TaxTMI 
TaxTMI 
2018 (7) TMI 132
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....non deduction of TDS u/s 40(a)(i), is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs. 8,17,807/- u/s 40A(3) of Income Tax Act, 1961. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of the Income tax Act, 1961." 2. We have heard the Learned Representatives of both the parties and perused the material on record. 3. Ground Nos. 1 and 2 have been raised for disallowance on account of non-deduction of TDS on airfreight. 3.1. During the year, the assessee-company was engaged in the business of total logistic solutions providers, general cargo agents, charter party contractors, shipping agents, packing agents, salvors, wreck removers, wreck raisers, auctioneers, baggage transporters, forwarding and clearing agents, wholesale warehousemen, booking agents of goods, articles or things on behalf of customers from one place to another pl....
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....elated things for most of DTAA's. The A.O. however noted that tax audit is prepared by an Independent Auditor which gives fair and true picture of the accounts of the assessee, in which, Auditor has mentioned that the payments made to non-residents are inadmissible, therefore, these should have been added back by the assesseecompany. 4. The assessee-company further submitted before A.O. that it has reimbursed air-freight to non-residents on behalf of Indian resident customers without deducting TDS. Section 40(a)(i) of the I.T. Act is not applicable because the assesseecompany has never claimed the airfreight as expenses in the Profit & Loss Account. Such type of payments are also exempt in consonance with India's DTAA. Section 194C is also not applicable because the payments are made to foreign nonresident agents. As per provisions of the respective tax treaties, it has been clearly provided that international traffic are taxable only in the State, in which, respective enterprises are fiscally domicile. The assessee-company has no obligation to deduct tax at source whether under section 194C or under section 195 for the payments made to non-residents towards airfreight. It was s....
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....pt the contention of assessee-company. The assessee-company is basically a logistic and Cargos handling entity. M/s. Samsung India Ltd., is a major client for the assessee company along with others and 80% of the total business comes from M/s. Samsung India Ltd., for the assessee-company. The assesseecompany handles shipment or cargos arriving at Air Ports and dispatches such shipment to various locations as per client's requirements. The assessee-company in its accounting recognition taking revenue excluding freight charges in its P & L A/c, whereas as per the assessee-company, the client's including M/s. Samsung India Ltd., are deducting TDS on the gross amount. M/s. Samsung India Ltd., and other clients are treating it as reimbursement of expenses under section 194C and deduct TDS accordingly. Whereas the assessee-company is not deducting or withholding tax on the payment made to nonresident agents. The A.O. noted that it has not been established that payments made to non-residents were in the nature of airfreight with any supporting documents. The assesseecompany has failed to establish the fact that whether payments made to foreign agents are related to airfreight or it is mer....
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.... was noted that the Privity of Contract is between the clients and not with the assessee. There was no contact between the assessee and the authorities, rather the assessee has acted as a mere facilitator/agent between the parties and the authorities. It is well understood that TDS is deductible under section 194C on the payments made to the contractors/sub-contractors. Thus, the basic premise for deducting tax is on the contracting parties. In the absence of any contractual relationship between the assessee and the airlines/shipping lines/authorities, assessee agent is not liable to withhold tax or deduct tax under section 194C of the I.T. Act. The Apex Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd., vs. CIT (2007) 293 ITR 226 (SC) held that "where the deductee concern have already paid tax on the payments made by the assessee-payer, then the department, could not deduct tax from the deductor of this same income by treating the later to be an assessee-in default." In the present case, the payees have offered the corresponding income in the returns, therefore, alleged TDS liability raised upon the assessee was not enforceable. Since the contract was between the e....
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....nket relief from TDS on freight paid to foreign airline companies. Details of same is noted in the remand report in which the Place of Effective Management ("POEM") was needed to be settled while deciding on the taxability of the profits/income generated. Further for claiming relief under DTAA, Tax Residence Certificate is mandatorily required. The assessee-company filed few TRCs of foreign airlines companies, in which, discrepancies have been noted by the A.O. But some were found in order. The A.O. also reported that total receipts as per 26AS are of Rs. 165.38 crores but the turnover as per Profit & Loss Account is Rs. 35.06 crores. The difference is not reconciled. The assessee-company is required to deduct TDS on such payments. 7. The assessee-company filed rejoinder in which the assessee-company explained the same facts as were explained earlier. It was submitted that the payments have been made to the agents of the airlines, therefore, it should be treated as payments made to airlines. The assessee-company did not claim deduction of the expenditure as the same have been reimbursed by the Principal. For the payments made by M/s. Samsung India Ltd., , they have deducted TDS ....
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.... the assessment orders under section 143(3) for these years are filed in PB Nos.1013 and 1016. PB- 1025 to 1030 are the similar replies filed before A.O. on merit for A.Y. 2015-2016, on which, identical claim of assessee company has been allowed. PB-1031 to 1047 are the details of TDS enquiry conducted by the Revenue Department on the same issue and after calling the complete details and information under section 133(6) of the I.T. Act as well, the Department did not take any adverse view against the assesseecompany and similar claim of assessee-company has not been disturbed. PB-1066 to 1095 are the intimation under section 143(1) of I.T. Act issued by the Department for several preceding assessment years under section 143(1), in which, similar claim of assessee-company has been allowed. Learned Counsel for the Assessee submitted that rule of consistency do apply to the income tax proceedings. Therefore, on the same set of facts, when Income Tax Department accepted similar claim of the assessee-company for preceding as well as subsequent assessment years, then, for assessment year under appeal, the similar claim of assessee-company should not be disallowed on account of non-deduct....
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....er hand, Ld. D.R. relied upon the orders of the authorities below and submitted that Explanation-2 is inserted to Section 195(1) w.e.f. 01.04.1962 which is retrospective in nature. Assessee-Company filed revised audit report without any cause. The client raises invoice for the work assigned to the assessee-company and deducts tax under section 194C for these services and the assessee claims the entire TDS in its return. The Ld. CIT(A), reproduced the remand report furnished by the A.O. in the appellate order in which the A.O. has highlighted the reasons for making the addition against the assessee-company. In the reply of assesseecompany filed at PB-1032, the assessee-company claimed reimbursement of expenses, but, M/s. Samsung India Ltd., treats it as contract and deducts TDS. It is not a case of no profit, therefore, TDS is required to be deducted. The assesseecompany is an Agent of M/s. Samsung India Ltd., who gets profit share from foreign counterparts and there is no reimbursement of expenses between the two parties. It is a service being rendered by the assessee-company, so TDS is liable to be deducted. The rule of res judicata does not apply. Since new facts have been pleade....
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....ns 30 to 38 of I.T. Act, on which, assessee-company has failed to deduct tax at source. It is not in dispute that assessee-company has not made claim of expenses in its P & L A/c. In the instant case, though the payments have been released to foreign shipping/airlines through their non-resident Agents towards freight, but these payments have not been made by the assessee-company on account of its expenses, but, have been made for and on behalf of its clients/customers namely M/s. Samsung India Ltd., and other Companies, for whom, assessee-company does the work of logistics solutions. In fact, the assessee-company is reimbursed on actual basis, the amount of all expenses including freight by M/s. Samsung India Ltd., and others and there is no profit element involved in such reimbursement. The assessee-company explained and proved that payments have been made to non-resident Agents of foreign airline/shipping companies. Freight is paid by the assessee-company on behalf of M/s. Samsung India Ltd., and others. There is no Privity of Contract between the assesseecompany and the non-resident Agents of foreign airlines/shipping companies. Assessee-Company worked as a Facilitator/Agent bet....
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....deduction of TDS. Since in earlier years and in subsequent years, no disallowances have been made by the authorities below on the same set of facts, therefore, the Revenue Authorities should follow the rule of consistency and should not have disallowed the amount in question. The opinion of the Auditor is not conclusive because the issue shall have to be considered and decided as per Law. Further, the assessee-company has filed the revised audit report to clarify the above position. 12. The Hon'ble Supreme Court in the case of CIT vs. Mahalaxmi Sugar Mills Co. Ltd., (1986) 160 ITR 920 (SC) held that "duty caste on A.O. to apply relevant provisions of Law for the purpose of determining the true figure of assessee's taxable income". The Hon'ble Supreme Court in the case of Radhasoami Satsang Saomi Bagh vs. CIT (1992) 193 ITR 321 (SC) held that "revenue authorities should follow rule of consistency." The Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd., (2013) 358 ITR 295 held in para-31 as under : "31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue t....
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.... (supra), it was, held as under : "Therefore, from the various details filed by the assessee and nature of assessee's business of clearing and forwarding agents, we find that the assessee is nothing but an intermediary between the exporters and the shipping lines. The assessee facilitates the contract for carrying goods for and on behalf of its client i.e., exporters or importers, or importers, and the principle contract for carrying goods is between the exporter/importer and the shipping lines. Therefore, deleted the disallowance made under section 40(a)(ia) of the I.T. Act". 18. ITAT, Mumbai Bench in the case of ITO vs. Universal Traffic Co. (2014) 42 CCH 55 (Mum-Tribu.) held as under : "A custom house agent (CHA) is not liable to deduct TDS under section 194C, on payment made towards freight charges, detention charges and de-stuffing charges, etc., paid to foreign lines or to their agents or shipping lines for transportation of cargo, since CHA only act as an intermediary and the privity of contract is not between assessee and foreign lines/shipping lines to whom such charges were paid." 19. The assessee-company further submitted that, in this case, it is....
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.... their agents. 2. Section 172 deals with shipping business of nonresidents. Section 172(1) provides the mode of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. An analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, belonging to or chartered by a non-resident, undertakes from any port in India. Section 172 is a self-contained code for the levy and recovery of the tax, ship-wise, and journey wise, and requires the filing of the return within a maximum time of thirty days from the date of departure of the ship. 3. The provisions of section 172 are to apply, notwithstanding anything contained in other provisions of the Act. Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated, for a voyage undertaken from any port in India by a ship under the provisions of section 172. 4. Section 194C deals with work contracts including carriage of goods and passengers by any ....
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....ved in India by or on behalf of the said airline company. Learned Counsel for the Assessee explained that substantial foreign airline companies lifted the goods outside India and all the payments are remitted outside India to foreign agents, nonresident agents of non-resident airlines. The ITAT, Delhi Bench, in the case of Welspring Universal vs. JCIT, Range-27, New Delhi (2015) 56 taxmann.com 174 (Delhi-Trib.) held as under : "Where commission paid by assessee to non-resident agent for procuring export orders was not chargeable to tax in hands of said agent, assessee was not liable to deduct tax at source." 19.4. Thus, the impugned payments made by the assesseecompany to such airline companies or its different agents are not liable to be taxed in India even under the domestic Law and therefore, assessee-company was not liable to deduct tax in India. Further, it may be noted that such non-resident entities have not rendered any services in India. They do not have any P.E. in India and they do not have any business connection in India. No such case is also made out by the A.O. 19.5. Assessee-Company also pleaded that freight charges paid to non-resident shipping/airli....
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.... is not taxable in India, therefore, A.O. was not justified in asking for filing of the certificates in case of non-resident agents. 23. Considering the facts of the case/material evidence and above discussion, it is clear that assessee-company made payments on behalf of its clients as Clearing and Forwarding Agent which were reimbursed to the assessee-company. The assessee-company did not make claim of deduction in the P & L A/c. Similar claim of assessee-company has been allowed in earlier and subsequent year, therefore, rule of consistency do apply to the income tax proceedings. There were no justification for the authorities below to take a different view on same set of facts. Even no action have been taken while scrutinizing the issue of TDS against the assessee-company. The assesseecompany has not violated the provisions of Section 44B r.w.s. 172 of the I.T. Act as well as 44BBA of the I.T. Act. Since, under the domestic Law as well as under DTAA, the income received by non-resident airline/shipping companies or their Agents, are not taxable in India, therefore, assessee is not liable to deduct TDS. In this view of the matter, we set aside the orders of the authorities bel....
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....an, Smt. Vidhya, Smt. Jagwati, Smt. Veerwati and Smt. Lali. The purchase of agriculture land is evidenced through sale deed and the payment is also evidenced by way of the sale deed executed before the Sub Registrar. There is no dispute on the fact that the identity of e payee is proved, the genuineness of the transaction is proved and the source payment is also established in as much as such amount is found to be withdrawn from the HDFC bank account of the appellant company. The AO's case is that the provisions of sec. 40A(3) are of mandatory nature whereas the assesseerelying on the decision of the Hon'ble Jurisdictional Rajasthan High Court in the case of Harshee a Chordia vs. CIT supra has contended that when identity of the payee, genuineness of the transaction and source of payment is established then provision of section 40A(3) cannot be applied. The Hon'ble Rajasthan High Court while interpreting the provisions of Sec. 40A(3) in the case of Harshila Chordia vs, ITO supra has clearly held that when the genuineness of the transaction/payment is not disputed and the identity of the payee / received is established then such case will fall under the exceptional circumstances....
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....n cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment." 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs. ITO reported in (1991) 191 ITR 667 (SC) "Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs. 2,500 (Rs.10,000/- after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascer....
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....de by beater cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine." Anupam Tete Services vs ITO in (2014) 43 Taxmann.com 199 (Guj) "Section 40A( 3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006- 07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account -If assessee would not make cash payment and make c....
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....vasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for noncompliance with such technical provisions required held that "in the consequence to follow there must be nexus between the consequence that befall for noncompliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter." The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s. 57(2). Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as was in the case of Swastik Roadways (3 SCC 640) and the consequence to fall for failure to observe such norms in the present case are much higher than w....
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....ate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely:- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;" The said rule says that if the payment is made by a person to his agent who is required to make payment in cash for goods and services on behalf of such person: Admittedly, Shri.Arnit Dutta is only the agent of Hutchison Essar Ltd and not the assessee as could be seen very clearly from the Associate Distributor Agreement entered into by the assessee which is on records before us and before the lower authorities. Hence the payment made by the assessee to Shri.Arnit Dutta would not fall under the exception clause of Rule 6DD(k). 4.9. We find that one of the grounds raised by the assessee is violation of principles of natural justice on the part of the Learned CIT(A) to enhance the assessment without ....