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TMI Blog2019 (8) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995 also clarifies that where payment is made to the shipping agents of non-resident, ship owner or charter, the agent steps into the shoe of the Principal i.e. shipping company. Accordingly, provision of section 172 shall apply and section 194C or 195 shall not be applicable. On identical issue and facts, the ITAT (Chennai) in the case of T. Mathimaran Vs. CIT ( 2015 (10) TMI 311 - ITAT CHENNAI ) held that as per Circular issued by the CBDT No. 723 dated 19th Sep, 1995 where the provision section 172 apply provisions of section 194C and 195 relating to tax deduction at source are not applicable. Similarly, the ITAT Ahmedabad in the case of Steelco Gujarat Ltd. vs. ACIT (2017 (1) TMI 1573 - ITAT AHMEDABAD) after giving reference to circular no. 723 held that where provision of section 172 applies and provisions of section 194C or 195 are not applicable. CIT has failed to consider that during the course of assessment proceedings the assessee has furnished the relevant material in respect of export freight payment and the ld. Pr. CIT has also not controverted the these undisputed facts and findings brought to his notice by the assessee during the course of proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as under:- Ground No 1 - Initiation of revision proceedings under section 263 of the Act a. On the facts and circumstances of the case and in law, the learned CIT has erred in holding that the order passed by the learned Assessing Officer, Ahmedabad ('learned AO') is erroneous as well as prejudicial to the interests of revenue. b. The learned CIT has erred in not appreciating the fact that the learned AO has passed the assessment order under section 143(3) of the Act after application of mind and after considering the submissions filed by the Appellant and accordingly, the order passed by the learned AO is not erroneous and prejudicial to the interest of revenue. c. The learned CIT has based on irrelevant considerations, erred in concluding that assessment order is erroneous and prejudicial to the interest of revenue. d. The Learned CIT erred in initiating proceedings under section 263 of the Act and hence the impugned order is bad in law and void ab-initio. Ground No 2 - Disallowance of export freight of ₹ 2,03,66,683 paid to the Inter Ocean Shipping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any TDS on the said payment. It is also noticed that as per record no TDS return showing detail of deduction of any tax in respect of aforesaid payment has been filed by the assessee. Therefore, the Pr. CIT was of the view that since the assessee has failed to deduct TDS on freight payment at the rates specified, the entire amount was required to be disallowed u/s. 40(a)(ia) of the act. The Pr. CIT of Income Tax also noticed that during the year the assessee had made export sale of ₹ 13,66,87,344/- to M/s. Summit Research Lap, USA which was a related entity of the assessee company. In this regard, the Pr. CIT has seen from the record that in assessment year 2010-11 a reference was made to the TPO. He has further noticed that in assessment year 2013-14 also, there was export sale made by the assessee to its related party. On verification through ITD system, the Pr. CIT found that the assessee had not filed 3CEB Report in respect of the international transaction entered into by it during the Financial Year 2012-13 relating to assessment year 2013-14 electronically. The assessee had submitted form 3CEB electronically for assessment year 2014-15 but no such form 3CEB for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom sales have been made and there have been previous instances of transfer pricing references, the assessee was required to be referred to the TPO for determination of ALP. Failure to keep and maintain and report international transactions attracts penalty of amount equal to 2% of the value of international transactions, thus resulting into short levy of income tax of ₹ 22,90,385/- in the assessee's case. 4. In view of the above, I am of the view that the assessment order passed by the assessing officer on 23.03.2016 is erroneous is so far as it is prejudicial to the interest of revenue. I, therefore, propose to pass an order u/s.263 holding it to be so. Before I do so, I hereby give you an opportunity to state as to why the assessment order passed by the ITO, Wd.4(l)(2), Ahmedabad for A.Y.2013-14 u/s. 143(3) dated 23.03,2016 in the case of the assessee company should not be held to be erroneous in ss much as it is prejudicial to the interest of revenue and be set aside and modified to the extent mentioned in para 2 and 3 above. 5. You are hereby an opportunity of being heard in person along with documents and evidence justifying you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 172 are to apply, notwithstanding anything contained in other provisions of the Act, Therefore, ion such cases, the provisions of section 194C and 195 relating to tax deduction at source ore 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 . 4...... 5. There would, however, be cases where payments are made to shipping agents of nonresident ship owners or charterers for carriage of passengers etc., shipped at a port in indies. 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 , 3.2. Non filing of Form 3CEBfor the A.Y, 2013-14 3.2.1 In this regard, we wish to submit that assessee has duly filed form 3C B on 30th September, 2013 to the jurisdictional AO which Is before due of date of filing . The ld. Pr. CIT has not accepted the submission of the assessee in view of the following reasons reproduced as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has taken the view that since he has made payment to the agent of the nonresident ship owner, as per CBDT Circular 723 dtd. 19.09.1995, he steps into the shoes of the principal and accordingly provisions of Section 172 would apply and provisions of Section 194C or 195 would not apply. Section 172 is related to levy and recovery of the tax, ship-wise, and journey wise, and requires the filing of the return within a maximum time of thirty days from the date of departure of the ship. But the assessee has not produced any document to prove that such returns have been filed by or on behalf of the agent 'Inter Ocean Shipping and Logistics Ltd by which the applicability of Section 172 and non applicability of Section 194C or Section 195 could be ascertained. The assessee has only submitted the copses of invoices which can lead to the conclusion that the payment has been made to the said party, but it does not prove that the agent has been covered under the provisions of Section 172 of IT Act. Thus, the contention of the assessee that as the agent Is covered u/s 172 of IT Act and that provisions of| Section 195/194C would not be applicable in the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd penalty u/s 271BA is leviable in this cases. ( iv) Moreover, it is apparent that the appellant had export sales of ₹ 13,66,87,844/- to M/s. Summit Research Lab (USA) i.e. related party and hence, the reference to TPO could have been made by the A.O, in view of the provisions of section 92CA read with 92C of the I.T. Act, to ascertain the arms length price. But the A.O, has failed to do in observing the above said provisions of law. 6. I, therefore, hold that the assessment order dated 23,03.2016 passed by the A.O, u/s,143 (3) of the Act in the case of the assessee is erroneous in as much as it is prejudicial in the interest of the revenue by reason of failure by the A.O. to make proper inquiry/verification regarding the applicability of TDS provisions on the freight payments and levy of penalty u/s. 271BA of the I.T. Act and also reference to TPO u/s. 92C, Thus, the A.O. has failed in application of law upon the facts on record and did not apply his mind also. I, therefore, set aside the assessment order u/s.143 (3) of the Act, dated 23.03.2016 in the case of the assessee for the A.Y. 2013-14 and, direct the A.O. to make a fresh a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said that assessee has not furnished a report as required u/s. 192E of the act. Considering this, penalty u/s. 271BA of the act cannot be levied. The ld. counsel has also referred CBDT Circular No. 3/2016 dated 10th March, 2016 in respect of type of cases to be referred to the TPO. The ld. counsel has contended that since form 3CEB manually filed was on record, therefore, it cannot be construed that assessing officer has not applied his mind and no reference was made to the TPO. 5. On the other hand, the ld. departmental representative has submitted that assessing officer has not made any verification and applied his mind in the assessment year in respect of the aforesaid issues, therefore, the ld. Pr. CIT has rightly held that the assessment order passed u/s 143(3) of the act by the assessing officer was erroneous and prejudicial to the interest of revenue. Ld. departmental representative has also contended that as per rule 12(2) it is mandatory for the assessee to furnish report in form 3CEB electronically w.e.f. 01-04-2013, therefore, because of non-submission of form 3CEB electronically the case of the asesseee could not be referred to the TPO, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction at source are not applicable. Similarly, the ITAT Ahmedabad in the case of Steelco Gujarat Ltd. vs. ACIT (2018) 92 taxman.com 27 (Ahmedabad Bench) dated 20th Jan, 2017 after giving reference to circular no. 723 held that where provision of section 172 applies and provisions of section 194C or 195 are not applicable. Similarly, the ITAT Chandigarh in the case of ITO vs. Bhogal Export (2013) 40 taxman.com 82 (Chandigarh Trib) dated 23rd August, 2013 after referring Circular No. 723 dated 19-09-1995 has held that provisions of section 194C were not applicable if goods were dispatched through non-resident shipping companies or through freight resident agents. Similarly, ITAT Mumbai in the case of Kuloday Tech Nopack Pvt. Ltd. vs. ITO (2017) 86 taxmnan.com 74 (Mumbai-Trib) dated 29th Sep, 2017 after referring the CBDT circular No. 723 dated 19-09-1995 has held that the ocean freight, demurrage charge etc. paid to Indian agents or authorized representative of non-resident shipping companies are not covered for deduction of tax at source under provisions of section 194C or 195 of the act. 6.1 In the light of the above facts and circumstances, we observe that ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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