TaxTMI 
TaxTMI 
2018 (6) TMI 1453
X X X X Extracts X X X X
X X X X Extracts X X X X
....cer with respect to Job Charges amounting to Rs. 16,06,052/- by applying the provisions of section 40(a)(ia) of the Act and considering the same as non genuine expenses 2) The CIT (A) has erred in law & on the facts of the case in confirming the action of the Assessing Officer in disallowing the reimbursement of Custom House Agent amounting to Rs. 26,07,533/- by applying the provisions of section 40(a)(ia) of the Act. 3) The CIT (A) has erred in law & on the facts of the case by not accepting the facts on record that that amount of Rs. 6,40,888/- is refund of customs duty and therefore the same is not an income of the Assessee 4) The CIT (A) has erred in law & on the facts of the case in disallowing the purchases of Rs. 10,41,394/- by applying the provisions of 40A(3) of the Act on the ground that the Assessee has made the payment through journal entry and not made the payment through account payee cheque. The Appellant craves leave to add, alter or modify the above grounds of appeal." 3. The assessee is engaged in the business of trading, manufacturing and processing of yarn/textiles. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence the explanation offered by the assessee could not prove genuineness of the said parties as no evidence has been brought on record to establish the credibility or worthiness of the contractors mentioned in the ledger account of job charges (shirting). The AO invoked provision of Section 194C and since the income-tax was not deducted at source , the additions were made to the income of the assessee to the tune of Rs. 16,06,052/- u/s. 40 (a)(ia) of the 1961 Act by the AO , vide assessment order dated 05.03.2013 passed by the AO u/s 143(3) of the 1961 Act. 4. Aggrieved by the assessment order dated 05.03.2013 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before learned CIT(A) and contended as under:- "Based on the specific Query of the Assessing Officer, the Assessee had submitted the following documents: the copies of the same are enclosed herewith. i. Tax Audit Report with relevant annexure vide its letter dated 13/12/2012. ii. Ledger account of Job Charges vide its letter dated 08/11/2012 reflecting therein the name and the amount paid to each job worker, iii. Explanation vide letter dated 04/0.2/2013 that no TDS is deductible on job c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplying the provision of u/s 40{a)(ia) is bad in law and hence may please be deleted. " The learned CIT(A) rejected the contentions of the assessee and upheld the addition as were made by the AO vide appellate order dated 03.06.2014 passed by learned CIT(A), by holding as under:- " 3.3 I have considered the finding of the Assessing Officer and rival submission of the appellant, carefully. I find that appellant has failed to establish the genuineness of claim of job charges (shirting) of Rs. 16,06,052/- . By order sheet noting dated 30.10.2012. appellant was asked by the Assessing Officer to produce the parties and furnish their full names and addresses. Case was fixed for compliance on 08.11.2012 but on this day of hearing, nothing was submitted. After taking failure of the assessee on record, Assessing Officer has further issued, a showcause notice asking appellant for its explanation as to why such disallowance should not be made u/s.40(a)(ia). It is very evident that by letter dated 04.02.2013, appellant has not explained the genuineness of job charges and has merely clarified that job charges were paid to various contractors and such charges did not exceeds the limit liable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting to Rs. 16,06,052/-. It was submitted by learned counsel for the assessee that the name and addresses of the parties to whom job charges were paid were duly furnished before the AO and payments were made through cheque. Our attention was drawn to page no. 39 and 39A of the first paper book to contend that the name and addresses of the person to whom job charges were paid were duly furnished before the authorities below. This fact is disputed by both AO and learned CIT(A) in their respective orders wherein it is stated by these authorities that addresses of the job workers were not given which prevented further enquiry . As per Revenue, these parties (job workers) were also not produced before the authorities below. Our attention was drawn to page number 23-24 of the first paper book , wherein notice dated 21.01.2013 issued by the AO u/s 142(1) seeking details of job charges and income-tax deducted at source on these job charges is placed. It was submitted that disallowance was made by the AO u/s. 40(a)(ia) .Our attention was drawn to page no 25 of the first paper book wherein reply dated 07.01.2013 is placed and also to page no. 21 wherein reply dated 04-02-2013 filed before th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et, profit and loss account and tax audit report with annexure and schedule were duly submitted before the AO. Our attention was also drawn to page no 40 of the first paper book wherein complete detail of job charges are placed . The Ld DR submitted that the contentions of the learned counsel for the assessee are wrong as the AO was consistently asking for the details which were not submitted which prevented further enquiry of the matter. The learned DR submitted that in any case admittedly invoices of job workers submitted by the assessee during the proceedings before the tribunal are additional evidences which cannot be admitted by the tribunal without confronting the same to the AO and hence the matter need to be restored to the file of the AO for fresh adjudication wherein the AO shall consider these invoices on merits . 7. We have considered rival contentions and perused the material on record. The assessee is engaged in the business of trading and manufacturing of yarn/textiles. The assessee did not own any factory and was getting manufacturing done through job workers and job charges were claimed to be paid for yarn manufacturing and shirting. So far as job charges as were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of the 1961 Act . The assessee did not produce these parties before the AO and as well before the learned CIT(A) . Under these circumstances in our considered view the matter need to be restored to the file of the AO for fresh adjudication of the issue on merits in accordance with law in set aside proceedings wherein the AO shall pass denovo orders on merits after admitting additional evidences filed by the assessee . Needless to say that the AO will grant proper and adequate opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. The AO shall also admit and consider on merits all explanations and evidences submitted by the assessee in its defence. We clarify that we have not commented on merits of the issue under consideration. This ground of appeal is allowed for statistical purposes. We order accordingly. 8. The second issue relates to disallowance of reimbursements to custom house agents (CHA) amounting of Rs. 26,07,533/- which was disallowed u/s. 40(a)(ia) of the Act. The AO observed that the assessee has paid/reimbursed custom duty charges to M/s. Niranjan Shipping Agency Pvt. Ltd to the tune of Rs. 32,48,421/- b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... " 4.3 I have considered the issue under appeal, carefully. I find that appellant has not explained properly as to how entire amount of Rs. 32,48.421/- is only an reimbursement of the custom duty. The so called ledger account submitted by the Ld. A.R. reveals nothing but the name of the Niranjan Shipping Agency Pvt. Ltd. and Debit & Credit of accounts that does not reveal as to what was the actual nature of expenditure. Assessing Officer has mentioned that such charges under reference includes CFS charge, service charges, insurance charges, packing charges, freight and forwarding charges. Appellant has not rebuted such finding of the Assessing Officer with any contrary evidence. If services has been rendered by Niranjan Shipping Agency Pvt. Ltd. on behalf of the appellant, while making payment, it is the responsibility of the appellant to make TDS but as evident from the fact on record that appellant has not made any TDS on such payment made to CHA hence such expenditure shown by the appellant is liable for disallowance u/s. 40(a)(ia). Thus considering the fats of the case and failure on the part of the appellant to substantiate its claim that it is only reimbursement of custom ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de debit note no. 3023 dated 20-10-2009 which was towards reimbursement of expenses including custom duty paid to government on behalf of the assessee on import of goods of the aggregate value of Rs. 3,78,626/-(pb/page 30) , out of which custom duty paid was to the tune of Rs. 3,20,455/- . The assessee has also placed on record custom charges receipts issued by GOI (custom departments) to contend that custom duty was paid to Government and no TDS was required to be deducted at source within provisions of Chapter XVII-B of the 1961 Act. Our attention was also drawn to invoices raised separately by the Niranjan Shipping agency P. Ltd. which is placed in paper book page no. 29 towards their service charges and claim has been made by the assessee that income-tax was duly deducted at source on all services charges paid to Niranjan Shipping Agency P. Ltd. within mandate of Chapter XVII-B of the 1961 Act. We have gone through the material before us and we have observed that M/s Niranjan Shipping Agency P. Ltd. has raised debit notes for reimbursement of expenses including custom duties , insurance etc. . The disallowance has been made on the grounds that custom duty paid by CHA agent on b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d of custom duties is concerned because it never entered Profit and Loss account and hence no addition is warranted. However, material is not placed on record to prove that no deduction whatsoever was claimed of this SAD refund by the assessee while computing income and thus for limited purposes the matter is restored to the file of the AO for verifying the contention of the assessee vis-a-vis its books of accounts that the assessee never claimed the deduction of said custom duty (SAD) component as expenses to the tune of this refund receivable amount of Rs. 6,40,888/- of additional custom duty is concerned and only net amount of custom duty paid was claimed as an expense by the assessee in its return of income filed with the Revenue. In any case learned CIT(A) has given direction to the AO for verifying the same on above lines as we held in this order and we are confirming the directions of learned CIT(A). We order accordingly. 13. The next addition is on account of disallowance of purchases made by the assessee from Flora Texculture P. Ltd. to the tune of Rs. 10,41,394/- u/s 40A(3) of the 1961 Act on the grounds that payments to the said party from whom purchases were made by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... , carefully . I find that appellant has shown purchases from Floratex Culture Pvt. Ltd. of Rs. 10,41,394/- but has not made payment through account payee cheque or D.D. or through banking channel, hence provision of law u/s 40A(3) has been violated . The payment through journal entry adjustment cannot be regarded as not in violation of Section 40A(3). I find force in the finding of the Assessing Officer, hence the disallowance made u/s 40A(3) is sustained. 6.4 In the result, Ground No. 4 is dismissed." 14. Aggrieved by the appellate order dated 03-06-2014 passed by learned CIT(A) , the assessee has come in an appeal before the tribunal. It has been contended by learned counsel for the assessee that Section 40A(3)) is anti tax avoidance measure and it is applicable when the payments are made otherwise then through account payee cheque or account payee draft i.e. mainly when payments are made in cash . It was submitted by learned counsel for the assessee that in the instant case the payments have been made vide adjustments through journal entries between the two parties mainly M/s Flora Texculture P. Ltd. and M/s Challenger Trade Link (India) Private Limited being creditor and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia Private Limited on 24-12-2009 for which payments through banking channels was made by the said concern to the assessee on 21-12-2009 and 19-2-2010. The confirmation of said party namely M/s Challenger Trade Link India Private Limited is also placed on record in pb/page 11 . The certificate dated 07-09-2013 issued by State Bank of India on behest of M/s Challenger Trade Link India Private Limited for making payment to said concern Flora Texculture P. Ltd. is also placed on record at page 12/pb. Section 40A(3) is undisputedly anti tax avoidance provision to check evasion of taxes and to discourage movement of funds exceeding monetary limits specified in Section 40A(3) in the economy otherwise than through the prescribed modes of payments viz. account payee cheques or account payees drafts or the use of electronic clearing system through a bank account with a view to discourage movements of funds of large magnitude otherwise than through prescribed and approved banking channels in order to check evasion of taxes . The Section 40A(3) only stipulate positive condition of making payment to a person in prescribed and approved modes of banking channel which in the instant case was met a....