2014 (1) TMI 1074 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Held that - Following ACIT circle-1, Udaipur Vs. M/s Minpro Industries 2012 (5) TMI 232 - ITAT, Jodhpur - payments made to C&F agents were reimbursement of expenses incurred by the C&F agents on behalf of the appellant - The C&F Agents have raised separate debit note for reimbursement of expenses incurred by them on behalf of the appellant and separate invoice for the agency charges - Most of the payments to C & F Agents are by way of reimbursement of expenses which were incurred by C& F agents on behalf of the assessee and they did not represent payments for carrying out any work by the agent - Following ACIT Vs. Grandprix Fab (P)Ltd 2009 (10) TMI 659 - ITAT DELHI - No element of income is embedded in such payment - The appellant has also submitted separate bills for agency commission paid to the C & F Agents and debit note regarding the reimbursement of expenses incurred by the C& F Agents on behalf of the assessee for export of goods which shows that the amount represent reimbursement of expenses to C & F agents and these expenses were incurred for shipping line, concor charges, examination charges, custom sealing charges, unloading, chocking, shifting, labour charges etc. As per Board circular No.723 dated 19.09.1995 - In case of any ship belonging to or chartered by a non resident which carries passenger, livestock, material or goods shipped at a port in India, the provisions of section 172 of the IT Act would apply and no deduction of tax is required as per section 194C of the IT Act. It is also clarified that since the agent acts on behalf of the non- resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C of the IT Act would not apply in the case of the assessee - Decided against Revenue.

Issues Involved:
1. Reduction of disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Applicability of Section 194C for tax deduction at source on payments made to clearing and forwarding agents.
3. Admissibility of additional evidence at the appellate stage.
4. Classification of payments as reimbursement of expenses versus payments for services rendered.
5. Applicability of Section 172 and Circular No. 723 for payments made to non-resident shipping companies.

Detailed Analysis:

1. Reduction of Disallowance under Section 40(a)(ia):
The primary issue was whether the CIT(A) erred in reducing the disallowance from Rs. 41,01,878 to Rs. 1,52,945 made under Section 40(a)(ia) of the Income Tax Act. The assessee had claimed expenses under the head clearing and forwarding for the export of marble blocks and slabs but failed to deduct tax at source as required under Section 194C. The Assessing Officer disallowed the entire amount, but the CIT(A) reduced the disallowance after examining the bifurcation of expenses and concluding that most payments were reimbursements, not subject to TDS.

2. Applicability of Section 194C:
The CIT(A) examined whether the payments made to clearing and forwarding agents were liable for TDS under Section 194C. The assessee argued that the payments were reimbursements of expenses incurred by the agents on behalf of the assessee, which did not attract TDS. The CIT(A) found that separate bills were raised for agency charges and reimbursement of expenses, and thus, Section 194C was not applicable for the reimbursement portion.

3. Admissibility of Additional Evidence:
The Assessing Officer objected to the additional evidence submitted by the assessee at the appellate stage, arguing that sufficient opportunity had been given during the assessment proceedings. However, the CIT(A) admitted the evidence under Rule 46A(3) and Rule 46A(4), noting that the books of account and vouchers had been produced during the assessment, and the additional evidence was merely for re-verification.

4. Classification of Payments:
The CIT(A) detailed the nature of payments, distinguishing between agency charges and reimbursements. The CIT(A) concluded that the reimbursement of expenses did not represent payments for carrying out any work and therefore did not attract TDS under Section 194C. The CIT(A) relied on various judicial precedents to support this view, including the jurisdictional Tribunal's decision in ACIT vs. Pyrotech Electronics Pvt. Ltd.

5. Applicability of Section 172 and Circular No. 723:
For payments made to non-resident shipping companies, the CIT(A) referred to Section 172 and Circular No. 723, which state that provisions of Sections 194C and 195 are not applicable to such payments. The CIT(A) noted that the payments were for ocean freight and other charges related to shipping, which fall under Section 172(8). The CIT(A) also relied on the jurisdictional Tribunal's decision in ACIT vs. Minpro Industries, which held that such payments are not subject to TDS under Section 194C.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, finding no merit in the department's appeal. The Tribunal agreed with the CIT(A) that the payments were primarily reimbursements and not subject to TDS under Section 194C. The Tribunal also confirmed the applicability of Section 172 and Circular No. 723 for payments to non-resident shipping companies. Consequently, both appeals by the department were dismissed.

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