2011 (5) TMI 300 - AT - Income Tax

Disallowance - Deduction of tax at source - Clearing and forwarding charges - The disallowance of 8, 84, 881/- Ld. Commissioner of Income Tax (Appeals) has given a finding that no payments had been made to any party/agent in excess of Rs. 50, 000/- Hence the said payments are not subject to TDS as per the provisions of section 194C - Thus addition of Rs. 8, 84, 881/- cannot be sustained. Payments of freight and cartage outward - CBDT circular no. 71 dated 8.8.1995 had provided that TDS is required to be made only in the cases where bills are raised for gross amount inclusive of professional fees as well as reimbursement of actual expenses and accordingly no TDS is required to be made when bills are raised separately by the agent only for reimbursement of actual expenses incurred by it - Accordingly no TDS is required to be raised - Thus addition of Rs. 30, 66, 703/- cannot be sustained.

Summary

Issues:
Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on clearing and forwarding charges and freight cartage outward.

Analysis:
1. The Revenue appealed against the Ld. Commissioner of Income Tax (Appeals) order regarding the disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on clearing and forwarding charges and freight cartage outward for the assessment year 2006-07.

2. The assessee, a private limited company engaged in garment manufacturing and exports, claimed expenses of Rs. 8,84,881 for clearing and forwarding charges and Rs. 30,66,703 for freight cartage outward. The Assessing Officer disallowed these expenses under section 40(a)(ia) for non-deduction of TDS as required by section 194C of the Income Tax Act, 1961.

3. The Ld. Commissioner of Income Tax (Appeals) considered the arguments presented by the assessee. It was contended that TDS was not required on payments made for reimbursement of actual freight charges to airlines and that no single payment exceeded Rs. 50,000, thus not subject to TDS as per section 194C(5). The Ld. Commissioner relied on judicial precedents and CBDT Circular No. 715 dated 08.08.1995 to support the assessee's position.

4. The Appellate Tribunal upheld the Ld. Commissioner's decision, emphasizing that section 40(a)(ia) did not apply to reimbursements of actual expenses to airlines and that no TDS was required on such payments. The Tribunal also agreed that since no single payment exceeded Rs. 50,000, TDS was not applicable as per the express provisions of section 194C(5).

5. The Tribunal dismissed the Revenue's appeal, confirming the deletion of the disallowed expenses totaling Rs. 39,51,584. The decision was based on the correct interpretation of the law and relevant judicial precedents. The Tribunal upheld the Ld. Commissioner's order, concluding that there was no infirmity in the decision to delete the disallowed expenses.

This comprehensive analysis of the legal judgment highlights the issues involved, the arguments presented by both parties, the interpretation of relevant legal provisions, and the final decision rendered by the Appellate Tribunal.