2021 (11) TMI 82 - AT - Income Tax

TDS u/s 194C - Non deduction of TDS on payments to shipping companies and CFS Agents - Addition u/s 40(a)(ia) - assessee claims that payments made to shipping companies and CFS Agents on behalf of its clients is in the nature of reimbursement of expenses without any element of profit and thus, is outside the scope of provisions of TDS - HELD THAT - If you accept the arguments of the assessee, then the purpose of legislature is defeated and the intend to subject the contract payment to deduction of tax at the point of payment is defeated by D transaction in such a manner that the purpose is defeated. It is also important to note that it is the assessee who has booked the expenditure towards container storage charges on payment to shipping companies/CFS Agents and debited in their books of accounts. Similarly, the assessee has received charges from its clients including amount paid to shipping companies/CFS Agents and the same has been credited to its P L a/c when it had received payments from its clients - payments made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the service providers. Since, the assessee has made payment on behalf of their customers; the assessee ought to have deducted TDS on such payments while making payments. Since, the assessee has failed to deduct TDS, on such payments the AO is right in disallowing such payments u/s. 40(a)(ia) of the Act. Hence, we confirm additions made by the AO. Alternative plea of the assessee that it has made payment to reputed shipping companies and all service providers has filed their return of income u/s. 139 of the Act and included payments made by the assessee in the return of income and thus, the assessee cannot be held as an assessee in default in terms of second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 w.e.f. assessment year 2013-2014 - In this case, the assessee has failed to obtain Form No. 26A and file before the AO and CIT(A) to give the benefit of proviso to section 40(a)(ia) of the Act, and said lapse is continued even before us. Before us, the assessee could not file any Form no 26A obtained from its clients nor filed their ITR copies to prove that the recipients have included sum paid by the assessee in their income tax returns. Therefore, we are of the considered view that there is no merit in alternate ground taken by the assessee and hence, the same is rejected. Disallowance u/s. 36(1)(ib) of the Act towards Key man Insurance Premium paid - HELD THAT - As CIT(A), the assessee did not file any evidence to justify payment of insurance premium on Key man Insurance Policy taken in the name of the directors. Even before us neither any evidence was filed nor justified payment. There is no error in the reasons given by the CIT(A) to sustain additions made by the AO for disallowance of insurance premium paid on Key man Insurance Policy. Hence, we reject the arguments of the assessee and confirm additions made by the AO. Appeal filed by the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments made to shipping companies/CFS Agents.
2. Disallowance under Section 36(1)(ib) for Keyman Insurance Premium.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:

Background:
The assessee, a Clearing Agent, filed its return of income for the assessment year 2013-14, declaring nil total income. The assessee raised bills in two parts: one for service charges and another for reimbursement of charges paid on behalf of clients. The assessee did not deduct TDS under Section 194C on payments made to shipping companies and CFS Agents, claiming these were reimbursements without profit element.

AO's Findings:
The AO disallowed ?60,02,756 under Section 40(a)(ia) for failure to deduct TDS, arguing the payments were made on a principal-to-principal basis and could include profit elements. The AO also rejected the alternative plea based on the second proviso to Section 40(a)(ia), as the assessee failed to furnish Form 26A for verification.

CIT(A)'s Findings:
The CIT(A) upheld the AO's decision, noting that the transactions were recorded in the assessee's books as income and expenditure, indicating they were not mere reimbursements.

Tribunal's Findings:
The Tribunal concurred with the AO and CIT(A), stating that the payments were not reimbursements but direct payments on behalf of clients. The Tribunal emphasized that the TDS provisions aim to withhold tax on the income of service providers. Since the assessee made payments directly to service providers, it was responsible for deducting TDS. The Tribunal rejected the assessee's argument that the clients should deduct TDS, noting that the payment was directly made by the assessee. The Tribunal also dismissed the alternative plea, as the assessee failed to furnish Form 26A or other evidence to show that recipients included the payments in their income tax returns.

Conclusion:
The Tribunal confirmed the disallowance under Section 40(a)(ia) for non-deduction of TDS on payments made to shipping companies and CFS Agents.

2. Disallowance under Section 36(1)(ib) for Keyman Insurance Premium:

Background:
The AO disallowed ?70,682 under Section 36(1)(ib) for Keyman Insurance Premium, as the assessee failed to provide supporting evidence.

CIT(A)'s Findings:
The CIT(A) upheld the AO's disallowance, noting the lack of evidence from the assessee.

Tribunal's Findings:
The Tribunal agreed with the AO and CIT(A), stating that the assessee neither provided evidence nor justified the payment of the insurance premium.

Conclusion:
The Tribunal confirmed the disallowance under Section 36(1)(ib) for Keyman Insurance Premium.

Final Order:
The appeal filed by the assessee was dismissed, and the disallowances made by the AO were upheld.

Order Pronouncement:
The order was pronounced in the court on 20th October 2021 at Chennai.