G.VANAJA, NAGERCOIL V. ITO WARD-5, NAGERCOIL

ITA 413/CHNY/2020

AI Insights

The case involves G. Vanaja, the appellant, who is engaged in the business of scrap sales and running a proprietorship concern named M/s. V.V. Exim. For the assessment year 2013-14, the assessee declared a total income of Rs. 9,23,891 and claimed a clearing and forwarding expense of Rs. 43,05,854. The Assessing Officer (AO) disallowed Rs. 5,05,756 due to the non-furnishing of vouchers and an additional Rs. 38,00,098 for non-deduction of TDS on payments to clearing and forwarding agents, citing section 194C of the Income-tax Act. The CIT(A) upheld these disallowances, leading to the appeal before the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135200 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 27-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 17-02-2020
• Other Referred Cases: Prahari Agency Private Ltd vs ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; TDS
• Section: 139; 40(a)(ia); 194C

Judgement Text

आयकर अपीलीय अिधकरण, ‘सी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI ᮰ी वी दुगाᭅ राव, ᭠याियक सद᭭य एवं ᮰ी मंजुनाथ. जी, लेखा सद᭭य के समᭃ BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI MANJUNATHA. G, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 413/Chny/2020 िनधाᭅरण वषᭅ / Assessment Year: 2013-14 G. Vanaja, No. 187/2, Vaibava Complex, Tirunelveli Road, Ozhukinasery, Nagercoil – 629 001. [PAN: ABSPV-0538-P] v. Income Tax Officer, Ward 5, Nagercoil. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri. T. Vasudevan, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri. P. Sajit Kumar, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 28.02.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 15.03.2023 आदेश /O R D E R PER MANJUNATHA. G, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Madurai, dated 27.12.2019 and pertains to assessment year 2013-14. :-2-: ITA. No: 413/Chny/2020 2. The assessee has raised the following grounds of appeal: “1. The learned CIT (Appeals) failed to note that the assessment order is illegal, opposed to the facts, contrary to law, without jurisdiction and, therefore, liable to be quashed. 2. The learned CIT (Appeals) erred in confirming the addition of Rs.5,05,756/- without noticing that it was not possible to obtain third party vouchers for petty expenses. 3. The learned CIT (Appeals) failed to note that the major portion of the clearing and forwarding charges represents reimbursement of various expenses incurred on behalf of the assessee to various shipping companies and others for which there is no liability to deduct tax at source. 4. The learned CIT (Appeals) erred in holding that the assessee was liable to deduct tax at source in respect of all the payments to the clearing and forwarding agents including the reimbursement charges. 5. Without prejudice to the above, the learned CIT(Appeals) ought to have restricted the disallowance to 30% as the amendment in section 40(a)(ia) will have retrospective effect. 6. The appellant craves leave to add, alter or amend or modify any or all the grounds before or at the time of hearing.” 3. The brief facts of the case are that, the assessee is engaged in the business of scrap sales and running a proprietorship concern in the name of M/s. V.V. Exim. The assessee had filed its return of income for the assessment year 2013-14, declaring total income of Rs. 9,23,891/-. The case was selected for scrutiny and during the course of assessment :-3-: ITA. No: 413/Chny/2020 proceedings, the Assessing Officer noted that the assessee has claimed clearing and forwarding expense of Rs. 43,05,854/-. The AO, further noted that on verification it was found that the assessee had produced vouchers for payment of amount of Rs. 38,00,098/- only. For balance amount of Rs. 5,05,756/-, the assessee could not furnish any bills and vouchers. Therefore, the AO has disallowed a sum of Rs. 5,05,756/- towards clearing and forwarding expenses. The assessee has paid an amount of Rs. 6,43,294/- to M/s. Surya Logistics and Rs. 31,56,804/- to M/s. SK Logistics. The assessee did not deduct TDS as per provisions of section 194C of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on payment made to both the parties for clearing and forwarding expenses. Therefore, the AO called upon the assessee to explain as to why expenses cannot be disallowed u/s. 40(a)(ia) of the Act. In response, the assessee submitted that he had paid clearing and forwarding charges to C&F agents which includes reimbursement of various expenses incurred by them on our behalf and their service charges. Since, majority of payment is towards reimbursement of expenses, provisions of section 194C cannot be applied. The AO, however was not convinced with explanation furnished by the assessee and according to :-4-: ITA. No: 413/Chny/2020 the AO, provisions of section 194C is applicable when payment is made to clearing and forwarding agent for carrying of goods and such payments are subjected to TDS as per section 194C of the Act. The AO had also taken support from CBDT circular vide circular no. 715 of 1995 in support of his view. Thus, the AO has disallowed a sum of Rs. 38,00,098/- u/s. 40(a)(ia) of the Act for non-deduction of TDS u/s. 194C of the Act. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has reiterated his arguments taken before the AO. However, could not file any documentary evidences to counter findings of the Assessing Officer. The ld. CIT(A), after taking relevant facts and also provisions of section 194C of the Act, opined that when there is a oral contract between assessee and agents for clearing and forwarding services, provisions of section 194C of the Act would come into operation and thus, the assessee is required to deduct TDS on payment made to C&F charges. Since, the assessee did not comply with provisions of section 194C of the Act, the AO has rightly disallowed payment made to C&F agents u/s. 40(a)(ia) :-5-: ITA. No: 413/Chny/2020 of the Act. The relevant findings of the ld. CIT(A) are as under: “6. During the course of appellate proceedings, the poor compliance/non compliance has been discussed above, the appellant was granted sufficient opportunity of being heard which has been availed by the appellant. The appellant has failed to produce any documentary evidence to counter the findings made by the Assessing Officer in his assessment order. Admittedly, in this case the composite payment on account of clearing and forwarding has been made to two parties Mis Surya Logistics (Rs.6,43,294) and Mis SK Logistics (Rs.31,56,804). Customarily, a written or oral contract exists between the principle and the clearing and forwarding agent for providing composite services consisting of clearing and forwarding charges, container liner charges, customs and other charges, lorry loading charges, etc. In course of hearing before the Assessing Officer, the appellant has not denied that there was no contract between the appellant and the clearing and forwarding agents. In view of the clarifications contained in CBDT Circular No.715 of 1995, the appellant has committed a default by not deducing TDS on the composite payment made to clearing and forwarding agent. Accordingly, the action of the Assessing Officer cannot be faulted. Further, in absence of any documentary evidence from the appellant despite being granted sufficient opportunity there is nothing on record to controvert the findings made by the Assessing Officer. I have considered the assessment order, the grounds taken by the appellant in this appeal. In my considered opinion, in the absence of any documentary evidence to the contrary, the grounds taken in this appeal are not maintainable and are therefore dismissed and the order of the Assessing Officer is confirmed.” 5. The Ld. Counsel for the assessee, submitted that the Ld. CIT(A) erred in disallowing a sum of Rs. 5,05,756/- for non- furnishing of bills and vouchers without appreciating fact that when assessee has produced bills and vouchers for majority of :-6-: ITA. No: 413/Chny/2020 expenses, he ought not to have disallowed part of expenses for non-furnishing of supporting evidences. The ld. Counsel for the assessee, submitted that the ld. CIT(A) erred in upholding the findings of the AO in applying the provisions of section 194C and consequently disallowed expenditure u/s. 40(a)(ia) of the Act, without appreciating fact that what was paid by the assessee to C&F agents represents reimbursement of various expenses incurred on behalf of the assessee to various shipping companies and said payment does not come under the provisions of section 194C of the Act. He, further submitted that without prejudice to the above, the ld. CIT(A) ought to have restricted the disallowance to 30% as the amendment in section 40(a)(ia) of the Act, will have retrospective effect. 6. The Ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that this issue is squarely covered in favour of the revenue by the decision of ITAT, Chennai Benches in the case of Prahari Agency Private Ltd vs ITO in ITA No. 1701/Chny/2018, where a similar issue had been considered by the Tribunal and held that payment made to C&F agents is liable for TDS u/s. 194C of the Act and :-7-: ITA. No: 413/Chny/2020 consequently for non-deduction of TDS, expenditure can be disallowed u/s. 40(a)(ia) of the Act. 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards disallowance of part of expenditure of Rs. 5,05,756/-, the AO except stating that the assessee could not furnish necessary bills and vouchers, could not adduce any reasons as to why expenditure incurred by the assessee is not incurred wholly and exclusively for the purpose of business of the assessee. Further, it is not a case of the AO that the assessee could not produce necessary bills and vouchers for entire expenditure debited into profit and loss account. In fact, the assessee could able to furnish necessary details along with bills and vouchers for majority of expenses. Therefore, we are of the considered view that the AO is erred in disallowing part of expenditure for non-furnishing of vouchers for clearing and forwarding expenses and thus, we direct the AO to delete addition made towards disallowance of Rs. 5,05,756/- towards clearing and forwarding expenses. :-8-: ITA. No: 413/Chny/2020 8. In so far as disallowance of sum of Rs. 38,00,098/- u/s. 40(a)(ia) of the Act, for non-deduction of TDS u/s. 194C of the Act, we find that as per section 194C(1), any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person 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 cheque or draft or by any other mode, whichever is earlier, deduct TDS at applicable rates. In this case, there is an agreement between the assessee and C&F agents for rendering certain clearing and forwarding services, which in our considered view is definitely a contract in terms of provisions of section 194C of the Act and thus, the assessee ought to have deduct TDS, when payment is made to C&F agents because the assessee is a person responsible for making payment for rendering services. Therefore, we are of the considered view that, there is no error in the reasons given by the AO and the CIT(A) to make addition towards disallowance of C&F charges u/s. 40(a)(ia) of the Act. 9. Further, an identical issue had been considered by co- ordinate bench of ITAT in the case of Prahari Agency Private :-9-: ITA. No: 413/Chny/2020 Limited vs ITO in ITA No. 1701/Chny/2018, where it has been held that TDS is applicable u/s. 194C of the Act, for C&F charges and for non-deduction of TDS, expenses can be disallowed u/s. 40(a)(ia) of the Act. The relevant findings of the Tribunal are as under: “9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee is in the business of clearing agent, has rendered services to their clients and made direct payment to shipping companies/CFS Agents for services rendered to their clients. The assessee has raised bills to his clients in two parts, (i) a bill for service charges towards services rendered by them along with other payments (ii) a debit not for reimbursement of other charges paid by the assessee on behalf of their clients as an intermediary for the clients and which are backed by specific invoices raised by service providers to their clients. The assessee has not deducted TDS on payments made to shipping companies/CFS Agents on behalf of their clients. The assessee contended that payments made to shipping companies/CFS Agents is in the nature of reimbursement of expenses without any element of profit and thus same cannot be brought within the TDS provisions and consequently, no disallowance can be made u/s. 40(a)(ia) of the Act. 10. We have gone through reasons given by the AO to disallow payments made to shipping companies/CFS Agents u/s. 40(a)(ia) of the Act, in light of the arguments advanced by the ld. AR for the assessee and we ourselves do not in agreement with arguments advanced by the Ld. AR of the assessee for the simple reason that payment made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the shipping companies and CFS. No doubt, the assessee has made payment on behalf of their clients for bills raised by shipping companies/CFS Agents and further, the services rendered by the shipping companies/CFS Agents is for their clients. But, what is important is who made payments to service providers and what law say about TDS provisions. The concept of TDS provisions was introduced to withhold tax on :-10-: ITA. No: 413/Chny/2020 income of service providers. As per provisions of section 194C of the Act, it is abundantly clear that any person responsible for paying any sum to any resident for any work. That means while making payment, the person responsible for making payment shall deduct TDS as per law. Generally, the service receiver shall deduct TDS on payments made to service providers. In this case, the assessee acts an intermediary between service provider and service receiver. The assessee has availed services from shipping companies/CFS Agents for their clients and made payments directly to shipping companies/CFS Agents. The assessee has taken responsibility of making payment on behalf of their clients. Therefore, as per law while making payments the person who makes the payments should deduct TDS on such payments. In this case, since, the assessee has availed services for their clients and also payments have been made by the assessee directly to the shipping companies/CFS Agents. Therefore, in our considered view, the assessee ought to have deducted TDS on such payments. The arguments of the assessee that if at all tax has to be deducted, it shall be deducted by its client but not the assessee is also not correct, because, service provider does not have had an occasion to deduct TDS. In fact payment made by the assessee to shipping companies is reimbursement in the hands of the clients and thus, there may be no occasion for the recipient of services to withhold tax on such payments. The concept of reimbursement of expenses will come into operation only when someone made payments on behalf of the assessee and assessee reimburse such expenditure. In this case, it is not so. In fact, the assessee has made payments on behalf of their clients and thus it is reimbursement for their client. In our view, the assessee being a payer directly to the shipping companies/CFS Agents ought to have deducted TDS while making the payment although such payments was made on behalf of their clients. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that payments made to shipping companies/CFS Agents is in the nature of reimbursement for which TDS liability cannot be pinned on the assessee. In the present case, since, the assessee has made payments on behalf of their clients, it should have deducted TDS on such payments, while making payments. The assessee being payer fails to deduct tax on the pretext that the payment is only a reimbursement and the tax has to be deducted by the end user which is practically not possible, because the payment is directly made by the assessee. If you accept the arguments of the assessee, then :-11-: ITA. No: 413/Chny/2020 the purpose of legislature is defeated and the intend to subject the contract payment to deduction of tax at the point of payment is defeated by arranging transaction in such a manner that the purpose is defeated. It is also important to note that it is the assessee who has booked the expenditure towards container storage charges on payment to shipping companies/CFS Agents and debited in their books of accounts. Similarly, the assessee has received charges from its clients including amount paid to shipping companies/CFS Agents and the same has been credited to its P&L a/c when it had received payments from its clients. Therefore, we are of the considered view that payments made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the service providers. Since, the assessee has made payment on behalf of their customers; the assessee ought to have deducted TDS on such payments while making payments. Since, the assessee has failed to deduct TDS, on such payments the AO is right in disallowing such payments u/s. 40(a)(ia) of the Act. Hence, we confirm additions made by the AO. 11. As regards alternative plea of the assessee that it has made payment to reputed shipping companies and all service providers has filed their return of income u/s. 139 of the Act and included payments made by the assessee in the return of income and thus, the assessee cannot be held as an assessee in default in terms of second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 w.e.f. assessment year 2013-2014. No doubt, the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 w.e.f. assessment year 2013-2014 held to be retrospective effect from the date of insertion of provisions of section 40(a)(ia) of the Act. But, to apply such provisions, the assessee shall comply with certain conditions as per which it has to obtain a certificate from an Accountant in prescribed Form No. 26A stating that the recipient of such sum have filed return of income u/s. 139 of the Act and also has taken in to account such sums for computing income in such return of income. In this case, the assessee has failed to obtain Form No. 26A and file before the AO and CIT(A) to give the benefit of proviso to section 40(a)(ia) of the Act, and said lapse is continued even before us. Before us, the assessee could not file any Form no 26A obtained from its clients nor filed their ITR copies to prove that the recipients have included sum paid by the assessee in their :-12-: ITA. No: 413/Chny/2020 income tax returns. Therefore, we are of the considered view that there is no merit in alternate ground taken by the assessee and hence, the same is rejected.” 10. In this view of the matter and by considering facts and circumstances of the case, we are of the considered view that there is no error in the reasons given by the AO and CIT(A) to disallow C&F charges u/s. 40(a)(ia) of the Act and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee. 11. In so far as alternate plea of the assessee for disallowance of 30% in light of amendment to section 40(a)(ia) of the Act, by the Finance Act, 2014 w.e.f. 01.04.2015, we find that said amendment is considered to be prospective in nature from assessment year 2015-16 onwards and thus, it is not applicable for the impugned assessment year as held by the Hon’ble Supreme Court in the case of Shri. Choudhary Transport Company vs ITO (2020) 272 Taxman 472 SC, where it has been clearly held that amendment to section 40(a)(ia) of the Act, is prospective in nature which cannot be applied for retrospective purpose. Therefore, we are of the considered view that there is no merit in the :-13-: ITA. No: 413/Chny/2020 alternate plea taken by the assessee and thus, same is rejected. 12. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the court on 15 th March, 2023 at Chennai. Sd/- (वी दुगाᭅ राव) (V. DURGA RAO) ᭠याियकसद᭭य/Judicial Member Sd/- (मंजुनाथ. जी) (MANJUNATHA. G) लेखासद᭭य/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated: 15th March, 2023 JPV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ/CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF