) UPHELD THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT SECO ND PROVISIO OF SECTION 40(A)(IA) DOES NOT HAVE RETROSPECTIVE OPERATIONS I. E., IT IS APPLICABLE ONLY W.E.F. 01.04.2013 ONLY. THE AR FURTHER SUBMITTED T HAT THE SECOND PROVISIO OF SECTION 40(A)(IA) R.W. PROVISIO OF SECTION 201(1) I S DECLARATIVE AND CURATIVE IN NATURE AND HENCE IT IS APPLICABLE W.E.F. 01.04.2005 AND RELIED ON THE DELHI HIGH COURT DECISION IN THE CASE OF CIT-1 VS ANSAL L AND MARK TOWNSHIP (P) LTD., IN ITA NO. 160/2015 DATED 26.08.2015. IN VIE W OF THAT IF THE AMOUNT PAID BY THE PAYER HAS BEEN INCLUDED BY THE PAYEE IN HIS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR AND THE PAYEE HAS FILED TH E RETURN OF INCOME U/S. 139 AND HAS PAID THE TAXES, NO DISALLOWANCE U/S. 40 (A)(IA) COULD BE MADE. RELYING ON THE DELHI HIGH COURT DECISION, SUPRA, TH E AR PLEADED THAT THE PAYMENTS COVERED IN FORM NO. 26A AT RS. 1,21,23,290 /- MAD KINDLY BE ALLOWED. 4.1 IN RESPECT OF RS. 3,85,38,072/-, THE DISALLOWA NCE SUSTAINED BY THE CIT(A) FOR THE REASON THAT THE ASSESSEE HAS NOT FUR NISHED DETAILS ABOUT THEM, THE AR SUBMITTED THAT OUT OF THE ABOVE: SUMS AGGREGATING TO RS. 47,62,602 REPRESENTS AMOUNT S PAID TO VARIOUS PARTIES WHICH ARE INDIVIDUALLY LESS THAN RS. 50,000 ; :-6-: ITA NO. 2672/MDS/2016 SUMS AGGREGATING TO RS. 13,93,151 REPRESENTS AMOUNT S PAID TO VARIOUS PARTIES WHO HAVE OBTAINED NON-DEDUCTION OF TDS FROM THE TAX DEPARTMENT; SUMS AGGREGATING TO RS. 6,18,771 REPRESENTS AMOUNTS PAID TO VARIOUS PARTIES WHO HAVE FURNISHED FORM 26A. FURTHER, THE AR SUBMITTED THAT IN THE PRESENT CASE THERE IS WRITTEN OR ORAL AGREEMENT BETWEEN THE ASSESSEE AND THE RECIPIENTS O F GOODS FOR TRANSPORTATION OR CARRIAGE THEREOF, OR THAT THE PAY MENTS OF FREIGHT HAD BEEN MADE IN PURSUANCE OF A CONTRACT OF TRANSPORTATION O F GOODS FOR A SPECIFIC PERIOD, QUANTITY OR PRICE, THAT NONE OF THE INDIVID UAL PAYMENTS EXCEEDED RS. 20,000. IN THIS REGARD, HE SUBMITTED THAT THE CBDT CIRCULAR NO 715 DATED 8 TH AUGUST, 1995 IS APPLICABLE ONLY WHERE CONSOLIDATED BILLS WERE RAISED INCLUSIVE OF CONTRACTUAL PAYMENTS AND REIMBURSEMENT OF ACTUAL EXPENDITURE. SIMILAR VIEW HAS BEEN HELD BY THE DELHI HIGH COURT IN THE C ASE OF CIT VS CAREER LAUNCHER INDIA LIMITED (250 CTR 240). NOTWITHSTAND ING THE ABOVE, THE AR SUBMITTED THAT THE SCOPE OF SECTION 40(A) OF THE AC T IS LIMITED TO EXPENDITURE U/S.S 30 TO 38 IN VIEW OF THE NON OBSTANTE PREAMBLE TO THE SECTION AND NOT IN RESPECT OF PAYMENTS COVERED BY TRADING AND MANUFACT URING ACCOUNT I.E. DIRECT EXPENDITURE. IN OTHER WORDS, ONLY IF THERE IS DEFA ULT IN RESPECT OF TAX DEDUCTION VIZ. NON-DEDUCTION OR FAILURE TO DEPOSIT AFTER DEDUCTION THEREOF IN RESPECT OF SUMS REFERRED IN SECTIONS 30 TO 38, THE PROVISIONS OF SECTION 40(A)(IA) COULD BE INVOKED TO DISALLOW SUCH SUMS IN THAT YEAR WHERE DEFAULT :-7-: ITA NO. 2672/MDS/2016 HAS OCCURRED. LASTLY, THE AR SUBMITTED THAT THE CI T(A) FAILED TO APPRECIATE THAT THE ASSESSEE BEING A FREIGHT FORWARDER, THE FR EIGHT AND OTHER RELATED CHARGES PAID BY THE ASSESSEE ON BEHALF OF THE EXPO RTER AND IMPORTER ARE DEDUCTABLE U/S.S 28 /29 OF THE ACT AND U/S.S 30 TO 38 OF THE ACT AND HENCE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS NOT A PPLICABLE TO SUCH ITEMS OF EXPENDITURE WHICH ARE DEDUCTABLE U/S.S 30 TO 38 OF THE ACT. PER CONTRA, THE DR SUPPORTED THE ORDER OF THE CIT(A). 5. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL. IN RESPECT OF THE PAYMENTS COVERED IN FORM 26A, THE CIT(A) REFUSED TO ALLOW THE CLAIM ON THE BASIS OF THE HONBLE KERALA HIGH C OURTS DECISION IN THOMAS GEORGE MUTHOOT VS CIT, SUPRA. ON THE OTHER HAND, T HE ASSESSEE IS SEEKING RELIEF BASED ON THE RATIO OF THE DELHI HIGH COURT, SUPRA. WE HAVE GONE THROUGH THE JUDGEMENTS. NEITHER THE ASSESSEE NOR T HE REVENUE BROUGHT TO OUR NOTICE ANY OF THE DECISION OF THE JURISDICTIONA L HIGH COURT. THE DECISION RELIED ON BY THE ASSESSEE IS THE LATEST AND IS IN F AVOUR OF THE ASSESSEE. THE DELHI HIGH COURT AFTER CONSIDERING THE REASONING OF THE AGRA BENCH OF ITAT, HELD AS UNDER: 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASON ING OF THE AGRA BENCH OF ITAT AS REGARDS AS THE RATIONALE BEHIND TH E INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT AND ITS CON CLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1 ST APRIL 2005- MERITS ACCEPTANCE. :-8-: ITA NO. 2672/MDS/2016 15. IN THAT VIEW OF THE MATTER, THE COURT IS UNABLE TO FIND ANY LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT IN ADOP TING THE RATIO OF THE DECISION OF THE AGRA BENCH, ITAT IN (RAJIV KUMAR AG ARWAL V ACIT). FOLLOWING IT, THE ISSUE IS REMITTED BACK TO THE AO FOR RE-EXAMINATION AND IF THE ASSESSEE MAKES OUT THE CASE IN ACCORDANCE WITH DELH I HIGH COURTS DECISION THE AO IS DIRECTED TO ALLOW THE DEDUCTION CLAIMED T O THAT EXTENT. TO THIS EXTENT, THE ASSESSEES APPEAL IS ALLOWED. 6. WITH REGARD TO THE ASSESSEES CLAIMS WITH REGARD TO THE DISALLOWANCE AT RS. 3,85,38,072/- EXTRACTED, SUPRA, AND THE ASSESSE ES CLAIM THAT THE ASSESSEE BEING A FREIGHT FORWARDER, FREIGHT AND OTH ER CHARGES PAID BY THE ASSESSEE ON BEHALF OF THE EXPORTER AND IMPORTER AND ARE DEDUCTABLE UNDER SECTIONS 28/29 OF THE ACT AND NOT UNDER SECTIONS 30 TO 38 OF THE ACT ETC., WE ARE OF THE VIEW THAT THE RELEVANT FACTS REQUIRE RE- EXAMINATION AND HENCE, THIS ISSUE IS REMITTED BACK TO THE AO FOR A FRESH EXAMIN ATION. AFTER AFFORDING A DUE OPPORTUNITY TO THE ASSESSEE, THE AO SHALL PASS A SPEAKING ORDER. THUS, CORRESPONDING GROUNDS OF THE APPEAL FILED BY THE AS SESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED/ TREATED AS ALLOWED FOR STATISTICAL PURPOSES. :-9-: ITA NO. 2672/MDS/2016 ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH DAY OF DECEMBER, 2017 AT CHENNAI. SD/- ( . ' ) (DUVVURU RL REDDY) $ % /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) % /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 27 TH DECEMBER, 2017 JPV ( +34 54 /COPY TO: 1. '/ APPELLANT 2. +,' /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 + /DR 6. 9 /GF