2024 (9) TMI 266 - AT - Income Tax

TDS disallowance deleted for ocean freight payments to non-resident shippers under section 40(a)(ia)

Galaxy International Overseas Versus The ITO, Ward-2, Morbi

ITAT Rajkot allowed the assessee's appeal partially. The tribunal deleted disallowances under section 40(a)(ia) for non-deduction of TDS on ocean freight ... Disallowance u/s 40(a)(ia) - non-deduction of TDS on ocean freight charges - HELD THAT:- In any case, action or inaction of any person cannot determine the correct position of law. In the present case, the position is clear from the above CBDT’s Circular that neither section 194C nor is section 195 of the Act applicable to the payments made to the non-resident shippers or their Indian agents and it is needless to mention that Board Circulars are binding on the Income Tax Authorities. In view of this discussion and legal position, we are of the view that the addition is not sustainable. Therefore, the same is hereby directed to be deleted. Disallowances on account of travelling expenses - disallowance of entire expenses by the AO is completely unjustified and unsustainable as the parts of the expenses were incurred in respect of partner of the firm - HELD THAT:- No proof shown the purpose of travel, what business has been transacted and accompanied person have no relationship with business activities. We are of the opinion that it will deem fit and proper in these peculiar facts and circumstances that a lump sum disallowance @ 25% in head of the Travelling Expenses would be just and proper. We make it clear that our instant estimation based in these peculiar facts would not be taken as a precedent in any preceding or succeeding assessments. The Ld.AO is accordingly directed to re-compute the impugned disallowance @ 25% and make necessary adjustment in the income of the assessee. Addition u/s 41(1) - outstanding sundry creditors - Assessee submitted where the amounts were shown as liability in the balance sheet and there was no evidence / material to indicate cessation of liability, the addition cannot be made u/s 41(1) simply on the ground that the liability is outstanding for more than 3 years and the same is barred by the limitation - HELD THAT:- As perused the material on record such as copy of ledger accounts, Audit Report, copy of Return along with computation of account placed on record that amount shown as liability in this relevant assessment year. As noted that the impugned amount as income in the subsequent year and offered the same for tax in the return of income for AY 2013-14 filed on 26.09.2013, i.e. before passing the assessment order on 16.03.2015. Thus, the amounts to taxing the same amount twice and double taxation which is completely impermissible under the Act. That, the evidences are received shows that the assessee has shown Rs.78,350/- as income in subsequent year and paid taxes accordingly. We, therefore, delete the addition - AO is directed accordingly. Disallowance on account of motor-car expenses and depreciation - personal use criteria - assessee submitted that the motor-car was used for the purpose of business of the assessee-firm by the partners - HELD THAT:- Having heard both the parties and perused the material available on record, we are of the view that Motilal Laxmichand Sanghavi [2019 (10) TMI 184 - ITAT MUMBAI] and Urmila & Co. Ltd. [2011 (1) TMI 1227 - ITAT MUMBAI] restricted the disallowance @ 10% for personal usage is reasonable. Above said are bindings decision. We restrict the disallowance of motor car expenses. This ground of assessee’s appeal is partly allowed in above terms. Disallowance on account of excess interest payment u/s 40A(2)(b) - HELD THAT:- As relying on decision of Sarjan Realities Ltd [2014 (8) TMI 206 - GUJARAT HIGH COURT] we delete the disallowance made by the AO on account of excess interest payment under Section 40A(2)(b) - AO is accordingly directed to re-compute the impugned disallowance. Issues Involved:1. Disallowance of Rs. 7,20,554/- under Section 40(a)(ia) for non-deduction of TDS on ocean freight charges.2. Disallowance of Rs. 2,38,411/- on account of traveling expenses.3. Addition of Rs. 78,350/- under Section 41(1) for outstanding sundry creditors.4. Disallowance of Rs. 1,18,978/- on account of motor car expenses and depreciation.5. Disallowance of Rs. 40,737/- under Section 40A(2)(b) for excess interest payment.Detailed Analysis:1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Ocean Freight Charges:The assessee contended that the payment of Rs. 7,20,554/- was made to Hardship Shipping Logistics Pvt. Ltd., an agent for non-resident shipping companies, and thus, under CBDT Circular No. 723 dated 19.09.1995, the provisions of Section 194C or 195 did not apply, and the payment should be governed by Section 172 of the Act. The Tribunal noted that the Assessing Officer had not disputed the ultimate beneficiaries were non-resident shipping companies. The Tribunal concluded that the CBDT Circular No. 723 was applicable, and the provisions of Section 194C were not applicable. Hence, the disallowance of Rs. 7,20,554/- was deleted.2. Disallowance on Account of Traveling Expenses:The Assessing Officer disallowed Rs. 2,38,411/- on the ground that the travel expenses were not substantiated with proof of business purpose, and the accompanying individuals were neither partners nor employees. The Tribunal, considering the facts and the absence of proof for the business purpose of the travel, deemed it fit to make a lump sum disallowance of 25% of the traveling expenses. The Assessing Officer was directed to re-compute the disallowance accordingly.3. Addition under Section 41(1) for Outstanding Sundry Creditors:The Assessing Officer added Rs. 78,350/- for outstanding liabilities for more than three years, citing cessation of liability. The Tribunal observed that the assessee had shown the liability in subsequent years and paid taxes accordingly. Therefore, taxing the same amount twice would lead to double taxation, which is impermissible. Consequently, the addition of Rs. 78,350/- was deleted.4. Disallowance on Account of Motor Car Expenses and Depreciation:The Assessing Officer disallowed Rs. 1,18,978/- on account of motor car expenses and depreciation, attributing 20% of the expenses to personal use. The Tribunal, relying on judicial precedents, deemed it reasonable to restrict the disallowance to 10% for personal usage. Thus, the disallowance was partly allowed, and the Assessing Officer was directed to re-compute the disallowance at 10%.5. Disallowance under Section 40A(2)(b) for Excess Interest Payment:The Assessing Officer disallowed Rs. 40,737/- for excess interest payment to a related party at 18% instead of the allowable 12%. The Tribunal, referencing the jurisdictional High Court's decision in CIT vs. Sarjan Realities Ltd., held that different interest rates to different parties alone could not justify the disallowance. Hence, the disallowance of Rs. 40,737/- was deleted.Conclusion:The appeal of the assessee was partly allowed. The Tribunal deleted the disallowances under Sections 40(a)(ia), 41(1), and 40A(2)(b). The disallowance on traveling expenses was restricted to 25%, and the disallowance on motor car expenses and depreciation was limited to 10%.