2014 (3) TMI 571 - AT - Income Tax

Tribunal directs fresh examination on purchase disallowance and TDS non-deduction

The Tribunal allowed the appeal filed by the revenue and the cross-objection filed by the assessee for statistical purposes. The Tribunal directed a fresh ... Disallowance of purchase amount - Genuineness of the suppliers was not proved - Claim of receipt of goods by the assessee was not proved – Held that:- The CIT(A) was satisfied with the genuineness of the suppliers on the basis of various documents furnished by the assessee and accordingly deleted the disallowance – the CIT(A) has not examined the second reason at all viz., the claim of receipt of goods by the assessee – thus, the action of the CIT(A) is not correct - CIT(A) should have considered both the reasons before coming to a conclusion - the second reason cited by the assessing officer is more relevant than the first reason - even if the assessee is able to prove the genuineness of the suppliers, still the disallowance is possible if the assessee is not able to prove that it has actually received the goods – thus, the second reason cited by the assessing officer and the explanations given by the assessee needs to be examined at the end of the CIT(A) – the order of the CIT(A) set aside and the matter remitted back for examination – Decided in favour of Revenue. Disallowance u/s 40(a)(ia) of the Act – TDS not deducted on payment made to C& F agents - Held that:- The C & F agent is seeking reimbursement of expenditure incurred on Customs Duty, Clearing and Forwarding, Port dues, Transporting charges etc. on actual basis - the payments relating to the above said expenses is made on behalf of the assessee - the assessee is authorizing the C & F agent to incur the expenses on its behalf - the break up details given in the single consolidated bill raised by the C & F agents should be considered as separate bills relating to (a) reimbursement of expenses and (b) charges for clearing quoted by the Agent - the applicability of TDS provisions on 'reimbursement of expenses' should be considered separately in respect of each of the item and it cannot be clubbed with the charges levied by the C & F agent – CIT(A) did not examine the break-up details of the bills raised by the C & F agents – thus, the matter is remitted back to the CIT(A) for fresh examination of the applicability of TDS provisions on the charges paid to C & F agents and also on the expenses reimbursed – Decided in favour of Assessee. Issues Involved:1. Disallowance of purchase amount of Rs. 39,55,287/-.2. Disallowance made under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on payments made to Clearing and Forwarding (C&F) agents.Detailed Analysis:1. Disallowance of Purchase Amount:The revenue challenged the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] in deleting the disallowance of purchase amounting to Rs. 39,55,287/- made by the Assessing Officer (AO). The AO had disallowed the purchases from M/s Indian Timbers and M/s Victory Timbers on the grounds that the identity of the sellers and the delivery of goods were not substantiated. The AO noted discrepancies such as the lack of delivery notes, untraceable addresses of the suppliers, and the absence of licenses from village authorities. Additionally, the AO found that the cheques issued to these suppliers were encashed through a bank in a different district.The assessee provided documents through a representative, Mr. Zaheer, including VAT registration certificates, delivery notes, and stock registers. The AO rejected these documents, questioning Mr. Zaheer's authority. The CIT(A) accepted the documents, finding the suppliers genuine but did not address whether the goods were actually received by the assessee.The Tribunal found that the AO should have verified the documents independently and that the CIT(A) erred by not examining the receipt of goods. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) to examine whether the goods were received by the assessee and to make a decision in accordance with the law.2. Disallowance Under Section 40(a)(ia):The AO disallowed Rs. 10,16,894/- under Section 40(a)(ia) for non-deduction of tax at source on payments to C&F agents. The AO relied on CBDT Circular No. 715, which states that payments to C&F agents are liable for TDS as they act as independent contractors. The AO concluded that the entire amount billed by the C&F agents, including reimbursements, was subject to TDS.The assessee argued that the payments were reimbursements for expenses incurred on its behalf, such as government taxes and duties, and thus not subject to TDS. The CIT(A) upheld the AO's decision, stating that Section 194C applies to any sum paid to contractors, including reimbursements, as the section uses the term 'any sum.'The Tribunal reviewed the case laws and circulars cited by the assessee, noting that the nature of the agreement between the parties is crucial. The Tribunal found that if the C&F agents incurred expenses on behalf of the assessee, these should be considered separate from their service charges. The Tribunal directed the AO to examine the break-up of the bills and determine the applicability of TDS provisions on each component separately.The Tribunal set aside the CIT(A)'s order on this issue and remanded it to the AO for fresh examination and appropriate decision in accordance with the law.Conclusion:The appeal filed by the revenue and the cross-objection filed by the assessee were allowed for statistical purposes. The Tribunal directed further examination and appropriate decisions by the CIT(A) and AO on the respective issues.