2016 (11) TMI 529 - AT - Income Tax

Disallowance towards freight expenses u/s. 40(a)(ia) - CIT(A) had deleted all the disallowances only on the ground that the expenses were paid by the assessee before the end of the previous year - Held that - Hon ble Calcutta High Court in the case of CIT Vs. Crescent Exports Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT wherein it has been held that the provisions of section 40(a)(ia) of the Act would be applicable even if amounts were paid before the end of the previous year. In respect of payments made to Port Management Board we are convinced on verification of the invoices given by Port Management Board that the said payment is made towards supply of fresh water to the ships. Hence, the same does not fall under the ambit of deduction of tax at source under any of the provisions of the Act. Hence, disallowance made u/s. 40(a)(ia) of the Act to that effect is deleted. In respect of payments made towards stevedoring charges, we find that the ld AO had not given any finding in his order as to how the subject mentioned expenditure would fall under the ambit of provisions of deduction of tax at source. Accordingly, we deem it fit and proper to set aside this issue to the file of the ld AO to give a clear finding in this regard in the light of the evidence submitted by the assessee with regard to the subjection mentioned expenditure. In respect of payments made to Indian Register of Shipping we are convinced that the said party had given a certificate u/s. 197(1) issued by the I. T. Department wherein payments made to them has to be made without deduction of Tax at source which has been clearly mentioned. Hence, there is no violation of provision of section 194C of the Act warranting any disallowance u/s. 40(a)(ia) of the Act. In respect of payment of freight charges we are in agreement with the argument of the Ld. AR which was also considered by the Ld. DR that the issue requires fresh examination by the AO as to whether the payment exceeded in the aggregate of ₹ 50,000/- in respect of each party thereby warranting any deduction of tax at source in terms of section 194C of the Act. It is true that no such finding was given in the assessment order in this regard. Accordingly, we deem it fit and proper to set aside this issue to the file of AO to decide this issue afresh in accordance.

Summary

Issues:
1. Disallowance of freight expenses by the AO u/s. 40(a)(ia) of the Income Tax Act.
2. Justification of deleting disallowance by Ld. CIT(A) for various payments made without TDS under section 40(a)(ia).

Analysis:
1. Assessee's Appeal:
The primary issue in the assessee's appeal pertains to the disallowance of &8377; 14,93,044/- towards freight expenses by the Assessing Officer under section 40(a)(ia) of the Income Tax Act. The AO disallowed the amount as the assessee paid the freight expenses without deducting tax at source. However, the Ld. CIT(A) deleted the disallowance, citing that the payments were made before the end of the previous year. The assessee contended that as the payments were below the taxable limit and Form 15I was collected from parties, the provisions of section 40(a)(ia) were not applicable. The ITAT dismissed the appeal as infructuous since the disallowance had already been deleted by the Ld. CIT(A).

2. Revenue's Appeal:
In the revenue's appeal, the issue revolved around the Ld. CIT(A) deleting disallowances made under section 40(a)(ia) for various payments made without TDS. The AO disallowed payments to entities like Port Management Board, stevedoring charges, freight charges, and Indian Registrar of Shipping for non-compliance with TDS provisions. The Ld. CIT(A) deleted these disallowances, stating that the payments were made before the end of the previous year. The revenue challenged this decision, arguing that the Ld. CIT(A) did not follow the law correctly regarding the term 'payable' in section 40(a)(ia). During the hearing, the AR provided explanations for each payment category, emphasizing that TDS was not applicable in certain cases due to specific circumstances. The ITAT upheld the disallowance for freight charges, set aside the decision for stevedoring charges for further examination, and deleted the disallowances for payments to Port Management Board and Indian Registrar of Shipping based on valid reasons and certificates provided.

In conclusion, the ITAT dismissed the assessee's appeal and partially allowed the revenue's appeal for statistical purposes, emphasizing the need for proper compliance with TDS provisions under the Income Tax Act.