2015 (9) TMI 1670 - AT - Income Tax

Disallowance of provision for leave encashment u/s. 43B(f) - HELD THAT - We do not see any reason to interfere with the order of the Ld. CIT(A). Even though it is a fact that Hon ble Calcutta High Court in the case of Exide Industries Ltd. Vs. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT has struck down provisions of Section 43B(f) the Hon ble Supreme Court stayed that order. Consequently the provisions of Section 43B(f) are applicable CIT(A) s order is in accordance with the principles on the subject. We however direct the Assessing Officer (AO) to give relief to assessee in case Hon ble Supreme Court also concurs with the opinion expressed by the Hon ble Calcutta High Court. The ground for the time being is considered allowed for statistical purposes. Disallowance of payment of ocean freight - disallowance u/s 40(a)(ia) - Admission of additional evidence - HELD THAT - Since the additional evidence is required to be examined as both AO and CIT(A) gave contradictory findings in the interest of justice we admit the additional evidence and remit the issue to the file of AO to examine the said payments and if the payments are to the agents of foreign shipping liners we make it clear that amounts cannot be disallowed U/s. 40(a)(ia) as there is no need to make TDS on such payments. This issue was already crystalised in favour of assessee - in case the payments are made to local shipping agents of non-resident ship liners then AO is directed to exclude the amount as provisions of Section 40(a)(ia) does not apply to the payments. With these directions ground is considered allowed for statistical purposes. Disallowance of payment made towards transport charges - disallowance u/s. 40(a)(ia) - whether amounts are covered by the provisions of TDS or not? - HELD THAT - AO has to establish that the payments made are covered by the provisions of TDS. It was submitted that these are Hamali charges/local auto charges and these payments were below 20, 000/-. In case assessee reimburses said amounts there is no need for deduction of TDS. Just because single debit entry was made it cannot be automatically considered that amount is covered by provisions of Section 40(a)(ia). AO is bound to examine the payments made and whether each amount is liable for deduction of tax or not therefore even in the above three cases AO has to establish that the amounts paid are required to be covered under the provisions of TDS. Therefore we restore the examination of the amounts to the file of AO to examine whether the said reimbursement made by the assessee are covered by the provisions of TDS so as to attract disallowance u/s. 40(a)(ia). Appeal allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of provision for leave encashment under Section 43B(f) of the Income Tax Act.
2. Disallowance of payment of ocean freight.
3. Disallowance of payment made towards transport charges.

Analysis:

Issue 1: Disallowance of provision for leave encashment under Section 43B(f) of the Income Tax Act:
- The assessee appealed against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of provision for leave encashment under Section 43B(f).
- The CIT(A) upheld the disallowance citing a decision of the Calcutta High Court which was stayed by the Supreme Court, indicating that the provisions of Section 43B(f) were applicable.
- The ITAT found no reason to interfere with the CIT(A)'s order as the provisions of Section 43B(f) were deemed applicable until the Supreme Court's final decision. The AO was directed to provide relief to the assessee if the Supreme Court concurred with the Calcutta High Court's opinion.
- The ground was considered allowed for statistical purposes pending the Supreme Court's decision.

Issue 2: Disallowance of payment of ocean freight:
- The AO disallowed the payment of ocean freight due to non-deduction of TDS by the assessee.
- The ITAT admitted additional evidence to examine the nature of payments made to agents of non-resident shipping liners. It was clarified that payments to such agents did not require TDS deduction as per Board Circular No. 723.
- Relying on various case laws, the ITAT directed the AO to exclude the amount from disallowance under Section 40(a)(ia) if payments were made to local shipping agents of non-resident ship liners.
- The ground was considered allowed for statistical purposes with specific directions to the AO.

Issue 3: Disallowance of payment made towards transport charges:
- The AO disallowed certain payments towards transport charges under Section 40(a)(ia) for non-deduction of TDS.
- The CIT(A) accepted the assessee's contentions for various payments but upheld the disallowance for specific parties regarding reimbursement of local auto/Hamali charges.
- The ITAT directed the AO to verify the correctness of the disallowed amounts and examine whether TDS provisions were applicable to the payments in question.
- The issue was restored to the AO for further examination, with directions to restrict disallowance to the correct amounts and establish the applicability of TDS provisions.
- The grounds were considered allowed for statistical purposes pending verification by the AO.

In conclusion, the ITAT partially allowed the appeal for statistical purposes, providing detailed analysis and specific directions for each issue raised by the assessee. The judgment emphasized adherence to legal provisions and the need for proper verification and examination of payments to determine the applicability of TDS provisions.