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TMI Blog2015 (11) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... he responsibility of the seller to find the transporter and transport it to the assessee’s premises, or it was under direction of the latter the former was doing so, was never verified by the lower authorities. We are of the opinion that this issue requires a fresh look by the AO for verifying all aspects of the payment of freight charges.- Decided in favour of assessee for statistical purpose. Payments effected to Hariharan Logistics for freight and forwarding of goods exported by the assessee - Held that:- As assessee can always plead that recipient of the amounts had accounted the income and filed returns and hence the rigors of Section 40(a)(ia) of the Act could not be applied to it. However, question whether the recipients of payments had indeed accounted the amounts and returned the income therefrom in their return of income requires to be verified. We are of the opinion therefore that this issue also requires a fresh look by the AO. - Decided in favour of assessee for statistical purpose. - I.T.A No. 426/Bang/2014 - - - Dated:- 1-10-2015 - Shri. N. V. Vasudevan, Judicial Member And Shri Abraham P. George, Accountant Member For the Petitioner : Shri. V. Srinivas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected to the lorry drivers. 04. Vis-a-vis disallowance of freight forwarding expenses, argument of the assessee was that major part of the payments made to clearing agents were reimbursements. Assessee also took a plea that Hariharan Logistics which was a forwarding and clearing agent had already declared the whole of the amounts received from the assessee in its return as a part of its income. Thus as per assessee, Section 40(a)(ia) could not be applied either on freight paid for purchases nor on freight and forwarding charges paid to the clearing and forwarding agents. However, AO was not impressed by the above arguments. According to him, circular No.715 (supra) applied for both the above payments. He disallowed freight on purchases of ₹ 10,23,138/- paid by the assessee and freight forwarding expenses of ₹ 36,16,957/-, paid to the clearing and forwarding agents relying on section 40(a)(ia) of the Act. 05. Aggrieved assessee moved in appeal before the CIT (A). Argument of the assessee was that it was purchasing goods from various persons outside Bangalore. As per the assessee the sellers who were also the consigners of the goods consigned the goods through s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the supplier was identifying the transport agency and was delivering the goods to them. As per the CIT (A), no evidence was adduced by the assessee to show that the supplier of the goods had agreed to arrange for the transportation of the goods and to deliver the goods at the assessee s premises. Thus according to him assessee was bound to deduct tax on the amount of freight expenditure. 08. In so far as non-deduction of tax at aource on freight and forwarding expenditure was concerned, CIT (A) noted that what was claimed by the assessee as reimbursements were not actually reimbursements. Forwarding agent was only a single point for providing multiple service to the assessee and it was under a contractual obligation to do so. As per the CIT (A) assessee should have deducted tax on the payments made to Forwarding agents. He thus applied section 40(a)(ia) of the Act to both the payments, namely freight expenditure and freight and forwarding charges paid to carrying and forwarding agents. 09. Now before us, Ld. AR strongly assailing the order of lower authorities submitted that the bill raised by Kanakadurga Lorry Office clearly indicated the consigner as Shree Gajanan I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gajanan Industries who was the supplier to goods the assessee had engaged the lorry owner through Kanakadurga Lorry Office at the behest of the assessee or on its own. If it was on the direction of the assessee that the lorry was engaged by the supplier, then we can construe the contract as one between the assessee and the lorry office. It might be true that the assessee paid to the lorry owner the balance of the amount due for the transportation. However, existence of agreement for transportation, whether oral or written, if any, between the assessee and Shree Gajanan Industries, as to how the supplies were to be made, viz., whether it was the responsibility of the seller to find the transporter and transport it to the assessee s premises, or it was under direction of the latter the former was doing so, was never verified by the lower authorities. We are of the opinion that this issue requires a fresh look by the AO for verifying all aspects of the payment of freight charges. 13. In so far as the payments effected to Hariharan Logistics for freight and forwarding of goods exported by the assessee are concerned, claim of the assessee is that Hariharan Logistics had accounted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, the sum of payment shall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause 11] Thereafter the Finance Act, 2008 made amendment to clause (a) in subclause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read as under:- (ia) any interest, commission or brokerage, ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 17. From the above provision as amended by the Finance Act, 2010 with retrospective effect from 1st April, 2010 it can be seen that the only difference which this amendment has made is dispensing with the earlier two categories of defaults as per the Finance Act, 2008, as discussed in the earlier para, causing disallowance on the basis of the period of the previous year during which tax was deductible. The first category of disallowances included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had come up for consideration before the ITAT Kolkata Bench in the case of Virgin Creations Vs. ITO, Ward 32(4), Kolkata ITA No. 267/Kol/2009 for AY 05-06. The issue that arose for consideration was disallowance of expenses u/s.40(a)(ia)claimed as deduction while computing income from business being embroidery charges, dyeing charges, interest on loan and freight charges without deducting tax at source. The Embroidery charges were paid between 22nd may, 2004 to 30.11.2004. Tax had been deducted at source but were paid to the Government only on 28.10.2005 and not within the time contemplated by Section 200(1) of the Act. The dyeing charges were paid between 5.4.2004 to 20.8.2004. Tax was deducted at source but was paid to the Government only on 28.10.2005. Frieght outward charges were paid without deduction of tax at source. Interest on loans were credited to the creditors account on 31.3.2005 to the extent they were paid after the due date for filing return of income u/s.139(1) of the Act, the disallowance was made u/s.40(a)(ia) of the Act. Before the Tribunal, the Assessee contented that the amendment by the Finance Act, 2010 with retrospective effect from 1st April, 2010 whereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of Section 40(a)(ia) is not sustainable as per the amendments made in the said provisions by the Finance Act, 2010 which, being remedial/curative in nature, have retrospective application , we find no reason to deviate from the decisions of the ITAT s Mumbai Bench and Ahmedabad Bench, in the absence of a contrary view, except the other benches decisions or any other High Court. Therefore, respectfully following the decision of the Coordinate Benches (supra), we allow the ground nos. I to 3 of the assessee s appeal. 20. As against the aforesaid decision, the Revenue preferred appeal before the Hon ble Calcutta High Court. The Hon ble Calcutta High Court in ITA No. 302 of 2011, GA 3200/2011 decided on 23.11.2011, held as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to look into those provisions which read thus: Sec.201: (1) Where any person, including the principal officer of a company (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of Section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced. Keeping in view the purpose behind the proviso inserted by the Finance Act, 2012 in section 40(a)(ia) of the Act, it can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. In CIT Vs. Alom Extrusions Ltd. 319 ITR 306 (SC), the Hon ble Supreme Court had to deal with the question, whether omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance Act, 2003, operated w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988? Prior to Finance Act, 2003, the second proviso to s. 43B of the IT Act, 1961 (for short, the Act ) restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment made by the employer towards contribution to provident fund or any other welfare fund was allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile system of accounting. At the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delayin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs. 26. We are of the view that the reasoning of the Hon ble Supreme Court in the case of Alom Extrusions Ltd(supra) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. 14. In view of the decision of the coordinate bench, assessee can always plead that recipient of the amounts had accounted the income and filed returns and hence the rigors of Section 40(a)(ia) of the Act could not be applied to it. However, question whether the recipients of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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