Triway Forwarders Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 786/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8737 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 22-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: U MOHAMED KHALILULLAH
• Keywords: Recovery proceedings; Non-deduction of tax
• Section: 14A; 37(1); 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C' BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 786/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S TRIWAY FORWARDERS PVT. LTD NO.14, JAFFER STREET, MANNADY CHENNAI 600 001 VS. THE ASSTT. COMMISS IONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI [PAN AAACT 2874 J] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI U.MOHAMED KHALILULLAH, CA /RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT / DATE OF HEARING : 22 - 0 6 - 2016 ! / DATE OF PRONOUNCEMENT : 22 - 0 7 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, CHEN NAI, DATED 31.10.2014 AND PERTAINS TO ASSESSMENT YEAR 2010-11 . 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISALLO WANCE OF PAYMENTS MADE TO STEAMER AGENTS FOR NON-DEDUCTION O F TAX. ITA NO. 786/15 :- 2 -: 3. SHRI U.MOHAMED KHALILULLAH, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-COMPANY IS ENG AGED IN THE BUSINESS OF CLEARING AND FORWARDING. DURING THE CO URSE OF ITS BUSINESS ACTIVITY, THE ASSESSEE-COMPANY PAID STEAMER CHARGES TO THE STEAMER AGENTS WHICH WERE REIMBURSED BY THE PRINCIPALS. AD MITTEDLY, THE ASSESSEE HAS NOT DEDUCTED TAX WHILE MAKING THE PAYM ENTS. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSE SSEE U/S 40(A)(IA) OF THE ACT. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT SEC. 40(A)(IA) OF THE ACT WOULD COME INTO OPERATION WHEREVER THE PROV ISIONS OF SEC. 195 AND 194C ARE APPLICABLE. IN THE CASE OF PAYMENT OF STEAMER CHARGES, THE PROVISIONS OF SECTIONS 194C AND 195 ARE NOT APP LICABLE AT ALL. ACCORDING TO THE LD. REPRESENTATIVE, IT IS NOT IN D ISPUTE THAT THE SHIP BELONGS TO A NON-RESIDENT, THEREFORE, SEC. 172 OF T HE ACT IS SQUARELY APPLICABLE. SEC. 172 OF THE ACT DOES NOT REQUIRE T HE ASSESSEE TO DEDUCT TAX WHILE MAKING THE PAYMENT. PLACING RELIA NCE ON THE CIRCULAR ISSUED BY THE CBDT NO.723 DATED 19.9.1995, THE LD. REPRESENTATIVE SUBMITTED THAT SEC. 172 OF THE ACT DEALS WITH SHIPP ING BUSINESS OF NON- RESIDENT WHEREAS SEC. 172(1) OF THE ACT PROVIDES TH E MODES OF METHOD AND RECOVERY OF TAX IN CASE OF SHIPS BELONG TO OR C HARTERED BY A NON- RESIDENT. THE CBDT CLARIFIED THAT WHEREVER SEC. 17 2 IS APPLICABLE, SEC. 194C AND 195 RELATING TO DEDUCTION OF TAX AT SOURCE ARE NOT APPLICABLE AT ALL. IN VIEW OF THIS CLARIFICATION ISSUED BY TH E CBDT, ACCORDING TO THE ITA NO. 786/15 :- 3 -: LD. REPRESENTATIVE, THE ASSESSEE NEED NOT TO DEDUC T TAX. THIS CIRCULAR ISSUED BY THE CBDT IS BINDING ON THE ASSESSING OFFI CER AS WELL AS THE CIT(A). THEREFORE, THE ASSESSING OFFICER IS NOT JU STIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI A.V SREEKANTH, LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PAID STEAMER CHARGES TO THE AGENTS OF THE FOREIGN SHIPPING COMPANIES. HOWEVER, NO TAX WAS DEDUCTED. THE ASS ESSEE, PLACING RELIANCE ON THE CIRCULAR NO.723 DATED 19.9.1995 ISS UED BY THE CBDT, CLAIMED THAT THE ASSESSEE NEED NOT TO DEDUCT TAX W HILE MAKING THE PAYMENTS TO AGENTS OF THE FOREIGN SHIPPING COMPANIE S. ACCORDING TO THE LD. DR, THE ASSESSEE HAS NOT FILED ANY MATERIA L TO SHOW THAT THE CONDITION LAID DOWN IN CIRCULAR NO.723 WAS COMPLI ED WITH. THE LD. DR FURTHER SUBMITTED THAT SOME OF THE STEAMER AGENTS F ILED APPLICATION BEFORE THE ASSESSING OFFICER U/S 195 OF THE ACT FO R NON-DEDUCTION OF TAX. THE REMAINING STEAMER AGENTS HAVE NOT FILED S UCH APPLICATION. IF THE CIRCULAR IS APPLICABLE AS CONTENDED BY THE ASS ESSEE, THEN WHY SOME OF THE AGENTS HAVE APPLIED FOR CERTIFICATE F OR NON-DEDUCTION OF TAX U/S 195 OF THE ACT. ON A QUERY FROM THE BE NCH WHAT ARE THE CONDITIONS TO BE COMPLIED WITH IN THE LIGHT OF THE CIRCULAR NO.723 ISSUED BY THE CBDT, THE LD. DR SUBMITTED THAT MASTER OF TH E SHIP BEFORE ITA NO. 786/15 :- 4 -: DEPARTURE FROM ANY PORT IN INDIA HAS TO FILE A RETU RN IN RESPECT OF THE AMOUNT RECEIVED AS STEAMER CHARGERS. IT IS NOT KNO WN WHETHER SUCH RETURN WAS FILED BY THE MASTER OF THE SHIP OR NOT. ON A FURTHER QUERY HOW THE ASSESSEE COULD BE MADE LIABLE IF THE MASTE R OF THE SHIP FAILED TO FURNISH THE RETURN, THE LD. DR CLARIFIED THAT IT IS ONE OF THE CONDITIONS PROVIDED U/S 172 OF THE ACT , THEREFORE, IT NEEDS TO BE VERIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE PAYMENTS WERE MADE TO AGENTS/REPRESENTATIVES OF THE FOREIGN SHIPPING COMPANIES TOWARDS STEAMER CHARGES. AS RIGHTLY SUBM ITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, SEC. 40(A)(IA) OF THE ACT IS APPLICABLE IN CASE THE ASSESSEE FAILED TO DEDUCT TAX AS PROVI DED US 194C/195 OF THE ACT. IN THE CASE OF PAYMENT MADE TO FOREIGN SH IPPING COMPANIES, THE LEGISLATURE ENACTED A SPECIAL PROVISION U/S 1 72 OF THE ACT, THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT SEC. 172 OF THE ACT BEING A SPECIAL PROVISION FOR PAYMENT MADE TO SHIPPING COMPANIES WOULD OVERRIDE THE PROVISIONS OF SEC. 194 C/195 OF THE ACT. THE CBDT HAS CONSIDERED THIS ISSUE IN CIRCULAR NO.7 23 DT5 19.9.1995 AND CLARIFIED THAT WHEREVER THE PROVISIONS OF SEC. 172 ARE APPLICABLE, THE PROVISIONS OF SECTIONS 194C/195 RELATING TO DED UCTION OF TAX AT SOURCE ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULATED, FOR A ITA NO. 786/15 :- 5 -: VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP, UNDER THE PROVISIONS OF SEC. 172 OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX WHILE MAKING THE PAYMENT TO AGENT/REPRESENTATIV E OF THE FOREIGN SHIPPING COMPANIES. SEC. 172 OF THE ACT DOES NOT R EQUIRE THE ASSESSEE TO DEDUCT TAX, HOWEVER, SUB-CLAUSE (3) OF SEC. 172 MAKES IT OBLIGATORY ON THE PART OF THE MASTER OF THE SHIP TO PREPARE AND FURNISH TO THE ASSESSING OFFICER A RETURN OF THE FULL AMOU NT PAID OR PAYABLE TO THE OWNER OR CHARTER OR ANY PERSON ON HIS BEHALF. SEC. 172 OF THE ACT DOES NOT REQUIRE THE ASSESSEE TO DEDUCT TAX IN CAS E THE MASTER OF THE SHIP FAILED TO FILE THE RETURN AS REQUIRED UNDER SU B-SEC. (3) OF SEC. 172 OF THE ACT. THE ASSESSEE CANNOT DICTATE THE TERMS TO THE MASTER OF THE SHIP TO PREPARE AND FURNISH THE RETURN AS REQUI RED UNDER SUB-SEC. (3) OF SEC. 172 OF THE ACT. IT IS FOR THE ASSESSIN G OFFICER TO ENFORCE THE PROVISIONS OF LAW AGAINST THE MASTER OF THE SHIP IN CASE THERE WAS ANY FAILURE. IN THE CASE BEFORE US, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE FAILED TO FILE THE RETURN AND PAID TH E TAXES. IN THOSE CIRCUMSTANCES, THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER CANNOT BE SUSTAINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IS DELETED. ITA NO. 786/15 :- 6 -: 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE OF EXPENDITURE. 7. SHRI U.MOHAMED KHALILULLAH, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSI DERATION THE ASSESSEE INCURRED CARGO HANDLING EXPENSES TO THE EX TENT OF ` 2,95,22,899/-. THE ENTIRE PAYMENT WAS SUPPORTED BY SELF-MADE VOUCHERS, THEREFORE, THE ASSESSING OFFICER DISALLOW ED 20% OF THE TOTAL EXPENDITURE. ACCORDING TO THE LD. REPRESENTATIVE, THE ABOVE EXPENDITURE WAS INCURRED AT VARIOUS STAGES OF MOVIN G THE CARGO FROM ONE PLACE TO ANOTHER. THEREFORE, PROCURING PROPER VOUCHERS IS NOT POSSIBLE HENCE, THE SELF-MADE VOUCHERS WERE MADE. ACCORDING TO THE LD. REPRESENTATIVE, SINCE THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT DOUBTED, THE SAME HAS TO BE ALLOWED. 8. ON THE CONTRARY, SHRI A.V. SREEKANTH, LD. DR SUBMIT TED THAT THE ASSESSING OFFICER DISALLOWED 20% OF THE TOTAL E XPENDITURE U/S 37(1) OF THE ACT. THE ASSESSEE ADMITTED BEFORE THE ASSESSING OFFICER IN THE WRITTEN SUBMISSION THAT THE CHARGES WERE PAID FOR OPENING AND ASSESSING THE VALUE OF CARGOES, CHARGES FOR AMENDING ERRORS IN DOCUMENTS, CHARGES FOR PLACING GOODS IN B ONDED WAREHOUSE, CHARGES FOR DRAWBACK APPLICATION PROCESSING ETC. THESE CHARGES WERE PAID TO THE PUBLIC SERVANTS WHICH IS AGAINST THE PU BLIC POLICY AND ITA NO. 786/15 :- 7 -: PROHIBITED BY LAW, THEREFORE, THE SAME CANNOT BE AL LOWED U/S 37(1) OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF ` 2,95,22,899/-. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF 20% ON THE GROUND THAT THE ASSESSEE HAS PRODUCED ONLY SELF-MA DE VOUCHERS. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND THAT THE PAYMENTS MADE BY THE ASSESSEE ARE HIT BY THE PROVISIONS OF SEC. 37( 1) OF THE ACT. THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE EXPENDITURE WAS FOR MOVING THE CARGO FROM ONE PLACE TO ANOTHER, THEREFORE, OBTAINING PROPER VOUCHER IS NOT POSSIBLE . THE CIT(A) EXAMINED THE NATURE OF THE PAYMENT WHICH SHOW THAT THE ASSESSEE MADE PAYMENTS TOWARDS CHARGES PAID FOR OPENING AND ASSESSING THE VALUE OF CARGOES, CHARGES FOR AMENDING ERRORS IN DO CUMENTS, CHARGES FOR PLACING GOODS IN BONDED WAREHOUSE, CHARGES FOR DRAWBACK APPLICATION PROCESSING ETC. IT IS NOT CLEAR FROM THE MATERIAL ON RECORD WHETHER THE EXPENDITURE WAS INCURRED TOWARDS PAYMEN TS TO PUBLIC SERVANTS OR TO THE EMPLOYEES OF THE ASSESSEE. IF THE PAYMENTS WERE MADE TO PUBLIC SERVANTS, CERTAINLY IT IS PROHIBITED AND PUNISHABLE UNDER THE LAW. MOREOVER, IT IS AGAINST THE PUBLIC POLICY , HENCE, IT CANNOT BE ITA NO. 786/15 :- 8 -: ALLOWED U/S 37(1) OF THE ACT. IF THE PAYMENTS WER E MADE TO THE EMPLOYEES OF THE ASSESSEE THEN THERE IS NO QUESTIO N OF DISALLOWING THE SAME. AS RIGHTLY SUBMITTED BY THE LD. REPRESEN TATIVE FOR THE ASSESSEE, FOR MOVING THE CARGO FROM ONE PLACE TO AN OTHER, THE ASSESSEE NEEDS TO MAKE PAYMENTS TO THE LABOURERS. OBTAINING VOUCHER FROM THE LABOURERS IS VERY DIFFICULT, THERE FORE, WHAT IS TO BE EXAMINED IS WHETHER ACTUALLY THE ASSESSEE MADE THE PAYMENTS TO THE LABOURERS AS CLAIMED. IF THE ASSESSEE ACTUALLY PA ID THE WAGES TO THE LABOURERS FOR MOVING THE CARGO FROM ONE PLACE TO AN OTHER WHICH WAS SUPPORTED BY SELF-MADE VOUCHERS, THE SAME CANNOT BE DISALLOWED AT ALL. SINCE THE NATURE OF THE PAYMENT AND THE PERS ONS TO WHOM THE PAYMENTS WERE MADE ARE NOT AVAILABLE ON RECORD, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE REEXAMINED BY THE ASSESSING OFFICER. THEREFORE, THE ORDERS OF THE LO WER AUTHORITIES ARE SET ASIDE AND THE DISALLOWANCE OF CARGO HANDLING EX PENSES IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL REEXAMINE THE ISSUE AFRESH AND BRING ON RECORD THE NATURE OF PAYMENT AND THE PERSONS TO WHOM THE PAYMENTS WERE MADE AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. ITA NO. 786/15 :- 9 -: 10. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. 11. SHRI U.MOHAMED KHALILULLAH, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DISAL LOWED A SUM OF ` 8,55,020/- U/S 14A OF THE ACT. ACCORDING TO THE L D. REPRESENTATIVE, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPTED INCOME. ACCORDING TO THE LD. REPRESENTATI VE, THE PAID UP SHARE CAPITAL AND FREE RESERVES HAD BEEN USED FOR I NVESTMENT IN THE SISTER CONCERN. REFERRING TO THE BALANCE SHEET AS ON 31.3.2010, THE LD. REPRESENTATIVE SUBMITTED THAT THE SHARE CAPITAL WAS ` 57 LAKHS AS ON 31.3.2010, RESERVES AND SURPLUS WAS TO THE EXTENT O F ` 6,18,79,128/-, THEREFORE, INVESTMENT WAS MADE FROM AND OUT OF THE OWN FUNDS. HENCE, THERE CANNOT BE ANY DISALLOWANCE. 12. ON THE CONTRARY, SHRI A.V. SREEKANTH, LD. DR SUBMIT TED THAT EVEN THOUGH THE SHARE CAPITAL WAS ` 57 LAKHS AND THE RESERVES AND SURPLUS WAS ` 6,18,79,128/- AS ON 31.3.2010, THE ASSESSEE HAS N O LIQUID CASH IN HAND FOR MAKING INVESTMENT. REFERRI NG TO THE BALANCE SHEET AS ON 31.3.2010, THE LD. DR SUBMITTED THAT TH E FUNDS AVAILABLE AS ON 31.3.2010 WAS ABOUT ` 11,31,80,216/-. THE ENTIRE AMOUNT WAS APPLIED IN THE FIXED ASSETS, INVESTMENT, CURRENT AS SETS, LOANS AND ADVANCES, DEPOSITS WHICH IS EVIDENT FROM THE BALANC E SHEET ITSELF. NO ITA NO. 786/15 :- 10 -: SURPLUS FUNDS WERE AVAILABLE WITH THE ASSESSEE. T HE INVESTMENT WAS MADE TO THE EXTENT OF ` 373 LAKHS. THE CURRENT ASSET AND FIXED ASSET WAS MORE THAN ` 5 CRORES, THEREFORE, IT IS OBVIOUS THAT THE INVEST MENT WAS MADE FROM THE BORROWED FUNDS HENCE, THE DISALLO WANCE HAS TO BE COMPUTED BY APPLYING RULE 8D. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED AND NO BORROWED FU NDS WERE USED FOR MAKING INVESTMENT. THOUGH THE ASSESSEE CLAIMS THAT SHARE CAPITAL AND RESERVES AND SURPLUS ARE AVAILABLE, THE INVESTM ENT MADE IN FIXED ASSETS AND CURRENT ASSETS INCLUDING THE LOAN AND AD VANCES ARE TAKEN INTO CONSIDERATION, THE ASSESSEE MAY NOT HAVE AN Y LIQUID CASH OF ITS OWN FOR MAKING INVESTMENT WHICH RESULTED IN EXE MPTED INCOME. THEREFORE, THE ASSESSEE HAS TO NECESSARILY DIVERT THE BORROWED FUNDS. HENCE, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE. THEREFORE, THE DISALLOWANCE HAS TO BE WORKED OUT UNDER RULE 8D. IT IS NOT IN DISPUTE THAT THE ASSESSING O FFICER HAS ESTIMATED THE DISALLOWANCE BY APPLYING RULE 8D. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. ITA NO. 786/15 :- 11 -: 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 22 ND JULY, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF