Case Law Details

Case Name : ITO Vs Deepak Bhargawa (ITAT Delhi)
Appeal Number : ITA No. 343/Del/2012
Date of Judgement/Order : 13/11/2017
Related Assessment Year : 2007-2008
Courts : All ITAT (7457) ITAT Delhi (1755)

ITO Vs Deepak Bhargawa (ITAT Delhi)

In this case the appellant is receiving the material on Freight Prepaid basis (C&F). The foreign shipping companies were charging only the incidental charges like Port charges, Container payment, Stationery charges, License fees, Stamp charges, Bank charges, De-stuffing charges etc. These bills also include part payment of import duty paid by the appellant. Since Import Duty & Port charges are payment to Govt, as per provisions of law T.D.S. is not deductable. Other expenses which were reimbursed are also not subjected to T.D.S. In view of the facts and circumstances of the case the disallowance made by the assessing officer of Rs.18, 16, 637 under section 40a(ia) is uncalled for and is therefore deleted.

Full Text of the ITAT Order is as follows:-

This appeal at the instance of the Department is directed against the Commissioner (Appeals) order dated 14-11-2011. The relevant assessment year is 2007-08.

2. Though five grounds are raised in this appeal, all the grounds, relates to the issue of disallowance of two payments of Rs.18,16,637 and Rs.9,00,300 by invoking the provision of Section 40(a)(ia) of the Income Tax Act.

3. Brief facts of the case are as follows.

The assessee an individual is engaged in the business of Import & Trading in Electrical goods for the year in dispute. The return of income was filed on 31-10-2007 declaring income of Rs.1,99,892. The assessment was taken up for scrutiny by issuance of notice under section 143(2) of the Act. The scrutiny assessment under section 143(3) of the Act was completed vide order dated 29-12-2009 by making the following two disallowances of expenditure by invoking provision of under section 40(a)(ia) of the Act.

(i) Disallowance under section 40(a)(ia) on account of non deduction of TDS on clearing and forwarding charges Rs.18, 16, 637.
(ii) Disallowance on commission payments under section 40(a)(ia) on account of purported default in timely deduction and deposit of TDS. Rs.9,00,300
Total Rs.27, 16, 937

4. Aggrieved by disallowance of the above said expenditure, assessee filed an appeal before the First Appellate Authority. The Commissioner (Appeals) allowed the appeal of the assessee. The relevant findings of the Commissioner (Appeals) on the two issues reads as follows.

As regards disallowance of clearing and forwarding charges of Rs.18, 16, 637.

“I have carefully considered the contention of the assessing officer and written submission of the appellant. The assessing officer is not justified in invoking the provisions of section 194C & 195 of the Income Tax Act and making a disallowance under section 40a(ia) of the Income Tax Act amounting to Rs.18, 16, 637. The case of the appellant is clearly covered by the provisions of section 172. Tax at source is to be deducted only from the income of the payee & not from the charges reimbursed to them. As per Circular No. 715, if the payee has raised a single bill for his fees as well as for other charges, then tax has to be deducted from the entire bill amount which means if separate bills has been raised for reimbursement of expenses & for the services rendered by them the tax is required to be deducted only from the bill for the services rendered by the payee & reimbursements are not subjected to T.D.S.

In this case the appellant is receiving the material on Freight Prepaid basis (C&F). The foreign shipping companies were charging only the incidental charges like Port charges, Container payment, Stationery charges, License fees, Stamp charges, Bank charges, De-stuffing charges etc. These bills also include part payment of import duty paid by the appellant. Since Import Duty & Port charges are payment to Govt, as per provisions of law T.D.S. is not deductable. Other expenses which were reimbursed are also not subjected to T.D.S. In view of the facts and circumstances of the case the disallowance made by the assessing officer of Rs.18, 16, 637 under section 40a(ia) is uncalled for and is therefore deleted. This ground of appeal is allowed.”

As regards disallowance of commission on sales of Rs.900,300 made under section 40(a)(ia).

“I have gone through the order of the assessing officer and the written submission of the appellant and also perused the case laws relied upon by the appellant. In this case the appellant has deducted the tax also deposited the same within the stipulated time prescribed as per the provisions section 40(a)(ia). The assessing officer is unjustified in making a disallowance of Rs.9, 00, 300. Therefore, the disallowance made is deleted.”

5. The Revenue being aggrieved is in appeal before us. The learned Departmental Representative supported the order of the Assessing Officer. On the other hand, learned Authorised Representative reiterated the submissions made before the Income Tax Authority and relied on the findings of the Commissioner (Appeals).

6. We have heard rival submission and perused the material on record. As regards the disallowance of Rs.18, 16, 637 made by the assessing officer, these were payments made to M/s Sai Dutta Clearing Agency and Sh. Kamal Sehgal. The aforesaid clearing and forwarding agencies had been raising two separate bills on the assessee namely:

(i) First bill in respect of the service charges of the agency provided to the assessee and on the said bill the assessee deducted tax and paid the same to government account on time.

(ii) The second bill was raised by above said clearing agencies pertains to reimbursement of expenses incurred by the agency on behalf of the assessee. These reimbursement of expenses the assessee has non deducted TDS. Hence, these payments were made subject matter of disallowance under section 40(a)(ia) of the Act.

6.1. The Commissioner (Appeals) 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.

6.2 Circular No.715 dated 8-8-1995 was issued by CBDT on “Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Fiannce Act, 1995”. The said circular in reply to question no.30, provided as under:

“Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.”

6.3 The aforesaid circular was applicable only where the consolidated bills are raised for the gross amount inclusive of contractual payments as well as reimbursement of actual expenses. The same would therefore, not be applicable to the facts of the present case where bills are raised separately for the reimbursement of expenses incurred by payee.

6.4 The following judicial pronouncements support the view that circular No.715 (supra) will not have application, when bills are raised separately for reimbursement of expenses.

(a) Hon. Jurisdictional (Delhi) Bench of ITAT in the case of “ITO v. Dr. Willmar Schwabe India (P.) Ltd. (2005) 3 SOT 71 (Delhi).

(b) Hon. Rajkot Bench of ITAT in the case of DCIT v. Choice Sanitary Industries (2011) 9 taxmann.com 120 (Rajkot).

6.5. The Tribunal Bench of the Rajkot in the case of DCIT v. Choice Sanitary Industries (supra) held that:

“We have considered the rival submissions and gone through the material placed before us. The learned Departmental Representative relied upon the order of the assessing officer whereas the learned Authorised Representative relied upon the order of the Commissioner (Appeals). We find that the main objections of the assessing officer in making the disallowance are that as per CBDT Circular 715 dated 8-8-1995, the reimbursement of actual expenses cannot be deducted from the commission charges paid by the assessee. The learned Commissioner (Appeals) drawing support from the co-ordinate bench decision in the case of ITO v. Dr. Willmar Schwabe India (P) Ltd. (2005) 95 TTJ (Delhi) 53 wherein it has been held that the circular is applicable only in cases where the bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses held that the circular was not applicable in the case of the assessee as C&F agent raised two separate bills, one for the commission and the other for the reimbursement of expenditure.”

6.6 Similarly the jurisdictional Bench of the Tribunal in the case of ITO v. Dr. Willmar Schwabe India (P.) Ltd. (Supra) held as under:

“After considering the rival submissions and perusing the relevant material on record, we find no infirmity in the impugned order of learned Commissioner (Appeals) on this issue. It is observed that as agreed by and between the assessee company and M/s. Indochem Techno, Conslutants Ltd., a vehicle was to be provided by the assessee company to the said consultant for attending to its work and thus, the assessee company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by them on the assessee company in addition to bills for fees payable on account of technical services and sine the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear use of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not be the nature of payment covered by section 194J requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dated 8-8-1995 relied upon by the assessing officer in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of section 194J were not applicable to the reimbursement of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement. In that view of the matter, we uphold the impugned order of learned Commissioner (Appeals) on this issue and dismiss the relevant grounds of the Revenue’s appeal “

6.7. In view of the aforesaid orders of the Tribunal, we hold that Commissioner (Appeals) is justified in deleting the disallowance of Rs.18,16,637 and we dismiss this ground of the Revenue.

7. As regards, the disallowance of Rs.9,00,300. The brief facts are as under:-

7.1 The assessee had entered into an agreement with the firm M/s Sangeeta Traders to provide commission on sales made to them. As per the terms of agreement, commission @ 1.5% of the sales was to be credited to the account of the firm at the end of the financial year i.e. on 31st March of every year after deduction of tax at source. The assessee has followed this policy and credited commission of Rs.9,41,828 to the account of M/s Sangeeta Traders on 31-3-2007. Tax on the aforesaid amount of commission was duly deducted under section 194H on 31-3-2007 and deposited on 21-5-2007 to the credit of central government. The assessing officer however, held that the assessee should have provided commission separately for a period upto Feb. 2007 and should have deducted and deposited T.D.S. thereon by 31-3-2007 disallowed a sum of Rs.900,300 under section 40(a)(ia) of the Act out of total amount of commission of Rs.9,41,828 paid to M/s Sangeeta Traders.

7.2. The Commissioner (Appeals) deleted the disallowance for the reason that the assessee has deposited the tax deducted within time stipulated as per the provision of Section 40(a)(ia). In the instant case, admittedly the tax has been paid well before the due date furnishing of the return under section 139(1) of the Act. Hence, proviso 1 to Section 40(a)(ia) is applicable to the facts of this case. The proviso though it is applicable with effect from 1-4-2010, several judicial pronouncements have held the said proviso to be retrospective. Hence, we hold the Commissioner (Appeals) is justified in deleting the disallowance of Rs.9,00,300. It is ordered accordingly.

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

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