Income Tax Appellate Tribunal - Mumbai
D.C.I.T. 2(3), Mumbai vs Sumaraj Seafoods Pvt. Ltd., Mumbai on 18 August, 2017
आयकर अपील
य अ धकरण "E" यायपीठ मंब
ु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 843 8/Mum/2011
( नधा रण वष / Assessment Year : 2006-07)
ACIT - 2 (3), बनाम/ M/s Sumaraj Se afoods P.
R No. 552, 5 t h floor , Ltd.,
v.
Aayakar Bhavan, 262, 2 n d floor, R. No. 20 ,
M.K. Road, Captain Building,
Mumbai - 400 020. S.B. Singh Road, Fort,
Mumbai - 400 001.
थायी ले खा सं . /PAN : AACCS2654B
(अपीलाथ /Appellant) .. ( यथ / Respondent)
CO No.249/Mum/2012
(Arising from Appeal no ITA 8438/Mum/2011)
( नधा रण वष / Assessment Year : 2006-07)
M/s Sumaraj Se afoods P. बनाम/ ACIT - 2 (3),
Ltd., R No. 552, 5 t h floor ,
v.
262, 2 n d floor, R. No. 20 , Aayakar Bhavan,
Captain Building, M.K. Road,
S.B. Singh Road, Fort, Mumbai - 400 020.
Mumbai - 400 001.
थायी ले खा सं . /P AN : AACCS2654B
Cross ob jector .. ( यथ / Respondent)
Revenue by : Shri V Justin
Assessee by : None
ु वाई क तार ख / Date of Hearing
सन : 10.08.2017
घोषणा क तार ख /Date of Pronouncement : 18.08.2017
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
2 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 The appeal is filed by the Revenue while Cross objection is filed by the assessee company , both are directed against the appellate orders passed by learned Commissioner of Income Tax (Appeals)- 6, Mumbai (Hereinafter called "the CIT(A)") dated 19.09.2011 pertaining to the assessment year 2006-07, the appellate proceedings before the learned CIT(A) had arisen out of the assessment order dated 28.11.2008 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act, 1961 (hereinafter called "the Act") . The afore-stated Revenue appeal and the C.O. filed by the assessee were heard together and are disposed of by this common order for the sake of convenience and brevity.
2. The following grounds have been raised by the Revenue in memo of appeal filed with the Income-Tax Appellate Tribunal in their appeal in ITA No. 8438/Mum/2011:-
"On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting disallowance of Rs. 4,85,480/- on account of processing charges without appreciating the fact that there was an abnormal increase in this account and the disallowance made by the AO was reasonable as the turnover increase marginally compared to the preceding year.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 8,30,395/- on account of ice charges without appreciating the fact that there was an abnormal increase in this account and the disallowance made by the AO was reasonable as the turnover increased marginally compared to the preceding year.
3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.2,52,933/- on
3 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 account of chemical expenses without appreciating the fact that there was an abnormal increase in this account and the disallowance made by the AO was reasonable as the turnover increased marginally compared to the preceding year.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of workmen compensation of Rs. 4,15960/- without giving any opportunity to the AO and without any verification of the assessee's contention as no documentary evidence was produced by the assessee before the AO.
5(a). On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 32,44,766/- made u/s 40(a)(ia) without verifying whether payments were really made to the shipping agent of the non-resident ship owners as the assessee never furnished the details of ship owner before the AO.
5(b) Without prejudice to (a), on the facts and circumstances of the case and in law, the Id. CIT(A) erred in allowing assessee appeal on the basis of Board's Circular No. 723 dated 19.09.1995 without putting the assessee to test that provisions of Sec. 172 were observed or not.
6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the estimated disallowance of Rs. 3 lacs as interest capitalized without appreciating that the assessee failed to establish that it correctly capitalized the interest to the cost of the assets acquired during the course of assessment proceedings as the date of installation of machinery remained unverified by the AO.
7. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored."
3. The brief facts of the case are that assessee company is engaged in the business of operating cold storage for the freezing, cold storing and exporting seafood out of India.
4 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012
4. The A.O. on perusal of the records and submissions made by the assessee during the course of assessment proceeding u/s 143(3) r.w.s. 143(2) of the 1961 Act observed that the assessee had debited an amount of Rs. 48,54,802/- towards processing charges. The A.O. asked for the details from the assessee and on perusal of the details observed that the turnover of the assessee had increased only 10% whereas the processing charges had increased multiple time . The AO observed that the assessee had not given any satisfactory reply on this issue, the A.O. disallowed 10% of Rs. 48,54,802/- i.e. 4,85,480/- which was added to the total income of the assessee, vide assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act. On first appeal filed by the assessee with learned CIT(A) being aggrieved by the assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) deleted additions made by the A.O. on the ground that there was no justification and cogent reasons given by the AO backed with evidences before making such adhoc 10% disallowance, vide appellate order dated 19-09-2011. Aggrieved by the appellate order dated 19-09-2011 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing ld. D.R. . We have observed that since 02nd September 2015 i.e. for almost two years, the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08- 2017.
The ld. DR relied on the assessment order of the A.O. and submitted that the disallowance made by the A.O. is justified as the turnover of the assessee has 5 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 increased only 10% , whereas the processing charges had increased in multiples. It is submitted the assessment order of the A.O. should be upheld.
We have heard the ld. DR and perused the material available on record. We have observed that the assessee has in its paper book filed with the tribunal enclosed copy of audited financial statement and tax audit report for the financial year ended 31-03-2006 (pb/page 1-39), wherein copy of P&L account is filed along with annexures is also filed , it can be seen that the turnover of the assessee has increased from Rs. 37.06 crores during the financial year 2004-05 to 40.61 crores during financial year 2005-06 and the gross profit of the assessee has increased to Rs.3.94 crores during financial year 2005-06 from Rs.3.37 crores during financial year 2004-05. Thus, It is observed that the GP ratio has improved from 9.07% to 9.70%. The closing stock of finished goods had also increased to 11.69 crores during financial year ending 31-03-2006 from Rs.8.02 crores last year. The Processing charges,no doubt , had increased to Rs. 48.54 lacs for the financial year ending 31-03-2006 compared to Rs. 27.06 lacs last year but nothing incriminating has been brought on record by the AO to suggest that there has been any attempt by the assessee to conceal income , inflate expenses or defraud revenue or manipulate /falsify its books of account thereof. The said processing charges constitute insignificant proportion of the turnover achieved by the assessee and mere increase of processing charges to Rs. 48.54 lacs in the relevant year under consideration from Rs. 27.06 lacs during preceding year not in tandem with upward movement of turnover is not in itself indicative of any overt attempt by the assessee to conceals its income, inflate expenses or to defraud revenue calling for adhoc disallowance in the absence of incriminating material brought on record by the AO for which onus was on the AO as the assessee discharged its primary onus by bringing on record the relevant material and hence is not in itself sufficient to fasten tax liability on the assessee. We have observed that the A.O. has not 6 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 brought on record any cogent incriminating material , reasons or justifications while making adhoc disallowance of 10% of processing charges except taking a view that turnover of the assessee increased by 10% while processing charges increased in multiples which is not sufficient to sustain disallowance and fasten tax liability on the assessee, which additions in our considered view was rightly deleted by learned CIT(A) vide appellate order dated 19-09-2011. Thus, under these circumstances, we do not find any reason to deviate from the decision taken by the ld. CIT(A) vide appellate order dated 19-09-2011 with which we concur and appellate order of learned CIT(A) is hereby confirmed. We, therefore, dismiss the ground raised by the Revenue. Thus, Revenue fails on this ground. We order accordingly.
5. The next ground relates to disallowance of ice charges to the tune of Rs.8,30,395/- on adhoc basis to the tune of 25% of total ice charges of Rs.33,21,580/- . The A.O. on perusal of the records and submissions made by the assessee during the course of assessment proceeding u/s 143(3) r.w.s. 143(2) of the 1961 Act observed that the assessee had debited an amount of Rs 33,21,580/- towards ice charges. The A.O. asked for the details from the assessee and on perusal of the details observed that the turnover of the assessee had increased only 10% whereas the ice charges had increased multiple time . The AO observed that assessee had not given any satisfactory reply, the A.O. disallowed 25% of Rs. 33,21,580/- i.e. 8,30,395/- which was added to the total income of the assessee, vide assessment order dated 28-11- 2008 passed by the AO u/s 143(3) of the 1961 Act. On first appeal filed by the assessee with learned CIT(A) being aggrieved by the assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) deleted addition made by the A.O. on the ground that there was no justification and cogent reasons given by the AO backed with evidences before making such adhoc 25% disallowance, vide appellate order dated 19- 7 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 09-2011. Aggrieved by the appellate order dated 19-09-2011 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing ld. D.R. . We have observed that since 02nd September 2015 i.e. for last almost two years, the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08-2017.
The ld. DR relied on the assessment order of the A.O. and submitted that the disallowance made by the A.O. is justified as the turnover of the assessee has increased only 10% , whereas the ice charges had increased in multiples. It is submitted the assessment order of the A.O. should be upheld.
We have heard ld. DR and perused the material available on record. We have observed that the assessee has in its paper book filed with the tribunal enclosed copy of audited financial statement and tax audit report for the financial year ended 31-03-2006 (pb/page 1-39), wherein copy of P&L account is also filed along with annexures, it can be seen that the turnover of the assessee has increased from Rs. 37.06 crores during the financial year 2004-05 to 40.61 crores during financial year 2005-06 and the gross profit of the assessee has increased to Rs.3.94 crores during financial year 2005-06 from Rs.3.37 crores during financial year 2004-05. Thus, It is observed that the GP ratio has improved from 9.07% to 9.70%. The closing stock of finished goods had also increased to 11.69 crores during financial year ending 31-03-2006 from Rs.8.02 crores last year. The ice charges , no doubt , had increased to Rs. 33.21 lacs for the financial year ending 31-03-2006 compared to Rs. 13.89 lacs last year but nothing incriminating has been brought on record by the AO to suggest that there has been any overt attempt 8 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 by the assessee to conceal income , inflate expenses or defraud revenue or manipulate /falsify its books of account thereof.. The said ice charges constitute insignificant proportion of the turnover achieved by the assessee and mere increase of ice charges to Rs. 33.21 lacs in the relevant year under consideration from Rs. 13.89 lacs during preceding year not in tandem with upward movement of turnover is not indicative of any overt attempt by the assessee to conceals his income, inflate expenses or to defraud revenue calling for adhoc disallowance in the absence of incriminating material brought on record by the AO for which onus was on the AO as the assessee discharged its primary onus by bringing on record the relevant material. We have observed that the A.O. has not brought on record any cogent incriminating material , reasons or justifications while making adhoc disallowance of 25% of ice charges except taking a view that turnover of the assessee increased by 10% while ice charges increased in multiples which is not sufficient to sustain disallowance and fasten tax liability on the assessee, which additions in our considered view was rightly deleted by learned CIT(A) vide appellate order dated 19-09-2011. Thus, under these circumstances, we do not find any reason to deviate from the decision taken by the ld. CIT(A) vide appellate order dated 19-09-2011 with which we concur and appellate order of learned CIT(A) is hereby confirmed. We, therefore, dismiss the ground raised by the Revenue. Thus, Revenue fails on this ground.We order accordingly.
6. The next ground relates to disallowance of chemical expenses to the tune of Rs.2,52,933/- on adhoc basis to the tune of 10% of total chemical expenses of Rs. 25,29,331/- . The A.O. on perusal of the records and submissions made by the assessee during the course of assessment proceeding u/s 143(3) r.w.s. 143(2) of the 1961 Act observed that the assessee had debited an amount of Rs 25,29,331/- towards chemical expense. The A.O. asked for the details from the assessee and on perusal of the details observed that since the 9 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 turnover of the assessee had increased only 10% whereas the chemical expenses had increased multiple time . The AO observed that assessee had not given any satisfactory reply, the A.O. disallowed 10% of Rs. 25,29,331/- i.e. 2,52,933/- which was added to the total income of the assessee, vide assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act. On first appeal filed by the assessee with learned CIT(A) being aggrieved by the assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) deleted addition made by the A.O. on the ground that there was no justification and cogent reasons given by the AO backed with evidences before making such adhoc 10% disallowance, vide appellate order dated 19-09-2011. Aggrieved by the appellate order dated 19-09-2011 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing the ld. D.R. . We have observed that since 02nd September 2015 i.e. for almost last two years , the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08-2017.
The ld. DR relied on the assessment order of the A.O. and submitted that the disallowance made by the A.O. is justified as the turnover of the assessee has increased only 10% , whereas the chemical expense had increased in multiples. It is submitted the assessment order of the A.O. should be upheld.
We have heard ld. DR and perused the material available on record. We have observed that the assessee has in its paper book filed with the tribunal enclosed copy of audited financial statement and tax audit report for the financial year ended 31-03-2006 (pb/page 1-39), wherein copy of P&L account is also filed along with annexures, it can be seen that the turnover of 10 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 the assessee has increased from Rs. 37.06 crores during the financial year 2004-05 to 40.61 crores during financial year 2005-06 and the gross profit of the assessee has increased to Rs.3.94 crores during financial year 2005-06 from Rs.3.37 crores during financial year 2004-05. Thus, It is observed that the GP ratio has improved from 9.07% to 9.70%. The closing stock of finished goods had also increased to 11.69 crores during financial year ending 31-03-2006 from Rs.8.02 crores last year. The chemical expenses , no doubt , had increased to Rs. 25.29 lacs for the financial year ending 31-03-2006 compared to Rs. 4.36 lacs during last year but nothing incriminating has been brought on record by the AO to suggest that there has been any attempt by the assessee to conceal income , inflate expenses or defraud revenue or manipulate /falsify its books of account thereof. The said chemical charges constitute insignificant proportion of the turnover achieved by the assessee and mere increase of chemical expenses to Rs. 25.29 lacs in the relevant year under consideration from Rs. 4.36 lacs during preceding year not in tandem with upward movement of turnover is not indicative of any overt attempt by the assessee to conceals its income, inflate expenses or to defraud revenue calling for adhoc disallowance in the absence of incriminating material brought on record by the AO for which onus was on the AO as the assessee discharged its primary onus by bringing on record the relevant material. We have observed that the A.O. has not brought on record any cogent incriminating material , reasons or justifications while making adhoc disallowance of 10% of chemical expenses except taking a view that turnover of the assessee increased by 10% while chemical expenses increased in multiples which is not sufficient to sustain disallowance and fasten tax liability on the assessee, which additions in our considered view was rightly deleted by learned CIT(A) vide appellate order dated 19-09-2011. Thus, under these circumstances, we do not find any reason to deviate from the decision taken by the ld. CIT(A) vide appellate order dated 19-09-2011 with which we concur and appellate order of learned CIT(A) is hereby confirmed. We, 11 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 therefore, dismiss the ground raised by the Revenue. Thus, Revenue fails on this gound. We order accordingly.
7. The next ground is with respect to the disallowance of Rs. 4,15,960/- by the AO being paid by the assessee to workmen under the head 'employees death'. The A.O. asked the assessee to file the details which the assessee filed but , in the opinion of the AO the assessee has failed to give justification of these expenses and also to establish the business expediency of such expenses as employees family gets compensation from ESIC and PF on death of employee of the assessee, and accordingly the A.O. disallowed the entire expenses of Rs. 4,15,960/- u/s 37(1) of the Act, vide assessment order dated 28-11-2008 passed u/s 143(3) of the 1961 Act by the AO. On first appeal filed by the assessee with learned CIT(A) against the assessment order dated 28- 11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) deleted addition made by the A.O. as the assessee has submitted before learned CIT(A) that accident took place in the factory of the assessee wherein one employee Mr. Shrinidhi Srinivas Iyengar lost his life for which the assessee had paid compensation of Rs. 4,15,960/- under Workman's Compensation Act which is a statutory obligation cast upon the assessee company allowable u/s 37(1) of the Act. The death certificate of Mr. . Shrinidhi Srinivas Iyengar was also produced by the assessee before learned CIT(A). The ld. CIT(A) observed that the reason for the disallowance by the AO of above amount was absolutely baseless and learned CIT(A) deleted the disallowance made by the A.O., vide appellate order dated 19-09-2011. Aggrieved by the appellate order dated 19-09-2011 passed by the learned CIT(A), the Revenue is in appeal before the tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing the ld. D.R. . We have observed that since 02nd September 2015 i.e. for 12 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 almost last two years, the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08-2017.
The ld. DR relied on the assessment order of the A.O. and submitted that the disallowance made by the A.O. is justified. It is submitted the assessment order of the A.O. should be upheld.
We have heard ld. DR and perused the material available on record. We have observed that the assessee had paid an amount of Rs. 4,15,960/- under the head 'employees death' which is claimed as deduction while computing business income of the assessee. The said amount was paid by the assessee as one of the employees Mr. Shrinidhi Srinivas Iyengar lost his life in an accident which took place in factory during the year , for which the assessee had paid compensation of Rs. 4,15,960/.- under Workman's Compensation Act which is a statutory obligation cast upon the assessee company. The death certificate of Mr. Shrinidhi Srinivas Iyengar was also produced by the assessee before the authorities below and is also placed in paper book filed with the tribunal(page 90/pb) . We have seen documents placed in paper book/page 86-89 wherein declaration of settlement by the parents of the employee Mr. Shrinidhi Srinivas Iyengar who died in an accident in factory on 08-10-2005 due to sudden blast of compressor of the machine is placed.The said payment was made by the assessee to father of the deceased employee vide cheque no. 191270 dated 28-11-2005 drawn on Vijaya Bank , Overseas Branch, Nariman Point, Mumbai-400021 for Rs. 4,15,960/- in settlement of claim under the Workmen Compensation Act. The letter to the o/o Joint Director, Industrial Safety and Health , Navi Mumbai is also placed on record wherein it is contended that it was a new compressor purchased from a supplier in Delhi which was put on operations only on 19-09-2005 which suddenly blasted on 08-10-2005 leading to fatal accident(page 91/pb). Thus, 13 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 it was made out to be an accident caused due to material defect in new compressor. The assessee has also enclosed emabalming certificate from John Pinto Int. Pvt Ltd who handled the dead body of the employee is also placed on record( page 92/pb) . We are inclined to agree with the appellate order of learned CIT(A) with whom we concur and find no reason to deviate from a view taken by learned CIT(A) deleting the addition made by the AO. The AO has given a reasoning that since employee family will get compensation under PF and ESIC Act's , hence the compensation paid by the assessee is not an business expenses calling for disallowance u/s 37(1) of the 1961 Act is a view which is totally unsustainable view in the eyes of law as this expenses in infact is an expenses which is incurred wholly and exclusively for the business of the assessee within mandate of provisions of Section 37(1) of the 1961 Act , because firstly the compensation is paid to family of any employee who died in an accident in factory premises occurred which occurred during conducting business of the assessee during the previous year relevant to the impugned assessment year secondly the liability has arisen under the statute i.e. Workmen Compensation Act which the assessee is obliged under law to discharge, thereby fulfilling mandate of Section 37(1) of the 1961 Act from which ever angle it is seen, as it is a business expenses incurred wholly and exclusively for the purposes of business. We affirm well reasoned order of learned CIT(A) and refused to take a different view due to reasons cited above. Revenue fails on this ground also. We order accordingly.
8. The next ground relates to the disallowance of terminal handling charges and documentation handling charges , aggregating to Rs. 32,44,766/- u/s 40(a)(ia) of the Act. The A.O., on perusal of the records and submissions made by the assessee during the assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, observed that the assessee had debited an amount of Rs. 31,06,536/- towards terminal handling charges as well an 14 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 amount of Rs. 1,38,240/- towards documentation charges. The assessee was asked to justify as to why these expenses should not be treated as a work contract in view of the provisions of Section 194C of the Act and liable to deduction of income tax at source on such payments, but , in the opinion of the AO, no proper explanation as to nature of these expenses was furnished by the assessee and also the assessee failed to furnish proof of income tax deducted at source against such payments. Since the assessee failed to submit the explanation/proof, the A.O. disallowed the entire amount totaling Rs. 32,44,766/- and added the same to the income of the assessee, vide assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act. On appeal filed by the assessee with the learned CIT(A) against the assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) after considering the submission and in the light of CBDT Circular No. 723 dated 19.9.1995 deleted the addition made by the A.O. by holding as under:-
"Ground 12 is as under:
The Assessing Officer has erred in Law in disallowing Rs. 32,44,766/- out of THC & documentation charges without considering that these payments were made to foreign shipping companies which are specifically exempted from TDS vide Circular 723 dated 19.09.1995.' 12.1 The AO has discussed this issue at Para 13 and has held that no proper explanation was furnished by the assessee.
12.2 The appellant submitted that-
13.1 Your appellant has incurred expenses on terminal handling charges (THC) amounting to Rs. 31,06,536/- and an amount of Rs. 1,38,240/- for documentation charges.
13.2 In response to the query raised by the learned AO, in the letter dated 22.05.2008, details of expenses were furnished vide letter dt. 15.10.2008 submitted on behalf of the assessee. Vide
15 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 his letter dated 31.10.2008 the AO sought details of TDS on the amount of payment under the head "THC" charges and also reasons as to why the aforesaid payments should not be considered as work contract u/s.194C of the Act. Submission was made during the course of assessment proceedings vide letter dated 15.10.2008. Details of expenses under the head THC charges and documentation charged were furnished. The learned AO has disallowed the amount of Rs. 32,44,766/- u/s.40(a)(ia) of the Act for the reason that no proof of TDS on the payments made was furnished.
13.3 The provisions of sec. 194C of the Act in respect of payments made as terminal handling charges and for documentation charges are not applicable in this case since the payments have been made to the- agents of foreign shipping companies. Such payments to foreign Shipping companies or to their agents of terminal handling charges and for documentation charges are exempted from TDS provision, vide circular No. 723 dated 19.09.1995 issued by the CBDT. A copy of the said circular is enclosed as Annexure G. It may please by noted from the circular that agents act on behalf of the nonresident ship owners and therefore they step into the shoes of the principal. The circular being self explanatory and being of binding nature, no further elaboration is required. Suffice it to say that provision Section 194C or 195 is not attracted in respect of payments made as THC.
13.4 In view of the express clarification issued by CBDT by the aforesaid circular there is not liability on the part of your appellant for TDS and hence no default is committed to attract the provisions of section 40(a)(ia) of the Act. Hence, the disallowance of Rs.32,44,766/- made by the learned A.O. may please be deleted.· 12.3 It is seen that the Circular No.723 dated 19.09.1995 of CBDT at Para 4 & 5 states as under:
"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 16 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 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 in 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 of charterers for carriage of passengers etc., shipped at a port in India. Since, the agent acts on behalf of the non-residents ship-owner or charterer, he steps into the shoes of the principal. Accordingly, provisions of section 172 shall apply and those of sections 194C and 195 will not apply.
Circular: N .723, dated 19.09.1995."
12.4 The appellant has made payment to the Shipping Agents who received payment on behalf of non-resident ship -owners, Section 194C & 195 therefore, do not apply. Consequently, the provision of section 40(a)(ia) also do not apply. Ground 12 is, therefore, allowed."
Aggrieved by the appellate order dated 19-09-2011 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing the ld. D.R. . We have observed that since 02nd September 2015 i.e. for last almost two years , the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08-2017.
The ld. D.R. relied on the assessment order of the A.O. and submitted that the assessee has filed paper book wherein these details have been given vide page 99 to 110 which need verification / examination by the AO and hence the matter may be set aside / restored to the file of the AO as these details were not furnished by the assessee before the AO.
17 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 We have heard ld. D.R. and perused the material available on record. We have also gone through the order of authorities below and also the paper book filed by the assessee. We find that the assessee had made payment to 22 parties with respect to the terminal handling charges and documentation charges aggregating to Rs. 32,44,766/- as is emerging from details placed in paper book/page 100-102 .We have perused these details carefully . We have observed that with respect to these 22 parties, evidences w.r.t. only six parties have been enclosed in the paper book filed with the tribunal (page 104-110/pb) to claim that these payouts were to nonresident shipping companies and/or their agents which are covered by provisions of Section 172 of the 1961 Act and no disallowance is called for u/s 40(a)(ia) of the 1961 Act , and this claim of the assessee requires proper verification and examination both on facts and on law , by the AO. Thus, we deem it fit to set aside and restore the matter back to the file of the A.O. for de-novo determination of the issue on merit in accordance with law. The assessee is directed to appear before the A.O. and produce all cogent and relevant evidences to justify the claim that these amounts are not covered by 194C & 195 of the Act and thus, no disallowance is called for by filing details w.r.t. all twenty two parties which shall be evaluated/examined by the AO on merits both on facts and in law. The AO shall admit all evidences / explanations submitted by the assessee in the interest of justice and shall adjudicated the same on merits in accordance with law. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. This ground raised by Revenue is allowed for statistical purposes. We order accordingly.
9. The next issue is regarding disallowance of interest expenses of Rs. 3.0 lacs by the AO by treating the same to be capital in nature. From the 18 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 records and submissions made by the assessee during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the A.O. observed that the assessee company had shown additions to fixed assets amounting to Rs.54,50,219/- against plant & machinery in its schedule of fixed assets. The A.O. asked for the details, however, the assessee failed to furnish the day to day details as asked for. Even the date of the assets being put to use was not mentioned by the auditors in their tax-audit report and from the details of additions furnished by the assessee , it was observed by the AO that that the assessee had not capitalised the interest paid on term loan before the plant & machinery was put to use. Since the date-wise details and the date when such plant & machinery was put to use was not given by the assesee, the A.O. could not compute the correct interest on term loans which was incurred by the assessee before such fixed assets were put to use which needed to be capitalized . The A.O. accordingly estimated Rs. 3 lacs interest on concerned term loan incurred by the assessee on term loans before such plant & machinery was put to use for business. Hence, out of Rs. 92,91,068/- claimed as interest expenses for the year, the A.O. disallowed Rs. 3 lacs treating it as interest paid against such plant & machinery before it was put to use, vide assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act. On first appeal filed by the assessee with learned CIT(A) against the assessment order dated 28-11-2008 passed by the AO u/s 143(3) of the 1961 Act, the ld. CIT(A) gave relief to the assessee by holding as under:-
"13.2 The appellant submitted that it has capitalized Rs. 59,739/- of interest only and the interest expenses of Rs. 92,91,068/- is revenue expense. The appellant also furnished date of installation of machinery and how it has capitalized interest of Rs. 59,739/-. Under the circumstances, estimated disallowance of Rs.3,00,000/- is not warranted. Ground 13 is, therefore, allowed."
19 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 Aggrieved by the appellate order dated 19-09-2011 passed by the ld. CIT(A), the Revenue is in appeal before the tribunal.
At the time of hearing before the tribunal , none appeared on behalf of the assessee, therefore, we proceed to dispose of this appeal after hearing the ld. D.R. . We have observed that since 02nd September 2015 i.e. for last almost two years, the assessee has not entered appearance when the appeal was fixed for hearing on 02-09-2015, 17-03-2016, 21-09-2016, 30-03-2017 and finally on 10-08-2017.
The ld. D.R. supported the assessment order of the A.O..
We have heard ld. D.R. and perused the material on record. The assesee submitted the detail before the ld. CIT(A) as to the dates on which the fixed assets were put to use and the interest capitalized by the assessee. We have observed that details were not furnished before the AO and these details require verification by the A.O. as the said details were not filed before the A.O. as is emerging from records. The ld. CIT(A) has not called for any remand report from the AO nor these details were forwarded by learned CIT(A) to the AO for verification/examination, as is contemplated by Rule 46A of the Income-tax Rules, 1962. In our considered view, this matter is to be set aside and restored to the file of the A.O. for de-novo determination of the issue on merits after verification / examination of the details filed by the assessee . Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. This ground raised by Revenue is allowed for statistical purposes. We order accordingly.
10. The assessee has also filed Cross Objections being CO no. 249/Mum/2012 , raising the grounds of cross objections to support the relief 20 ITA 8438/Mum/2011 & C.O. No. 249/Mum/2012 granted by learned CIT(A) on all the issues agitated by the Revenue in its appeal before the tribunal.
11. Since we have decided all the issues raised by the Revenue in its appeal filed with the tribunal in the preceding para's of this order , the C.O. filed by the assessee has only raised the issues arising out of appeal filed by the Revenue, hence , all the issues raised in the CO are also accordingly disposed off .
12. In the result, appeal of the Revenue in ITA No. 8438/Mum/2011 for A.Y. 2006-07 is partly allowed for statistical purpose and the C.O. 249/Mum/2012 for A.Y. 2006-07 is accordingly disposed off.
Order pronounced in the open court on 18th August 2017. आदे श क घोषणा खुले #यायालय म% &दनांकः 18.08.2017 को क गई ।
Sd/- sd/-
(JOGINDER SINGH) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 18.08.2017
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आय:
ु त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "E" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai