DAWN INDIA, MUMBAI V. ACIT 12(1), MUMBAI

ITA 5941/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75262 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 28-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 194C

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI . , !'# $ % & , ' !'# !( BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER !. : 5941 / / 2010 A.Y. 2007-08 ITA NO. : 5941/MUM/2010 (ASSESSMENT YEAR: 2007-08) M/S DAWN INDIA, 411/412, APEEJAY HOUSE, 130, B.S. MARG, MUMBAI -400 023 PAN: AAAFD 2674 D VS ASST. COMMISSIONER OF INCOME TAX 12(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI RITESH MISRA /DATE OF HEARING : 12-12-2013 / DATE OF PRONOUNCEMENT : 08-01-2014 O R D E R % & , !: PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE CIT(A) 23, MUMBAI, DATED 04.05.2010, WHEREIN, THE FOLLOWING GROUNDS HAVE BEEN TAKEN: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 9,42,611/- OUT OF THE TOTA L ADDITION MADE BY AO OF RS. 23,56,527/- ON ACCOUNT OF UNSUPPORTED CASH EXPEN SES OF 94,26,109/- 2. REASONS GIVEN BY THE LEARNED CIT(A) FOR CONFIRMING A DDITION OF RS. 9,42,611/- OUT OF THE TOTAL ADDITION MADE BY AO OF RS. 23,56,52 7/ON ACCOUNT OF UNSUPPORTED CASH EXPENSES OF 94,26,109/-, ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING AOS ACTION OF INVOKING THE PROVISIONS OF SE CTION 14 A OF THE INCOME TAX ACT 1961 IN RESPECT OF DIVIDEND INCOME OF 2,30,06 3/- AND THEREBY CONFIRMING THE DISALLOWANCE OF RS. 34,488/- MADE BY AO. 4. REASONS GIVEN BY THE LEARNED CIT (A) FOR CONFIRMING AOS ACTION OF INVOKING THE PROVISIONS OF SECTION 14 A OF THE INCOME TAX ACT 1961 IN RESPECT OF DIVIDEND INCOME OF 2,30,063/- AND THEREBY CONFIRMING THE DISALLO WANCE MADE BY AO OF RS. 34,488/-, ARE WRONG ) INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 5 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT AO WAS RIGHT IN APPLYING THE PROVISIONS O F SECTION 194 C OF THE INCOME TAX ACT 1961 IN RESPECT OF SUM OF RS. 98,46,7 16/-, BEING REIMBURSABLE M/S DAWN INDIA ITA NO. 5941/MUM/2010 2 EXPENSES PAID TO CFS AND/OR CUSTODIANS ON BEHALF OF APPELLANTS CLIENTS AND FURTHER ERRED IN HOLDING THAT AC WAS RIGHT IN DISALLOWING T HE SAID SUM OF RS. 98,46,716/- BY APPLYING THE PROVISIONS OF SECTION 40 (A ) (IA) READ WITH SECTION 194 C OF THE INCOME TAX ACT 1961. 6 REASONS GIVEN BY THE LEARNED CIT(A) FOR HOLDING THAT AO WAS RIGHT IN APPLYING THE PROVISIONS OF SECTION 194 C OF THE INCOME TAX ACT 1961 IN RESPECT OF SUM OF RS. 98,46,716/-, BEING REIMBURSABLE EXPENSES PAID TO CFS AND/OR CUSTODIANS ON BEHALF OF APPELLANTS CLIENTS AND THEREBY CONFIRMING THAT AO WAS RIGHT IN DISALLOWING THE SAID SUM OF RS. 98,46,716/- BY APPLYING THE PROVISIONS OF SECTION 40 (A) (IA) READ WITH SECTION 194 C OF THE INCO ME TAX ACT 1961, ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVID ENCE ON RECORD. 7 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, M ODIFY OR OMIT ANY OF THE AFORESAID GROUNDS OF APPEAL AS OCCASION MAY ARISE ON DE MAND. 2. AT THE TIME OF HEARING, THE AR SUBMITTED THAT GROUNDS NO. 1, 2, 3 & 4 ARE NOT PRESSED. HENCE, GROUNDS NO. 1, 2, 3 & 4 AR E DISMISSED AS NOT PRESSED. 3. THE SOLITARY ISSUE REMAINING IN GROUNDS NO. 5 & 6 PERTA IN TO DISALLOWANCE OF RS. 98,46,716/- U/S 40(A)(IA) OF THE INCOME-TAX ACT, 1961. 4. THE FACTS, AS PER THE ASSESSMENT ORDER ARE THAT TH E ASSESSEE IS A CARRYING & FORWARDING AGENT (C&F AGENT). IN THE YEAR UNDE R CONSIDERATION, THE ASSESSEE HAD RECEIVED RS. 46.14 CRORES AS REIMBURSABLE AMOUNT. THE AO, ASKED THE ASSESSEE TO SUB MIT PARTY WISE LIST OF WARE HOUSING PAYMENTS WITH OPENING BALANCE, CLO SING BALANCE, PAYMENT MADE, TDS DEDUCTED FOR ALL PARTIES ABOVE RS. 50,000/-. THE ASSESSEE PROVIDED THE COMPLETE LIST OF THE P ARTIES WITH WHOM THE ASSESSEE HAD THE RELATION AS PER SECTION 194C , WHICH IS AS UNDER AND ALSO GAVE EXPLANATION: 1 ZM INTEGRATED 79757 2 MACNEL CONTAINER 93575 3 SPEEDY TRANSPORT PVT LTD 143278 4 MUNDRA INTERNATIONAL CONTAINER 166038 5 SEA BIRD MARINE SERVICES 254541 6 GOODS TRANSPORT LABOUR BOARD 288172 7 UNITED LINER AGENCIES OF INDIA 408421 8 GATEWAY DISTRIPARK LTD. 412740 9 BALMAR LAWRIE & CO. LTD. 452142 10 CHINUBHAI KALIDAS & BROTHERS 619361 11 ALL CARGO GLOBAL LOGISTICS PVT LTD. 1325231 12 MAERSK INDIA PVT LTD, 1777218 13 CONTINENTAL WARE HOUSE CORPORATION LTD, 166430 14 MUMBAI INTERNATIONAL AIR PORT PVT LTD, 3659812 TOTAL 98,46,716 M/S DAWN INDIA ITA NO. 5941/MUM/2010 3 6.2 THE ASSESSEE FILED HIS REPLY ON 14-12-2009 (1) AS STATED EARLIER, WARE HOUSING CHARGES IS THE NOMEN CLATURE USED FOR CHARGES PAID TO GOVERNMENT OR GOVERNMENT AUTHORIZED B ODIES SUCH AS CONTAINER CORPORATION OF INDIA, AIRPORT AUTHORITY OF IND IA, MUMBAI INTERNATIONAL AIRPORT PVT LTD, SAWRASHTRA CGS, ETC WHO ARE CALLED CONTAINER FREIGHT STATIONS FOR THE LOCATION CUM IMPORT TE RMINAL CHARGES AT THE PORT, WHETHER SEA PORT OR AIRPORT. THE CONTAIN ER FREIGHT STATIONS/CUSTODIANS ARE APPOINTED BY THE CUSTOMS AUTHO RITIES AND ARE AFFILIATED TO SPECIFIED SHIPPING COMPANIES/AIRLINES. THE CHA RGES PAID/PAYABLE ARE ESSENTIALLY THE LANDING CHARGES. THESE CHARGES CANNOT BE DEEMED TO BE COVERED UNDER THE AMBIT OF S ECTION 194C. OUR CLIENTS RELY ON THE DECISIONS IN THE CASE OF CIT VS. ASIA N AIRLINES (2008) 175 TAXMAN 177 (DEL.). AN EXTRACT OF THE SAID JUDGMENT IS ENCLOSED AND MARKED ANNEXURE 1. OUR CLIENTS ALSO RELY ON RELATED JUDGMENTS, NAMELY,; (I) UNITED AIRLINES VS. CIT (2006) 202 CTR 184 (DEL.); AND (II) (2006) 287 ITR (DEL.). 5. THE ASSESSEE EXPLAINED TO THE AO THAT ACTUALLY THE PAYMENTS MADE TO THE CONTAINERS FREIGHT STATION/WAREHOUSE ARE ON BEHALF OF THE CUSTOMERS/CLIENTS ON WHOSE BEHALF THE ASSESSEE BOOKS TH E SPACE. THIS PAYMENT, AS MADE BY THE ASSESSEE IS LATER ON RECEIVED B Y THE ASSESSEE FROM THE CUSTOMER/CLIENT AS A REIMBURSEMENT. THE ASSESSE E, CITED SEVERAL DECISIONS, WHICH PERTAINED TO THE ISSUE, WHICH INCLUDE D, CIT VS CARGO LINKS, REPORTED IN 218 CTR 695 (DEL), CIT VS UNITED RICE LAND LTD., REPORTED IN 217 CTR 332 (P&H), ITO VS RAM NAND & C O & OTHERS, REPORTED IN 163 ITR 702 (HP). THE ASSESSEE ALSO RELIED ON ALL GUJARAT FEDERATION OF TAX CONSULTANTS VS CBDT REPORTED IN 76 TAXMAN 307 (GUJ). IN ALL THESE DECISIONS, WHAT HAS BEEN LAID DOWN AS THE RATIOS ARE THAT SINCE THERE IS NO CONTRACTUAL RELATIO NSHIP BETWEEN THE ASSESSEE AND THE WAREHOUSE, THERE IS NO REQUIREMEN T TO DEDUCT TAX AT SOURCE. IT WAS SPECIFICALLY EMPHASIZED, THAT ASSESSEE ONLY ACTED AS AN INTERMEDIARY AND WHATEVER EXPENSES, THE ASSESSEE INC URRED ON BEHALF OF THE CLIENT, THAT EXPENSE ONLY GOT REIMBURSED, WIT HOUT ANY PROFIT ELEMENT EMBEDDED IN SUCH RECEIPTS. THE AO DISREGARD ED ALL THE CONTENTIONS OF THE ASSESSEE AND TAKING A CUE FROM CIRCULA R NO. 715, DISALLOWED RS. 98,46,716/- U/S 40(A)(IA). 6. AGGRIEVED THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE REITERATED ITS ARGUMENTS AS MADE BEFORE THE A O. THE CIT(A) ALSO DISREGARDED THE SAME AND HELD, M/S DAWN INDIA ITA NO. 5941/MUM/2010 4 THE BASIC PREMISE FOR CHARGING ONLY THE DIFFERENCE BET WEEN THE SO CALLED REIMBURSABLE OPERATING EXPENSES AND THE ACTUAL OPERATIN G EXPENSES INCURRED WAS THAT THE SAID AMOUNT IS REIMBURSED BY THE CLIENT. SOME COMPONENT OF PROFIT IS BOUND TO BE BUILT IN THE ABOVE RECEIPTS. THERE IS NO REIMBURSEMENT IN THE TRUE SENSE. AN EXPENDITURE WHICH IS NOT SUPPORTED BY A CTUALS CAN NEVER BE SAID TO BE REIMBURSEMENT. THEREFORE, BOTH THE RECEIPTS AN D THE EXPENDITURE ON ACCOUNT OF OPERATIONS EXPENSES ARE VERY MUCH PART OF ASSESSEES P & L A/C WHATEVER MAY BE THE ACTUAL MODE OF ROUTING ENTRIES. T HUS THERE IS NO INFIRMITY IN MAKING ADDITION UNDER THE PROVISIONS OF SECTION 40(A)(IA) . AS STATED BY THE ASSESSING OFFICER THE LIABILITY TO DEDU CT TDS ARISES BY VIRTUE OF SECTION 194C OF THE I.T. ACT AND NOT BY VIRTUE OF BOA RDS CIRCULAR. CIRCULARS ARE CLARIFICATORY IN NATURE. CBDT CIRCULAR NO. 715 DATED 08. 08.1995 CLARIFIES THAT CLEARING AND FORWARDING AGENT ACT AS INDEPENDENT CONTRA CTORS AND THEY COULD BE LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS. THE APPELLANT IS AN INDEPENDENT CONTRACTOR THOUGH ACTING ON BEHALF OF ITS CLIENT AND IS LIABLE TO DEDUCT TDS. AS THE APPELLANT WAS LIABLE TO DEDUCT TDS. AS THE APPELLANT WAS LIABLE TO DEDUCT TDS AND HAS NOT DONE SO, ADDITION MADE U/S 40(A)(IA) IS CONFIRMED. 7. THE CIT(A), THEREFORE, SUSTAINED THE DECISION TAKEN BY THE AO. 8. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 9. BEFORE US, THE AR ONCE AGAIN REITERATED THE SUBMISSION S MADE BEFORE THE REVENUE AUTHORITIES AND INVITED OUR ATTENTION TO THE DETAILS AS FILED BEFORE THEM. HE POINTED OUT THAT EACH REIMBURSEME NT IS RELATABLE TO THE CLIENT. THE AR ALSO SUBMITTED THAT THE EN TIRE CIRCLE OF TRANSACTION, DOES NOT ENTER THE BOOKS OF THE ASSESSEE AND ACTUALLY, THE ASSESSEE RAISES DEBIT NOTES ON THE CLIENTS, AGAINST WHICH THE CLIENT WOULD MAKE THE PAYMENT TO THE ASSESSEE. THE AR ALSO DE MONSTRATED THAT HOW THE DETAILS ARE MADE AND HOW IT WOULD BE REPRE SENTED (APB 129, 130, 169), IN THE CASE OF AROXIDE IMPEX (INDIA) PVT LTD. 10. THE AR FURTHER POINTED OUT THAT THE REVENUE AUTHO RITIES ALLOWED REIMBURSEMENT WHICH WERE LESS THEN RS. 50,000/- BUT DISAL LOWED ALL THE PAYMENTS WHICH WERE IN EXCESS OF RS. 50,000/-. HE, SU BMITTED THAT THERE WAS A COMPLETE DISHARMONY IN THE METHOD/RE ASON ADOPTED FOR MAKING THE DISALLOWANCE. THE AR FURTHER POINTED OUT TH AT DISALLOWANCE COULD ONLY BE MADE U/S 40(A)(IA), IF THE TRANSACTIO N PASSES THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AR, THEREFORE, SUBMITTED THAT THE REVENUE AUTHORITIES ERRED IN MAKING A DISALLOWANCE OF RS. 98,46,716/-. M/S DAWN INDIA ITA NO. 5941/MUM/2010 5 11. THE DR ON THE OTHER HAND SUBMITTED THAT THE METH OD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS INCORRECT AND THAT THE ACCOUNTS SHOULD HAVE BEEN MAINTAINED ON GROSS BASIS. HE FURTHER ARGUED THAT THE ASSESSEE SHOULD HAVE AVAILED THE SPECIFIC PROVISION U /S 197, WHICH PROVIDES FOR LOWER TDS. 12. WITH REGARD TO THE ARGUMENT THAT THE BOOKS ARE N OT PROPERLY MAINTAINED, THE BENCH RAISED THE QUERY THAT IF THE BOOKS ARE NOT PROPERLY MAINTAINED THEN WHY WERE THEY NOT REJECTED, T HE DR REPLIED THAT THE AO SHOULD HAVE DONE BUT DID NOT DO. 13. WITH REGARD TO DISALLOWANCE BECAUSE OF RECEIPTS IN EX CESS OF RS. 50,000/- WHICH ARE ACTUALLY INCLUDED IN THE TOTAL RECEIPTS OF REIMBURSEMENTS, THE DR SIMPLY REPLIED THAT THIS QUESTION C ANNOT BE ANSWERED. 14. HOWEVER, THE DR SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER OF THE REVENUE AUTHORITIES FOR MAKING A DISALLOWANCE OF RS. 98,46,716/-. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUS ED THE DOCUMENTS PLACED ON RECORD. IT IS UNDISPUTED THAT THE AO ASKED TO SUBMIT THE DETAILS PERTAINING TO RECEIPTS IN EXCESS OF RS. 5 0,000/-, WHICH MEANS THAT THE AO ACCEPTED THE FACT THAT THEY W ERE REIMBURSEMENT, WHICH HE PENS IN THE ASSESSMENT ORDER, WH EREIN, HE OBSERVES IN PARA 6.9, THEREFORE, THE ASSESSEES CONTENTIONS IN SO FAR AS IT CLAIMS THAT IT ACTS ON BEHALF OF THE CLIENT IS CORR ECT . BESIDES THIS, THE DR ON BEHALF OF THE REVENUE AUTHORITIES, WAS NOT ABLE TO GIVE ANY CONVINCING REPLY WITH REGARD TO HOW THE ASSESSEE WAS MAINTAINING INCORRECT SYSTEM OF KEEPING BOOKS AND WHY ONLY RECEIPTS IN EXCESS OF RS. 50,000/- AS PICKED UP BY THE AO, COULD JUSTIFY TO DISA LLOW THE WHOLE AMOUNT. THE DR WAS ALSO UNABLE TO MAKE ANY COMMEN T ON THE FACT THAT THE DUES/CLAIMS RAISED BY THE ASSESSEE, ON THE CLIENTS, WERE IN THE FORM OF DEBIT NOTES WHICH DID NOT ENTER THE PROFIT & LOSS M/S DAWN INDIA ITA NO. 5941/MUM/2010 6 ACCOUNT OF THE ASSESSEE WOULD ENHANCE THE ATGUMENT MA DE BY THE REVENUE AUTHORITIES TO DISALLOW THE EXPENSE U/S 40(A)(IA). 16. WE ARE IN AGREEMENT WITH THE ARGUMENTS OF THE AR T HAT DISALLOWANCE CAN ONLY GET TRIGGERED IF THE RECEIPT OF ANY PAYMENT IS ROUTED THROUGH THE BOOKS AND ALSO THAT THE RECEIPT HA S SOME COMPONENT OF PROFIT EMBEDDED IN IT. IF THESE TWO CONDITIONS ARE FULFILLED THEN THE ONUS IS ON THE ASSESSEE TO DEDUCT TDS ON AN Y PAYMENT BEING RECEIVED. 17. SINCE BOTH THESE CONDITIONS ARE NOT THERE, IN OUR OP INION, THE CASE OF THE REVENUE AUTHORITIES IS STANDING ON A WRONG PREMISE. 18. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF T HE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. 19. GROUNDS NO. 5 & 6 ARE THUS ALLOWED. 20. GROUND NO. 7 IS GENERAL. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2014. SD/- SD/- ( . ) ( % & ) !'# !'# (D. KARUNAKARA RAO) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 8 TH JANUARY, 2014 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ! !' ( ) - 23 MUMBAI / THE CIT (A)-23, MUMBAI. M/S DAWN INDIA ITA NO. 5941/MUM/2010 7 4) ! !' XII, MUMBAI / THE CIT, -XII, MUMBAI, 5) $%& ' ( , ! ' , )*+ / THE D.R. D BENCH, MUMBAI. 6) &( , COPY TO GUARD FILE. !-./ / BY ORDER / / TRUE COPY / / [ 0 / 1 *2 ! ' , )*+ DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *451 . . * CHAVAN, SR. PS