2014 (6) TMI 771 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the Act TDS on reimbursements - Claim of clearing and forwarding charges TDS on transportation services was paid by the agent - Held that - Following CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. 2014 (4) TMI 235 - GUJARAT HIGH COURT - on the commission paid by the assessee to the agent for clearing and forwarding tax was duly deducted - no part of amount reimbursed was to be disallowed u/s. 40(a)(ia) if tax has not been deducted - expenses were incurred by agent on behalf of assesses -principal for transportation and other charges, which had been spelt out in bill itself- So far as obligation to deduct tax at source form payment of transport charges and other charges was concerned, same was complied with by agent, who had made payment on its behalf thus, the order of the CIT(A) is set aside Decided in favour of Assessee. Addition of estimated disallowance of freight charges Held that - Assessee filed certain details but CIT(A) after scrutinizing them held that the accounts prepared by the assessee were not in order and since all the expenses were not fully vouched, AO was justified in making this adhoc disallowance of Rs. 6,27,500 - no evidence has been furnished to deviate from the findings of lower authorities and the order passed by CIT(A) is hereby confirmed Decided against Assessee. Addition of 1/5th of total claim Personal expenses - Held that - The AO disallowed an amount of Rs. 82,880/- being 20% of the total claim - CIT(A) restricted this disallowance to 10% of total claim - personal element in this type of expenses cannot be ruled out thus, the order of the CIT(A) is upheld Decided against Assessee.

Summary

Issues:
1. Disallowance of clearing and forwarding charges under section 40(a)(ia)
2. Disallowance of estimated freight charges
3. Disallowance of expenses as personal nature

Analysis:

1. The first issue pertains to the disallowance of clearing and forwarding charges under section 40(a)(ia). The Assessing Officer (AO) made an addition of Rs. 61,22,877 for non-deduction of tax on expenses paid to the C & F agent. The assessee argued that the amount was reimbursement and not subject to TDS. The AO, however, held that the provisions of section 40(a)(ia) were applicable as there was a principal-agent relationship. The CIT(A) upheld the AO's decision. The ITAT, Ahmedabad, following the decision of the Gujarat High Court, ruled in favor of the assessee, stating that no disallowance should be made if tax was not deducted on reimbursed expenses.

2. The second issue concerns the estimated disallowance of freight charges. The AO disallowed Rs. 6,27,550 as 10% of the total freight charges due to lack of evidence for TDS deduction on certain cash payments. The CIT(A) upheld this adhoc disallowance, noting the lack of proper accounts and evidence. The ITAT confirmed the CIT(A)'s decision, as the assessee failed to provide any evidence to challenge the lower authorities' findings.

3. The third issue involves the disallowance of expenses as personal in nature. The AO disallowed Rs. 82,880 as personal expenses out of the total claim of Rs. 4,14,425 for motor car, telephone, and traveling expenses. The CIT(A) reduced this disallowance to Rs. 41,440 (1/10th of the total claim). The ITAT upheld the CIT(A)'s decision, citing the personal element in the expenses. Consequently, the assessee's appeal was partly allowed, with the disallowance of clearing and forwarding charges under section 40(a)(ia) being deleted, while the disallowance of estimated freight charges and personal expenses was upheld.