M/s. Anar International Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 562/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85600 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACC OUNTANT MEMBER M/S. ANAR INTERNATIONAL PVT. LTD, 3 RD FLOOR, SANSKRUT B/H OLD HIGH COURT, ASHRAM ROAD, AHMEDABAD PAN: AAECA 7822 M (APPELLANT) VS THE INCOME TAX OFFICER, WARD 1(2), AHMEDABAD (RESPONDENT) ASSESSEE BY: SHRI SANJAY R. SHAH, AR REVENUE BY: SMT. SONIA KUMAR, SR. D.R. DATE OF HEARING : 23-01-2015 DATE OF PRONOUNCEMENT : 30-01-20 15 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:- THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-VI, AHMEDABAD DATED 23-12-2010 FOR A.Y. 2007-08. ITA NO. 562/AHD/2011 ASSESSMENT YEAR 2007-08 I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 2 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED AS ME RCHANT EXPORTER OF DYES PIGMENTS AND RELATED SPECIALITY CHEMICALS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR 2007-08 ON 26-10-200 7 DECLARING TOTAL LOSS OF RS. 1,37,321/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 10-12-2009 AND THE TOTAL INCOME WAS DETERMINED AT RS. 33,62,860/-. AG GRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) W HO VIDE ORDER DATED 23-12-2010 DISMISSED THE APPEAL OF THE ASSESSEE. A GGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE ORDER PASSED BY THE CIT(A) IS ERRONEOUS IN LAW AND ON FACTS AND THEREFORE, REQUIRES TO BE SUITABLY MODIFI ED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER FOR DISALLOWING AMOUNT PAID UNDER THE HEAD, CLEARING AND FORWARDING CHARGES OF RS. 33,29,238/- U/S. 40(A)(IA) WHICH ARE PRIMARILY OF REIMBURSEMENT OF EXPENSES ON THE GROUND THAT NO TDS HAS BEEN DEDUCTED FORM SUCH PAYMENTS. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APP ELLANT WAS NOT REQUIRED TO DEDUCT THE TAX FROM REIMBURSEMENT OF EX PENSES INCURRED BY THE AGENT AND THUS THERE IS NO DEFAULT AND HENCE NO DISALLOWANCE WAS CALLED FOR. IN ANY CASE IT IS THE RESPONSIBILI TY OF SUCH AGENT TO DEDUCT TDS WHENEVER THEY FIRST MAKE PAYMENTS OF SUC H CHARGE AND HENCE ALSO THEY ARE NOT LIABLE TO TDS WHEN APPELLAN T REIMBURSES THEM TO THE AGENTS. IT IS SUBMITTED THAT IT BE SO HELD NOW AND THE ENTIRE DISALLOWANCE MADE U/S. 40(A)(IA) BE DELETED. 2.1 THE LEARNED CIT(A) ERRED IN PLACING RELIANCE ON THE CBDT CIRCULAR WITHOUT NOTICING THE FACT THAT IT IS NOT S QUARELY APPLICABLE TO THE FACTS OF THE CASE AND WITHOUT APPRECIATING THE FACT THAT AS I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 3 APPELLATE AUTHORITY HE SHOULD HAVE APPLIED THE LEGA L PRINCIPLES POINTED OUT BY THE APPELLANT TO THE FACTS OF APPELL ANTS CASE. 2.2 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT ON THE AGENCY CHARGES OF RS. 94,602/- PAID TO SUCH AGE NTS AS CLEARING AND FORWARDING CHARGES. TDS AMOUNT WAS DEDUCTED WHE NEVER REQUIRED AND ONLY ON THE REIMBURSEMENT OF EXPENSES INCURRED BY THEM AS THE ORDER OF RS. 33,22,048/- [ RS. 34,16,65 0 RS. 94,602 ], NO TDS WAS DEDUCTED. 2.3 WITHOUT PREJUDICE TO FOREGOINGS, IT IS SUBMITTE D THAT IF AT ALL ENTIRE DISALLOWANCE IS UPHELD THE CORRECT AMOUNT CO MES TO RS. 33,22,048/- AND NOT RS. 33,29,238/-. 4. BEFORE US, LD. AR SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE ONLY EFFECTIVE GROUND IS WI TH RESPECT TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD DEBITED CLEARING AND FORWARDING CHARGE S OF RS. 34,16,650/-. HE ALSO NOTICED THAT THE AFORESAID AGGREGATE AMOUNT WAS PAID/CREDITED TO THE ACCOUNT OF VARIOUS PARTIES LISTED AT PAGE 3 OF THE ASSESSMENT ORDER. HE ALSO NOTICED THAT ASSESSEE HAD ONLY DEDUCTED TDS ON RS 87,412/-. THE ASSESSEE WAS THEREFORE ASKED TO SHOW CAUSE AS T O WHY ASSESSEE HAS NOT DEDUCTED TDS AND NO DISALLOWANCE U/S. 40(A)(IA) BE MADE TO WHICH ASSESSEE INTER ALIA SUBMITTED THAT ASSESSEE WAS REQ UIRED TO DEDUCT TDS ONLY ON THE CHARGES PAID AS AGENCY CHARGES AND THE OTHER AMOUNTS PAID TO THE C & F AGENCY WAS IN THE NATURE OF REIMBURSEMENT AND THEREFORE NO TDS WAS REQUIRED TO BE DEDUCTED. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIE W THAT ASSESSEE WAS LIABLE TO DEDUCT TDS U/S. 194C AT THE TIME OF PAYME NT/CREDIT OF CLEARING AND FORWARDING AGENTS ACCOUNT. HE FURTHER RELYING ON THE CIRCULAR NO. 715 ISSUED DATED 8 TH AUGUST, 1995 ISSUED BY CBDT HELD THAT SINCE ASSESS EE I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 4 HAS NOT DEDUCTED TDS, THE EXPENDITURE OF RS. 33,28, 238/- WAS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE ACCORDINGLY DISMISSED THE SAME. AGGRIEVED BY THE OR DER OF AO, ASSSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISP UTE THAT APPELLANT DEBITED AND PAID CLEARING AND FORWARDING CHARGES OF RS 3416650 BUT TDS WAS DEDUCTED ONLY ON RS. 87412. APPELLANT SUBMI TTED THAT FOR THE REMAINING AMOUNT, TDS WAS NOT DEDUCTED SINCE TH E SAME WAS REIMBURSEMENT OF EXPENSES. ASSESSING OFFICER DID NO T AGREE WITH THE APPELLANT'S CONTENTION ON THE GROUND THAT THE B ILLS RAISED BY CLEARING AND FORWARDING AGENTS ARE ON ACCOUNT OF DI FFERENT EXPENSES AND NOT REIMBURSEMENT AND ACCORDINGLY THESE ARE THE RECEIPTS OF CLEARING AND FORWARDING AGENTS. APPELLANT DEBITED T HE ENTIRE CHARGES AND CREDITED THE SAME IN AGENT'S ACCOUNT. THE CONTR ACT IS BETWEEN APPELLANT AND CLEARING AND FORWARDING AGENTS AND NO T THE COMPANY WHO ARE ACTUALLY DOING THE WORK. ASSESSING OFFICER ALSO RELIED UPON CIRCULAR NUMBER 715 ISSUED BY CBDT. IN ANSWER TO Q UESTION NUMBER SIX AND SEVEN, IT IS CLEARLY MENTIONED THAT GROSS A MOUNT PAID TO CLEARING AND FORWARDING AGENTS ARE LIABLE FOR TDS. ASSESSING OFFICER REPRODUCED THESE QUESTION ANSWERS IN HIS ASSESSMENT ORDER. IT IS SURPRISING THAT APPELLANT DID NOT TOUCH UPON THIS P ART OF CIRCULAR NUMBER 715 IN ITS DETAILED SUBMISSION. THIS MEANS A PPELLANT HAS NOTHING TO SAY IN THIS MATTER. APPELLANT REFERRED SECTION 204 AND CLAIMED THAT WHA T IS CHARGEABLE TO TDS IS INCOME OF THE CLEARING AND FOR WARDING AGENT AND NOT HIS GROSS RECEIPT. THIS IS WRONG INTERPRETA TION BY THE APPELLANT SINCE SECTION 204 ONLY DEFINES THE PERSON RESPONSIBLE FOR PAYING. PAYMENT OF ANY OTHER SUM CHARGEABLE UNDER T HE PROVISIONS OF THIS ACT DOES NOT MEAN INCOME OF THE RECIPIENT. PAYMENT FOR CONTRACT WORK IS CHARGEABLE TO TDS UNDER SECTION 19 4C. IT HAS NOTHING TO DO WITH TAXABILITY OF INCOME WHICH IS GO VERNED BY DIFFERENT PROVISIONS. TDS UNDER SECTION 194C IS DEDUCTIBLE ON THE GROSS AMOUNT AND NOT ON NET INCOME. TO REMOVE ANY CONFUSI ON IN THIS REGARD, CIRCULAR NUMBER 715 OF 1995 WAS ISSUED SO T HAT THERE IS NO AMBIGUITY. DESPITE THIS APPELLANT DID NOT COMPLY. I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 5 THE PAYMENT OF VARIOUS ACTIVITIES BY CLEARING AND F ORWARDING AGENTS ARE MADE DIRECTLY AND NOT AN BEHALF OF THE A PPELLANT. ISSUE OF TWO BILLS WILL NOT MAKE ANY DIFFERENCE AS FAR AS AP PELLANT'S LIABILITY TO DEDUCT TDS IS CONCERNED. APPELLANT RELIED UPON THE DECISION OF ITAT DELHI IN THE CASE AT WILLMAR WHICH IS AN PROFESSION AL SERVICES, IN THE CASE OF PROFESSIONAL SERVICES, THE CONCEPT OF REIMB URSEMENT OF EXPENSES IS THERE. HOWEVER NO SUCH CONCEPT OF REIMB URSEMENT IS THERE UNDER SECTION 194C. IN THE CASE OF CLEARING AND FORWARDING AGENT IT IS CLEARLY MENTIONED IN ANSWER TO QUESTION NUMBER SEVEN OF CIRCULAR NUMBER 715 THAT CLEARING AND FORWARDING AG ENTS ACT AS INDEPENDENT CONTRACTORS AND ANY PAYMENT MADE TO THE M WOULD BE LIABLE FOR TDS. THEY WOULD ALSO BE LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS TO A CARRIER OF GOODS. IN ANS WER TO QUESTION NUMBER 30, IT IS CLEARLY MENTIONED THAT SECTION 194 C REFERS TO ANY SUM PAID. OBVIOUSLY, REIMBURSEMENTS CANNOT BE DEDUC TED OUT OF THE BILL AMOUNT FOR THE PURPOSE OF TDS. IN THE LIGHT OF CLEAR CLARIFICATION, THERE CANNOT BE ANY EXEMPTION FROM TDS EVEN IN CASE OF REIMBURSEMENTS. SINCE PROVISIONS OF SECTION 194C RE AD WITH CIRCULAR NUMBER 715 DO NOT LEAVE ANY SCOPE FOR CONFUSION, AN Y SUM PAID BY THE APPELLANT TO CLEARING AND FORWARDING AGENT IS L IABLE FOR TDS. IN VIEW OF THIS THE DECISION OF ITAT DELHI IS NOT APPL ICABLE IN THIS CASE. ANOTHER DECISION OF ITAT DELHI RELIED UPON BY THE A PPELLANT IS IN RESPECT OF PAYMENT MADE TO FOREIGN SHIPPING COMP ANIES. SINCE APPELLANT IS MAKING PAYMENT TO INDIAN CLEARING AND FORWARDING AGENT, THE SAID DECISION DOES NOT HELP THE APPELLAN T. APPELLANT ALSO REFERRED DECISION WHEREIN CALCUTTA HIGH COURT HELD THAT CIRCULARS ARE NOT CONCLUSIVE AND BINDING IF THE SAME IS NOT IN CO NSTRUCTION WITH STATUTE. HERE THIS CIRCULAR IS NOT IN CONFRONTATION WITH ANY PROVISION OF IT ACT AND THEREFORE THE VALIDITY OF CIRCULAR NUMBE R 715 CANNOT BE QUESTIONED. APPELLANT RELIED UPON DECISION OF CIT ( A) BARODA WHICH HAS NOT CONSIDERED CIRCULAR NUMBER 715. IN THE ABSENCE OF THIS, HIS DECISION IS NOT A GOOD DECISION TO BE FOL LOWED. CONSIDERING THE VARIOUS FACTS AND DETAILED REASONS DISCUSSED IN THE ASSESSMENT ORDER AND IN EARLIER PARA, I HOLD THAT APPELLANT WA S ABLE TO DEDUCT TDS ON GROSS AMOUNT PAID TO CLEARING AND FORWARDING AGENT AND ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFI CER UNDER SECTION 40 (A)(IA) IS CONFIRMED. I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 6 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. AR REITERATED THE SUBMISSION MADE BEFORE LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HAD TAKEN SERVI CES OF CLEARING AND FORWARDING AGENT AND AS PER THE AGREEMENT, THE ASSE SSEE HAD TO PAY THE SERVICE CHARGES RENDERED AND ALSO TO REIMBURSE THE ACTUAL EXPENDITURE INCURRED BY THEM ON ACCOUNT OF FREIGHT AND OTHER IN CIDENTAL CHARGES ON THEIR FURNISHING THE PROOF OF SUCH EXPENDITURE. IT WAS FURTHER SUBMITTED THAT THE CLEARING AND FORWARDING CHARGES INCLUDED THE RE IMBURSEMENT OF EXPENSES INCURRED BY THE CLEARING AND FORWARDING AG ENT ON BEHALF OF ASSESSEE. IT WAS FURTHER SUBMITTED THAT M/S. THRE E ROSE AND OTHER AGENTS WERE REIMBURSED THE COST INCURRED BY THEM AN D THERE WAS NO PROFIT ELEMENT IN THE REIMBURSEMENT. LD. AR FURTHER SUBMI TTED THAT BEFORE AO, ASSESSEE HAD SUBMITTED THE SUMMARY OF CLEARING AND FORWARDING CHARGES PAID TO DIFFERENT AGENTS CLEARLY SPECIFYING THE AGE NCY CHARGES BUT AO DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE. LD. AR FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN THE CASE OF GUJARAT NARM ADA VALLEY FERTILIZER COMPANY LTD, THE ISSUE HAS BEEN DECIDED IN FAVOUR O F THE ASSESSEE BY THE HONBLE AHMEDABAD TRIBUNAL (IN ITA NO. 1003/AHD/201 0). HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE T HEREFORE SUBMITTED THAT THE MATTER MAY BE REMITTED TO THE FILE OF AO WITH D IRECTION TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND THEREAFTER DECIDE T HE ISSUE. LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CI T(A) . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE US, IT IS ASSESSEES S UBMISSION THAT THE I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 7 AMOUNT PAID TO C & F AGENTS INCLUDES THE EXPENDITUR E WHICH HAS BEEN REIMBURSED TO THE CLEARING AND FORWARDING AGENTS AN D THERE IS NO ELEMENT OF PROFIT IN IT. THE ASSESSEE IN THE PAPER BOOK AT PAGE 16 TO 35 HAS SUBMITTED THAT SAMPLE COPIES OF THE BILLS TO DEMONS TRATE THAT THE PAYMENT MADE BY THE ASSESSEE ARE PURELY ON ACCOUNT OF REIMB URSEMENT. WE FIND THAT THERE IS NO FINDING OF LD. CIT(A) THAT THE AMO UNT PAID BY THE ASSESSEE WAS NOT IN THE NATURE OF REIMBURSEMENT BUT ON THE C ONTRARY HE HAS HELD THAT THERE CANNOT BE ANY EXEMPTION FROM TDS EVEN IN CASE OF REIMBURSEMENT. WE FIND THAT THE ISSUE OF DISALLOWA NCE U/S. 40(A)(IA) AMOUNT PAID TO THE CLEARING AND FORWARDING AGENTS W ITH RESPECT TO THE REIMBURSABLE EXPENDITURE WAS ALSO BEFORE THE CO-ORD INATE BENCH TRIBUNAL IN ITA NO. 827 AND 1003 IN THE CASE OF GUJARAT NARM ADA VALLEY FERTILIZER COMPANY LTD WHEREIN THE CO-ORDINATE BENCH OF TRIBUN AL VIDE ORDER DATED 14-09-2010 HELD THAT ON PURE REIMBURSEMENT OF EXPEN SES NO TDS IS DEDUCTABLE. AGAINST THE AFORESAID ORDER OF TRIBUNA L, THE MATTER WAS CARRIED BEFORE HONBLE GUJARAT HIGH COURT BY THE REVENUE. HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO. 315 OF 2013 ORDER DATED 25- 06-2013 ACCEPTED THE FINDING OF TRIBUNAL AND DISMISSED THE APPEAL OF REV ENUE. CONSIDERING THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ASSESS EES CONTENTION THAT THE EXPENDITURE WHICH ARE ON ACCOUNT OF REIMBURSEMENT A ND ON WHICH NO TDS HAS BEEN DEDUCTED NEEDS TO BE RE-EXAMINED DE-NOVO. WE THEREFORE REMIT THE ISSUE TO THE FILE OF AO TO CONSIDER THE SUBMISS IONS OF THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND IF THE EXPENDITURE INCURRED BY THE ASSESSEE IS ON ACCOUNT OF REIMBURSE MENT, THE SAME BE ALLOWED. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE REQUIRED INFORMATION TO THE AO SO AS TO ENABLE HIM TO DECIDE THE ISSUE. I.T.A NO. 562/AHD/2011 A.Y. 2007-08 PAGE NO M/S. ANAR INTERNATIONAL PVT. LTD VS. ITO 8 9. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30/01/2015 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/ , / ,