Swift Freight India Ltd, Mumbai vs Department Of Income Tax

आयकर अपीलीय अिधकरण, अिधकरण मुंबई ᭠यायपीठ 'आई ' मुंबई ।

IN THE INCOME TAX APPELLATE TRIBUNAL " I " BENCH, MUMBAI

᮰ी आर.सी. शमाᭅ, लेखा सद᭭य, एवं ᮰ी िवजय पाल राव, ᭠याियक सद᭭य के समᭃ ।

BEFORE SHRI R.C. SHARMA,AM AND SHRI VIJAY PAL RAO, JM

आयकर अपील सं./I.T.A. No.5598/Mum/2009 ( िनधाᭅरण वषᭅ / Assessment Year : 2006-07)

Dy. Commissioner of बनाम/ बनाम M/s. Swift Freight India Income-tax -2(3) Vs. Ltd. Room No.555 401, Davar House Aayakar Bhavan 197/199, Dr. D.N. Road Mumbai. Mumbai-400 001. ᭭थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACS 6971 M (अपीलाथᱮ /Appellant) .. (ᮧ᭜यथᱮ / Respondent)

अपीलाथᱮ कᳱ ओर से / Appellant by Shri Sacchidanand Dubey-DR : ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri J.P. Bairagra

सुनवाई कᳱ तारीख / Date of Hearing : 01/01/2015 घोषणा कᳱ तारीख /Date of 14/01/2015 Pronouncement :

आदेश / O R D E R

PER VIJAY PAL RAO, JM:

This appeal by the Revenue is directed against the order dated 31/07/2009 of CIT(A) for the assessment year 2006-07. The Revenue has raised the following grounds as under :-

"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:

I. The order of the CIT(A) is opposed to law and facts of the case.

2 M/s. Swift Freight India Ltd.

ITA No.5598/09 2(i). On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 75,99,593/- to the returned income, being the difference between the income credited in the P&L Account and the receipts as per the TDS certificates, without appreciating the fact that the assessee had not in the course of the assessment proceedings explained how the receipts as per TDS certificates of Rs. 10,54,03.747/- formed part and parcel of the alleged total freight receipts of Rs. 49,86,94,825/-.

2(ii) The CIT(A) erred in admitting additional evidence in the course of the appellate proceedings in contravention of the provisions of Rule 46A of the l.T. Rules, regarding the alleged total freight receipts of Rs. 49,86,94,825/- and the alleged income from freight of Rs. 4,54,69,496/-. 2(iii). The CIT(A) ought to have held that the assessee's explanation was untenable since the assessee had not clarified as to why only the sum of Rs. 10,54,03,747/- was liable to TDS and not the entire amount of Rs.49,86,94,825/-.

2(iv). The CIT(A) ought to have held that the assessee had not proved, how the sum of Rs. 10,54,03,747/- formed part and parcel of the sum of Rs. 49,86,94,825/- without there being any supporting evidence therefore. 2(v). The CIT(A) ought to have held that the assessee had not proved how the freight income of Rs.4,54,69,496/- was arrived at without any verification of the alleged expenses of Rs.45,32,25,329/- claimed against the freight receipts of Rs. 49,86,94,825/-.

2(vi). The CIT(A) erred in not giving the assessing officer an opportunity of hearing with regard to the additional evidence produced before him in the course of the appellate proceedings.

3(i). The CIT(A) erred in deleting the addition of Rs.44,63,000/-, being the salary paid in US$ to the Managing Director of the assessee company without appreciating the fact that the assessee had not deducted the tax at source from the chargeable salary and hence the disallowance u/s. 40a(iii) was mandatory.

3(ii). The CIT(A) ought to have held that part of the salary of the Managing Director was earned in India and hence the same was chargeable to tax u/s. 9(1)(ii) of the I.T. Act.

3(iii). The CIT(A) ought to have noted that the assessee had failed to deduct the tax at source u/s. 192 of the I.T. Act from the chargeable salary of the Managing Director of the assessee company.

4. 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."

2. Ground No.1 is regarding deleting the addition on account of discrepancy in the amount of receipt shown in the books of account and as per the TDS certificate. The assessee is engaged in the business of shipping industry as freight forwarding agent. The assessee filed its return of income on 29.11.2006 declaring total income of Rs.1,31,64,006/-. During the course of scrutiny assessment the AO noted that receipt 3 M/s. Swift Freight India Ltd.

ITA No.5598/09 as per TDS certificate stood at Rs.10,54,03,747/- whereas income credited in the Profit and Loss Account (P/L Account) is at Rs.9,78,04,154/- resulting into a difference of Rs.75,99,593/-. The AO held that the assessee failed to reconcile the above difference and accordingly made an addition of Rs.75,99,593/- in the income of the assessee on the ground that this income has not been offered for taxation. The assessee challenged the action of the AO before the ld. CIT(A) and contended that the amount credited in the P/L Account is net of the gross receipts after deducting the various expenses. Thus, the assessee submitted before the ld. CIT(A) that the gross receipt is much more than the sum of Rs.10,54,03,747/- and therefore, there was no question of not offering any amount to tax. The CIT(A) held that there is no income which has not been disclosed in the books. Accordingly, the addition made of Rs.75,99,593/- was deleted.

3. Before us, the ld. DR has submitted that the AO has noted the mis-match between the receipt credited to the P/L Account and the receipt as per TDS certificate and accordingly the assessee was asked to reconcile the difference. The assessee failed to reconcile the difference during the assessment proceedings, therefore, the AO has rightly made the addition in respect of difference of Rs.75,99,593/-. He has further submitted that even the assessee has not explained before the AO that how the amount credited in P/L Account covers the entire receipts shown in the TDS certificates. The ld. DR has submitted that before CIT(A) the assessee has furnished fresh evidence and reconciliation statement which was not put before the AO. Therefore, considering the additional/fresh evidence in the course of appellate proceedings by the CIT(A) without giving opportunity to the AO, has violated the provisions of Rule 46A of the I.T. Rules. Even CIT(A) has not verified the alleged freight income and expenses deducted by the assessee before bringing the amount to P/L Account. Thus, the ld. DR has submitted that in the absence of proper re-conciliation as well as verification of the details CIT(A) has erred in deleting the addition.

3.1 On the other hand the ld. AR has submitted that all the details were furnished before the AO. The assessee handles the import and export of goods. The assessee's 4 M/s. Swift Freight India Ltd.

ITA No.5598/09 business include cost and freight of shipment where the amount pertaining to shipment is received in India and FOB shipment wherein the amount pertaining to the shipment is received at the destination of the cargo. For FOB shipment TDS cannot be deducted since amount is realized outside India. As a general practice in the industry only the difference between receipt including freight and reimbursement of charges and payment of freight and other charges for movement of cargo is taken to the P/L Account. The assessee is consistently following this practice since inception and revenue has accepted this since beginning. There was no addition on this account either in the earlier assessment year or in the subsequent assessment year . He has submitted that the assessee duly explained before the AO that it raised the bills on customers which include freight, terminal handling charges, documentation charges and other charges incurred on behalf of the clients and only the balance income is credited to the P/L Account. Further, export freight where payment is made in other countries, no TDS is deducted.

Sample copies of bills raised on account of freight and other charges were produced before the AO. Either the AO misunderstood the fact and made the addition by considering the TDS receipts without considering the gross amount received by the assessee and expenditure incurred by the assessee on behalf of the clients deducted from the gross revenue . The ld. AR has submitted that the assessee received gross amount of Rs.49,56,94,825/- which is much more than the amount of receipt shown in the TDS certificate at Rs.10,54,03,747/-. He has further contended that no additional evidence was produced before the ld. CIT(A). Therefore, there was no question of contravention of Rule 46A of the Income tax Rules. The ld. AR has reiterated his contention that no such addition was made by the AO while passing the assessment order under section 143(3) for assessment year 2003-04, 2008-09 and 2009-10. He has referred to the details of gross freight charges collected by the assessee and deduction of freight and other charges paid, thereby the net income taken to P/L Account for the assessment year 2002-03, 2007-08 and 2008-09 and submitted that all these years the facts are identical and the AO has not found any mistake or discrepancy in the amount being net income taken to P/L Account.

He has supported the order of the ld. CIT(A).

5 M/s. Swift Freight India Ltd.

ITA No.5598/09 3.2 We have considered the rival submissions as well as relevant material on record. The AO has noted the fact that the receipts as per TDS certificates stood at Rs.10,54,03,747/-. Whereas the income credited in the P/L Account is at Rs.9,78,04,154/- resulting in a difference of Rs.75,99,593/-. The AO made additions of differential amount for want of reconciliation on behalf of the assessee . On appeal, the assessee submitted the break-up of receipts and the expenses incurred which is reproduced by CIT(A) at page-4 as under :-

Sr.No. Nature of Income Amount(Rs.) Amount(Rs.) Amount(Rs.)

1. Total freight from 49,86,94,825 export(A) Less:Payments

a) Export freight 41,74,23,408

b) Central Warehouse 1,01,26,842 and Port Charges

c) Brokerage 74,62,948

d) Rebate paid 1,22,41,178

e) Survey charges paid 5,97,708

f) Transportation 53,73,245 charges Less:Payments 45,32,25,329 reduced(B) Income from freight on exports (Net)(A-B) 4,54,69,496

2. Income from imports 1,08,16,753

3. CTD Commission 14,83,910

4. USA Branch Income 4,00,28,495

5. Other Income 5,500 Total Voyage and other income 9,78,04,154

3.3. The assessee has shown total freight from export at Rs.49,86,94,825/- and adjusted the total payment on account of expenses of Rs.45,32,25,329/-. Accordingly, the assessee has worked out the income from freight on exports at Rs.4,54,69,496/-.

Apart from the income from exports, assessee has also shown income from freight on imports commission as well as USA branch income and thereby arrived at the total voyage income at Rs.9,78,04,154/-. The CIT(A) after considering this break-up, has decided the issue, that addition was not justified and is to be deleted as given in para-8 as under :-

"8. I have gone through the submission of the appellant as well as the reconciliation of receipts submitted by the appellant. From the reconciliation it becomes crystal clear that the receipts are not of Rs.10,54,03,747/- but at Rs.49,86,94,825/-. It is also proved by the 6 M/s. Swift Freight India Ltd.

ITA No.5598/09 appellant that the entire receipt shown in the TDS Certificate of Rs.10,54,03,747/- has duly been considered by the appellant while preparing its P&L Account and therefore nothing remains which has not been disclosed in the P&L Account. Therefore, I hold that there is no income which has not been disclosed in the books. In view of the facts, addition made of Rs.75,99,593/- deserves to be deleted. Accordingly, this ground of appeal is allowed in favour of the appellant."

3.4 As it is clear from the record which was considered by ld. CIT(A) that the same is not an additional evidence but the break-up of gross receipts and various expenditure were furnished after taking the same from the record already available before the AO. Therefore, we do not find any merit or substance in the objection raised by the revenue, that CIT(A) has violated the provisions of Rule 46A while considering the break-up of receipts and expenses. It is pertinent to note that when the gross receipts of the assessee is much more than the receipts shown as per TDS certificate then there is no question of showing less receipt by the assessee . Accordingly, in the facts and circumstances of the case we do not find any error or illegality in the order of ld. CIT(A qua this issue.

4. Ground No.3 is regarding addition on account of salary paid to MD:-

4.1 The AO noted that the assessee paid salary of Rs.44,66,000/- to the MD on which no TDS has been deducted. Accordingly, the AO disallowed the said payment by invoking the provisions of section 40A(i) of the Income tax Act. The assessee challenged the action of the AO before the ld. CIT(A) and contended that the assessee is having a branch at US which constitutes an independent PE. The income of the USPE is determined independently and taxed in USA only. The salary to the MD was paid outside India at US for rendering services outside India. Since the MD is a non-resident and has no connection with the assessee's India operation, therefore, the salary income in his hand is not taxable in India. CIT(A) has accepted the contention of the assessee and deleted the addition.

7 M/s. Swift Freight India Ltd.

ITA No.5598/09 4.2 Before us, the ld. DR has submitted that the assessee has not furnished any record before the AO in support of this claim as well as to show that the services were actually rendered by the MD. He has relied upon the order of the AO.

4.3 On the other hand the ld. AR has submitted that as it is clear from the details of the receipts and expenditure that the income of USA Branch is separately assessed as a PE of the assessee and the assessee is claiming rebate under the provisions of Chapter- IX in respect of the tax paid in US which has been allowed by the department. Therefore, the ld. AR has submitted that the existence of the assessee's branch in US being PE has not been disputed by the AO and therefore, the salary paid outside India for the service rendered outside India by a non-resident is not taxable in India and consequently no TDS is required to be deducted. He has supported the order of CIT(A).

4.4 We have considered the rival submissions as well as the relevant material on record. The Revenue has not disputed the fact that the branch at US is independently assessed to tax in US being PE of the assessee . We find that the salary in question was paid to Mr. Jayant Bhardwaj, MD of the assessee in US. The assessee produced the passport and visa of the MD to show that he was a non-resident Indian during the year under consideration and, therefore, the salary received by him outside India for the services rendered outside India are not taxable in India. Since the fact that the MD of the assessee is a non resident during the year has not been disputed by the Revenue , therefore, the salary paid outside India at US for the services to the US branch would not be taxable in India as per the provisions of Section 9 of the Income tax Act. CIT(A) after considering the facts has deleted the addition in para-10 as under :-

"10. I have considered the submission of the appellant and found merit in the same. During the year, the appellant has an independent Permanent Establishment (PE) at USA for its USA branch. Therefore, profit/loss of USA branch needs to be determined independently. Since payment of salary has been made out of India to a person for providing services out of India, no amount is taxable in India. Therefore, no TDS needs to be deducted on salary payment to non-Resident of Rs.44,63,000/-. Since no amount is taxable in India and no TD needs to be deducted, no corresponding disallowance can be made under section 8 M/s. Swift Freight India Ltd.

ITA No.5598/09 40(a)(i) of the Income tax Act, 1961. Therefore, disallowance made under section 40(a)(i) of Rs.44,63,000/- is deleted. This ground of appeal is allowed."

4.5 Nothing contrary has been brought before us to dispute the fact that the payment was made in USA to the MD who is non-resident. Therefore, we do not find any error or illegality in the order of CIT(A) qua this issue.

5. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 14/01/2015. .

आदेश कᳱ घोषणा खुले ᭠यायालय मᱶ ᳰदनांकः 14/01/2015 को कᳱ गई ।

Sd/- Sd/- (R.C. Sharma) (Vijay Pal Rao ) लेखा सद᭭य / ACCOUNTANT MEMBER ᭠याियक सद᭭य / JUDICIAL MEMBER मुंबई Mumbai; ᳰदनांक Dated 14/01/2015. व.िन.स./ Jv, Sr. PS

आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy षत of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. आयकर आयुᲦ(अपील) / The CIT(A)- 4. आयकर आयुᲦ / CIT 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाडᭅ फाईल / Guard file. आदेशानुसार/ ार BY ORDER, स᭜यािपत ᮧित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar)

आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai