Case Law Details
Kalpesh Ganpatlal Patel Vs ITO (ITAT Ahmedabad)
Introduction: The case of Kalpesh Ganpatlal Patel Vs ITO (ITAT Ahmedabad) revolves around the applicability of TDS (Tax Deducted at Source) under section 194C of the Income Tax Act in the context of freight charges incurred during the purchase of goods. Specifically, the dispute centers on whether TDS should be deducted when freight charges are considered an integral part of the purchase of materials.
Detailed Analysis: Kalpesh Ganpatlal Patel, the assessee, operates a trading business specializing in Gypsum Board. The Assessing Officer (AO) raised concerns about the non-deduction of TDS under section 194C along with section 40(a)(ia) of the Act. This non-deduction of TDS led to the disallowance of inward freight expenses amounting to Rs. 16,15,291, which was subsequently added to the total income of the assessee.
The matter was appealed before the Commissioner of Income Tax (CIT-A), who upheld the AO’s decision. The CIT(A) justified this by highlighting that the assessee had presented expenses for purchases and inward freight expenses separately in their financial statements. Consequently, the CIT(A) rejected the argument that the inward freight expenses were an integral part of the materials’ purchase.
In response, the appellant approached the Tribunal with a crucial argument. They contended that the inward freight expenses were indeed an inherent component of the goods’ purchase. While the purchase bills displayed transportation charges separately, the appellant emphasized that this did not establish an independent contract between them and the transporters.
The Tribunal carefully examined the situation and noted that the Department did not cast doubt on the assessee’s assertion that the inward freight charges were linked to the purchase of materials. Moreover, the invoices clearly demonstrated that the supplier of the materials had provided a breakdown of the gross sale bill, encompassing both the purchase cost and transportation charges. This provided compelling evidence that the inward freight charges were an inseparable aspect of the goods’ purchase.
Crucially, it is established legal doctrine that TDS provisions do not apply to transactions involving the purchase and sale of goods. Consequently, as there was no contractual arrangement between the assessee and the transporter, the Tribunal concluded that the assessee was not obliged to deduct TDS on the inward freight expenses incurred under section 194C. Therefore, the question of disallowance under section 40(a)(ia) of the Act was unwarranted.
Conclusion: In the case of Kalpesh Ganpatlal Patel Vs ITO (ITAT Ahmedabad), the Tribunal ruled in favor of the assessee, determining that TDS was not applicable to inward freight charges incurred during the purchase of goods. This decision underscores the importance of understanding the nuances of tax law and contract arrangements in commercial transactions, ensuring that businesses comply with the relevant tax provisions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax, CIT(A)-10, Ahmedabad, in the proceeding u/s 250 of the Act vide order dated 07/03/2017 passed for the assessment year 2009-10.
2. The assessee has raised as many as six grounds of appeal but the effective issue on merit of the case revolves towards the disallowance of Rs. 16,15,291/- on account of non-deduction of TDS u/s 194C r.w.s. 40(a)(ia) of the Act.
3. Briefly stated facts are that the assessee in the present case is an individual and engaged in the trading business of Gypsum Board. The Assessing Officer in the present case has made the disallowance of Rs. 16,15,291/- representing the inward freight expenses on account of non-deduction of TDS u/s 194C r.w.s. 40(a)(ia) of the Act and added to the total income of the assessee.
4. Aggrieved assessee preferred an appeal before the ld. CIT(A) who has also confirmed the order of the Assessing Officer by observing that the assessee has disclosed the expenses for the purchases and inward freight expenses separately in the financial statements. As such, the ld. CIT(A) rejected the contention of the assessee that the inward freight expense was part and parcel of the purchase of the materials.
5. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. The ld. Authorized Representative before us has filed a paper book running from pages 1 to 77 and drawn our attention to the purchase bills demonstrating that the inward freight expenses were part and parcel of purchase of the goods. As per the ld. Authorized Representative, there was no separate and independent contract subsisting between the assessee and the contractor for the freight charges incurred by the assessee.
It was also submitted that since in the purchase bills, the transportation charges were shown separately, therefore, the assessee recorded such transportation charges separately in the books of accounts but that does not mean that there was a separate contract between the assessee and the transporters. On the other hand, ld. Departmental Representative vehemently supported the order of the authorities below.
6. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the contention of the assessee that the inward freight charges were part of purchase of materials was nowhere doubted by the authorities below. Besides the above, we have also perused copies of the invoices placed in the paper book and note that the party (supplier of the materials) has given the break-up of the gross sale bill raised to the assessee which is inter-alia comprising of purchase cost as well as transportation charges. From the invoice, it becomes crystal clear that the freight inward charges were part and parcel of the purchase of the goods. It is settled law that the provisions of the TDS cannot be attracted on the transaction of purchase and sale of the goods. Thus, in the absence of any contract between the assessee and the transporter, we hold that the assessee was not under the obligation to deduct TDS of inward freight expenses incurred for Rs. 16,15,291/- under the provisions of section 194C of the Act. Accordingly, the question of making the disallowance under the provisions of section 40(a)(ia) of the Act is not warranted. Hence, we set aside the order of ld. CIT(A) and direct the Assessing Officer to delete the addition made by him. Thus, the grounds of appeal of assessee are allowed.
7. The assessee in ground Nos. 1 to 4 has challenged the validity of assessment framed u/s 144 r.w.s. 147 of the Act. However, at the time of hearing, the ld. Authorized Representative has not advanced any arguments on the issues challenged in ground Nos.1 to 4, therefore, we dismiss the same as infructuous.
8. The issue raised in ground No. 6 is premature and is not required to be decided at this stage, therefore, we dismiss the same as infructuous.
9. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 27-09-2023
Author Bio
Though the decision is in favour of the assessee, this scan be used as a defence when TDS is not deducted. As a matter of caution, in TDS matters it is always advisable to err on the revenue side and deduct TDS to avoid litigation.