2013 (3) TMI 716 - AT - Income Tax

Summary

Issues involved: Disallowance under Section 40(a)(ia) for non-deduction of TDS on transportation charges paid on behalf of clients.

Summary:

Issue 1: Disallowance under Section 40(a)(ia)
The appeal was filed by the assessee against the order passed by the CIT (Appeals) for the quantum of assessment under Section 143(3) for the Assessment Year 2007-08. The disallowance of `7,34,393/- was made under Section 40(a)(ia) for non-deduction of TDS on transportation charges. The Assessing Officer noted that the assessee, a Private Limited Company engaged in Custom House clearing, forwarding, and Shipping Agents business, did not deduct TDS on shipping charges paid on behalf of clients. The assessee argued that as an intermediary, the payments made on behalf of clients were not debited as expenses in the profit and loss account, hence not responsible for TDS deduction. However, both the Assessing Officer and the CIT(A) upheld the disallowance citing legal provisions and Circular No. 715 dated 08.08.1995. The CIT(A) emphasized that non-routing of expenses through the profit and loss account does not absolve the appellant from TDS implications under Section 40(a)(ia).

Issue 2: Arguments and Decision
The assessee contended that it acted as an intermediary on behalf of clients, with payments not reflected as expenses in the profit and loss account. The bills were raised in the name of clients, and TDS deduction under Section 194C was not applicable. The ITAT Mumbai, after considering the contentions and relevant findings, ruled in favor of the assessee. It was established that the assessee acted as a conduit or intermediary, with expenses being reimbursed by clients and not claimed as deductions. As there was no privity of contract between the assessee and clients, and expenses were not claimed in the profit and loss account, Section 40(a)(ia) disallowance was deemed inapplicable. The decision of the Delhi High Court in the case of CIT v/s Cargo Linkers and other precedents supported this position. Consequently, the grounds raised by the assessee were allowed, and the appeal was treated as allowed.

Conclusion:
The ITAT Mumbai allowed the assessee's appeal, overturning the disallowance under Section 40(a)(ia) for non-deduction of TDS on transportation charges paid on behalf of clients.