ACIT CIRCLE-26(1), DELHI V. V&S SEAIR LOGISTICS PVT. LTD., DELHI

ITA 785/DEL/2019

AI Insights

The case involves the Assistant Commissioner of Income Tax, Circle-25(1), New Delhi as the appellant and M/s V & S Seair Logistics Pvt. Ltd. as the respondent. The dispute centered on the disallowance of expenses amounting to Rs. 5,34,64,619 claimed by the assessee as reimbursement of expenses. The Assessing Officer (AO) had initially disallowed these expenses due to non-verification of their genuineness, as the assessee had not provided sufficient documentary evidence of TDS deduction on these expenses. However, the CIT(A) reversed this decision after the assessee provided detailed explanations and evidence, which were not adversely commented upon by the AO during the remand proceedings. The Tribunal upheld the CIT(A)'s decision, agreeing that the method of accounting followed by the assessee was correct and in accordance with the guidance note issued by the ICAI.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31073 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Other Referred Cases: CIT vs. Virgin Securities & Credits (P) Ltd. 332 ITR 396, CIT vs. Chandra Kant Chanu Bhai Patel 202 Taxman 262 (Del)
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: DEEPAK UPADHYAY; HARSH BANSAL
• Keywords: Additional evidence; Question of law; TDS; FORM 26AS
• Section: 13; 44AB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: ‘F’: NEW DELHI) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER ITA No:- 785/Del/2019 (Assessment Year- 2014-15) Assistant commissioner of Income Tax, Circle-25(1), New Delhi. Vs. M/s V & S Seair Logistics Pvt. Ltd., T-2, Krishna Plaza, 3rd Floor, LSC Market, Phase-2, Mayur Vihar, New Delhi-110019. PAN No: AACCV8622N APPELLANT RESPONDENT Revenue by : Ms. Harpreet Kaur Hansra, Sr. DR Assessee by : Sh. Deepak Upadhyay, CA & Sh. Harsh Bansal, CA Date of Hearing : 01.04.2025 Date of Pronouncement : 04.04.2025 ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: The present appeal has been filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeal) -9, New Delhi (in short CIT(A), dated 09-11-2018, u/s 250(6) of the Income ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 2 Tax Act 1961 (hereinafter referred to as” Act”) pertaining to Assessment Year (A.Y) 2014-15 2. The grounds raised by the Revenue read as under: “ 1. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition/disallowance of Rs. 5,34,64,619/- on without appreciating that the above disallowance was made primarily on the ground of non-verification of expenses of Rs. 5,34,64,619/- (claimed as reimbursement of expenses by the assessee) and the genuineness of such expenses cannot be said to be verified by mere production of evidence of deduction of TDS.\" 2. \"The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.\" 3. The solitary issue in the present appeal pertains to the disallowance of expenses made by the Assessing Officer (AO) of ₹5,34,64,619/-, which was deleted by the Ld. CIT(A). 4. The orders of the authorities below reveal that the assessee was noted to be in the business of clearing agent and the addition/disallowance made to its income related to the difference between the agency charges shown in its profit and loss account of ₹2,52,25,291/- whereas the individual transaction statement (26 AS) showing such receipts at Rs 7,82,73,468. The assessee explained the same to be in the nature of expenses, incurred on their behalf by the assessee while acting as clearing agent, reimbursed to it by its clients ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 3 and filed a reconciliation statement to this effect .The AO however was not convinced with the reply of the assessee noting that by any stretch the assessee could not have disclosed its turnover net of expenses reimbursed to it and even otherwise the assessee had not filed any documentary evidence claiming reimbursement of the said expenses nor any evidence of having deducted TDS thereon. 5. Before the Ld. CIT(A) the assessee explained the nature of its business as involving organizing the clearance of goods imported from customs department for various importers of good by completing various formalities required under the customs law. That various expenses like customs duty, shipping charges, port charges etc. which an importer had to incur for the release of goods imported, were incurred and in most cases the importers relied on the clearing agents to pay these expenses on their behalf. That the agents paid those expenses and got the reimbursements against such expenses from its clients. The assessee explained that it had used the same business model where it had paid various expenses on behalf of its clients and got the same reimbursed from them. It was also pointed out that the assessee had charged only agency charges for its ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 4 professional services which truly represented its income. This explanation of the assessee is recorded at page 6 of the CIT (A)’s order as under: “ 3. Before explaining the reconciliation part, we would like to explain the nature of the business of the assessee. The assessee is a Custom Clearing Agent or CHA. It organizes the clearance of goods imported from the customs department for various importers of goods by completing various formalities required under the custom laws. There are various expenses like custom duty, shipping charges, port charges, detention charges etc. which an importer has to incur for the release of the goods imported. In most of the cases, the importers rely on the CHA agents to pay these expenses on their behalf. The CHA agents pay those expenses and get the reimbursements against such expenses from its clients. The assessee has also used same business model where it has paid various expenses on behalf of its clients and get the same reimbursed from them. For its own professional services, the assessee charges 'Agency Charges' which is truly its income.” 6. The assessee also explained the manner of raising invoices and accounting for the same in its Books of accounts pointing out that in the invoice raised on its clients both the agency charges and the various payments made on behalf of the clients was included and that while the professional charges were credited in the account of agency charges, the rest of the amounts were credited to the respective Ledger accounts of the clients. Copy of the sale register and reimbursement ledgers explaining the method of accounting followed was filed as also a list of all such payments made by the ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 5 assessee during the year and the summary of all accounts where the assessee got the reimbursement. The assessee contended that it had been regularly following this method of accounting over the years. 7. The Ld. CIT (A) forwarded the submissions of the assessee along with the evidences filed by it in the form of sales register and reimbursement Ledger for the comments of the AO, who filed his report on the same, which in turn was confronted to the assessee who filed a rejoinder to the report of the AO. During the course of hearing before the Ld. CIT(A) the assessee was asked to submit few details especially with respect to TDS on various reimbursement of expenses claimed by it to prove the genuineness of the expenses which the assessee duly submitted , pointing out that out of the total expenses incurred by it during the year including the reimbursement of expenses, TDS had been deducted by it on 68.57% of the expenses while on the balance no TDS was deducted mainly because they were payments made to government authorities on behalf of clients for business promotion, or were communication charges, electricity charges etc. which did not require any TDS to be deducted. ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 6 8. The Ld. CIT(A), after considering the contention of the assessee, admitted the evidences filed noting that they were not additional evidences but were part of the books of accounts maintained by the assessee. On the merits of the case Ld. CIT(A) noted that the assessee had demonstrated to have been following the net of reimbursement method of accounting income in preceding years also .He further noted that the AO had no adverse comments to make on the documents submitted to him for verification of the explanation of the assessee .He also noted that the AO had accepted the netting of expenses done by the assessee and had confirmed that the method of accounting followed was in accordance to the guidance note issued by the ICAI. The Ld. CIT(A) also noted that the AO had doubted the genuineness of the expenses reimbursed to the assessee as the details of necessary TDS were not given with respect to the same. He noted that the assessee had furnished details of TDS deducted by it on various expenses to the extent of 68.57% and he further noted that detail of expenses for assessment year 12 - 13 & A.Y 1718 was also filed from which it was apparent that the assessee was regular in deducting and depositing TDS wherever applicable. ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 7 9. From all of the above facts noted, Ld. CIT(A), that the net of reimbursement accounting adopted by the assessee was regularly adopted by it since its inception and that the AO had no adverse comments to make on the submissions and evidences furnished by the assessee in this regard, he deleted the disallowance made by the AO of the reimbursement of expenses to the tune of Rs.5,34,64,619/-. The findings of the Ld. CIT(A) from para 4.8 TO para 4.15 of the order in this regard is as under: “ 4.8 I have perused the assessment order, remand report and various submissions made by the appellant in this case. From the submission of the appellant it is noted that the documents so filed were not specifically called for by the AO during assessment proceedings. It is also not the case that documents being filed are not the part of regular books of accounts nor is the case that in absence of these documents, adverse view w.r.to authenticity or correctness of books of accounts has been taken leading to rejection of books of account and estimation of accounts. In fact, the appellant is found to have adduced all required details and documents called for by the AO and on consideration of the same, the AO has adjudicated the matter on legal/technical basis w.r.to accounting principles, gross receipts and gross turnover. In my considered view, details and documents so filed on subject matter of remand are necessarily in the nature of extension i.e. Ledger account which is part of regular books of accounts and goes in to the root of deciding the issue of dispute and therefore needs admission. The Jurisdictional High Court in the case of CIT vs. Virgin Securities & Credits (P) Ltd. 332 ITR 396 has held as under: \"It was only after considering the remand report the Commissioner (Appeals) had admitted the additional evidence. It could not be disputed that this additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of claim made by the assessee. The plea of the assessee which was taken before the Assessing Officer remained the same. The Assessing Officer had taken adverse note because of non-production of certain documents to support the plea and ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 8 it was in these circumstances, the additional evidence was submitted before the Commissioner (Appeals). It could not be said nor was in the case of the revenue that additional evidence was not permissible at all before the first appellate authority. On the contrary, rule 46A of the Income Tax Rules permits the Commissioner (Appeals) to admit additional evidence if he finds that the same is crucial for disposal of the appeal. In the facts of the instant case, therefore, no substantial question of law arose.\" 4.9 Also, in the case of CIT vs. Chandra Kant Chanu Bhai Patel 202 Taxman 262 (Del), it has been held as under: \"6 Learned counsel for the Revenue submits that the questionnaire was sent much in advance giving sufficient opportunity to the assessee, but the assessee failed to availed the same and produce the evidence. Therefore, there was no justification for admitting the fresh evidence. Apart from the fact that the two authorities below had recorded that sufficient opportunity was not accorded to the respondent-asseessee, even if there is some dispute/doubt about the same, we may mention that the fresh evidence which was produced in the form of assessment order in the case of wife of the assessee and the bank statement. Such documentary evidence would be without any blemish. Therefore, even in order to advance the cause of justice, this evidence was admitted, it cannot be said that no prejudice is caused to the revenue.\" 4.10 Hereto, the Assessing Officer has examined the evidences furnished by the appellant in the remand proceedings and such evidences have been found to be genuine and also such documents are since necessary for disposal of appeal, I think it appropriate to admit the same as additional evidences 4.9 Having analyzed the facts of the case, followings are observed: The appellant is a custom clearing agent. As explained by the appellant, it has to incur several expenses like custom duty, shipping charges, port charges, detention charges etc. on behalf of its clients for which it get reimbursed. The bone of contention of the case is the system of accounting ie. whether the appellant had followed correct system of accounting and thereby had shown correct income? The appellant had in fact followed the system of accounting wherein the amount received by it against expenses spent by it on behalf of its clients were reduced from the respective expenses. The Assessing Officer claimed that the method of accounting followed by the assesse is faulty as the receipts shown in the Balance Sheet does not tally with the receipts shown in Individual Transaction Statement ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 9 (Form 26AS). He explained the meaning of \"Turnover/gross receipts as defined under the Central Sales Tax Act, 1956, the Companies Act. 2013 and various Guidance Note issued by the Institute of Chartered Accountants of India (ICAI). The appellant vehemently challenged the opinion of the Assessing Officer in this respect. In the reply dated 19/01/2018, mention of para 5.17 and 5.18 of the 'Guidance Note on Tax Audit u/s 44AB of the Income Tax Act, 1961' Issued by ICAI was made which is given as under- \"5.17-the following items would not form part of \"gross receipts in business for the purpose of section 44AB. (i)….. (ii)… (vi) Reimbursement of customs duty and other charges collected by a clearing agent; ….” \"5.18-Thus, the principle to be applied is that if the assessee is merely reimbursed for certain expenses incurred, the same will not form part of the gross receipts. But in the case of charges recovered, which are not by way of reimbursement of actual expenses Incurred, they will form part of the his gross receipts.\" 4.10 Further, the appellant explained that the company was following the same policy of netting the reimbursements from its expenses since its inception in 2008. It was also explained that the net profit of the company would remain same in either method le. by netting the expenses or by grossing the full receipts and claiming the expenses separately. A certificate by the auditor of the company in this respect, as filed before the Assessing Officer also, was also filed during the course of hearing. 4.11 It is also noted that the Remand Report received from AO does not mention about any shortcoming in the documents filed by the appellant which was sent to him for verification. Rather, vide para 3.1 and 3.2 to his report, the AO has accepted the netting of expenses done by the assessee. Vide para 3.3 of his report, the AO has confirmed that the method of accounting (netting of expenses) followed by the appellant is as per para 5.17 & 5.18 of the Guidance Note issued by ICAI. 4.12 The Assessing Officer doubted the genuineness of expenses reimbursed to the assessee as the details of necessary TDS on the same was not given to him. On this aspect. under direction on 11/10/2018, the appellant filed the details of TDS deducted by it on various expenses (including expenses reimbursed) during the year under consideration. The detall showed that expenses to the extent of 68.57% were covered ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 10 on which TDS was applicable and duly deducted by it. Further, detail of TDS on expenses from the assessment year 2012-13 to 2017-18 was also filed by the appellant on 25/10/2018. From this detail it is apparent that the appellant is regular in deducting and depositing the TDS wherever applicable, on various expenses incurred (including reimbursement of expenses). 4.13 From the above, it is the admitted facts that the appellant is a custom and clearing agent. As explained by the appellant, it has to incur several expenses like custom duty, shipping charges, port charges, detention charges etc. on behalf of its clients for which it get reimbursed. However, during the assessment proceedings, the AO claimed that the method of accounting followed by the assessee is faulty as the receipts shown in the Balance Sheet does not tally with the receipts shown in Individual Transaction Statement (Form 26AS). He explained the meaning of \"turnover/gross receipts\" as defined under the Central Sales Tax Act, 1956, the Companies Act, 2013 and various Guidance Notes issued by the Institute of Chartered Accountants of India. Therefore, the bone of contention in the case of appellant is whether the system of accounting, which has been followed by the appellant consistently, is correct system of accounting and thereby had shown correct income? 4.14 The appellant contented that it had in fact followed the system of accounting wherein the amount received by it against expenses spent by it on behalf of its clients were reduced from the respective expenses. The appellant vehemently challenged the opinion of the Assessing Officer in this respect and had even referred to the Guidance Note on Tax Audit u/s 44AB of the Income Tax Act, 1961' issued by ICAI, wherein, through the mode of which the appellant has claimed that the accounting system followed by it is true and correct. Besides, the appellant explained that the company was following the same policy of netting the reimbursements from its expenses since its inception in 2008. It was also explained that the net profit of the company would remain same in either method le. by netting the expenses or by grossing the full receipts and claiming the expenses separately. A certificate by the auditor of the company in this respect, as filed before the Assessing Officer also, was also filed during the course of hearing. 4.15 On considering the submissions of the appellant, it is reasonably apparent that this method of accounting has been consistently adopted by the appellant, since its inception years. The appellant has very well demonstrated that the direct expenses that are to be paid as part of the sub-contracting business are to be reduced from the income, in accordance with the method of accounting followed by the assessee is correct as prescribed by the Institute of Chartered Accountants of India. Coupling the said fact with the inability of the AO to find anything adverse with the contentions of the AO, I also observe that even ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 11 otherwise, there arises no change in the net profit, since netting the expenses of directly, or recording the gross receipts and then subtracting gross expenditures from the same, would reap out the same results. Further, the appellant has also brought on records that it has duly deducted TDS on all such expenditures, meaning thereby that the appellant has claimed such expenditures. In view of above, I am of the considered view that the addition so made by the AO being disallowance of expenses is not justified. Hence, the AO is directed to delete the impugned addition of Rs.53464619/-. Appellant succeeds in this ground of appeal.” 10. Before us Ld. DR was unable to controvert the factual finding of the Ld. CIT(A) that the assessee had suitably demonstrated to have accounted for its income net of reimbursement of expenses right from inception of its business activity of clearing agent. The Ld. DR was also unable to controvert the factual finding of the Ld. CIT(A) that when the AO was confronted with the copy of sales register and the reimbursement Ledger maintained by the assessee, to demonstrate that it was accounting for only the agency charges earned by it as its income while the reimbursement of expenses charged in the invoice raised by the assessee was accounted for in the Ledger account of the various clients, the learned AO had no adverse comments to make after verification of the same .The Ld. DR was also unable to controvert the factual finding of the Ld. CIT(A) appeal that the assessee had suitably demonstrated the genuineness of the ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 12 expenses by showing TDS deducted on 68.57% of all expenses incurred by it including reimbursement of expenses and showing the rest of the expenses to not attract the provisions of tax deduction at source. 11. In the light of the same, we do not find any reason to reverse the order of the Ld. CIT(A) deleting the disallowance of reimbursement of expenses of Rs.5,34,64,619/-, whose order we find is based on concrete finding of uncontroverted facts that the assessee consistently following method of accounting its income net of reimbursement of expenses, that the expenses reimbursed were duly accounted for in its books of accounts in the Ledger account of the clients and TDS deducted on such expenses wherever applicable .The Ld. CIT(A), we hold, based on these factual findings has rightly recorded the finding of the expenses to have been demonstrated to have been genuinely incurred by the assessee. 12. The reliance placed by the Ld. DR on the order of the AO, we find, is of no assistance since the AO’s order disallowing the expenses was based on the finding that the assessee had not demonstrated suitably with evidence the incurrence of such expenses. The Ld. CIT ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 13 (A) however we have noted has gone through the complete books of accounts of the assessee, confronted the same to the AO and after seeking the report of the AO on the explanation furnished by the assessee coupled with the documentary evidences filed by way of books of accounts and noting no adverse comments to be made by the AO with respect to the same, has allowed the assessees claim of reimbursement of expenses. 13. In the light of the above, we no reason to interfere in the order of the learned CIT(A) deleting the disallowance of reimbursement of expenses of 5,34,64,619/-. 14. Appeal of the Revenue is dismissed. Order pronounced in the open court on 04.04.2025 SD/- SD/- (MADHUMITA ROY) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 04.04.2025 Pooja, Sr. PS/- ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 14 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, Delhi ITA No.-785/Del/2019 V & S Seair LogisƟcs Pvt. Ltd. 15 1. Date of dictaƟon of Tribunal order 2. Date on which the typed draŌ Tribunal Order is placed before the DictaƟng Member 3. Date on which the typed draŌ Tribunal order is placed before the other Member 4. Date on which the approved draŌ Tribunal order comes to the Sr. PS/PS 5. Date on which the fair Tribunal order is placed before the DictaƟng Member for pronouncement 6. Date on which the signed order comes back to the Sr.PS/PS 7. Date on which the final Tribunal order is uploaded by the Sr.PS/PS on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal order 9 Date of killing off the disposed of files on the judisis Portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the order "