2018 (7) TMI 132 - AT - Income Tax

TDS u/s 195 - Disallowance on account of non-deduction of TDS on airfreight - amount paid (reimbursed) to the nonresident agents was on behalf of non-resident shipping company or non-resident airline company - violation of the provisions of Section 44B r.w.s. 172 as well as 44BBA - Held that - It is clear that assessee-company made payments on behalf of its clients as Clearing and Forwarding Agent which were reimbursed to the assessee-company. The assessee-company did not make claim of deduction in the P & L A/c. Similar claim of assessee-company has been allowed in earlier and subsequent year, therefore, rule of consistency do apply to the income tax proceedings. There were no justification for the authorities below to take a different view on same set of facts. Even no action have been taken while scrutinizing the issue of TDS against the assessee-company. The assessee-company has not violated the provisions of Section 44B r.w.s. 172 as well as 44BBA. Since, under the domestic Law as well as under DTAA, the income received by non-resident airline/shipping companies or their Agents, are not taxable in India, therefore, assessee is not liable to deduct TDS. In this view of the matter, we set aside the orders of the authorities below and delete the entire addition. Scope of auditor s opinion - The opinion of the Auditor is not conclusive because the issue shall have to be considered and decided as per Law. Further, the assessee-company has filed the revised audit report to clarify the above position. Disallowance u/s 40A(3) - Held that - There is an amendment in Rule 6DD of I.T. Rules as is noted by the Ld. CIT(A), but in Section 40A(3) itself, an exception is provided on account of nature and extent of banking facilities available, consideration of business expediency and other relevant factors. It is not in dispute that assessee-company was engaged in the business of Clearing and Forwarding Agent and acted on behalf of other companies. The amounts in question have been tabulated in the assessment order. These payments are made to airline companies. The nature of business of assessee-company and the agency carried on by the assessee-company on behalf of others, clearly shows that for business expediency in the line of business of assesseecompany, some times cash payments are made to complete the work on behalf of Principal. The assessee-company, under such compelling reasons, shall have to make payments in cash on account of urgent need. The authorities below have not doubted the identity of the payee and the genuineness of the transaction in the matter. We, accordingly, set aside the orders of the authorities below and delete the addition. Assessee appeal allowed.

Summary

Issues Involved:
1. Disallowance on account of non-deduction of TDS on airfreight payments under Section 40(a)(i).
2. Disallowance under Section 40A(3) for cash payments exceeding ?20,000.
3. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance on account of non-deduction of TDS on airfreight payments under Section 40(a)(i):

The assessee-company, engaged in logistic solutions, made payments to non-resident parties for airfreight totaling ?120,86,24,827. The Assessing Officer (A.O.) disallowed these payments under Section 40(a)(i) due to non-deduction of TDS. The assessee argued that these payments were reimbursements on behalf of Indian customers and not claimed as expenses in the Profit & Loss Account. The assessee cited various judicial precedents, including the Supreme Court's decision in G.E. India Technology Centre (P) Ltd. vs. CIT, asserting that TDS is not required if the payments are not taxable in India.

The CIT(A) upheld the A.O.'s decision, stating that payments to foreign agents do not qualify for exemption under Article 8 of the DTAA and that the assessee failed to provide adequate documentation. However, the Tribunal found that the assessee acted as an intermediary, facilitating payments on behalf of clients like Samsung India Ltd., and did not claim these as expenses. The Tribunal noted that similar claims were accepted in previous and subsequent years, invoking the principle of consistency. The Tribunal concluded that the payments were reimbursements and not subject to TDS, thus allowing the assessee's appeal on this ground.

2. Disallowance under Section 40A(3) for cash payments exceeding ?20,000:

The A.O. disallowed ?8,17,807 under Section 40A(3) for cash payments exceeding ?20,000. The assessee contended that these payments were made to reputed airlines under business exigency and were genuine. The CIT(A) rejected this argument, citing amendments to Rule 6DD which no longer included business exigency as an exception.

The Tribunal, however, noted that the genuineness of the payments and the identity of the payees were not in dispute. It referred to judicial precedents, including the ITAT Delhi Bench's decision in ACIT vs. Marigold Merchandise (P) Ltd., which emphasized that genuine and bona fide transactions should not be disallowed under Section 40A(3). The Tribunal concluded that the payments were made under business exigency and set aside the disallowance.

3. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act:

The assessee challenged the charging of interest under Sections 234A, 234B, 234C, and 234D. The Tribunal noted that no specific arguments were advanced on this issue and that the charging of interest is consequential in nature. Therefore, this ground of appeal was rejected.

Conclusion:

The Tribunal allowed the appeal partly, deleting the disallowances under Sections 40(a)(i) and 40A(3), but upheld the charging of interest under Sections 234A, 234B, 234C, and 234D as consequential.