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2017 (10) TMI 238 - AT - Income TaxDisallowance u/s. 40(a)(ia) - payment of various charges such as demurrage charges, handling charges paid to the Indian agents of non-resident shipping companies - Held that - The non resident shipping companies have given two freight certificates w.r.t. each bill raised by Balaji Shipping Corporation, the first pertain to ocean freight which is already accepted by learned CIT(A) while granting relief to the assessee and Revenue is not in appeal against relief granted by learned CIT(A), and the second freight certificate is w.r.t. THC charges and documentation charges which are acknowledged to be received by non resident shipping companies, thus it leaves no doubt that these are merely reimbursement of expenses as also claimed by Shri Balaji Corporation vide debit note and are in the nature of payment referred to in Section 172(8) and hence are covered by provision of Section 172(2) and no income-tax was required to be deducted at source u/s 194C keeping in view special provisions relating to taxability of non resident shipping companies who have to discharge their liabilities towards income tax before leaving port or to make satisfactory arrangements for payment of taxes as are contained in Section 172 and Section 44B. The circular no. 723 issued by the CBDT on 19.09.1995 also supports the stand of the assessee that with respect to the ocean freight, demurrage charge, handling charges or other amount of similar nature which are paid to the Indian agents or authorized representative of non-resident shipping company who carry passengers, livestock, mail or goods shipped at port in India are not covered for deduction of tax at source under provision of 194C and 195 . Thus, keeping in view ratio of decision in the case of V.S Dempo & Company Ltd.( 2016 (2) TMI 308 - BOMBAY HIGH COURT) and in the light of the provision of section 172(8), explanation 2 to sub-section 2 to Section 44B read with afore stated circular no. 723 dated 19.09.1995, we hold that the issue is covered in favour of the assessee and we order deletion of the disallowance - Decided in favour of assessee TDS u/s 194C - TDS on clearing and forwarding charges paid to C&F Agents for clearing the consignments of import of goods - Held that - No doubt these C & F Agents are independent contractors but once they deal with third party service providers such as custom authorities, port authorities, warehousing authorities, transporters and other service providers for clearance of import shipments, they only act as an agent on behalf of their principals i.e. the assessee and there action with third party service providers bounds the assessee done in the normal course of agency. This matter need to set aside and restore to the file of the AO to identify the disallowance u/s 40(a)(ia) which requires analysis of nature of each of the expenses covered by invoice raised by C&F agents and their coverage by provisions of Chapter XVII-B. Hence, in our considered the matter need to be set aside and restored to the file of the AO for necessary analysis of various such expenses incurred by agent on behalf of principal and applicability of provisions of deduction of income-tax at source to these expenses to work out disallowance u/s 40(a)(ia) read with provisions of Chapter XVII-B . The AO shall de-novo adjudicate the issue on merits in accordance with law . Interest paid on bank and unsecured loans - disallowance u/s 36(1)(iii) - Held that - The assessee has contended that no interest bearing funds were utilised for advancing interest free loans and advances and interest free funds available with the assessee were utilised for advancing interest free loans and advances on which disallowance were made being loans and advances of ₹ 2,36,39,313/- advanced by the assessee and sundry debt owed by the sister concerns of ₹ 58,49,788/-. This contention of the assessee needs verification by the A.O. and hence the matter/issue is restored to the file of the A.O for necessary determination of the issue on merits in accordance with law and also with reference to books of accounts of the assessee. Both the parties have also fairly agreed that this contention of the assessee needs verification and matter can be restored to the file of the AO for necessary verification and enquiry. Amortisation of certain preliminary expenses - Expenditure incurred for increasing share capital allowable u/s. 35D - Held that - The onus is on the assessee to prove that the said expenses fall within the ambit of allowability of Section 35D of the Act and all the conditions are met which are stipulated u/s 35D. The assessee has to bring on record cogent evidences strictly in accordance with provisions of Section 35D before its claim is allowed and the onus squarely lays on the assessee.These claims and contention of the assessee as to that there was a extension of undertaking and the said expenses are allowable u/s. 35D need verification by the A.O and hence the matter is set aside and restored to the file of the A.O for necessary de-novo determination of the issue on merits in accordance with law. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law.The assessee shall be allowed to submit the evidences and explanations which shall be admitted by the AO and adjudicated thereafter on merits in accordance with law.
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on freight and service charges. 2. Disallowance of clearing and forwarding charges under Section 40(a)(ia). 3. Disallowance of interest expenses under Section 36(1)(iii). 4. Disallowance of share issue expenses under Section 35D. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Freight and Service Charges: The assessee, a manufacturer, trader, and exporter of plastic carrier bags, did not deduct TDS on export freight charges paid to non-resident shipping companies or their agents, citing CBDT Circular No. 723 dated 19.09.1995. The AO disallowed ?59,99,109 under Section 40(a)(ia), stating that the assessee failed to prove the payments were made to non-resident shipping companies. The CIT(A) upheld the disallowance of ?9,60,431 for service charges but allowed relief for ?49,38,689 towards ocean freight, which was not contested by the Revenue. The Tribunal found that the service charges, including demurrage and handling charges, were covered by Section 172(8) and thus not subject to TDS under Section 194C, leading to the deletion of the disallowance of ?9,60,431. 2. Disallowance of Clearing and Forwarding Charges under Section 40(a)(ia): The AO disallowed ?55,94,324 for non-deduction of TDS on clearing and forwarding charges, claiming these were not mere reimbursements. The CIT(A) upheld this disallowance. The Tribunal noted that the C&F agents acted as intermediaries and the expenses included payments subject to TDS under Chapter XVII-B. The Tribunal set aside the matter to the AO for verification of the nature of expenses and the applicability of TDS provisions, emphasizing the need for proper evidence and compliance with the law. 3. Disallowance of Interest Expenses under Section 36(1)(iii): The AO disallowed ?35,38,692, alleging that interest-bearing funds were used for non-business purposes, including loans to sister concerns. The CIT(A) upheld this disallowance. The Tribunal, considering the assessee's claim of having sufficient interest-free funds, restored the matter to the AO for verification of the actual utilization of funds. The Tribunal directed the AO to verify the assessee's contention with reference to the books of accounts and provide an opportunity for the assessee to present evidence. 4. Disallowance of Share Issue Expenses under Section 35D: The AO disallowed ?17,500, treating it as capital expenditure. The CIT(A) upheld this disallowance. The Tribunal noted the assessee's claim that the expenses were for setting up a new undertaking and thus allowable under Section 35D. The Tribunal restored the matter to the AO for verification of the assessee's claim, emphasizing the need for the assessee to provide cogent evidence that the expenses were incurred for the extension of the undertaking and met the conditions under Section 35D. Conclusion: The Tribunal allowed the appeal for AY 2009-10 and partly allowed the appeal for AY 2010-11, directing the AO to re-examine the disallowed expenses for clearing and forwarding charges, interest expenses, and share issue expenses, providing the assessee an opportunity to present evidence and explanations. The Tribunal emphasized adherence to the principles of natural justice and proper verification of the claims in accordance with the law.
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