Case Law Details

Case Name : ACIT (TDS) Vs St. Mary's Rubbers Private Limited (ITAT Cochin)
Appeal Number : ITA Nos. 224/Coch/2016
Date of Judgement/Order : 15/06/2017
Related Assessment Year : 2011-12
Courts : All ITAT (7471) ITAT Cochin (127)

Reimbursement of expenses against separate bills to C&F agents doesn’t require TDS and hence no dis allowance u/s 40(a)(1a)… ITAT Cochin bench held in the case of Assistant Commissioner of Income Tax (TDS) Vs St. Mary’s Rubbers Private Limited dismissing revenue’s appeal.

Amounts paid by way of reimbursement of expenses do not constitute income in the hands of the recipient. Consequently, the payer is under no obligation to deduct TDS u/s 194C and no dis allowance of the expenditure can be made u/s 40(a)(ia).

Full Text of ITAT Order is as follows:-

This appeal filed by the Revenue is directed against an order dated 10/03/2010 of the CIT(A).

2. Revenue, through its grounds, is aggrieved on the deletion of dis-allowance of Rs. 60,80,063/- made by the Assessing Officer u/s. 40(a)(ia) of the Income Tax Act, 1961 (in short ‘the Act’) for non deduction of tax at source on payments made by the assessee to C&F agents.

3. Facts apropos are that the assessee, a manufacturer and seller of centrifuged latex, had filed its return of income for the impugned assessment year, declaring income of Rs.70,89,989/-. An assessment u/s. 143(3) was completed on 21/12/2011, computing total income of the assessee at Rs.77,87,140/-. Thereafter, the assessment was reopened for a reason that shipping freight of Rs.9,70,828/- was paid without deducting tax at source. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had paid Rs.60,80,063/- as clearing and forwarding charges to one M/s. Mark Logistics. Claim of the assessee before the Assessing Officer was that these were reimbursement of expenditure incurred by the said agent. As per the assessee, said C&F agent was incurring expenditure on its behalf and therefore, it was not liable to deduct tax at source. However, Assessing Officer was not impressed. According to him, the assessee should have deducted tax at source on the payments effected to M/s. Mark Logistics. Since assessee had not deducted such tax, Assessing Officer applied section 40(a)(ia) of the Act and made a disallowance of Rs.60,80,063/-.

4. Aggrieved, assessee moved in appeal before the CIT(A). Before the CIT(A), assessee produced a statement from M/s. Mark Logistics According to this statement, the amounts given by the assessee to M/s. Mak Logistics were reimbursement of expenditure. In the said statement, M/s. Mark Logistics certified that expenditure was incurred on behalf of the assessee and not C&F charges. They also stated that they had deducted tax at source while effecting payments to various persons with whom they had entrusted the work of the assessee. Ld. CIT(A) sought a remand report from the Assessing Officer. As per the CIT(A), in the remand report, the Assessing Officer has admitted that amounts paidby assessee fo M/s. mark Logistics were re-imbursements. CIT(A) held that payment of Rs.60,80,063/- made by the assessee to M/s. Mark Logistics were in the nature of reimbursement of expenditure and the payments received by them were not C&F charges. Relying on the judgment of the Hon’ble Gujarat High Court in the case of CIT vs. Narmada Valley Fertilizer Co. Ltd. (361 ITR 0192), the CIT(A) held that for re-imbursement of expenditure, deduction of tax was not required. He deleted the disallowance made u/s. 40(a)(ia) of the Act.

5. Ld. DR, assailing the order of the CIT(A), submitted before us that assessee had paid Rs.60,80,063/- for the services received by the assessee from M/s. Mark Logistics, which were contractual in nature. According to him, these were not reimbursement of expenditure and even if it was reimbursement, as per the Ld. DR, there would have been profit booking by M/s. Mark Logistics in-built in the billings. In his opinion, Assessing Officer has rightly considered the payments as liable for deduction of tax at source u/s. 194C of the Act. According to him, CIT(A), merely based on the submissions of the assessee, had allowed the claim of the assessee. Reliance was placed on the judgment of the Hon’ble Jurisdictional High Court in the case of CBDT vs. Cochin Goods Transport Association (236 ITR 993) and the judgment of the Hon’ble Apex Court in the case of Associated Cement Co. Ltd. vs. CIT and another (201 ITR 435).

6. In reply, Ld. AR submitted that the Delhi Bench of this Tribunal in the case of ITO vs. Deepak Bhargawa in I.T.A. No. 343/Del/2012 dated 13thNovember, 2014 had clearly held that section 194C would not be applicable for reimbursement of As per the Ld. AR, facts of this case were very similar to that case. Reliance was also placed on the decision of the Bangalore Bench of this Tribunal in the case of DCIT vs. Dhanyaa Seeds (P) Ltd. (42 277) and that of the Hon’ble Gujarat High Court in the case of Pri. CIT vs. Consumer Marketing (India) (P.) Ltd. (64 16).

7. We have heard the rival submissions and perused the orders. Certificate issued on 23.08.2014 by M/s. Mark Logistics reads as under:

“St. Mary’s Rubbers Private Ltd., 54B/IX, Parathodu Panchayath, Koo vapally P.O., Kanjirapally Kottayam-686 518.

Dear Sir,


Amounts re-imbursed by you towards expenditure incurred by us on your behalf during the financial year 2008-09 – clarification – regarding

During the financial year 2008-09 we have received the following amounts from you towards RE-IMBURSEMENT of expenditure incurred by us on your behalf, on which we have deducted tax at source, wherever applicable. Date wise list is enclosed separately.

Documentation charges 10,854

Postage, courier, grounding charges 181,300

Certificate of origin, invoice legislation etc. 24,300

Transportation by road in goods carriage 2,681,528

Self stuffing charges 80,400

Sundry charges 217,700

Tally wages paid 44,500

Handling charges paid 489,497

Other expenses 2,349,984

Total (Rs.) 6,080,063

Yours faithfully,

(Authorized signatory (Name and designation


Shaji Kurian


Enclosure List of amounts reimbursed by you as stated above”

7. M/s. Mark Logistics has also given details of bills, copies of which are placed in paper book pgs. 23 to 32 and these also clearly show that they were claiming reimbursement of expenditure incurred by them on behalf of the assessee. In the case of Deepak Bhargava (supra), where also the question was dis allowance u/s. 40(a)(ia) of the Act for non deduction of tax at source on payments effected to clearing and forwarding agents, what was held by the Tribunal is reproduced here under:

“6.1 The CIT(A) has categorically held that the amount of Rs.18,16,637/- is nothing but reimbursement of expenses incurred by the payee on behalf of the assessee. Copies of the few bills raised by the two agencies were placed on record at Pages 40 to 66 of the assessee’s paper book.. On perusal of the same, it is clearly evident that these are nothing, but reimbursement of expenses incurred by the clearing agencies on behalf of the assessee. Therefore, these amounts did not constitute income of the clearing agent and no TDS was required to made thereon. Therefore, the provision of Section 194C will not be applicable in respect of reimbursement of expenses,”

The Tribunal, while giving the above decision, had also considered the effect of CBDT Circular No. 715 dated 08.08.1995 and also ruled that the said Circular was applicable only where consolidated bills were raised inclusive of contractual payments and reimbursement of actual expenditure. Same view was taken by the Bangalore Bench of this Tribunal in the case of DCIT vs. Dhanyaa Seeds (P) Ltd. (supra). Hon’ble Gujarat High Court in the case of Pr. CIT vs. Consumer Marketing (India) (P.) Ltd.(supra) held that when separate bills are there for reimbursement of expenditure received by C&F agent, TDS was not required to be made on reimbursement. It is an admitted position in the case before us that assessee had in addition to reimbursement of expenses, separately paid brokerage and commission Rs.2,52,410/- which was subjected to dis allowance in the original assessment. Considering all these, we are of the opinion that the CIT(A) was justified in deleting the dis allowance made u/s. 40(a)(ia) of the Act. We do not find any reason for interference with the order of the CIT(A) .

8. In the result, the appeal of the Revenue stands dismissed. Pronounced in the open court on 15-06-2017.

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