2013 (2) TMI 549 - AT - Income Tax

Tribunal rules on transport expenses & deemed dividend, partly in favor of assessee

Assistant Commissioner of Income-tax, Circle-29, Kolkata & Others Versus M/s. Mohan General Trading Co.

Assistant Commissioner of Income-tax, Circle-29, Kolkata & Others Versus M/s. Mohan General Trading Co. - TMI Issues Involved:1. Disallowance of deduction of transport expenses due to non-deduction of TDS under Section 194C of the Income Tax Act, 1961.2. Deletion of addition made by the Assessing Officer by invoking the provisions of Section 2(22)(e) of the Act by treating the loan as deemed dividend.Issue-wise Detailed Analysis:1. Disallowance of Deduction of Transport Expenses:- Assessee's Appeal (ITA No. 1791/K/2009): The primary issue is the confirmation of disallowance of deduction of transport expenses by the CIT(A) due to non-deduction of TDS under Section 194C of the Act. The assessee raised three grounds, arguing that the CIT(A)'s order was arbitrary and failed to appreciate the non-applicability of Sections 194C, 194J, and 194H to the impugned payments. The assessee also contended that genuine business payments should be allowable under Section 37 of the Act.- Payments to Specific Parties: The Assessing Officer noted that the assessee paid various amounts without deducting TDS, invoking Section 40(a)(ia). The CIT(A) confirmed this disallowance. The assessee argued that payments to Anil Trading Co., Vijay Chandra Mishra, MA Chhinnamasta Steel & Power Ltd., and Akhilesh Kumar Jaiswal were for the supply of material, not transportation charges. After reviewing evidence, it was concluded that these payments were indeed for purchases, not transportation, and thus, no TDS was required. The disallowance was deleted for these parties.- M/s. A. K. Sons: The assessee claimed payments to M/s. A. K. Sons were for the purchase of iron ore, and transportation charges were included in the sale price. However, the absence of clear agreement details led to the remand of this issue to the Assessing Officer for verification.- M/s. Omega Consultants, M/s. Indicative Consultants, and M/s. Itlab (Goa) Pvt. Ltd.: The assessee did not press these issues, and they were dismissed.- M/s. AM Enterprises: The assessee deducted TDS for Rs. 20,65,438/- and paid it before the due date, complying with Section 40(a)(ia). This disallowance was deleted. For the balance amount of Rs. 9,02,107/-, verification by the Assessing Officer was required.- East Coast Marine Services: Payments included capitalized expenses of Rs. 5,97,500/-, which were not subject to TDS. The disallowance for this amount was deleted, while the balance was confirmed.- R. B. Logistics and Crystal Shipping Corporation: These payments were for services like documentation, custom clearance, and supervision, falling under Section 194C. The disallowance was confirmed as the assessee failed to deduct TDS.2. Deletion of Addition as Deemed Dividend (Revenue's Appeal - ITA No. 1725/K/2009):- Assessee's Firm and Loan from M/s. Shilpa Creation (P) Ltd.: The assessee-firm received a loan of Rs. 16,28,951/- from M/s. Shilpa Creation (P) Ltd., where the partners held significant shares. The Assessing Officer treated this loan as deemed dividend under Section 2(22)(e), adding it to the assessee's income.- CIT(A)'s Decision: The CIT(A) deleted the addition, relying on the Special Bench decision in ACIT vs. Bhaumik Colour (P) Ltd., which held that deemed dividend can only be assessed in the hands of a shareholder, not a non-shareholder entity like the assessee-firm.- Legal Precedents: The CIT(A) referenced decisions from the Rajasthan High Court (CIT vs. Hotel Hilltop) and the Allahabad High Court (CIT vs. Rajkumar Singh & Co.), which supported the view that deemed dividend provisions apply only to shareholders, not to entities merely associated with shareholders.- Conclusion: The Tribunal confirmed the CIT(A)'s order, dismissing the revenue's appeal, as the assessee-firm was neither a registered nor a beneficial shareholder of M/s. Shilpa Creation (P) Ltd.Final Judgment:- The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed. The order was pronounced in open court on 20.01.2012.