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2015 (7) TMI 319 - AT - Income TaxDisallowance u/s 40(a)(ia) - Non deduction of TDS - In so far as air liting is concerned, the goods are transported through GBR Freight Forwarders Private Ltd and in so far as shipments are concerned, they are through Balaji Shipping Services - Held that - As far as GBR Freight Forwarders (P) Ltd is concerned, assessee has made a short deduction. Neverthless, the decision in the case of CIT vs. S.K. Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT) is applicable and hence no disallowance can be made invoking the provisions of section 40(a)(ia) of the I.T. Act. With respect to the payments made to Balaji Shipping Services, the amounts paid are only towards reimbursement of shipment charges and therefore, no tax was deducted at source. Assessee did not attract the provisions of section 40(a)(ia) of the Act as reimbursement of expenses do not consist the income of the recipient and the payments are not governed by the provisions of section 194C of the Act. We also rely on the decision of the Coordinate Bench in the case of Ushodaya Enterprises 2015 (1) TMI 510 - ITAT HYDERABAD Decided in favour of assessee.
Issues:
1. Tax deduction at source on payments made to shipping agents. 2. Disallowance under section 40(a)(ia) for non-deduction of tax. Issue 1: Tax deduction at source on payments made to shipping agents The appeal was filed by the assessee against the order of the CIT (A)-IV, Hyderabad, related to A.Y 2006-07. The assessee, a partnership firm engaged in the manufacture of formulations and trading in bulk drugs, supplied materials to foreign markets through GBR Freight Forwarders Private Ltd and Balaji Shipping Services. The Assessing Officer contended that tax should have been deducted on the gross amount paid to the shipping agents, citing sec.194C(1). The Assessing Officer emphasized that it was irrelevant whether the agents undertook the work themselves or through other means and that tax deduction should be on the entire payment. The Assessing Officer relied on the decision in Associated Cement Co.Ltd vs. CIT [1993] 201 ITR 441 (SC) to support this view. Issue 2: Disallowance under section 40(a)(ia) for non-deduction of tax The Assessing Officer disallowed a sum of &8377; 24,76,442 under section 40(a)(ia) for non-deduction of tax. The CIT (A) upheld this disallowance, stating that the appellant was obligated to deduct tax on the entire payment to the shipping agents based on sec.194C and CBDT Circular No.715. The CIT (A) referred to various decisions to support this conclusion. The CIT (A) found the appellant's claim of reimbursement of expenses by the agents improbable and upheld the disallowance. The appellant then appealed before the ITAT, reiterating arguments made before the CIT (A) and citing the decision in CIT vs. S.K. Tekriwal (361 ITR 432 (Cal.)) to support their case. The ITAT held that the appellant made a short deduction in the case of GBR Freight Forwarders (P) Ltd but invoked the decision in CIT vs. S.K. Tekriwal to rule out disallowance under section 40(a)(ia). Regarding payments to Balaji Shipping Services, the ITAT concluded that no tax deduction was required as the amounts paid were only towards reimbursement of shipment charges, not constituting income for the recipient. The ITAT relied on the decision of the Coordinate Bench in the case of Ushodaya Enterprises to allow the appeal of the assessee. The appeal was allowed, and the order was pronounced on 17th June 2015.
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