2018 (8) TMI 653 - AT - Income Tax

Addition u/s 40(a)(ia) - Failure to deduct TDS on expenditure debited as export charges to the Profit & Loss account - assessee contended that, clearing and forwarding charges consisting of payments towards customs duties, transport charges, postage expenses, commission to the C&F agent and the service tax. - Held that - the Ld.CIT(A) held that the payment was towards reimbursement of expenses but no finding was given by the AO in this regard and the Ld.CIT(A) did not afford any opportunity to the AO to verify the nature of expenses with the agreement and supporting bills of transportation or the tickets of Railway, Road Carriers etc., Hence in all fairness we consider it is just and fair to remit the matter back to the file of the AO to verify the nature of payment with the C&F agreement, relevant bills of authenticated transport operators and decide the issue afresh on merits after giving opportunity to the assessee. TDS on payment made to Shipping Agents - Held that - In case, the expenses were incurred for ocean freight, the assessee is entitled for deduction and no TDS is required to be made on the ocean freight since the ocean freight and the reimbursement of actual expenses does not include the profit element. - In addition the expenses claimed over and above the ocean freight must be established by the assessee that the same represent the reimbursement of expenses with relevant evidences. Therefore, in all fairness, we are of the view that the issue should be remitted back to the file of the AO to make detailed verification of the nature of expenses with relevant bills and supporting evidences and to decide the deductibility of TDS and consequent disallowance u/s 40(a)(ia). Accordingly, we direct the AO to examine the issues and redo the same after giving opportunity to the assessee. In the result appeal of the revenue is allowed for statistical purpose. Decided in favor of revenue for for statistical purpose.

Summary

Issues:
Appeal against order related to addition made under section 40(a)(ia) of the Income Tax Act, 1961 for assessment year 2011-12.

Analysis:
1. The Assessing Officer disallowed the sum of ?1,58,38,236/- under section 40(a)(ia) as TDS was not deducted on export charges debited to the Profit & Loss account. Assessee argued that expenses were for clearing and forwarding charges reimbursed to the C&F agent, relying on ITAT decisions. Ld.CIT(A) found payments for local transport charges were outside TDS scope and deleted ?33,76,446/- from disallowance.

2. Ld.CIT(A) further found that payment of ?1,23,43,259/- to Shipping Agents for ocean freight was reimbursement and not subject to TDS under section 172. Ld.CIT(A) deleted this amount but confirmed ?1,75,527/- addition. Revenue appealed, arguing TDS should apply to transportation charges and ocean freight payments.

3. Tribunal noted the relationship between assessee and Shipping Agents as contractor-contractee, not principal-agent. Tribunal remitted matter back to AO to verify nature of payments and expenses, especially ocean freight, for proper TDS applicability.

4. Tribunal directed AO to examine expenses with relevant bills and supporting evidence to decide on TDS applicability and disallowance under section 40(a)(ia). Cross objection by assessee also remitted for detailed examination by AO.

5. Ultimately, the appeal by the revenue and cross objection by the assessee were allowed for statistical purposes.