2013 (4) TMI 343 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Held that - As decided in Merilyn Shipping & Transports vs ADIT, Range-I, Visakhapatnam 2012 (4) TMI 290 - ITAT VISAKHAPATNAM that section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at source Decided in favor of assessee. Addition made u/s 40(a)(ia) - assessee contended that the expenses represented only the reimbursement of the customs clearance expenses incurred by both the parties & does not represent the payment being made for the services rendered by the clearing agent - Held that - It is a fact that if the assessee reimbursed the expenses towards freight incurred on its behalf under an agreement for which separate bills is raised, and to such payments the provision of section 194 of the I.T.Act is not attracted. See INCOME TAX OFFICER Versus DR. WILLMAR SCHWABE INDIA PVT. LTD. 2005 (3) TMI 398 - ITAT DELHI-D - As when it is not disputed that the said amount has been incurred for reimbursement of the expenses deletion of the addition confirmed - in favor of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the IT Act for payments to concerns.
2. Disallowance of Customs Clearance expenses and reimbursement under section 40(a)(ia) of the IT Act.

Analysis:
Issue 1: Disallowance under section 40(a)(ia) of the IT Act for payments to concerns:
The appeal was against the disallowance under section 40(a)(ia) of the IT Act for payments made by the assessee to ERT Shipping Warehouse Pvt Ltd. and SP Enterprise for Customs Clearance expenses. The AO disallowed the payments as TDS was not deducted. The CIT(A) upheld the AO's decision. The assessee contended that the provision of section 40(a)(ia) was not applicable based on a decision of the Visakhapatnam Bench of the Tribunal. The ITAT Kolkata noted the decision of the Special Bench and ruled in favor of the assessee, deleting the disallowance.

Issue 2: Disallowance of Customs Clearance expenses and reimbursement under section 40(a)(ia) of the IT Act:
The second ground related to the disallowance of reimbursement of Customs Clearance expenses under section 40(a)(ia) of the IT Act. The assessee argued that the expenses were only for reimbursement and not for services rendered by the clearing agent, citing a Tribunal decision. The ITAT Kolkata referred to a Tribunal decision in a similar case and upheld the assessee's argument, stating that if expenses are reimbursed under an agreement with separate bills, TDS deduction is not required. Therefore, the addition of the reimbursement amount was deleted, and the appeal of the assessee was allowed.

In conclusion, the ITAT Kolkata allowed the appeal of the assessee, ruling in favor of the assessee on both grounds of disallowance under section 40(a)(ia) of the IT Act. The Tribunal considered relevant precedents and held that TDS deduction was not required in the circumstances presented by the assessee.