TaxTMI 
TaxTMI 
2016 (4) TMI 524
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....authorities have grossly erred in making/upholding an addition of Rs. 71,519/- by recourse to Section 40(a)(ia) of the I.T. Act, 1961, even though said provisions are not attracted in appellant case. 03. The learned lower authorities have grossly erred in holding that provisions of Sec.194-C of the I.T. Act, 1961, were applicable to payments made to C.HA for reimbursement of expenses on account of air freight at Rs. 67,297/- and balance service Charges Rs. 4,222/-. Reasons assigned for the impugned addition/disallowance are wrong and contrary to the provisions of the Act read with judicial precedents. 04. The learned lower authorities have grossly erred in making/upholding an addition of Rs. 118,000/- on account of notional interest, even though, no provision for assessing notional interest exists in the I.T. Act, 1961. The reasons assigned for the impugned addition are wrong and contrary to the Scheme of the Act. 05. Having regard to the facts of the case, provisions of law and judicial propositions, the impugned disallowances/additions are wrong and untenable in law. 06. The appellant may please be permitted to raise any additional or alternative ground on or before t....
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....see relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft 2008 TIOL 569 (Bom.HC) and ITAT Mumbai decision in Utility Powertech Ltd. v. ACIT (2010) TIOL 545 (Mum.). The CIT(A) after considering the submission of the assessee in the light of decision in the case of Jaipur Vidyut Vitran Nigam Ltd.,(supra) observed that the assessee has argued that the provisions of section 40(a)(ia) of the Act are not applicable for two reasons, one that no amount was payable as at the end of the year since the amount had been paid before the end of the financial year, second that tax deducted at source provisions are not applicable to reimbursement of expenses. The decision in Jaipur Vidyut Vitran Nigam Limited(supra) is given in the context of payment of transmission charges, wheeling and SLDC charges to an electricity transmission company with whom the tax-payer, an electricity distribution company entered into a 'transmission service agreement' and the main finding was that there is no liability to deduct tax at source on transmission/ wheeling/ SLDC charges u/s.194J and 194C of the Act and the observation of the ITAT on whether sec. 40(a)(ia) of ....
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....priya Engineers Syndicate, (2015)113 DTR 311 (AP) and ITATVisakhapatnam -Special Bench in the case of Merlyn Shipping & Transporters v. Addl. CIT, (2012) 16 ITR (Trib) 1 (Visakhapatnam, [S.B.] . 8. The ld. D.R., on the other hand, strongly supported the orders of CIT(A). 9. We have heard the rival contentions and also perused the material available on record. We have observed that reimbursement of expenses being air freight of Rs. 65021/- for export consignment sent to Lusaka(Zambia) , insurance charges for insuring export consignment to Lusaka(Zambai) of Rs. 2246/- was paid and Rs. 30/- towards postage charges were paid to M/s S. Natesa Iyer & Co. against their invoice dated 12-1-2008 towards the export consignment sent by the assessee to Lusaka (Zambai). These payments were made towards reimbursement of air freight , insurance and postage charges in connection with export consignment sent by the assessee from India to Lusaka(Zambia). The Hon'ble Delhi High Court has dealt with nonapplicability of provisions with respect to tax deducted at source with respect to air freight on export consignment in CIT v. Opera Global Private Limited (supra) as under: "4. Section 194C was....
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.... need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both ; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India ; or (h) any trust ; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or (j) any firm ; or (k) any individual or a Hindu undivided family, or an association of persons or a body of individuals, whether incorporated or not, other than those falling under any of the preceding clauses whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash o....
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....ited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section : ** ** **" 8. Explanation III in clause (c) states that the "work", for the purpose of Section 194C, shall also include carriage for goods and passengers by any mode of transport other than railways. 9. In this context, we would like to refer to Circular No. 715 dated 8th August, 1995 issued by CBDT explaining Revenue's point of view with reference to amended Section 194C w.e.f. 1st July, 1995. Question No's. 6 and 7 are relevant for the purpose of understanding whether tax at source was required to be deducted in the present case. The said questions and opinions/answers given by CBDT in the said circular read as under: "Question 6: Whether payment under a contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods? Answer : The payments made to a travel agent or an airli....
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....agents. For the said services, separate bills were issued and tax at source was deducted under Section 194C. It is not the case of the Revenue that TDS had to be deducted on air freight paid to airlines. The payment towards air freight was required for exporting the goods as the respondent assessee was an exporter and the consignor. Delhi High Court in CIT v. Hardarshan Singh [2013] 350 ITR 427/216 Taxman 283/30 taxmann.com 245, has held that on applying principle of privity of contract, mere reimbursement of charges would not require deduction of taxes at source. 12. The findings of the Tribunal being factual and the Revenue having preferred these appeals challenging the said findings, by the order dated 23rd September, 2013 passed in ITA 359/2012, it was inter alia directed :- "Learned counsel for the appellant has filed two charts along with copies of sample invoices. Initially, she had submitted that MSS-I invoices submitted by the respondent were incorrect and no break up was given. However, we find that MSS-I invoices have been also filed by the appellant themselves. Learned counsel for the respondent has drawn our attention to the assessment order and referred to....
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....s mentioned in paragraph 8 of the assessment order also find mention in paragraph 9. Paragraph 9 refers to of 31 parties and relates to payment of Rs. 12,40,288/- to the persons to whom clearing and forwarding charges or fee had been paid on which tax at source was deducted. A perusal of paragraph 4 of the Tribunal‟s order would reveal that the parties had raised separate bills, which were reimbursed, as it was paid to the airlines for export of goods. In other words, the factual findings of the Tribunal are correct and the plea and stand taken by the Revenue is incorrect and wrong. 15. Similar directions were issued to the Commissioner of Income Tax to file an affidavit in ITA 359/2012. In the affidavit of the Commissioner of Income tax, relating to Assessment Year 2006-07, it is stated that 41 parties had raised invoices on account of freight charges and 31 parties on account of clearing and forwarding charges 14 parties were common. Certain invoices were not available on record. 16. We are not inclined to accept prayer of counsel for the revenue of remand, on issue relating to matter of facts. Assessment years are 5 and 7 years old. Assessing Officer should have cond....
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....e set aside and disallowance of Rs. 71,5119/- made by the A.O. and confirmed by the CIT(A) is ordered to be deleted. This ground of the appeal raised by the assessee is allowed. We order accordingly. 10. The second ground is with respect to upholding of notional interest amounting to Rs. 118,000/- as income of the assessee. It was observed by the A.O. that the assessee had taken a loan from 5 parties, on which the assessee was paying interest. The assessee had also given loans to two parties, i.e., Shri O.P. Mehta and Smt Vimla Mehta of Rs. 3,03,102/- and Rs. 6,82,617/- respectively. The assessee was asked that since the assessee is paying interest on loan taken by him , why the interest is not charged for loans given to the persons and why interest at the rate of 12% should not be charged on loans given to these two parties and added under the head 'income from other sources'. The assessee submitted that loans had been given to the relatives and therefore no interest is charged on the same. This contention of the assessee was not found acceptable and rejected by the A.O. The A.O. held that any prudent business man when he himself is paying interest on loans which are interest b....
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....h borrowing, if diverted would cease to be borrowing for the purposes of business, so that the proportionate interest is liable for disallowance. In support, the CIT(A) relied upon the decision in the case of K. Somasundaram & Brothers (1999) 238 ITR 939 (Mad) and the decision of Hon'ble Allahabad High Court in the case of CIT v. H. R. Sugar factory (P) Ltd (1991) 187 ITR 363 (All.) wherein it is held that in case of common pool of funds , proportionate disallowance can be made. The CIT(A) also referred to the judgment of Hon'ble Punjab and Haryana High Court decision in CIT v. Abhishek Industries Limited, (2006) 286 ITR 1 (P & H Hc), wherein it has been held that there should be a nexus of use of borrowed funds for the purpose of business to claim deduction u/s 36(1)(iii) of the Act . The CIT(A) held that it is thus for the assessee to prove that funds borrowed for business were utilized for the purpose of business, it is not for the Revenue to establish nexus between the borrowed funds and interest free funds advanced, hence, A.O. was directed to make proportionate disallowance from the interest claimed u/s 36(1)(iii) of the Act at the same rate of interest as had been paid on th....