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Income Tax Appellate Tribunal - Vizag
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August,
2011
ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
IN THE INCOME TAX APPELLATE TRIBUNAL
VISAKHAPATNAM BENCH, VISAKHAPATNAM
BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND
SHRI BR BASKARAN, ACCOUNTANT MEMBER
ITA No.487/Vizag/2010
Assessment Year: 2006-07
ITO Ward-2(4), Annavarapu Enterprises, Vijayawada Vijayawada Vs.
(Appellant) (Respondent) PAN No: AAEFA 0457 H
Appellant By: Smt. D. Komali Krishna, Sr.DR
Respondent By: Shri Sobhanadriswara Rao, CA
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August, 2011 http://indiankanoon.org/doc/71434833/
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ORDER
Per Shri B. R. BASKARAN, Accountant Member:
The appeal of the Revenue is directed against the order dated 13.08.2010 passed by learned
CIT(A), Vijayawada and it relates to the assessment year 2006-07.
2. The revenue is assailing the decision of the learned CIT (A) in deleting the addition of
`21,21,788/- made under section 40(a)(ia) for non deduction of tax at source from the payment
made to the transporters.
3. The facts relating to the issue are stated in brief. The assessee firm is carrying on in the business
of C&F agency. The return filed by the assessee firm for the year under consideration was
processed under section 143 (1) initially. Subsequently the Assessing Officer noticed that there was
difference between the amount of contract receipts shown in the TDS
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ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
certificates and the Profit and loss account filed by the assessee. Accordingly the assessment was
reopened by the Assessing Officer by issuing notice under section 148 of the Act. During the course
of assessment proceedings, the Assessing Officer noticed that the assessee had made following
payments to the transporters without deducting tax at source under section 194C of the Act:
a) Nagarjuna Transport Transport Charges ` 2,71,851 b) Navata Transport Transport Charges `
4,19,389 c) Decent Lorry Service Transport Charges ` 3,62,508 d) Kranthi Transport Transport
Charges ` 5,50,251 e) Karnool Nandyal Transport Transport Charges ` 1,54,204 f) BRL Freight
Transport Charges ` 2,71,701 g) Chennupati Transport Transport Charges ` 91,884 Total Transport
Charges ` 21,21,788
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August, 2011 http://indiankanoon.org/doc/71434833/
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The assessee submitted before the Assessing Officer that the above said payments were made by it
on behalf of its principal and it also did not claim the above payments as its expenditure.
Accordingly, it was contended that the provisions of 194C shall not apply in the hands of the
assessee in respect of the above said payments. The Assessing Officer was not convinced with the
said explanation. He referred to certain clauses of a contract agreement entered with M/s Cargill
India Private Limited and concluded that the assessee is under the obligation to provide
transportation facilities to the principals either through own vehicle of the assessee or through
hired vehicles. Hence the assessee is solely responsible for transportation of the goods, in which
case, the assessee has to necessarily deduct TDS on the impugned transport payments under
section 194C of the Act. Since the assessee has failed to so deduct tax at source, the Assessing
Officer disallowed the entire amount of `21,21,788/- by
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ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
invoking the provisions of section 40(a)(ia) of the Act. The appeal filed by the assessee before the
learned CIT (A) was allowed. Hence the revenue is in appeal before us.
4. We have heard the rival contentions. During the course of appellate proceeding before Learned
CIT(A), it was brought to his notice that the agreement with M/s Cargill India Private Limited,
which was relied upon by the Assessing Officer, was actually entered by the sister concern of the
assessee named M/s Annavarpu Enterprises. Accordingly it was submitted before Learned CIT(A)
that the Assessing Officer has drawn adverse inferences on the basis of an irrelevant agreement. It
was further submitted that the assessee is acting as "C & F Agent" for a company named M/s
Marico Industries Ltd and the said company has already deducted TDS on the impugned transport
payments. In support of this fact, the assessee filed copies of TDS certificates issued by the
Principal, Viz., M/s Marico Industries Ltd to the Transporters. Accordingly, the learned CIT(A)
deleted the impugned addition with the following observations:
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"I have carefully considered the submissions made on behalf of the appellant. I find that the
Assessing Officer has relied on the terms and conditions of the contract agreement entered into by
M/s Annavarapu Enterprises with M/s Cargill India Pvt. Ltd. The learned Authorised
Representative has pointed out that M/s Annavarapu Enterprises, a sister concern, is distinct from
M/s Annavarapu Enterprises (1989), the appellant firm. The appellant firm apparently has no
business dealings with M/s Cargill India Ltd. It is a C&F agent only for M/s. Marico Industries Ltd.
A copy of the agreement between the appellant and M/s Marico Industries Ltd has been filed
during the appeal proceedings. An examination of the agreement would reveal that the terms and
conditions similar to those
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ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
referred to in the assessment order as per the contract agreement with M/s Cargill India Ltd are
not existing in the agreement of the appellant with M/s Marico Industries Ltd. All goods are
dispatched by M/s Marico Industries to the appellant on a stock transfer or on consignment basis.
For the professional services rendered, the appellant firm is entitled to fixed remuneration. The
learned Authorised Representative submitted that the appellant as an agent to the principal, M/s
Marico Industries Ltd would only deal with transport operators and book consignments in the
name of the principals. In support of this, copies of the lorry receipts were produced during the
appeal proceedings. The lorry receipts are issued in the name of the consignor M/s Marico
Industries Ltd. He further submitted that the original lorry receipts are sent to the principals for
reimbursement of the actual amount incurred on behalf of the principals. Further, the learned
Authorised Representative stated that tax deduction at source was made by the principals to the
transporters and service tax on payments to the transports was also paid only by the principals.
Copies of some TDS certificates issued by M/s Marico Industries Ltd to the transporters have been
filed before me. Copies of service tax challans and service tax return filed by M/s Marico Industries
have been produced in support of the argument that transportation of goods was a matter between
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August, 2011 http://indiankanoon.org/doc/71434833/
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M/s Marico Industries and the transporters individually. He further stated that on account of the
TDS being made on the amounts reimbursed to the appellant, it was a case of deduction of tax at
source twice. Merely because tax was deducted at source by M/s Marico Industries from the
reimbursed amounts, it would not alter the nature of the receipt which was in the instant case, only
amounts reimbursed to the extent of expenditure incurred on behalf of the principal. I am inclined
to accept the arguments put forth by the learned Authorised Representative. In the absence of any
contract between the appellant and the transporters, the applicability of the provisions of Sec.194C
would not arise. On the contrary, the appellant has not claimed any expenditure in the P&L
Account towards payments made to different transporters as transport charges against which the
provisions of Sec.40(a)(ia) can be invoked. In the absence of any
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ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
expenditure claim or debit to the P&L Account by the appellant, there is no justification for
invoking the provisions of Sec.40(a)(ia) which would result in the disallowance of any claim of
deduction. Even in the event of a revised P&L Account being drawn up including the
reimbursements received and expenditure incurred by the appellant, in the absence of a contract
between the appellant and the transporters as stated above, there can be no justification for
invoking the provisions of Sec.194C against the appellant. In the light of the foregoing discussion,
the disallowance of `21,21,788/- under section 40(a)(ia) is held to have no sanction of law and,
therefore, is deleted".
5. Before us, the learned D.R submitted that the claim of the assessee that the principal has
deducted TDS on the impugned transport payments is not borne out of record and the same
requires verification. She further submitted that the assessee has claimed that it is paying full
amount of transport charges to the transporter and getting reimbursement of the same from the
principal. However, it is not clarified how the TDS amount is deducted/recovered from the
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August, 2011 http://indiankanoon.org/doc/71434833/
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transport charges so paid. However, the Learned A.R could not readily clarify the points raised by
the Learned D.R. Hence, as contended by Learned D.R, we are of the view that the claim of the
assessee that the TDS has been deducted by the principal on the impugned transport payments
needs to be verified at the end of the Assessing Officer. It is also to be verified how the TDS
amount is recovered from the transporters. As contended by Learned D.R, these facts are not
borne out of the record. We also notice that the learned CIT(A) has accepted these contentions
without confronting the same before the Assessing Officer. In view of the above, we set aside the
order of Learned CIT(A) and restore the issue back to the file of the Assessing Officer with a
direction to examine the claim of the assessee and take appropriate
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ITA No 487 of 2010 Annavarapu Enterprises Vijayawada
decision in accordance with law. The assessee should be given necessary opportunity of being
heard.
6. In the result, the appeal of the revenue is treated as allowed for statistical purposes.
Pronounced in the open Court on 8th August, 2011.
Sd/- Sd/- (SUNIL KUMAR YADAV) (B R BASKARAN) Judicial Member Accountant Member
PVV/SPS
Visakhapatnam,
Date:08-08-2011
Copy to
1 The ITO Ward-2(4) Vijayawada
Annavarapu Enterprises, ... vs Department Of Income Tax on 8 August, 2011 http://indiankanoon.org/doc/71434833/
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2 M/s Annavarapu Enterprises, 30-14-6/1 Kothavanthena Road, Durgagraharam, Vijayawada-2.
3 The CIT - Vijayawada
4. The CIT(A), Vijayawada
5 The DR, ITAT, Visakhapatnam.
6 Guard file.
By Order
Senior Private Secretary
INCOME TAX APPELLATE TRIBUNAL
VISAKHAPATNAM
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