2016 (10) TMI 995 - AT - Income Tax

Disallowance of loss made on account of fire claim & loss of cylinders - Held that - There is no dispute about the genuineness of the claim of the assessee about loss due to fire and insurance claim. Ld. Assessing Officer on presumption has held that the assessee has recouped loss without giving any cogent findings. Ld. CIT(A) has elaborately discussed the facts and circumstances; and based thereon has held that there is no evidence to substantiate the findings of the ld. AO. In view thereof, I see no infirmity in the order of the ld. CIT(A) on this issue which is upheld. Disallowance u/s.40(a)(ia) - reimbursement of export clearing & forwarding charges without TDS which had been clubbed in same bill raised for contractual payments liable to TDS - Held that - From the record it clearly emerges that the impugned amount paid by the assessee is in the nature of reimbursement of expenses for which there is no liability of TDS u/s 194H. The ld. AO has grassed over the pertinent facts which have been rightly streamlined by the ld. CIT(A). No infirmity in the order of the ld. CIT(A) on this issue, which is upheld. Disallowance on account of Commission Expenses - Held that - From the record it clearly emerges that the assessee has submitted full address and PAN of the commission agents. It is also observed that the amount has been paid through cheque by deducting TDS which clearly indicates that the services have been rendered by these commission agents for the appellant s business. Therefore, find no infirmity in the order of the ld. CIT(A) on this issue, which is upheld. Disallowance of interest u/s 40A(2)(b)- Held that - CIT(A) has duly considered the factual aspect and demonstrated that the Barclays Bank loan in effective terms cost 18.31% to the assessee as against assessee has charged 18% from the related parties. Section 40A(2)(b) is not applicable to assessee s case. Thus, the order of the ld. CIT(A) is upheld on this issue and this ground of the Revenue is dismissed.

Issues Involved:
1. Deletion of disallowance of loss due to fire claim and loss of cylinders.
2. Deletion of disallowance under Section 40(a)(ia) of the Income Tax Act for reimbursement of export clearing and forwarding charges without TDS.
3. Deletion of disallowance of commission expenses.
4. Deletion of disallowance under Section 40A(2)(b) for interest paid to related parties.
5. Addition on account of late payment of employees' contribution to PF/ESI.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of loss due to fire claim and loss of cylinders:
The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted the disallowance of ?58,64,440/- made by the Assessing Officer (AO) on account of fire claim and loss of cylinders. The CIT(A) observed that the assessee had provided substantial evidence from the excise, insurance, and police departments, and newspapers confirming the fire incident. The AO had disallowed the loss as it was not reimbursed by the insurance company. The CIT(A) noted that the loss of stock and cylinders was genuine and supported by third-party evidence and audited books of accounts. The insurance company’s lower valuation and partial reimbursement did not negate the actual loss incurred by the assessee. Therefore, the CIT(A) allowed the loss of ?18,90,239/- for stock and ?39,74,201/- for cylinders, concluding that the AO’s disallowance was based on presumption without cogent findings.

2. Deletion of disallowance under Section 40(a)(ia) of the Income Tax Act for reimbursement of export clearing and forwarding charges without TDS:
The CIT(A) deleted the disallowance of ?25,18,121/- under Section 40(a)(ia) for non-deduction of TDS on reimbursement of export clearing and forwarding charges. The CIT(A) noted that the payments were made in two parts: contract payment with TDS deducted and reimbursement of expenses without TDS. The CIT(A) referred to various judicial precedents, including CIT vs. Information Architects and ACIT vs. Minpro Industries, which held that reimbursement of expenses is not subject to TDS. The CIT(A) concluded that the reimbursement of expenses did not constitute income and was beyond the ambit of the charging section of the Income Tax Act, thus directing the deletion of the disallowance.

3. Deletion of disallowance of commission expenses:
The CIT(A) deleted the disallowance of ?8,31,013/- out of the total disallowance of ?8,59,388/- made on account of commission expenses. The CIT(A) observed that the assessee provided detailed evidence, including names, addresses, PAN, and payment details of the commission agents. The CIT(A) relied on judicial precedents and concluded that the assessee had discharged its onus of proving the genuineness of the commission expenses. The AO’s disallowance was based on presumptions without positive evidence. The CIT(A) allowed the commission expenses of ?8,31,013/- while confirming the disallowance of ?28,375/- for which TDS was not deducted.

4. Deletion of disallowance under Section 40A(2)(b) for interest paid to related parties:
The CIT(A) deleted the disallowance of ?71,631/- under Section 40A(2)(b) for interest paid to related parties at a higher rate. The CIT(A) noted that the assessee paid interest at 18% to related parties, which was reasonable compared to the effective interest rate of 18.31% paid to Barclays Bank. The CIT(A) referred to judicial precedents, including CIT vs. Indo Saudi Services (Travel) (P) Ltd., and concluded that the interest paid was not excessive or unreasonable. The CIT(A) held that there was no tax evasion and deleted the disallowance.

5. Addition on account of late payment of employees' contribution to PF/ESI:
Both parties agreed that the issue of late payment of employees' contribution to PF/ESI was covered against the assessee by the judgment of the Hon’ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation. Consequently, this ground of the Revenue was allowed, and the addition of ?47,228/- was upheld.

Conclusion:
The appeal of the Revenue was partly allowed, with the deletion of disallowances on account of fire claim, reimbursement of export clearing and forwarding charges, commission expenses, and interest paid to related parties being upheld, while the addition for late payment of employees' contribution to PF/ESI was confirmed. The judgment was pronounced on 30th August 2016 at Ahmedabad.

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