2018 (11) TMI 699 - AT - Income Tax

Disallowance of interest expenditure - assessee has not charged the interest on advances given - Held that - The assessee has merely stated that assessee has given in advance to the two women of ₹ 4 04250/ each for the purchase of land. However, no documentary evidence or any agreement to sale was produced. It was also not shown to us that when the land was actually purchased by the assessee. In view of this, the argument of the learned authorised representative remains unsubstantiated. It is also fact that assessee has not charged interest on these advances and has paid huge bank interest. No infirmity in the order of the lower authorities in confirming the disallowance on account of interest. - Decided against assessee. TDS u/s 194C - non deduction of tds on shipping and IHC charges paid to a foreign shipping company and clearing and forwarding charges and other expenses - whether the high seas purchase of goods purchased by the assessee had the liability of payment of freight and agency charges on the supplier of the goods or on the assessee? - Held that - Based on the information available before us, it is not clear that whose liability it was to defray all these expenditure. We fully agree with the orders of the law authorities that on these sums tax should have been deducted at source. But the crux of the issue is that we should have deducted tax at source on this payments. Even otherwise, according to the proviso to section 40 (a) (ia) if the recipient of the income has paid tax on these income then the disallowance cannot be made in the hands of the assessee. In view of above facts, we set aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to furnish adequate details before the assessing officer that whose liability it was to incur all these expenditure, on which tax should have been deducted at source. The assessee may place on record the high seas purchase agreements entered into with the supplier - decided in favour of assessee for statistical purposes.

Issues Involved:
1. Legality and jurisdiction of the assessment order.
2. Addition of ?23,71,348 to the returned income.
3. Disallowance of ?1,05,106 on account of interest for advances given.
4. Disallowance of ?1,88,355 on account of clearing and forwarding charges for non-deduction of TDS under Section 194C.
5. Disallowance of ?22,08,831 on account of shipping and IHC charges for non-deduction of TDS under Section 194C.
6. Ad-hoc addition/disallowance on an estimated basis.
7. Justification of additions based on material on record.
8. Consideration of explanation, evidence, and material on record.
9. Principles of natural justice in the assessment process.
10. Charging of interest under Sections 234A & 234B.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of the Assessment Order:
The appellant contended that the assessment order passed under Section 143(3) and the additions made were illegal, bad in law, and without jurisdiction. However, this issue, along with general grounds (Grounds 1, 2, 7, 8, 9, 10, 11, and 12), was dismissed as being general in nature.

2. Addition of ?23,71,348 to the Returned Income:
The appellant argued that the addition of ?23,71,348 made by the Assessing Officer (AO) was unjust, excessive, and arbitrary. The CIT(A) upheld this addition. This issue was not separately addressed in the judgment, implying that the Tribunal found no merit in the appellant's contention.

3. Disallowance of ?1,05,106 on Account of Interest:
The AO disallowed ?1,05,106 on account of interest for not charging interest on advances given to Mrs. Razia Tak and Shaista Badar. The assessee claimed these advances were for purchasing land, but no documentary evidence was provided. The Tribunal upheld the disallowance, stating that the assessee failed to substantiate the business purpose of the advances and had paid substantial bank interest.

4. Disallowance of ?1,88,355 on Account of Clearing and Forwarding Charges:
The AO disallowed ?1,88,355 for non-deduction of TDS under Section 194C. The appellant could not show where this disallowance was made separately. Consequently, the Tribunal dismissed this ground.

5. Disallowance of ?22,08,831 on Account of Shipping and IHC Charges:
The AO disallowed ?22,08,831 for non-deduction of TDS on shipping and IHC charges paid to a foreign shipping company. The appellant argued that these charges were borne by the suppliers, not the assessee. The Tribunal noted that the crux of the issue was whether the liability to pay these charges was on the assessee or the suppliers. The Tribunal set aside the issue to the AO for verification of agreements and details to determine the actual liability and to check if the recipients had included these amounts in their income as per the proviso to Section 40(a)(ia).

6. Ad-hoc Addition/Disallowance on Estimated Basis:
The appellant argued that the ad-hoc additions were unjust, arbitrary, and excessive. This issue was dismissed as general in nature.

7. Justification of Additions Based on Material on Record:
The appellant contended that the additions were unjust and based on mere surmises and conjectures. This issue was dismissed as general in nature.

8. Consideration of Explanation, Evidence, and Material on Record:
The appellant argued that the explanation, evidence, and material provided were not properly considered. This issue was dismissed as general in nature.

9. Principles of Natural Justice in the Assessment Process:
The appellant claimed that the assessment order and the CIT(A)'s order violated the principles of natural justice. This issue was dismissed as general in nature.

10. Charging of Interest Under Sections 234A & 234B:
The appellant argued that interest under Sections 234A & 234B was wrongly charged as the disallowances/additions could not have been foreseen. This issue was dismissed as general in nature.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal setting aside the issue of disallowance of ?22,08,831 to the AO for further verification. Other grounds were dismissed as general or lacking substantive evidence.

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