2015 (10) TMI 1443 - AT - Income Tax

Disallowance paid to C&F Agent on account of Lorry Freight - disallowance u/s 40(a)(ia) - non deduction of tds - Held that - No disallowance can be made u/s.40(a)(ia) on account of reimbursement of expenses incurred by the agent on behalf of the assessee for transportation and other charges, when the obligation to deduct tax at source was complied with by the agent, who had made payment on its behalf See Gujarat Narmada Valley Fertilizers Co. Ltd. case 2014 (4) TMI 235 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues involved:
Disallowance of payment to C&F Agent under section 40(a)(ia) of the Income tax Act, 1961.

Analysis:
The appeal was filed against the order of Ld CIT(A) for the assessment year 2006-07, where the assessee challenged the disallowance of payment made to C&F Agent on account of Lorry Freight under section 40(a)(ia) of the Income tax Act, 1961. The Assessing Officer added back the expenditure of Rs. 26,72,955 claimed under "Freight & Cartage" as disallowance under section 40(a)(ia), stating that no tax was deducted at source for the payment made to the C&F Agent. However, the assessee contended that the C&F Agent had deducted TDS and deposited it to the Central Government account, complying with the provisions of section 40(a)(ia). The Ld CIT(A) upheld the AO's order, leading to the appeal before the Tribunal.

During the proceedings, the assessee's counsels argued that the entire payment under "Freight & Cartage" was subjected to TDS by the C&F Agent, who also filed quarterly TDS returns on time. The assessee provided confirmatory certificates and TDS return acknowledgments. It was emphasized that the reimbursement to the C&F Agent was done without any profit element, preventing double deduction of TDS on the same payment. The relationship between the assessee and the agent was deemed that of principal and agent, with the agent fulfilling the TDS obligations. Reference was made to a relevant case where the High Court held that no disallowance should be made under section 40(a)(ia) when TDS obligations were met by the agent.

The Tribunal noted that the Special Leave Petition by the Revenue in a similar case was dismissed by the Supreme Court, emphasizing that no disallowance can be made under section 40(a)(ia) for reimbursement of expenses when the agent complies with TDS obligations. Consequently, the Tribunal allowed the appeal, ruling that the addition made under section 40(a)(ia) was not justified.

Therefore, the Tribunal allowed the appeal of the assessee, holding that the disallowance of Rs. 26,72,955 under section 40(a)(ia) of the Income-tax Act, 1961 was not proper and justified.