2018 (1) TMI 284 - AT - Income Tax

Non deduction of tds - disallowance of service charges E-Mech Enterprises paid to clearing and forwarding agents M/s Shreeji International and M/s Mahavir Agencies - Held that - As decided in The Assistant Commissioner Versus M/s. PP. Overseas 2011 (2) TMI 830 - ITAT, Mumbai case the contract between the assessee and the C&F agent is a service contract which has not been specifically included in Explanation III below section 194C. In this view of the matter, the provisions of section 194C are not applicable to the payments to the C&F agents. If that is so, there was no obligation on the part of the assessee to deduct tax from the payment made Disallowance u/s 40(a)(ia) - disallowance of ocean freight, terminal handling charges - Held that - As per the prescribed Form No. 26A, the deduction under amended section will be allowed only if the (i) payee has furnished his return of income under section 139; (ii) payee has taken into account such sum for computing income in such return of income; and (iii) payee has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in the prescribed form. Thus we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to make an order in the light of theour above observation, after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. TDS u/s 194C - disallowance of amount paid to IAL Shipping Agencies, Sea Load Shipping Agencies and Three Star Forwarders Pvt. Ltd. - Held that - The above payments being below the threshold limit of ₹ 30,000/- as per provisions of sub-section 5 of section 194C, we delete the disallowance upheld by the Ld. CIT(A) and allow the 2nd ground of appeal.

Summary

Issues:
1. Disallowance made by the Assessing Officer u/s 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of service charges paid to clearing and forwarding agents.
3. Disallowance of ocean freight, terminal handling charges, and documentation charges to foreign shipping lines.
4. Disallowance of ocean freight, terminal handling charges paid to a specific company.
5. Disallowance of amount paid to shipping agencies ignoring statutory provisions.

Issue 1: Disallowance u/s 40(a)(ia) of the Income Tax Act:
In the Assessment Year (AY) 2005-06, the Assessing Officer (AO) disallowed a sum of &8377; 15,10,924 out of a total payment of &8377; 20,46,640 made to various parties. The first ground raised by the assessee challenged the disallowance of service charges paid to clearing and forwarding agents. The Commissioner of Income Tax (Appeals) directed the AO to verify actual debit notes/bills raised for reimbursements and delete the disallowance if found to be specifically for reimbursements. The Tribunal, following a similar precedent, allowed this ground of appeal.

Issue 2: Disallowance of charges to foreign shipping lines:
The second, third, fourth, and seventh grounds of appeal addressed disallowance of charges to foreign shipping lines. The CIT(A) confirmed the disallowance due to lack of certificates from the concerned authorities. The Tribunal set aside the CIT(A)'s order, directing verification by the AO and submission of relevant documents by the assessee. These grounds were allowed for statistical purposes.

Issue 3: Disallowance of specific ocean freight charges:
The fifth ground of appeal challenged the disallowance of ocean freight, terminal handling charges paid to a specific company. The CIT(A) rejected the assessee's contention regarding amended provisions of section 40(a)(ia), citing non-applicability for the relevant assessment year. The Tribunal, considering legal precedents and requirements under Form No. 26A, set aside the CIT(A)'s order and directed the AO to reexamine the matter after submissions from the assessee. This ground was allowed for statistical purposes.

Issue 4: Disallowance of payments to shipping agencies:
In AY 2006-07, the assessee challenged the disallowance of payments to specific shipping agencies. The Tribunal allowed this ground as the payments were below the threshold limit as per statutory provisions. Other grounds in AY 2006-07 were deemed similar to AY 2005-06, and decisions from the earlier year were applied accordingly.

In conclusion, the appeals were partly allowed, with specific disallowances being set aside or directed for reexamination based on legal interpretations and precedents. The Tribunal emphasized the need for verification, submission of relevant documents, and adherence to statutory provisions in determining disallowances under the Income Tax Act.