Shri Potterterly Joseph Varghese , Ahmedabad V. The Dy.CIT, Circle- 10, Ahmedabad

ITA 2770/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76729 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-05-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M J SHAH
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTA NT MEMBER SRI POTTERTERLY JOSEPH VARGHESE, PROP. METAL INDIA TRADE LINK, 504. ASHWAMEGH AVENUE, MAYUR COLONY, NR. MITHAKHALI UNDERBRIDGE, NAVRANGPURA, AHMEDBAD PAN: AAVPV3965A (APPELLANT) VS DEPUTY COMMISSIONER OF INCOME TAX, CIRLCE-10, AHMEDABAD (RESPONDENT) REVENUE BY: SRI O.P. BATHEJA, SR.D.R. ASSESSEE BY: SRI M.J. SHAH, A.R. DATE OF HEARING : 08-05-2014 DATE OF PRONOUNCEMENT : 06-06-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XVI, AHMEDABAD DATED 07 TH NOVEMBER, 2013. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS:- 1. THE C.I.T.(APPEALS) ERRED IN DISALLOWING THE CLAIM OF CLEARING AND FORWARDING CHARGES OF RS.61,22,877/- U/S. 40(A)(IA) . ITA NO. 2770/AHD/2013 ASSESSMENT YEAR 2010-11 I.T.A NO. 2770 /AHD/2013 A.Y. 2010-11 PAGE NO SRI POTTERTERLY JOSEPH VARGHESE VS. DCIT 2 1.1 THE C.I.T.(APPEALS) ERRED IN NOT APPRECIATI NG THAT NO DEDUCTION OF TDS IS TO BE DONE ON AMOUNTS, WHICH ARE IN THE NATU RE OF PURE REIMBURSEMENT. HENCE, DISALLOWANCE OF THE SAID AMOU NT U/S.40(A)(IA) IS BAD IN LAW. 2. THE C.I.T.(APPEALS) ERRED IN CONFIRMING TH E DISALLOWANCE OF AN AMOUNT OF RS.6,27,550/- BEING THE ESTIMATED DISALLO WANCE OF FREIGHT CHARGES I.E, 10% OF RS.62,75,538/-. 3. THE C.I.T.(APPEALS) ERRED IN CONFIRMING TH E DISALLOWANCE TO THE EXTENT OF L/10 LH (RS.41,440/- OF THE AGGREGATE CLAIM) OF TOTAL EXP ENSES OF RS.4,14,425/- ON THE PRETEXT OF IT BEING EXPENSES B EING PERSONAL NATURE. 3. FIRST GROUND RELATES TO ADDITION OF RS. 61,22,87 7/- MADE BY AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR THE PAYMENT MADE TO C & F AGENT. DURING THE ASSESSMENT PROCEE DINGS, AO FOUND THAT ASSESSEE HAD PAID THE IMPUGNED AMOUNT TOWARDS CLEAR ING AND FORWARDING CHARGES WITHOUT DEDUCTING TAX. ASSESSEES SUBMISSI ON WAS THAT THIS AMOUNT REPRESENTS REIMBURSEMENT OF EXPENSES AND HEN CE NO TAX WAS DEDUCTED ON THIS AMOUNT. IT WAS FURTHER SUBMITTED THAT TDS WAS DEDUCTED ON THE AGENCY CHARGES FOR THE SERVICES OF C & F AGE NT. BEFORE THE AO THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE ITAT HYDERABAD IN THE CASE OF MERRILYN SHIPPING AND TRANSPORT. THE A O HOWEVER RELYING ON THE PROVISIONS OF SECTION 194C AS WELL AS BOARDS I NSTRUCTION NO. 715 DATED 08-08-1995 HELD THAT PROVISIONS OF SECTION 40(A)(IA ) WERE ATTRACTED IN THE ASSESSEES CASE AND CONSEQUENTLY MADE THE ADDITION OF RS. 66,22,877/-. WHILE DOING SO, THE AO HELD THAT THERE WAS A RELATI ONSHIP OF PRINCIPAL AND AGENT BETWEEN THE ASSESSEE AND THE PARTY TO WHOM AM OUNTS WERE PAID. THE AO REJECTED THE ARGUMENT OF THE ASSESSEE THAT T DS WAS NOT DEDUCTED SINCE THE AMOUNTS PAID BY ASSESSEE TO THE AGENTS WE RE NOT INCOME OF THE AGENT BUT MERELY REIMBURSEMENT OF EXPENSES WHICH TH E AGENTS WERE INCURRING ON BEHALF OF THE ASSESSEE. I.T.A NO. 2770 /AHD/2013 A.Y. 2010-11 PAGE NO SRI POTTERTERLY JOSEPH VARGHESE VS. DCIT 3 4. IN THE APPEAL THIS ACTION OF AO WAS CONFIRMED BY LD. CIT(A). 5. FURTHER AGGRIEVED NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING LEARNED COUNSEL OF THE AS SESSEE REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES THAT T WO TYPES OF PAYMENTS WERE MADE BY THE ASSESSEE DURING THE YEAR TO THE C & F AGENT TOWARDS AGENT CHARGES FOR THE SERVICES GIVEN TO THE ASSESSE E AND THE OTHER TOWARDS REIMBURSEMENT OF EXPENSES WHICH WERE UNDERT AKEN BY THE AGENCY ON BEHALF OF THE ASSESSEE. THE TDS WAS DULY DEDUCTE D ON THE AGENCY CHARGES. ON THE PAYMENT TOWARDS REIMBURSEMENT EXPE NSES NO TDS WAS DEDUCTED. FOR THIS NON-DECUTION OF TAX PROVISION O F SECTION 40(A)(IA) ARE NOT ATTRACTED IN VIEW OF THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT NARMADA VALLEY FERTILIZ ERS CO. LTD REPORTED IN 361 ITR 192 WHICH HAS BEEN FOLLOWED BY THE HONBLE TRIBUNAL IN THE CASE OF PRAYAS ENGINEERING LTD VS. ACIT VIDE ITA NOS. 28 25/AHD/2010 & 2826/AHD/2010 DATED 29/04/2014 CONCLUDING HIS ARGUM ENT LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY AO AND SUSTAINED BY LD. CIT(A) OF RS. 61,22,877/- U/S. 40 (A)(IA) MAY KINDLY BE DELETED. LD. DR ON THE OTHER HAND RELIED ON THE OR DERS OF LOWER AUTHORITIES. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT ADDITION HA S BEEN MADE BY AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) FOR NO N-DEDUCTION OF TAX ON EXPENSES INCURRED BY THE AGENT ON BEHALF OF THE ASS ESSEE-COMPANY WHICH WERE SUBSEQUENTLY REIMBURSED BY THE ASSESSEE-COMPAN Y TO THE AGENCY. THERE IS ALSO NO DISPUTE ABOUT THE FACT THAT ON AGE NCY CHARGES FOR SERVICES RENDERED BY THE C & F AGENT TDS WAS DULY DEDUCTED B Y THE ASSESSEE. ON THESE FACTS THE RATIO OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT I.T.A NO. 2770 /AHD/2013 A.Y. 2010-11 PAGE NO SRI POTTERTERLY JOSEPH VARGHESE VS. DCIT 4 NARMADA VALLEY FERTILIZERS CO. LTD (SUPRA) IS SQUA RELY APPLICABLE WHICH WAS FOLLOWED BY THE HONBLE ITAT, AHMEDABAD IN THE CASE OF PRAYAS ENGINEERING LTD VS. ACIT VIDE ITA NOS. 2825/AHD/201 0 & 2826/AHD/2010 DATED 29/04/2014 BY OBSERVING AS UNDER:- 7. AFTER HEARING BOTH THE PARTIES AND PERUSING T HE RECORD, WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT ON THE COMM ISSION PAID BY THE ASSESSEE TO THE AGENT FOR CLEARING AND FORWARDING T AX WAS DULY DEDUCTED. THE ONLY DISPUTE BEFORE US IS REGARDING TDS ON EXPE NSES INCURRED BY THE AGENT ON BEHALF OF THE ASSESSEE-COMPANY WHICH WERE SUBSEQUENTLY REIMBURSED BY THE ASSESSEE-COMPANY TO THE AGENCY. T HE ISSUE IS NOW COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVEN UE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS GUJARAT NARMADA VALLEY FERTILIZERS CO WHEREIN ON SIMILAR FA CTS HON'BLE HIGH COURT HAS HELD THAT NO PART OF AMOUNT REIMBURSED WAS TO B E DISALLOWED U/S. 40(A)(IA) IF TAX HAS NOT BEEN DEDUCTED WHICH IS CLE AR FROM THE HEAD NOTES OF JUDGMENT WHICH READS AS UNDER- 'SECTION 40(A)(IA) OF THE INCOME-TAX AD, 1961-BUSIN ESS DISALLOWANCE-INTEREST ETC., PAID TO RESIDENT WITHOU T DEDUCTION OF TAX [REIMBURSEMENT TO EXPENSES]-EXPENSES WERE INCURRED BY AGENT ON BEHALF OF ASSESSES -PRINCIPAL FOR TRANSPORTATION AND OTHER CHARGES, WHICH HAD BEEN SPELT OUT IN BILL ITSEIF- S O FAR AS OBLIGATION TO DEDUCT TAX AT SOURCE FORM PAYMENT OF TRANSPORT C HARGES AND OTHER CHARGES WAS CONCERNED, SAME WAS COMPLIED WITH BY AGENT, WHO HAD MADE PAYMENT ON ITS BEHALF - WHETHER NO PAR T OF AMOUNT REIMBURSED WAS TO BE DISALLOWED-HELD, YES [PARA 3] [IN FAVOUR OF ASSESSEE.' IN VIEW OF THE ABOVE, THIS GROUND OF ASSESSEE IS ALLOWED. IN VIEW OF THE ABOVE ADDITION OF RS. 61,22,877/- MA DE BY AO AND SUSTAINED BY LD. CIT(A) IS HEREBY DELETED. THIS GR OUND OF ASSESSEES APPEAL IS ALLOWED. 8. GROUND NO. 2 RELATES TO ADDITION OF RS. 6,27,550 /- BEING ESTIMATED DISALLOWANCE OF FREIGHT CHARGES I.E. 10% OF RS. 62, 75,535/-. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER FOUND THA T ASSESSEE HAD CLAIMED TOTAL FREIGHT CHARGES OF RS. 81,14,660/-. IT WAS FURTHER FOUND THAT I.T.A NO. 2770 /AHD/2013 A.Y. 2010-11 PAGE NO SRI POTTERTERLY JOSEPH VARGHESE VS. DCIT 5 OUT OF THE SAME TDS WAS DEDUCTED ON AMOUNT OF RS. 1 8,39,122/- AND ON THE BALANCE AMOUNT OF RS. 62,75,538/- WHICH WAS PAI D IN CASH NO TDS WAS DEDUCTED ON THE GROUND THAT THE AMOUNT WAS LESS THAN RS. 30,000/- IN EACH CASE. WHEN ASSESSEE WAS ASKED TO SUBSTANTIATE THIS CLAIM, ASSESSEE FAILED TO PRODUCE ANY SUCH EVIDENCE. AO T HEREFORE MADE AN ADHOC DISALLOWANCE OF RS. 6,27,500/- BEING 10% OF T HE TOTAL EXPENSES AS UNVERIFIABLE FREIGHT EXPENSES. 9. BEFORE LD. CIT(A) ASSESSEE FILED CERTAIN DETAILS BUT LD. CIT(A) AFTER SCRUTINIZING THEM HELD THAT THE ACCOUNTS PREPARED B Y THE ASSESSEE WERE NOT IN ORDER AND SINCE ALL THE EXPENSES WERE NOT FU LLY VOUCHED, ASSESSING OFFICER WAS JUSTIFIED IN MAKING THIS ADHOC DISALLOW ANCE OF RS. 6,27,500/-. 10. BEFORE US ALSO NO EVIDENCE HAS BEEN FURNISHED I N THIS RESPECT TO DEVIATE US FROM THE FINDINGS OF LOWER AUTHORITIES A ND THEREFORE ORDER PASSED BY LD. CIT(A) IS HEREBY CONFIRMED. THIS GR OUND OF ASSESSEES APPEAL IS DISMISSED. 11. THIRD GROUND RELATES TO ADDITION OF RS. 82,880/ - BEING 1/5 TH OF THE TOTAL CLAIM AT RS. 4,14,425/- MADE BY AO TREATING T HEM AS PERSONAL EXPENSES WHICH HAS BEEN RESTRICTED TO RS. 41,440/- I.E. 1/10 TH OF THE AGGREGATE CLAIM BY LD. CIT(A). THE ASSESSEE HAD CL AIMED EXPENSES ON ACCOUNT OF MOTOR CAR, TELEPHONE AND TRAVELLING OF R S. 4,14,425/-. INVOKING THE THEORY OF ELEMENT OF PERSONAL EXPENSES, THE AO DISALLOWED AN AMOUNT OF RS. 82,880/- BEING 20% OF THE TOTAL CLAIM. LD. CIT(A) RESTRICTED THIS DISALLOWANCE TO 10% OF TOTAL CLAIM. SINCE PERSONAL ELEMENT IN THIS TYPE OF EXPENSES CANNOT BE RULED OUT, WE ARE NOT INCLINED T O INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY U PHELD. THIS GROUND OF ASSESSEES APPEAL IS ALSO DISMISSED. I.T.A NO. 2770 /AHD/2013 A.Y. 2010-11 PAGE NO SRI POTTERTERLY JOSEPH VARGHESE VS. DCIT 6 12. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT ,,CAPTION PAGE SD/- SD/- (N.S. SAINI) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 06/06/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ / ,