ITAT upholds deletion of TDS disallowance u/s 40(a)(i) on shipment clearing charges, rules overseas information services not consultancy

ITAT Delhi ruled in favor of the assessee regarding TDS u/s 195 and disallowance u/s 40(a)(i) on shipment clearing and forwarding charges. AO treated overseas parties' services as consultancy requiring TDS deduction. CIT(A) deleted the addition finding income did not accrue or arise in India, hence not taxable. ITAT upheld CIT(A)'s decision, holding that mere provision of information on tariff changes does not constitute consultancy services, and Revenue failed to rebut findings that income was not deemed to accrue in India.

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Issues Involved:
1. Deletion of disallowance u/s 40(a)(i) for non-deduction of tax at source on shipment clearing and forwarding charges for AY 2017-18 and AY 2018-19.

Summary:

Issue 1: Deletion of disallowance of Rs. 33,49,56,683/- u/s 40(a)(i) for AY 2017-18:
The Revenue appealed against the deletion of disallowance made by the Assessing Officer (AO) u/s 40(a)(i) for non-deduction of tax at source on shipment clearing and forwarding charges. The AO contended that the services rendered by the overseas entities fell under "consulting services" and were liable for tax deduction at source as per section 195 of the Act. The Ld.CIT(A) allowed the appeal of the assessee, holding that the payment received by the overseas parties neither falls u/s 9(1) nor u/s 9(1)(i) of the Act, and hence, the income could not be deemed to accrue or arise in India. Therefore, the action of the AO for invoking the provision of section 40(a)(i) was not justified.

The Tribunal upheld the decision of Ld.CIT(A), stating that the services rendered were administrative and did not involve professional skills or knowledge. The Tribunal referred to various judicial precedents and Circular No. 715 issued by CBDT, which clarified that payments made to clearing and forwarding agents are covered for TDS u/s 194C and not as Fee for Technical Services (FTS) u/s 194J. The Tribunal found no error in the decision of Ld.CIT(A) and dismissed the appeal of the Revenue.

Issue 2: Deletion of disallowance of Rs. 46,10,99,507/- u/s 40(a)(i) for AY 2018-19:
The facts and issues in this case were identical to those in ITA No. 911/Del/2023 for AY 2017-18, except for the figures. The Tribunal adopted the same reasoning and arguments as in the previous case and upheld the decision of Ld.CIT(A). The appeal of the Revenue was dismissed.

Final Result:
Both appeals of the Revenue in ITA No. 911 & 912/Del/2023 for the Assessment Years 2017-18 & 2018-19 were dismissed.

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