Income Tax Appellate Tribunal - Mumbai
Acit-15(3)(2), Mumbai, Mumbai vs Skystar Logistics Private Limited, ... on 25 March, 2026
आयकर अपीलीय अिधकरण ाय पीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
"G" BENCH, MUMBAI
BEFORE SMT. BEENA PILLAI, JM &
SHRI ARUN KHODPIA, AM
I.T.A. No.7632/Mum/2025
(Assessment Year: 2023-24)
ACIT-15(3)(2), Skystar Logistics Private Ltd.
Room No. 483A, F-306, Tower-2, Seawood Grand
Aayakar Bhavan, Vs. Central, Sector-40, Seawood,
Mumbai-400020. Navi Mumbai-400706.
PAN: AAFCS3931E
Revenue - अपीलाथ / Appellant Assessee - थ / Respondent
:
Revenue by : Dr. Raghvendra P. Chambolkar,
Sr. DR
Assessee by : Shri Devendra Jain, Adv
Date of Hearing : 11.02.2026
Date of Pronouncement : 25.03.2026
ORDER
Per Arun Khodpia, AM:
This appeal is preferred by the revenue to challenge the decision of Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi [in short "Ld. CIT(A)"] dated 26.09.2025 for the Assessment Year (AY) 2023-24, which in turn arises from the order under section 143(3) of the Income Tax Act, 1961 (the Act) passed by Assessment ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
Unit, Income Tax Department, Mumbai. The grounds of appeal raised by the Revenue are as under:
"1. Whether, on the facts and in the circumstances of the case and in law, the L4. CIT(A) erred in deleting the disallowance under Section 40(a)(ia) of the Act, merely by holding that Section 194Q was inapplicable and failed to examine the mandatory TDS liability under Sections 194C (contractors) or 194H (commission) on payments made to resident agents for local logistic/agency services, which, being a failure to deduct tax under Chapter XVII-B, mandates the application of Section 40(a)(ia) of the Act.
2. Whether, on the facts and in the circumstances of the case and in law, the Ed. CIT(A) erred in applying the exemption under Section 172 and CBDT Circular No. 723 to the entire payment amount of 157,86,45,667/- without directing the assessee to segregate and prove that no portion of the payment was for resident services (such as agency fees or local handling charges) which are not protected by Section 172 and are liable for TDS under Sections 194C or 194H.
3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CITA) erred by strictly interpreting "purchase of goods" under Section 1940 to exclude the commercial transaction of reserving cargo space/slots on a vessel, and whether the payment for a composite transaction involving the acquisition of a proprietary right to use specific vessel capacity for cargo transportation falls within the broader commercial scope of 'goods' or a composite supply, thereby attracting the provisions of Section 1940 of the Act."
2. The stated facts of the case are that the assessee-company is engaged in freight forwarding sector under the broader Shipping Industries, had filed its ITR for AY 2023-24 on 27.09.2023 declaring total income of Rs. 4,93,88,620/-. The case was selected for scrutiny under CASS. Accordingly notices under section 143(2) and 142(1) of the Act were issued. During the assessment proceedings, the ld. AO sought clarification regarding TDS made on purchases. Assessee submitted the response and explained that its primary business activity involves arrangement and booking of shipping containers for export shipment and no TDS 2 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
is required under section 194Q of the Act. The ld. AO was not agreed with the assertions of the assessee, accordingly made a disallowance of 30% of Rs. 57,86,45,667/- for Rs. 17,35,93,700/- invoking the provisions of section 40(a)(ia) of the Act.
3. Being aggrieved with the aforesaid addition assessee preferred an appeal before the ld. CIT(A), who decided the issue in favour of the assessee with the following findings and decision:
"8. DECISION:
8.1 I have gone through the grounds of appeal, statement of facts, Assessment order under consideration and submissions made by the appellant during the course of appeal proceedings.
8.2 The appellant, is a company, engaged in the freight forwarding sector under the broader shipping industry, filed its return of income for A.Y. 2023-24 on 27.09.2023, declaring a total income of Rs.4,93,88,620/-. The case was selected for scrutiny under CASS and a notice u/s 143(2) was issued on 19.06.2024, followed by a notice u/s 142(1) dated 23.09.2024. During assessment proceedings, the AO sought clarification regarding TDS made on purchases. In response, the appellant submitted details of purchases and explained that its primary business activity involves arrangement and booking of shipping containers for export shipments. On examination of details, the Assessing Officer observed that on purchases amounting to Rs.57,86,45,667/-, the appellant had not deducted TDS as required under section 194Q. The Assessing Officer held the appellant liable under section 194Q and since TDS has not been done disallowed 30% of the purchases amounting to Rs.17,35,93,700/- (30% of Rs. 57,86,45,667/-) u/s40(a)(ia). Consequently, the total income was assessed at Rs.22,29,82,320/- as against the returned income of Rs.4,93,88,620/-.
8.3 During the appeal proceedings, submissions made by appellant against the addition made can be summarized as under:
1. The appeal is filed against the assessment order dated 09.01.2025 passed u/s 143(3) for A.Y. 2023-24.
2. The appellant is a private limited company engaged in the freight forwarding business, primarily providing services of arranging and booking 3 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
shipping containers for export shipments along with ancillary services like customs clearance.
3. The company exclusively provides services and does not engage in the purchase or sale of physical goods.
4. The AO made an arbitrary disallowance of 30% of total payments of Rs.57,86,45,667/- u/s 40(a)(ia), resulting in disallowance of Rs.17,35,93,700/-, on the ground that the appellant failed to deduct TDS u/s 194Q.
5. During assessment, queries were raised regarding alleged non-deduction of TDS u/s 194Q. The appellant filed detailed written submissions on 04.10.2024 and 30.12.2024, enclosing explanations and evidences.
6. The appellant clarified that section 194Q applies only to purchase of goods, while its business relates exclusively to services. Hence, section 194Q is not applicable.
7. Extracts from audited Profit & Loss account (Schedule 20) were submitted showing expenses pertain to freight forwarding and service-related activities, not purchase of goods.
8. It was further explained that payments were made to non-resident shipping companies or their agents for freight services. As per CBDT Circular No. 723 and judicial pronouncements, such payments do not attract TDS.
9. Sample invoices were submitted to substantiate that all payments were towards freight and related services, not goods.
10. The AO wrongly noted that the appellant "remained silent" on section 194Q, whereas detailed submissions were filed.
11. On a plain reading of section 194Q, it applies only where (a) transaction relates to purchase of goods and (b) payment is made to a resident seller. Neither condition is satisfied in the appellant's case.
12. Therefore, the disallowance of Rs.17,35,93,700/- is legally and factually unjustifiable, and the AO's action violates principles of natural justice.
13. The appellant requested fair opportunity of personal hearing, permission to file additional submissions, sympathetic and judicious consideration of the matter, and full deletion of the disallowance.
4 ITA No. 7632/Mum/2025
Skystar Logistics Pvt. Ltd.
8.4 I have carefully considered the assessment order, the submissions made by the appellant, and the judicial pronouncements relied upon. The Assessing Officer has invoked the provisions of section 194Q and made a disallowance of Rs.17,35,93,700/- u/s 40(a)(ia), treating the payments of Rs.57,86,45,667/- as purchases on which TDS ought to have been deducted.
8.5 The questions that requires determination in this case is whether provisions of section 194Q are attracted in case of payments made by appellant during the year. There is no dispute with fact that appellant is basically engaged in shipping business, arranges and books shipping containers for clients, exports shipment, provides ancillary services such as customs clearance. The AO also not disputed with above facts. On verification of balance sheet, profit & loss A/c filed by the appellant, after noticing streams of revenue of appellant, claim of the appellant being freight forwarding agent is found to be correct. Relevant portion of profit & loss A/c which shows appellants income for the past two years is basically on account of ocean freight, freight forwarding income is reproduced as under. 8.6 Further, it is noticed from note 20 of profit & loss A/c that major expenditure claimed by the appellant during the year is "frieght forwarding expenses" Rs. 105,47,79,360/- but not purchase of goods as mentioned by AO in the assessment order. Relevant portion of profit & loss A/c is reproduced as under. 8.7 It is noticed that during assessment proceedings, the appellant has furnished freight forwarding expenses register for Rs. 105,47,79,360/- containing name and address of the party to whom payment is made, PAN No., amount paid, TDS made, date of payment, vouchers no. etc. From the details furnished, AO noticed that appellant failed to deduct tax on payments made to the extent of Rs. 57,86,45,667/-. The appellant explained that the amount on which TDS is not deducted represents payment made to foreign shipping lines/ agents for services provided by them on which TDS is not required to be made in view of Board Circular 723, dated. 19.09.1995.
8.8 Now coming to applicability of provision of section 194Q, it is noticed that section is applicable to payment made for purchase of goods from residents provided condition given under the section are met. Relevant portion of section 194Q is reproduced as under.
"194Q(1)Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.5 ITA No. 7632/Mum/2025
Skystar Logistics Pvt. Ltd.
Explanation.--For the purposes of this sub-section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2)Where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly."
8.8.1 Therefore, basic conditions to be fulfilled to attract provision of section 194Q are to make payments towards purchased of goods. Since the section specifically uses the word goods, TDS is to be made only for making payment towards purchase of goods but not for providing services. The appellant by very nature of business in which it is involved do not resort to purchase of goods. As a freight forwarding company, activity undertaken by the appellant is akin to a "travel agent"
which manages the entire transportation process on behalf of shippers by arranging logistics, coordinating with carriers, handling customs clearance and manages documentation to ensure cargo reaches its destination. None of these activities of the appellant involve purchase of goods except taking services of transport, documentation etc. During appeal proceedings, the appellant has provided copy of sample invoices for freight forwarding expenses during the year to establish that it does not involve purchase of goods but actually payment for services provided by them. Copy of sample invoices is reproduced for ready reference 8.9 Thus, neither the profit & loss A/c filed for the year nor the business activity of the appellant or copies of sample bills suggests anything akin to purchase of goods by appellant to attract provisions of section 194Q. Further, part of the amount Rs. 57,86,45,667/-, paid to non-residents shipping companies which can be deciphered by looking at the names of the companies. Since provisions of section 194Q are applicable to payments made to residents, payment made by appellant to nonresidents does not attract provisions of section 194Q. It is noticed from freight forwarding expenses register furnished by appellant before AO that part of the amount Rs. 57,86,45,667/- was paid to Indian companies which are stated to be agents of non-resident shipping companies. Since payment made to Indian shipping agents is not towards purchase of goods, provision of section 194Q are not attracted in case of those payments as well. With regard to applicability of other TDS provisions on payments made to Indian shipping agents, it is noticed that the issue is already covered by CBDT Circular 723 of 19.09.1995. Relevant extract of CBDT 6 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
circular which exempts payments made to Indian shipping agents from TDS provisions is as under.
"1. Representations have been received regarding the scope of sections 172, 194C and 195 of the Income-tax Act, 1961, in connection with tax merits made to the foreign shipping companies or their agents.
2. Section 172 deals with shipping business of non-residents. 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 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 section 194C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated, for a voyage 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 mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a) to (j) of sub-section (1) to any "resident"" (termed as contractor). It is clear from the section that the area of operation of TDS is confined to payments made to any "resident".
On the other hand, section 172 operates in the area of computation of profits from shipping business of non- residents. Thus, there is no overlapping the areas of operation of these sections.
5. There would, however, be cases where payments are made to shipping agents of non-resident ship-owners or charters for carriage of passengers, etc. shipped at a port in India. Since the agent acts on behalf of the nonresident ship owner or charterer he steps into the shoes of the principal. Accordingly, provisions of section 172 shall apply and those of sections 194C will not apply."
8.9.1 This view has been upheld by Hon'ble Delhi ITAT in DCIT Vs Expeditors International [I] Pvt. Ltd, ITA No. 1006/DEL/2020, Hon'ble Gujarat High Court in PCIT Vs Summit India Water Treatment and Services Ltd. (2020) 271 Taxman 69/189 DTR 160/315 CTR 682 (Guj.)(HC) and Hon'ble Lucknow ITAT in Shri Suresh Khatri Vs. ITO, ITA No. 781/Lkw/2017. The AO has not brought any 7 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
material on record to show that resident indian shipping agents in whose case TDS is not deducted by Appellant are not covered by CBDT circular 723 or not filing returns u/s 172 to invoke 40a(ia). In the absence of any such material, action of AO of invoking provisions of section 40a(ia) that too for non-deduction of TDS u/s 194Q can't be sustained.
8.10 Considering the above facts and legal position, I am of the view that the provisions of section 194Q are not applicable to the appellant's case. Consequently, the disallowance made by the Assessing Officer u/s 40(a)(ia) is held to be unsustainable in law. The addition of Rs.17,35,93,700/- is hereby directed to be deleted. Accordingly, the grounds of appeal relevant to this issue are Allowed."
4. Being dissatisfied with the aforesaid decision by ld. CIT(A), the revenue has raised certain grounds under their present appeal before us.
5. At the outset, the ld. DR supported the order of ld. AO and submitted that the decision of ld. CIT(A) was erroneous in deleting the disallowance under section 40(a)(ia) of the Act merely by holding that section 194Q was in applicable and failed to examine the mandatory TDS liability under section 194Cor 194H on payments made to resident, contractors or agents for local logistic / agency services. It is further submitted that the ld. CIT(A) was incorrect in applying the exemption under section 172 and CBDT Circular No. 723 to the entire payment amount of Rs. 57,86,45,667/- without directing the assessee to segregate and prove that no portion of the payment was for resident services, which are not protected by section 172 and liable for TDS under section 194C or 194H. It is further submitted that interpretation of purchase of goods whether exclude the commercial transaction or reserving Cargo space/slot on a Vessel and whether the payment for a composite transaction involving the acquisition of proprietary right 8 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
to use specific Vessel capacity for Cargo transportation falls within the broader commercial scope of goods or a composite supply thereby attracting the provisions of section 194Q of the Act. It is argued that for all the aforesaid reasons the order of ld. CIT(A) is liable to be set-aside and the matter needs further verification in terms of provisions of section 194C or 194H of the Act.
6. Per contra, ld. Counsel of the assessee submitted that during the course of assessment proceedings, the ld. AO have raised the query regarding Tax Deduction at Source (TDS) under section 194Q of the Act, which was duly responded by the assessee and clarified that the provisions of section 194Q are applicable only in the cases where the purchases of goods are made. Accordingly, the provisions are not applicable for the companies or assessee involved in the service transactions. It is submitted that the financials of company clearly shows that the expenditure incurred relates to freight forwarding and other direct expenses under the category of 'service rendered'. It is also undertaken by the assessee in its statement before the FAA that the recorded expenses of the assessee company relate to service operations and not to any purchase of goods that would trigger the provisions of section 194Q of the Act. It is further clarified that the assessee's case is covered by the judicial pronouncements which were furnished before the ld. AO and the FAA but they have erroneously disregarded the same and invoked the provisions of section 40(a)(ia) of the Act. It is also explained that the transaction must pertain to purchase of goods and the payment 9 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
must be made to the resident seller to satisfy the primary conditions to invoke provisions of section 194Q, but in the instant case neither of these conditions are fulfilled as the payment made by the assessee do not relate to the purchase of goods nor were they made to any resident person, consequently the provisions of section 194Q have no applicability in the transactions undertaken by the assessee. It is the prayer that the erroneous addition under section 194Q against the settled principle of law is bad-in-law, unsustainable and liable to be quashed.
7. We have considered the rival submissions and perused the material available on record. The present appeal arises on account of addition made under section 194Q by the ld. AO being dissatisfied with the submissions of the assessee, stating that section 194Q of the Act has been introduced w.e.f. 01.04.2021 and the reply of assessee having reliance on judicial pronouncements and CBDT Circulars, which relates to section 194C of the Act are irrelevant and there was no submission of the assessee qua the query regarding section 194Q of the Act. Accordingly, Rs. 17.36 crore, 30% of the total amount of Rs. 57.86 crore had been added to the income of assessee. The matter carried before the ld. CIT(A), who accepted the submissions of assessee, have examined and observed that neither the P&L A/c nor the business activity of assessee or copies of sample bills suggests anything akin to purchase of goods by the assessee, so as to attract the provisions of section 194Q of the Act. Further part of the amount from Rs. 57.86 crore paid to resident company was deciphered by looking at the name of 10 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
the companies. Accordingly, the ld. CIT(A) concluded that the payments were made to Indian Companies also, which as stated by the assessee are the agents of non-resident companies. It is also mentioned by the ld. CIT(A) that the Indian Shipping Agents are not paid for purchase of goods, therefore provisions of section 194Q are not attracted. It is also observed by the ld. CIT(A) taking support from the decision of Hon'ble Delhi ITAT in the case of DCIT vs. Expeditors International India Pvt. Ltd. (supra), Hon'ble Gujarat High Court in the case of PCIT vs. Sumit India Water Treatment and Services Ltd. and some other case law that the ld. AO has not brought any material on record to show that Indian Shipping Companies in whose case TDS was not deducted by the assessee are not covered by CBDT Circular No. 723 or no filing returns under section 172 to invoke the provisions of section 40(a)(ia) of the Act. The ld. CIT(A) with such findings have taken the view that provisions of section 194Q are not applicable in the present case. Consequently, the disallowance made by the ld. AO under section 40(a)(ia) of the Act was held to be unsustainable.
8. Having given a thoughtful consideration to the aforesaid facts and circumstances of the case; we observe that both the authorities below are failed in exercising the necessary enquiry so as to arrive at a logical conclusion. The ld. AO has not looked into or enquired into the facts of the case to examine the fulfillment of pre-conditions prescribed under section 194Q of the Act. The ld. CIT(A) also arrived at a conclusion based on presumptions taking note of some 11 ITA No. 7632/Mum/2025 Skystar Logistics Pvt. Ltd.
sample transactions deciding the residential status of shipping company just by deciphering with their name. Further, it is also decided on surmises that there was no purchase of goods without examining thoroughly the transaction documents of the assessee or to get it examined through the ld. AO. The ld. CIT(A) allegedly pointed out the mistake committed by the ld. AO in not bringing on record any material requisite to invoke the provisions of section 194Q, but he did not consider it appropriate to make necessary enquiries by himself or through ld. AO so that a conclusive and logical decision can be arrived at, according to settled principle of law. The ld. CIT(A) has the power and obligations co-terminus with that of the ld. AO, therefore just deciding the issue on the basis of presumptions and finding fault in the AO would lead only to a vague decision. We thus with the aforesaid observations find it appropriate to restore this matter back to the file of ld. CIT(A) to examine the issue thoroughly and if needed a remand report can be called for from the ld. AO to verify the transitions aggregating payments of Rs. 56.86 crore, that such payment are not made to any resident and does not constitute any delivery of goods against it.
9. In view of aforesaid facts and circumstances and observations, we find that the matter needs a thorough verification of subject transactions, in terms of provisions of the Act to examine the TDS liability of the assessee. Consequently, the order of FAA stands set-aside and the matter is restored back to the file of ld. CIT(A) for fresh adjudication.
12 ITA No. 7632/Mum/2025
Skystar Logistics Pvt. Ltd.
10. Needless to say, the assessee shall be provided with reasonable opportunity of being heard in the set aside appellate proceedings.
11. In result, the appeal of revenue stands allowed for statistical purposes.
Order pronounced in the open court on 25-03-2026.
Sd/- Sd/-
(BEENA PILLAI) (ARUN KHODPIA)
Judicial Member Accountant Member
Mumbai, Dated : 25-03-2026.
*SK, Sr. PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. DR, ITAT, Mumbai
4. Guard File
5. CIT
BY ORDER,
(Dy./Asstt. Registrar)
ITAT, Mumbai
13