India Gelatine & Chemicals Ltd., Ahmedabad V. The ACIT., Circle-4, Ahmedabad

ITA 611/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80388 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2013
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: J P SHAH
• Keywords: Business income
• Section: 14A; 194C; 201(1); 10; 11

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! '# ! '# ! '# ! '#, , , , $ $ $ $ BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 611/AHD/2013 ASSESSMENT YEAR: 2009-10 INDIA GELATINE & CHEMICALS LTD., 703/704, SHIP BUILDING, CG ROAD, NR. MUNICIPAL MARKET, NAVRANGPURA, AHMEDABAD. PAN: AAACJ3676F VS. ASSTT. COMMISSIONER OF INCOME- TAX,CIRCLE-4, AHMEDABAD. %& / APPELLANT '(%& / RESPONDENT ITA NO. 781/AHD/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE-4, AHMEDABAD. VS. INDIA GELATINE & CHEMICALS LTD., 703/704, SHIP BUILDING, CG ROAD, NR. MUNICIPAL MARKET, NAVRANGPURA, AHMEDABAD. PAN: AAACJ3676F %& / APPELLANT '(%& / RESPONDENT REVENUE BY : SHRI V.K. SINGH, SR. DR ASSESSEE(S) BY : SHRI J.P. SHAH, AR !) * #+/ // / DATE OF HEARING : 18/09/2014 -./ * #+ / DATE OF PRONOUNCEMENT: 10/10/2014 0 0 0 0/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE CROSS-APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27.12.2012. ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 2 - 2. GROUND NO. 1 OF THE ASSESSEES APPEAL IS DIRECT ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) C ONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE AND COLLECTION CHARG ES OF RS 6,22,228/- U/S. 14A OF THE ACT. GROUND NO. 1 IN REVENUES APPEAL I S THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS I N DELETING THE DISALLOWANCE OF RS 5,84,706/- OUT OF THE TOTAL DISA LLOWANCE OF RS 12,06,934/- MADE BY THE ASSESSING OFFICER U/S. 14A OF THE ACT O N ACCOUNT OF DISALLOWANCE OF INTEREST AND ADMINISTRATIVE EXPENSE S. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT OF R S 21,14,07,850/- IN SHARES AND MUTUAL FUNDS. THE ASSESSEE HAS DISALLOW ED AMOUNT OF RS 2,00,000/- ON ACCOUNT OF SECTION 14A OF THE ACT OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY TH AT THE INVESTMENTS MADE IN SHARES ARE FROM HIS OWN FUNDS OR FROM FUNDS ON W HICH NO INTEREST PAYMENT IS MADE BY THE ASSESSEE. THEREFORE, PROVIS ION OF SECTION 14A IS APPLICABLE TO THE ASSESSEE. SINCE THE ASSESSEE HAS NOT OFFERED DISALLOWANCE WORKED OUT U/S. 14A OF THE INCOME TAX ACT, 1961, TH EREFORE THE ASSESSING OFFICER WORKED OUT DISALLOWANCE FOR PROPORTIONATE I NTEREST EXPENDITURE OF RS 5,84,706/- AND DISALLOWANCE ON ACCOUNT OF ADMINISTR ATIVE EXPENSES OF RS 8,22,228/- AND THEREBY MADE A TOTAL DISALLOWANCE OF RS 14,06,934/-. AS THE ASSESSEE HIMSELF HAD MADE DISALLOWANCE OF RS 2,00,0 00/- IN THE RETURN OF INCOME, THEREFORE HE MADE THE DISALLOWANCE OF BALAN CE AMOUNT OF RS 12,06,934/-. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) OBSERVED THAT THE COMPANY HAD TAKEN SPECIFIC TERM LOANS FOR THE PURPOSE OF VEHICLES AND OLD LOAN OF 2005/- FOR CAPTIVE POWER PLANT, THE REFORE BORROWED FUNDS WERE USED FOR NON-BUSINESS PURPOSES COULD NOT ESTAB LISHED ON THE FACTS OF THE CASE. THE ASSESSEE HAS RELIED ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. 288 ITR 1 AND IN THE CASE OF MUNJAL ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 3 - SALES CORPORATION 298 ITR 298 AND ON THE DECISION O F HONBLE MUMBAI HIGH COURT IN THE CASE OF RELIANCE UTILITY & POWER LTD. 313 ITR 340 WHERE IT HAS BEEN HELD THAT IF THE ASSESSEE HAS SUFFICIENT OWN F UNDS AVAILABLE AND INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS, NO DISALLOWANCE OF INTEREST WAS CALLED FOR. THE COMMISSIONER OF INCOM E TAX (APPEALS) OBSERVED THAT THE ASSESSEE HAS NOT GIVEN INTEREST F REE LOANS TO HIS ASSOCIATE CONCERNS BUT HAS CHARGED INTEREST AT THE RATE VARYI NG FROM 9% TO 12.5% BY DEPENDING UPON THE AVAILABILITY OF THE SURPLUS FUND S. THEREFORE, HE HELD THAT THE ACTION OF THE ASSESSING OFFICER WAS FAR FROM FA CTS AND WITHOUT ANY BASIS AND ON THE OTHER HAND, THE ASSESSEE COMPANY HAS EAR NED INTEREST INCOME OF APPROXIMATELY RS 50.74 LAKHS DURING THE YEAR. HE, THEREFORE, DELETED THE DISALLOWANCE OF RS 5,84,706/-. 5. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED TH AT THE ASSESSEE HAS MADE INVESTMENT OF RS 21,14,07,850/- AND THE ASSESSEE HA S PAID INTEREST ON BORROWED FUNDS OF RS 40,10,861/-. HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT MADE DISALLOWANCE OF INTEREST EXPENDITURE ACCOR DING TO SECTION 14A READ WITH RULE 8D OF THE ACT. HE THEREFORE COMPUTED THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE AT RS 5,84,706 /- AND DISALLOWED THE SAME. BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS), THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD BORROWED FUNDS FOR THE PURPOSES OF VEHICLE AND OLD LOAN OF 2005/- FOR CAPTIVE POWER PLANT, AND THEREFORE NO BORROWED FUNDS WERE USED FOR NON-BUSINESS PURPOSES. FURTHER , THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF SA BUILDERS (SUPRA) AND MUNJAL SALES CORPORATION (SUPRA) AND TH E DECISION OF HONBLE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 4 - MUMBAI HIGH COURT IN THE CASE OF RELIANCE UTILITY & POWER LTD. (SUPRA) WHERE IT WAS HELD THAT IF THE INTEREST FREE FUNDS OF THE ASSESSEE WERE SUFFICIENT FOR MAKING INVESTMENTS, NO DISALLOWANCE OF INTEREST EXP ENDITURE WAS CALLED FOR. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE FINDING OF THE ASSESSING OFFICER WAS NOT CORRECT THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST FREE LOAN TO ASSOCIATE CONCERNS. HE HELD THAT THE ASSESSEE IN FACT EARNED INTEREST INCOME AT THE RATE VARYING FROM 9% TO 12.5% FROM THE ASSOCIATED CONCERNS DEPENDING UPON THE AVAILABILITY OF SURPLUS FUNDS AND THEREBY EARNED INTEREST INCOME OF APPROXIMATELY RS 50.74 LAKHS DURING THE YEAR. HE, THEREFORE, HELD THAT DISALLOWANCE MADE B Y THE ASSESSING OFFICER U/S. 36(I)(III) WAS OF RS 40,10,861/- WAS NOT JUSTI FIED. 7. THE DEPARTMENTAL REPRESENTATIVE HAS MERELY RELI ED UPON THE ORDER OF THE ASSESSING OFFICER. HE HAS NOT POINTED OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S). HE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE CO ULD NOT HAVE ADVANCED INTEREST FREE LOANS OR LOANS AT LOWER RATE OF INTER EST TO THE SISTER CONCERNS OUT OF ITS INTEREST FREE FUNDS AVAILABLE WITH IT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) WHICH IS CONFIRMED AND THE GROUND NO. 1 OF APPEAL OF THE REV ENUE IS DISMISSED. 8. FURTHER, THE ASSESSING OFFICER ALSO MADE DISALL OWANCE OF RS 8,22,228/- OUT OF ADMINISTRATIVE EXPENSES, BUT HAD RESTRICTED THE DISALLOWANCE MADE TO RS 6,22,228/- AS THE ASSESSEE HIMSELF HAD MADE DISALLOWANCE OF RS 2,00,000/- AS EXPENSES INCURRED FOR EARNING TAX FREE DIVIDEND INCOME. THE COMMISSIONER OF INCOME TAX (A PPEALS) OBSERVED THAT THE SAID EXPENSES MUST HAVE BEEN INCURRED BY THE AS SESSEE IN MAKING THE INVESTMENTS AND THEREFORE CONFIRMED THE DISALLOWANC E OF RS 6,22,228/- MADE BY THE ASSESSING OFFICER. THE AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EARNED DIV IDEND INCOME OF RS 12,200/- AS WILL BE EVIDENCED FROM THE STATEMENT OF ACCOUNTS OF THE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 5 - ASSESSEE AT PAGE 26 OF THE PAPER BOOK FOR WHICH DIS ALLOWANCE OF RS 6,22,228/- CANNOT BE MADE. 9. WE FIND THAT THE ASSESSING OFFICER AS WELL AS T HE COMMISSIONER OF INCOME TAX (APPEALS) COULD NOT PINPOINT ANY ERRO R IN THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE OF RS 2,00,000/- IN EARNING TAX FREE DIVIDEND INCOME. IN THE CIRCUMSTANCES, IN OUR CONSI DERED OPINION, DISALLOWANCE OF RS 6,22,228/- COULD NOT HAVE BEEN M ADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX(APPEALS). OUR ABOVE VIEW FINDS SUPPORT FROM THE DECISION OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CONSOLIDATED PHOTO & FINVEST LTD (2012) 211 TAXMAN 184 (DEL.). THEREFORE, WE SET ASIDE THE ORDERS OF L OWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS 6,22,228/-. THUS, GROUND NO . 1 OF APPEAL OF THE ASSESSEE IS ALLOWED. 10. GROUND NO. 2 OF THE ASSESSEES APPEAL IS DIREC TED AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE DISALLOWANCE OF TRAVELLING EXPENSES OF RS 12,49,082/-. 11. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED TRAVELLING EXPENSES O F DIRECTORS OF RS. 62,15,414/-. THE ASSESSEE HAS NOT FURNISHED THE DE TAILS OF BUSINESS RECEIPTS FROM THE PLACES OF DIRECTORS VISIT. FURTHER, THE ASSESSEE HAS NOT JUSTIFIED REASONS FOR DIRECTORS TRAVELLING MORE THAN FIVE TI MES OF OTHER EMPLOYEES OF THE COMPANY. THE ASSESSEE HAS NOT PRODUCED VOUCHER S AND SUPPORTING AVOUCHERS IN SUPPORT OF ITS CLAIM. THEREFORE, HE D ISALLOWED 50% OF THE DIRECTORS TRAVELLING EXPENSES OF RS 1,24,10,828/- WHICH WORKED OUT TO RS 62,05,414/-. 12. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT THE ASSESSEE COMPANY HAS DRAWN HIS ATTENTION T O THE LIST OF EXPORTS ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 6 - MADE TO MORE THAN 12 COUNTRIES WHICH EVIDENCES THAT THE ASSESSEE COMPANY HAS BEEN BENEFITTED BY SUCH TRAVELLING EXPENDITURE. HE HOWEVER OBSERVED THAT THE ELEMENT OF PERSONAL NATURE OF EXPENSES IN TRAVELLING EXPENSES CANNOT BE RULED OUT TOTALLY. IN ABSENCE OF FULL AN D COMPLETE INFORMATION OF EACH AND EVERY EXPENSE, HE CONSIDERED 10% OF THE TO TAL TRAVELLING EXPENDITURE OF RS 12,49,082/- AS BEING INCURRED FOR PERSONAL PURPOSES. THEREFORE, HE RESTRICTED THE DISALLOWANCE TO RS 12, 49,082/- AND DELETED THE BALANCE AMOUNT OF DISALLOWANCE OF RS 49,96,332/-. 13. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS REQUIRED TO TRAVEL ABROAD FOR BUSI NESS PURPOSE AND THEREFORE THE EXPENDITURE WAS INCURRED BY THE ASSES SEE. HE FURTHER ARGUED THAT EACH EXPENDITURE TO BE INCURRED WAS THE DOMAIN OF THE BUSINESSMAN AND NOT OF THE ASSESSING OFFICER. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER MADE A DISALLOWANCE OF 50% OF DIR ECTORS TRAVELLING EXPENSES OF RS 1,24,10,828/- AND THEREBY MADE ADDIT ION OF RS 62,05,414/- TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT TH E ASSESSEE HAD NOT JUSTIFIED THE REASONS FOR INCURRING OF THE EXPENSES WHICH WERE MORE THAN FIVE TIMES OF EXPENSES INCURRED ON OTHER EMPLOYEES AND T HE ASSESSEE HAS NOT PRODUCE VOUCHERS IN SUPPORT OF ITS CLAIM. 15. ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPE ALS) RESTRICTED THE DISALLOWANCE TO 10% OF THE TOTAL EXPENSES CLAIM ED BY THE ASSESSEE ON ACCOUNT OF DIRECTORS TRAVELLING EXPENSES AND THERE BY GRANTED RELIEF OF RS 49,96,332/- TO THE ASSESSEE AND SUSTAINED DISALLOWA NCE OF RS 12,49,082/-. 16. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE CLAIMED THAT THE EXPENSES WERE INCURRED BY THE ASSE SSEE FOR VISITING THE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 7 - COUNTRIES TO WHICH THE ASSESSEE HAD MADE EXPORTS. HE ALSO SUBMITTED THAT WHAT EXPENSES WERE TO BE INCURRED WAS IN THE DOMAIN OF THE BUSINESSMAN AND NOT OF THE ASSESSING OFFICER. THEREFORE, THE E STIMATED DISALLOWANCE OF RS 12,49,082/- SUSTAINED BY THE COMMISSIONER OF INC OME TAX(APPEALS) WAS NOT JUSTIFIED. ON A QUERY FROM THE BENCH THAT IF T HE DIRECTORS HAD TRAVELLED FOR BUSINESS PURPOSES, THEN WHETHER THE DIRECTORS O BTAINED BUSINESS VISA OR WERE ON TOURIST VISA. HE HAS FILED BEFORE US PHOTO COPIES FROM THE PASSPORTS OF THE DIRECTORS SHOWING VISA GRANTED TO THE DIRECT ORS FOR FOREIGN TRAVEL. IT IS SEEN THAT IN MOST OF THE CASES, VISA IS TOURIST VIS A AND NOT BUSINESS VISA. THUS, IT IS SEEN THAT THE FACT THAT THE TRAVEL WAS UNDERTAKEN ENTIRELY FOR BUSINESS PURPOSES HAS NOT BEEN ESTABLISHED. WE, TH EREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND NO. 2 OF APPEAL OF THE ASS ESSEE IS DISMISSED. 17. GROUND NO. 2 OF THE REVENUES APPEAL IS DIRECT ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) D ELETING THE ADDITION OF RS 1,02,43,720/- MADE U/S. 40(A)(IA) OF THE ACT. 18. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID EFFLUENT TREATM ENT CHARGES OF RS 76,33,835/- FOR EFFLUENT TREATMENT PLANT AND RS 26, 29,325/- TO WASTE EFFLUENT MANAGEMENT COMPANY. ACCORDING TO THE ASSE SSING OFFICER, SECTION 194C OF THE ACT REQUIRES TO DEDUCT TAX AT SOURCE AN D DEPOSIT THE SAME WITH THE CENTRAL GOVERNMENT WITHIN THE TIME LIMIT PRESCR IBED U/S. 201(1) OF THE ACT. SINCE THE ASSESSEE DID NOT DEDUCT THE TAX AT SOURCE FROM THE ABOVE PAYMENT, THEY ARE BY THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. ACCORDINGLY, HE DISALLOWED RS 1,02,43,720/- AND ADD ED THE SAME TO THE INCOME OF THE ASSESSEE. 19. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) VACATED THE DISALLOWANCE BY OBSERVING AS UNDER: ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 8 - 4.4. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. THE AO HAS MADE DISALL OWANCE OF RS. 1,02,43,720/- U/S.40(A)(IA) OF THE IT ACT AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. THE APPELLANT HAS SUBMITTE D THAT THE PAYMENT/CONTRIBUTION MADE TO THE VAPI WASTE EFFLUEN T MANAGEMENT COMPANY WHICH IS ESTABLISHED UNDER THE DIRECTIONS O F THE HON'BLE GUJARAT HIGH COURT AND ALL THE INDUSTRIES IN VAPI I NDUSTRIAL ARE THE MEMBERS OF THE SAID MUTUAL ASSOCIATION. THE APPELLA NT IS HAVING INDUSTRY AT VAPI AND IS ONE OF THE MEMBERS OF THE V API WASTE EFFLUENT MANAGEMENT COMPANY. THE INDUSTRY MEMBERS MAKE THEIR CONTRIBUTION TO THE SAID MUTUAL COMPANY IN PROPORTION TO THE DIS CHARGE OF EFFLUENT TO THE COMMON EFFLUENT TREATMENT PLANT AND THEY ARE REQUIRED TO CONTRIBUTE ON THE BASIS OF CONSUMPTION OF WATER. TH E APPELLANT HAS FURTHER SUBMITTED THAT:- THE INCOME OF THE SAID MUTUAL ASSOCIATION IS CONTRI BUTED BY ITS MEMBERS. THE ASSOCIATION OR COMPANY HAS BEEN FORMED SPECIFIC ALLY WITH THE OBJECT OF PROVIDING A COMMON EFFLUENT FACILITY TO I TS MEMBERS. THE INCOME IS NOT GENERATED OUT OF DEALINGS WITH AN Y THIRD PARTY. THE ENTIRE CONTRIBUTION ORIGINATES IN ITS MEMBERS A ND IS EXPENDED ONLY IN FURTHERANCE OF THE OBJECTS OF THE ASSOCIATI ON, FOR THE BENEFIT OF THE MEMBERS. THE APPELLANT HAS CITED THE JUDGMENTS OF HON'BLE GA UHATI HIGH COURT IN SING KILLING'S CASE (SUPRA) WHICH HAS HELD THAT THE TAX IS NOT REQUIRED TO BE COLLECTED WHEN THE INCOME IS EXEMPT U/S 10 (2 6) OF THE INCOME TAX ACT. SIMILARLY, KOLKATA I.T.A.T. IN 'BELVEDERE ESTATE TENANTS ASSOCIATIONS CASE (SUPRA) HELD THAT 'TDS NOT APPLI CABLE ON SERVICES RENDERED BY THE TENANT ASSOCIATION TO MEMBERS.' AFT ER GOING THROUGH THE FACTS OF THE CASE AND THE DECISION OF THE VARIO US COURTS (SUPRA) IT IS SEEN THAT THE AMOUNT PAID BY THE MEMBER APPELLANT C OMPANY IS CONTRIBUTION TO ITS ASSOCIATION VAPI WASTE EFFLUENT MANAGEMENT COMPANY AS A MEMBER AND CANNOT BE CLASSIFIED AS PAY MENT FOR CONTRACTUAL SERVICES AS COVERED U/S 194C AND HENCE, IN VIEW OF THE FOREGOING THE APPELLANT COMPANY IS NOT REQUIRED TO DEDUCT TAX ON PAYMENTS MADE FOR EFFLUENT TREATMENT CHARGES. THE A DDITION OF RS. 1,02,43,7207- MADE U/S.40(A)(IA) OF THE IT ACT BY T HE ASSESSING OFFICER ON THIS GROUND IS DELETED. 20. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). 21. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 9 - ASSESSING OFFICER MADE DISALLOWANCE OF RS 1,02,43,7 20/- U/S. 40(A)(IA) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASS ESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE U/ S. 194C FROM THE PAYMENT MADE TO VAPI WASTE EFFLUENT MANAGEMENT COMP ANY. 22. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) DELETED THE DISALLOWANCE BY FOLLOWING THE DECISION OF HONB LE GAUHATI HIGH COURT IN THE CASE OF SING KILLING VS. ITO (2002) 255 ITR 444 (GAUHATI) WHEREIN IT WAS HELD THAT TDS PROVISIONS WERE NOT APPLICABLE ON SER VICES RENDERED BY THE ATTENDANT ASSOCIATION TO MEMBERS. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE CONTRIBUTION MADE BY TH E ASSESSEE TO ITS ASSOCIATION VAPI WASTE EFFLUENT MANAGEMENT COMPANY AS A MEMBER CANNOT BE CLASSIFIED AS PAYMENT FOR CONTRACTUAL SERVICES A S COVERED U/S. 194C OF THE ACT. 23. THE DEPARTMENTAL REPRESENTATIVE MERELY RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE COULD NOT BRING ANY MATE RIAL ON RECORD TO SHOW THAT THE PAYMENTS WERE COVERED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. IN ABSENCE OF THE SAME, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFI RMED AND GROUND NO. 2 OF APPEAL OF THE REVENUE IS DISMISSED. 24. GROUND NO. 3 OF APPEAL OF THE REVENUE IS DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) D ELETING THE ADDITION OF RS 21,11,736/- MADE U/S. 40(A)(IA) OF THE ACT. 25. THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE CLAIMED DEDUCTION OF RS 1,15,41,396 AS OVERSEAS FREIGHT EXP ENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS ALSO MADE P AYMENT TO M/S. NYK LINE INDIA LIMITED OF RS 6622/-, M/S. NOBEL SHIPPING PRI VATE LIMITED OF RS 3,53,382/- TOTALING TO RS 3,60,004/- FOR HANDLING C HARGES. FURTHER, THE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 10 - ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PA ID ONLY RS 94,29,664/- TOWARDS OVERSEAS FREIGHT EXPENDITURE. HE ALSO OBSE RVED THAT THE ASSESSEE HAS PAID RS 21,11,736/- WHICH IS ABOUT 20% OF THE T OTAL OVERSEAS FREIGHT EXPENSES PAID TO RESIDENT INDIANS FOR RENDERING THE IR SERVICES ON WHICH THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON PAYMENT OF RS 21,11,736/- WHICH IS IN CONTRAVENTION OF THE PROVISION OF SECTION 40(A)(IA) OF THE ACT, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS 21,11,736/- AND ADD ED THE SAME TO THE INCOME OF THE ASSESSEE. 26. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 5.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT COMPANY AND THE REASONING OF THE ASSESSING OFFICER. THE DETAILS OF OVERSEAS FREIGHT EXPENSES WHICH ARE AS UNDER: (RS. IN LACS) (I) 55.60 C&F AGENCIES CHARGES (ON WHICH TDS IS DEDUCTED), (II) 3.64 PURCHASE OF PALLATES (NO TDS IS APPLI CABLE), (III) 8.23 PAYMENT TO JIGAR PALLTES ( NO TDS IS APPLICABLE), (IV) 116.30 PAYMENT TO FOREIGN SHIPPING LINER TOTAL 183.78 EXPORT EXPENSES. THE APPELLANT HAS DEDUCTED TAX ON C&F CHARGES - WHI CH THE ASSESSING OFFICER HAS NOT DISPUTED. SIMILARLY, FOR PURCHASE O F MATERIALS LIKE PALLET ETC NO TAX IS REQUIRED TO BE DEDUCTED. THE BALANCE PAYMENT IS MADE TO THE FOREIGN SHIP LINER COMPANY WHICH CONSISTS OF FR EIGHT, THC CHARGES ETC AS MENTIONED IN DETAIL IN THE CHART FURNISHED B Y THE APPELLANT COMPANY. IN VIEW OF THE SPECIFIC PROVISION CONTAINE D IN SECTION 172 OF THE IT ACT WHICH DEALS WITH TAXATION OF FOREIGN SHI PPING COMPANIES AS WELL AS DIRECT CIRCULAR NO.723 DATED 19.09.1995 ISS UED BY THE CENTRAL BOARD OF DIRECT TAXES WHICH HAS CLEARLY LAID DOWN T HE PAYMENT U/S 172 OF THE I T ACT TO NON RESIDENT SHIPPING COMPANY ARE NOT COVERED IN SECTION 194C OR 195 OF THE IT ACT. THE APPELLANT CO MPANY'S RELIANCE ON THE DIRECT JUDGEMENT OF DELHI ITAT IN 'FREIGHT SYST EM INDIA'S CASE SUPRA IS ALSO RELEVANT WHICH HAS CLEARLY HELD THAT NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENT OF FREIGHT, THC AND SIMILAR CHARGES TO NON RESIDENT SHIPPING COMPANY OR ITS AGENT. THUS, AD HO C DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 21,11,736/- @ 20% OF TOTAL OVERSEAS FREIGHT IS NOT AT ALL WARRANTED IN VIEW OF THE SPECIFIC CIRCULAR, FACTS OF THE APPELLANT COMPANY, JUDICIAL PRONOUNCEM ENT AND THE ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 11 - SECTION 172 OF THE IT ACT. IN VIEW OF THE ABOVE, TH E SAID DISALLOWANCE IS DELETED. 27. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTA TIVE RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER DISALLOWED RS 21,11,736/- PAID BY THE ASSESSEE TOWARDS HANDLING AND OTHER CHARGES AS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE SAME U/S. 194C OF THE ACT. ON APPEAL, THE C OMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE FOR THE REAS ONS THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. FREIGHT SYST EMS INDIA PRIVATE LTD. 103 TTJ 103 HELD THAT DEMURRAGE CHARGE OR HANDLING CHAR GE OR ANY OTHER AMOUNTS OF SIMILAR NATURE ARE TREATED AT PAR WITH C ARRIAGE FREIGHT PAYABLE TO THE SHIP OWNER OR CHARTER. THEREFORE, AMOUNTS IN T HE NATURE OF DEMURRAGE ETC. WHICH MAY NOT END UP BEING PAID TO NON-RESIDEN TS ARE TREATED AS AMOUNTS FALLING WITHIN SPECIAL PROVISIONS OF SECTIO N 172. THIS HAS BEEN CLARIFIED BY CBDT IN CIRCULAR NO. 723 OF 1995 WHERE SUCH AMOUNTS HAVE BEEN TAKEN OUTSIDE THE PURVIEW OF THE SECTION 192C. THE CIRCULAR FURTHER CLARIFIES THAT WHERE PAYMENTS ARE MADE TO SHIPPING AGENT OF NON-RESIDENT OWNER OR CHARTERSHIP AT A PORT IN INDIA, PROVISIONS OF SECTION 172 WILL BE APPLICABLE BECAUSE THE AGENT STEPS INTO THE SHOES O F THE OWNER. THESE CHARGES ARE NOT COVERED UNDER THE PROVISIONS OF LAW AND NO DEDUCTION OF TAX IS CALLED FOR U/S. 192C OF THE ACT. 29. THE DEPARTMENTAL REPRESENTATIVE MERELY RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THAT BEING SO, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS). THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NOS 611 & 781/AHD/2013 (A.Y. 2009-10 INDIA GELATINE & CHEMICALS LTD., AHMEDABAD. - 12 - 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 611/AHD/2013 IS PARTLY ALLOWED IN THE MANNER INDICA TED ABOVE WHEREAS THE APPEAL OF THE REVENUE IN ITA NO. 781/AHD/2013 IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 10 TH OF OCTOBER, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 10/10/2014 GHANSHYAM MAURYA TRUE COPY 0 * '#1 21/# 0 * '#1 21/# 0 * '#1 21/# 0 * '#1 21/#/ COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. # !3 / CONCERNED CIT 4. !3() / THE CIT(A)-III, AHMEDABAD 5. 1'6 '# , , / DR, ITAT, AHMEDABAD 6. 678 9) / GUARD FILE. 0! 0! 0! 0! / BY ORDER, : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD