2014 (11) TMI 763 - AT - Income Tax

Tribunal upholds assessment reopening for failure to deduct tax on air freight payments

Mangalam Publications (India) P. Ltd. Versus Dy. CIT, Cir. 1 Kottayam

Mangalam Publications (India) P. Ltd. Versus Dy. CIT, Cir. 1 Kottayam - TMI Issues:1. Reopening of assessment u/s 147 of the Act.2. Disallowance of expenditure on air freight charges under section 40(a)(ia) of the Act.Analysis:Issue 1: Reopening of assessment u/s 147 of the ActThe appellant contested the reopening of assessment by the assessing officer under section 147 of the Act, arguing that there was no new information and the officer changed opinion without valid grounds. The respondent, however, justified the reopening based on the failure of the appellant to deduct tax on air freight payments. The Tribunal found that the appellant did not deduct tax on air freight payments to three companies, leading to a potential disallowance under section 40(a)(ia) of the Act. The Tribunal ruled that excess relief was granted to the appellant, justifying the assessment reopening within four years as per the Act. Additionally, the Tribunal differentiated the case from a Delhi High Court judgment, emphasizing the provisions of Explanation 2(c)(iii) to section 147 of the Act. The Tribunal concluded that the assessing officer rightly reopened the assessment due to the excess relief granted without considering the provisions of the Act.Issue 2: Disallowance of expenditure on air freight charges under section 40(a)(ia) of the ActThe appellant argued that the freight charges were reimbursed by a foreign party, making it a revenue-neutral transaction and not subject to disallowance under section 40(a)(ia) of the Act. The respondent contended that since the appellant debited the payment in the profit & loss account, the assessing officer rightly disallowed the claim. The Tribunal analyzed the agreement between the appellant and the foreign party, concluding that the liability to pay freight charges rested with the foreign party. Despite the appellant debiting the payment, the Tribunal held that the appellant was responsible for making the payment, thus liable to deduct tax under section 194C of the Act. The Tribunal distinguished previous judgments where the responsibility for payment differed. However, the Tribunal remitted the issue back to the assessing officer to verify if the reimbursement of freight charges was credited as income from other sources. If credited as such, no further disallowance was necessary; otherwise, the expenditure had to be disallowed.In conclusion, the Tribunal allowed the appeal for statistical purposes and remitted the issue back to the assessing officer for further verification, setting aside the orders of the lower authorities.