TaxTMI 
TaxTMI 
2014 (4) TMI 1143
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....sessed to tax and already paid taxes on the said amount and therefore there should not be any disallowance, the aforesaid view is also supported by the subsequent amendment made by the Finance Act 2012 inserting proviso to section 40(a)(ia) of the Act which is clarificatory in nature and inserted with a view to rationalize the provisions of disallowance. II. Disallowance of out of pocket Expenses 3. On the facts and in the circumstances of the case, the learned CIT(A) while allowing the ground 2 relating to reimbursement of out of pocket expenses wrongly referred the figure of Rs. 7,42,554/- instead of Rs. 20,64,401/-. III. Disallowance of Rent Expenses 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding disallowance of Rs. 1,22,286/- as rent expenses without appreciating the findings of Remand Report. 5. The Appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal." Apart from that the assessee has taken the following additional grounds of appeal: "I. Disallowance of freight expenses u/s. 40(a)(ia): 1. The learned CIT(A) also failed to appre....
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....ssee had made the payments to these parties before Feb 2007, therefore, the tax was deductible as per the provisions of sec 194C of the IT Act on these payments and should have been paid on or before 31.03.2007 which the assessee had failed to do. As regards to the other payments, the payments made were in nature of sub contract, the assessee was liable to deduct tax on the amounts paid on account of Freight & Forwarding Charges. Therefore, the assessee was asked by the AO to explain why the tax had not been deducted at source as per the provisions of Sec 194C of the I.T. Act. 3. In reply, the assessee relied upon the Circular No.723, dated 19.9.1995 and also submitted as under; "We are the Shipping Company doing business of Shipped to exports the goods and we would like to say that TDS is not applicable on Freight for exports of goods on ocean freight. Ocean freight is being paid to foreign companies this freight expenses for foreign voyage hence TDS is not applicable on ocean freight. " The assessee was asked by the AO to substantiate with evidence that M/s. Draft Cargoways Mumbai Pvt. Ltd. and M/s. Sheriff Express Travels & Cargo P. Ltd. were agent of foreign s....
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....so pleaded that the said parties were agents of foreign shipping nationals and hence covered by CBDT circular No.723 dated 19.9.95 according to which to the payment made to shipping agents of non resident ship owners sections 194C and 195C were not applicable and provisions of section 172 only were applicable. The CIT(A) called for a remand report from the AO regarding the above submissions of the assessee. After going through the remand report of the AO, the ld. CIT(A) observed that the AO had given finding that in the cases of Evergreen India P. Ltd. (Rs.22,830/-). Aqurius Logistics P. Ltd. (Rs.25,009/-). Silverline Logistics P. Ltd. (Rs.25,500/-) and WSA Shipping Bombay P. Ltd. (Rs.38,964/-), the payments were below the prescribed limit for deduction of TDS therefore the provisions of sec.40(a)(ia) were not attracted in respect of those four parties. Accordingly, amount paid to those parties was allowed being not covered u/s.194C. He further observed that in the cases of Biroba Transport Co., Lirin Roadways P.Ltd. and Chunnilal Clearing & Forwarding P. Ltd. for total amount of Rs. 15,38,566/- the payments were made in June 2007 and as per the amended provision of sec.40(a)(ia) f....
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....unds of appeal are identical in nature and hence the same are taken together for adjudication. Ground No.I as reproduced above relates to disallowance of freight paid under section 40(a)(ia) for non deduction of TDS. The ld. counsel for the assessee, at the outset, has sought to raise a new plea that the freight paid was just the reimbursement of the expenditure and as such TDS was not deductible. He has further sought to produce certain additional evidences to stress this factual plea. It may be observed that such a plea was raised by the assessee neither before the AO nor before the first appellate authority. Even such a factual plea has not been raised in the grounds of appeal before us. Now at the argument stage of the second appeal, a new factual plea cannot be allowed to be raised. Moreover, the assessee had already deducted the TDS in respect of certain other parties but had failed to deduct TDS in respect of two parties. Even the TDS was deducted by the respective parties from whom the assessee had received the payment in question. Under such circumstances this new factual plea of the assessee otherwise does not seem to be plausible and the same therefore rejected. 6. Th....
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....ded contract also." 9.1 While answering the said question the Hon'ble Allahabad High Court in the concluding paras of the judgment has observed as under :- "We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 ITD 23) (SB) quoted as above to the effect Section 40(a) (ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. In the present case tax was deducted as TDS from the salaries of the employees paid by M/s Mercator Lines Ltd., and the circumstances in which such salaries were paid by M/s Mercator Lines Ltd., for M/s Vector Shipping Services, the assessee were sufficiently explained. It i....
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....ous case laws relating to the interpretation of the statute has finally observed that the key words used in section 40(a)(ia) are: "on which tax is deductible at source under Chapter XVII -B". If the question is: "which expenses are sought to be disallowed?" The answer is bound to be: "those expenses on which tax is deductible at source under Chapter XVII -B." Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The Hon'ble High Court further observed that there can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It was not the case of an inadvertent error. The Hon'ble High Court further observed that the majority view expressed in the case of Merilyn Shipping & Transports (supra) was not acceptable. ....
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....d down by the Hon'ble Calcutta High Court and further by the Hon'ble High Court of Gujarat as discussed above, there is no merit in the contention of the ld. Authorized Representative on this issue also....." 7. So in view of the above findings of the Tribunal, this plea of the assessee is also not tenable and hence the same is rejected. 8. The next contention of the ld. counsel for the assessee has been that since the assessment year in question was the first year of disallowance and the assessee was under bonafide belief that it was not liable to deduct the TDS in relation to the transactions in question, hence in view of the proposition of law laid down by the Hon'ble Jurisdictional High Court of Bombay in the case of 'Kotak Securities Ltd.' (2012) 340 ITR 333 (Bom), the additions are required to be deleted. He has further relied upon the three other decisions of the coordinate benches of the Tribunal in this respect i.e. in the case of 'Anant Investments' in ITA No.6428/M/2010 decided on 06.06.12, 'Javeri Fiscal Services Ltd.' in ITA No.478/M/2011 decided on 07.06.13 and in the case of 'Indsec Securities & Finance Ltd.' in ITA No.916/M/2011 decided on 08.05.13. ....
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....ny such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] 70[Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.]....................." ------------------------------------------------------------------------------------------ "70. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013." Section 201 of the Act being also relevant is reproduced as under: "Consequences of failure to deduct or pay: 201. (1) Where any person, including the principal officer of a company,- (a) who is required t....
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....lied retrospectively. 12. At this stage, ld. counsel for the assessee brought to our notice that the issue relating to the operation of the newly inserted proviso, whether prospective or retrospective in nature, has already been raised before the Pune Bench of the Tribunal in the case of 'ITO vs. M/s. Gaurimal Mahajan & Sons' ITA No.1852/PN/2012 decided on 06.01.14, as well as before the Cochin Bench of the Tribunal in the case of 'Antony D. Mundackal vs. ACIT' ITA No.38/Coch/2013 decided on 29.11.13, which decision also finds reference of the order of the Pune Bench of the Tribunal in the case of 'M/s. Gaurimal Mahajan & Sons' (supra) on this issue. He has further submitted that after consideration of the matter, both the above co-ordinate benches of the Tribunal have restored this issue to the file of the AO to examine the contention of the assessee in this respect and decide the issue afresh in accordance with law. 13. We have perused the order of the Pune Bench of the Tribunal in the case of 'M/s. Gaurimal Mahajan & Sons' (supra). The relevant observations of the Tribunal in the said case are reproduced as under: "8.1 However, the assessee has made a new legal argum....
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....ntention of the assessee and hold that the provisions of sec. 194C shall apply to the polishing works given by the assessee. 7.1 According to Ld A.R, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld A.R further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the cu....
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....enefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld.CIT(A) and set aside this ground to the file of the Assessing Officer with the direction to examine the above said contention of the assessee and decide the same in accordance with law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec.40(a)(ia) of the Act to the year under consideration". 8.3 Since the above arguments are being advanced before the Tribunal for the first time and the correctness of the contention has not been examined by the tax authorities, therefore, respectfully following the decision of the Cochin Bench of the Tribunal cited (Supra) and in the interest of justice, we restore this issue to the file of the Assessing Officer with a direction to examine the ....