2020 (7) TMI 14 - AT - Income Tax

TDS u/s 194C OR 195 - Shipping Expenses on account of non deduction of TDS u/s 40(a)(ia) - payment of ocean freight, made to non-resident shipping companies - HELD THAT - The provisions of section 172 are to apply, notwithstanding anything contained in other ' provisions of the Act. Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated, for a voyage undertaken from any port in India by a ship under the provisions of section 172. Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a) to (j) of sub-section (1) to any resident (termed as contractor). It is clear from the section that the area of operation of TDS is confined to payments made to any resident . On the other hand, section 172 operates in the area of computation of profits from shipping business of non-residents. Thus, there is no overlapping in the areas of operation of these sections. There would, however, be cases where payments are made to shipping agents of non-resident ship-owners or charterers for carriage of passengers etc., shipped at a port in India. Since, the agent acts on behalf of the non-resident ship-owner or charterer, he steps into the shoes of the principal. Accordingly, provisions of section 172 shall apply and those of sections 194C and 195 will not apply. Addition on difference between the opening balance in the account of M/s Eskay Sales Corporation and in the accounts of the assessee - HELD THAT - We find that Assessing Officer has made the disallowance simply by holding that the assessee produced ledger account of these expenses which are not open to full verification and hence has disallowed 10% out of various expenses. The Assessing Officer has nowhere pointed out any specific discrepancy in the books of account nor he has rejected the same. In our opinion, the Assessing Officer cannot make ad hoc disallowance. See ASHOK SURANA VERSUS COMMISSIONER OF INCOME-TAX 2016 (6) TMI 696 - CALCUTTA HIGH COURT - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of ?6,42,437/- for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.
3. Addition of ?50,250/- due to a discrepancy in the account of M/s Eskay Sales Corporation.
4. Ad hoc disallowance of ?7,575/- out of traveling expenses and ?12,322/- out of miscellaneous expenses.

Detailed Analysis:

1. Condonation of Delay:
The appeal filed by the assessee was delayed by 36 days. The assessee explained that the delay was due to the order being bundled with other records and thus not being traced in time. The delay was condoned as the assessee was found to have a reasonable and sufficient cause for the delay, and the learned D.R. had no objection to this condonation.

2. Disallowance of ?6,42,437/- for Non-Deduction of TDS:
The assessee, engaged in the business of manufacturing leather and cotton items, had made payments towards shipping expenses to non-resident shipping companies. The Assessing Officer disallowed these payments under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS as per Section 194C. The CIT(A) upheld this disallowance. However, the assessee relied on CBDT Circular No. 723 dated 19/09/1995, which clarifies that payments to non-resident shipping companies are covered under Section 172, not under Sections 194C or 195. The Tribunal, agreeing with the assessee, deleted the disallowance, stating that the provisions of Section 172 apply, and hence, TDS under Sections 194C and 195 is not applicable.

3. Addition of ?50,250/- Due to Discrepancy in Account:
The addition of ?50,250/- was made due to a difference in the opening balance in the account of M/s Eskay Sales Corporation. The assessee contended that this discrepancy had been carried over from previous years and did not pertain to the year under consideration. The Tribunal, considering the facts and the continuity of the discrepancy from earlier years, deleted the addition.

4. Ad Hoc Disallowance of Traveling and Miscellaneous Expenses:
The Assessing Officer disallowed 10% of traveling and miscellaneous expenses on an ad hoc basis, citing that the expenses were supported by self-made debit vouchers and were not fully verifiable. The CIT(A) upheld this disallowance. The Tribunal, however, noted that no specific discrepancies were pointed out in the books of account, which were tax audited. Citing the Calcutta High Court’s decision in Ashok Surana vs. CIT, the Tribunal held that ad hoc disallowances without pointing out specific discrepancies are not permissible. Consequently, the disallowances were deleted.

Pronouncement of Order Beyond 90 Days:
The order was pronounced beyond the 90-day period due to the unprecedented COVID-19 lockdown, which was considered an "extraordinary" circumstance. The Tribunal referenced the decision in the case of JSW Ltd and the guidelines provided by the Hon'ble Supreme Court and Bombay High Court regarding the extension of time limits due to the lockdown. The Tribunal concluded that the period of lockdown should be excluded while computing the 90-day period for pronouncement of the order.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal deleting the disallowances and additions made by the Assessing Officer and upheld by the CIT(A). The order was pronounced in the open court on 26/06/2020.