ITAT rules no TDS deduction on freight charges included in selling price. Appeal allowed, disallowance deleted.

The ITAT allowed the appeal, holding that the assessee was not liable to deduct TDS on freight charges paid by the supplier as they were part of the selling price and not paid on behalf of the assessee. The ITAT set aside the CIT(A)'s order and directed the A.O. to delete the disallowance made under section 40(a)(ia) of the Income-tax Act.

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Issues:
Disallowance made u/s. 40(a)(ia) of the Income-tax Act in respect of freight charges paid.

Analysis:
The appellant challenged the order passed by the Ld. CIT(A) related to the assessment year 2007-08. The appeal was filed regarding the disallowance made u/s. 40(a)(ia) of the Income-tax Act concerning freight charges paid. The appellant did not appear during the proceedings, leading to an ex-parte disposal of the appeal.

The assessee, engaged in trading activities, reported a turnover of &8377; 9.47 crores and claimed &8377; 34,63,085/- as carriage outward expenditure during the relevant year. The Assessing Officer (A.O.) raised concerns about the deduction of tax at source from the freight charges debited by the assessee. The assessee explained that the freight charges were part of the cost of purchases, included in the selling price by the supplier. The supplier, M/s. Rukmini Rama Steel Rollings Pvt. Ltd., was responsible for identifying the transporter and paying the freight charges, as per the business model where materials were directly supplied to customers.

However, the A.O. disallowed the claim, stating that the supplier showed freight charges separately to avoid excise duty payment, and thus, TDS should have been deducted. The Ld. CIT(A) upheld the disallowance. The ITAT, after considering the submissions and evidence, found that the selling price included freight charges and that the supplier paid the freight charges on its account, not on behalf of the assessee. Therefore, the liability to deduct TDS did not fall on the assessee, and the disallowance u/s. 40(a)(ia) was unjustified. The ITAT set aside the CIT(A)'s order and directed the A.O. to delete the disallowance.

In conclusion, the ITAT allowed the appeal, emphasizing that the assessee was not liable to deduct TDS on the freight charges paid by the supplier, as they were part of the selling price and not paid on behalf of the assessee. The judgment was pronounced on 21st Feb, 2022.

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