DCIT, Madurai V. M/s. Para Enterprises (P) Ltd., Sivakasi

ITA 2146/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7459 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Depreciation; TDS; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 14A; 40(a)(ia); 194C; 143(1); 201; 143(2); 13

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , J UDICIAL MEMBER ./ I.T.A.NO. 2 1 46 /MDS/2016 / ASSESSMENT YEAR : 20 12 - 13 & C.O. NO. 1 26 /MDS/201 6 [IN I.T.A. NO. 2 1 46 /MDS/201 6 ] THE DEPUTY COMMISSIONER OF INCOME TAX, CO RPORATE CIRCLE 2 , MADURAI. VS. M/S. PARA ENTERPRISES (P) LTD., NO. 118 (17A), BOOPATHY BUILDINGS, VIRUDHUNAGAR ROAD, SIVAKASI 626 123. [PAN: A A D C P7184Q ] ( APPELLANT ) ( RESPONDENT /CROSS OBJECTOR ) / APPELLANT BY : SHRI SHIVA SRINIVAS , JCIT / RESPONDENT BY : SHRI S. SRI DHAR ADVOCATE / DATE OF HEARING : 2 8 . 12 .201 6 / DATE OF P RONOUNCEMENT : 24 . 03. 201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THE APPEAL PREFERRED BY THE REVENUE AND THE CROSS OBJECTION FILED BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 , MADURAI DATED 13 .0 4 .201 6 FOR THE ASSESSMENT YEAR 20 12 - 13 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE. I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 2 2.1 THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S. 36(1)(III) TO RS.6,07,379/ - AS AGAINST RS. 22,93,433/ - MADE BY THE AO. 2.2 THE CIT(A) OUGHT TO HAVE SEEN THAT BORROWED FUNDS WERE DIVERTED TO SISTER CONCERNS WITHOUT ANY BUSINESS NEXUS AND HENCE OUGHT NOT HAVE RESTRICTED THE DISALLOWANCE MADE U/S. 36( 1 )(III) BY THE AO. 3.1 THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A TO RS.2,26,827/ - AS AGAINST RS.22,86,191/ - MADE BY THE AO. 3.2 THE CIT(A) OUGHT TO HAVE SEEN THAT THE AO ARRIVED THE DISALLOWANCE U/S. 14A BASED ON THE RULE 80 OF THE IT RULES AND HENCE OUGHT NOT HAVE RESTRICTED THE DISALLOWANCE MADE U/S. 14A. 4.1 THE CIT(A) HAS ERRED IN ALLOWING 80% OF THE DEPRECIATION ON LAND CO ST I NCLUDING REGISTRATION CHARGES, ERECTION OF CIVIL WORKS, ELECTRICAL FITTINGS AND INSTALLATION OF TRANSFORMERS AS APPLICABLE TO WINDMILL. 4.2 THE CIT(A ) OUGHT TO HAVE SEEN THAT THE AO HAS ALLOWED DEPRECIATION ON CIVIL WORKS, ELECTRICAL FITTING AT THE RATE PRESCRIBED IN THE APPENDIX 1 TO THE IT RULES. 4.3 THE DECISION OF THE ITAT, CHENNAI BENCH IN THE CASE OF ASIAN HANDLOOM VS. DCIT, TRICHY I N ITA NO. 2291/MDS/2008 DT. 20.11.2009 RELIED ON BY THE CIT(A) HAS NOT BECOME FINAL AND THE SAME IS PENDING BE FORE MADRAS HIGH COURT . 5.1 THE CIT(A) ERRED IN HOLDIN G THAT SEC. 194C IS NOT APPLICABLE IN RESPECT OF REIMBURSEMENT OF EXPENSES PAID TO M/S. WD SHIPPING SERVICES PVT. LTD, WHICH IN TURN WAS PAYABLE TO M AERSK INDIA LTD. 5.2 THE CIT(A) OUGHT TO HAVE S E EN THAT THE ASSESSEE COMPANY HAD MADE PAYMENT TO THE CONSOLIDATED BILL RAISED BY M/S. VVD SHIPPING SERVICES LTD AND NOT TO THE INDIAN AGENT OF NON - RESIDENT SHIPPING COMPANY MAERSK INDIA PVT. LTD. IN ORDER TO CLAIM NOT TO DEDUCT TDS OIL PAYMENT AND HENCE O UGHT TO HAVE SUSTAINED THE ADDITION MADE U / S. 40(A)(IA). I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 3 6. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE OR D ER OF THE C!T(A) MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER RESTORED. 2. BRIEF FA CTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MATCH SKILLETS AND FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME OF .29,93,230/ - , WHICH WAS ACCEPTED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 08.08.2013. IN RESPONSE T HERETO, THE ASSESSEE FILED ALL DETAILS AND AFTER EXAMINING THE DETAILS AS WELL AS CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .2,93,10,260/ - AFTER M AKING VARIOUS ADDITIONS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A), WHICH WAS PARTLY ALLOWED BY HIM. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO RESTRICTION OF DISALLOWANCE UNDER SECTIO N 36(1)(III) OF THE ACT TO .6,07,379/ - AS AGAINST .22,93,433/ - , THE LD. DR HAS SUBMITTED THAT WITHOUT HAVING ANY BUSINESS NEXUS WITH SISTER CONCERNS, THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS AND PAID INTEREST FOR LOANS TAKEN BY THE ASSESSEE. THEREFORE, THE ORDER OF THE LD. CIT (A) SHOULD BE REVERSED. I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 4 5. BY REFERRING TO THE GROUNDS RAISED IN THE CROSS OBJECTION, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE LD. CIT(A) SHOULD NOT HAVE RESTRICTED THE DISALLOWANCE OF .6,07,379/ - AND PRAYED THAT THE DISALLOWANCE RESTRIC TED TO THE EXTENT OF .6,07,379/ - SHOULD BE DELETED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICER HAS NOTI CED THAT THE ASSESSEE HAD EXTENDED LOAN TO THE TUNE OF .2,85,70,233/ - TO VARIOUS SISTER CONCERNS CHARGING INTEREST @ 6% FROM M/S. NIRANJAN SANKAR ENTERPRISES P. LTD. AND M/S. TAMARAI HOMES PVT. LTD. AND NO INTEREST WAS CHARGED FROM OTHER CONCERNS, WITH WH OM THE ASSESSEE HAD NO BUSINESS NEXUS. SINCE THE ASSESSEE HAS PAID INTEREST TO THE LOANS TAKEN FROM ITS SISTER CONCERNS RANGING FROM 6 TO 12%, IN THE ABSENCE OF ANY EXPLANATION FROM ASSESSEE, THE ASSESSING OFFICER WORKED OUT THE INTEREST OF .22,93,433/ - [ 28,38,648 5,45,2156] @ 10% ON .2.83 CRORES AND REDUCED BY INTEREST RECEIVED FROM SISTER CONCERNS OF .5,45,215/ - AND DISALLOWANCE THE BALANCE UNDER SECTION 36(1)(III) OF THE ACT. 6.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, ON VERIFICATION OF THE A CCOUNTS OF THE SISTER CONCERNS, THE LD. CIT(A) HAS OBSERVED THAT M/S. MIONER LITES AND M/S. HIBISCUS ENTERPRISES (P) LTD. SUPPLIED MATCH SKILLETS AND RECEIVED PERIODICAL PAYMENTS FROM THEM TOWARDS SALE OF MATCH SKILLETS. I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 5 THEREFORE, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER NOT TO CONSIDER THESE TWO ITEMS FOR THE PURPOSE OF INTEREST DISALLOWANCE. SIMILARLY IN THE CASE OF CINNAMON HOLDINGS (P), THE ASSESSEE HAS ADVANCED .13,75,000/ - ONLY ON 27.10.2011, WHEREAS, THE ASSESSING OFFICER HAS CHARGED INTEREST AT THE RATE OF 10% FOR THE ENTIRE YEAR, WHICH IS INCORRECT. WE DO AGREE WITH THE ABOVE TWO FINDINGS OF THE LD. CIT(A). BUT THE APPELLATE ORDER DOES NOT SPEAK ABOUT BUSINE SS NEXUS OF THE ASSESSEE WITH OTHER COMPANIES SUCH AS ASIA MATCH CO. P. LTD. [ .8,05,921/ - ] , CHAVI ENTERPRISES P. LTD. .3,52,602 + 7,07,231] WITH WHOM THE ASSESSEE HAS NOT CHARGED INTEREST TO THE LOANS GIVEN. 6.2 FURTHER, LD. CIT(A) HAS INCLUDED INTEREST RECEIPT FROM THE LOAN CREDITOR M/S. SREE AYYANAR SPINNING & WEAVING MILLS, WHEREAS, THE ASSESSING OFFICER HAS EXCLUDED THIS LOAN CREDITOR FOR THE PURPOSE OF INTEREST DISALLOWANCE. SIMILARLY, THE LD. CIT(A) HAS NOT INCLUDED THE INTEREST PAID BY THE ASSESSE E TO T. SUSILA OF .1,00,953/ - WHILE WORKING OUT THE RESTRICTION OF DISALLOWANCE. 6.3 UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE BUSINESS NEXUS WITH THE SISTER CONCERNS OF THE ASSESSEE FROM THE ACCOUNTS OF THE SISTER CONCERNS AN D DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS PARTLY ALLOWED. I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 6 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN REST RICTING THE DISALLOWANCE UNDER SECTION 14A TO .2,26,827/ - AS AGAINST .22,86,191/ - . SINCE THE ASSESSING OFFICER IS REQUIRED TO RECOMPUTE THE INTEREST COMPONENT AFRESH AS DIRECTED HEREINABOVE AT PARA 6.3 , THE APPLICATION OF RULE 8D(II) IS REQUIRED TO WORKED OUT AFRESH FOR COMPUTATION. 7.1 WITH REGAR D TO COMPUTATION OF DISALLOWANCE UNDER RULE 8D(III), THE LD. CIT(A) HAS RIGHTLY WORKED OUT DISALLOWANCE TO THE EXTENT OF .2,26,827/ - AGAINST THE INVESTMENT OF .4,53,65,336/ - . FURTHER, WE OBSERVED THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT THE INVESTMENT I N SHARES OF M/S. JELLICE PIONEER (P) LTD., SINGAPORE NEED NOT BE CONSIDERED FOR DISALLOWANCE SINCE THE ASSESSEE HAS NOT BEEN RECEIVED ANY DIVIDEND INCOME, WHICH IS AS PER THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE RECENT JUDGEMENT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C.A. NO. 520 OF 2016 DATED 23.12.2016. THUS, THE GROUND RAISED BY THE REVENUE IS PARTLY ALLOWED. 8. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING 8 0% OF THE DEPRECIATION ON LAND COST INCLUDING REGISTRATION CHARGES, ERECTION OF CIVIL WORKS, ELECTRICAL FITTINGS AND INSTALLATION OF TRANSFORMERS AS APPLICABLE TO WINDMILL. ADMITTEDLY, THE ASSESSEE HAS PURCHASED TWO WINDMILLS FROM M/S. PIONEER WINCON (P) L TD. AT A COST OF I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 7 .4,05,00,000/ - EACH. THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE ENTIRE COST OF WIND ENERGY GENERATOR AT THE RATE OF 40% [LESS THAN 180 DAYS]. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE COST OF LAND, CIVIL WORK AND ELECTRICAL FITTINGS ARE EXCLUDED FROM THE TOTAL COST OF THE WIND MILL AS THE SAME WAS NOT COMING UNDER THE DEFINITION OF WINDMILLS AND ANY SPECIALLY DESIGNED DEVICES WHICH RUN ON WINDMILLS, HE APPLIED VARIOUS RATES OF DEPRECIATION AND DISALLOWED THE EXCESS CLAIM OF DEPRECIATION AND ADDED . 28,11,992/ - . 8.1 ON APPEAL, BY FOLLOWING THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 2291/MDS/2008 DATED 20.11.2009, THE LD. CIT(A) DELETED THE ADDITION MADE ON THIS ACCOUNT. 8.2 BEFORE US, THE LD. DR HAS SUBMITTED THAT THE CASE LAW RELIED ON BY THE LD. CIT(A) HAS NOT ATTAINED FINALITY SINCE THE DEPARTMENT HAS PREFERRED AN APPEAL AND THE SAME IS PENDING BEFORE THE HON BLE MADRAS HIGH COURT AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF THE TRIBUNAL AND PLEADED THAT THE SAME MAY BE FOLLOWED. 8.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE LD. C IT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE TRIBUNAL, WHEREIN IN THE CASE OF ASIAN HANDLOOM V. DCIT IN I.T.A. NO. 2291/MDS/2008 I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 8 DATED 20.11.2009, THE TRIBUNAL HAS CONSIDERED/FOLLOWED VARIOUS DECISIONS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THU S, WE FIND NO REASON TO INTERFERE WITH THE ORDERS OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE. 9. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT SECTION 194C OF THE A CT IS NOT APPLICABLE IN RESPECT OF REIMBURSEMENT OF EXPENSES PAID TO M/S. VVD SHIPPING SERVICES PVT. LTD., WHICH IN TURN WAS PAYABLE TO MAERSK INDIA LTD. 9.1 IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS CLAIMED .97,31 ,300/ - TOWARDS CARRIAGE OUTWARDS UNDER THE HEAD OTHER EXPENSES. FROM THE ACCOUNT COPY, BILLS ISSUED BY M/S. VVD SHIPPING SERVICES(P) LTD., AND M/S. MAERSK INDIA (P) LTD., HE NOTICED THAT M/S. VVD SHIPPING SERVICES (P) LTD., WAS THE CUSTOMS HOUSE AGENT (CHA ) THROUGH WHOM ALL THE EXPORTS WERE DONE BY THE ASSESSEE . THE BILLS ISSUED BY THE CUSTOMS HOUSE AGENT INCLUDED THE SHIPPING CHARGES AS WELL AS OTHER SERVICE CHARGES AND THE ASSESSEE HAS DEDUCTED TAX ONLY ON THE SERVICE CHARGES AND NOT ON THE SHIPPING CHARG ES WHICH WAS REIMBURSED TO M/S. MAERSK INDIA (P) LTD. AND THE ASSESSEE HAS PRODUCED A CERTIFICATE U NDER SECTION 197 R.W.S. 172 OF THE ACT THAT PAYMENT MADE TO M/S. MAERSK INDIA (P) L TD., DID NOT ATTRACT TAX DEDUCTION AT SOURCE. THE ASSESSING OFFICER HELD T HAT THE ASSESSEE MADE PAYMENT TO M/S. VVD SHIPPING SERVICES (P) LTD., I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 9 AND NOT TO THE M/S. MAERSK(P) L TD., AND, THEREFORE, THE A SSESSE OUGHT TO HAVE DEDUCTED TAX AT SOURCE EVEN IN RESPECT OF SHIPPING CHARGES PAID TO M/S. MAERSK (P) LTD. THROUGH M/S. VVD SHI PPING SERVICES (P) LTD. HE FOUND THAT THE A SSESSEE DID NOT DEDUCT TAX IN RESPECT OF .82,09,654/ - REPRESENTING SUCH REIMBURSEMENT AND, THEREFORE, ADDED THE SAME U NDER SECTION 40 (A)(IA) OF THE ACT . 9 .2 ON APPEAL, BEFORE THE LD. CIT(A) THE ASSESSEE HAS SU BMITTED THAT THE A SSESSEE HAS ACTUALLY DEDUCTED TAX AT SOURCE IN RESPECT OF SERVICE CHARGES PAYABLE TO M/S.VVD SHIPPING SERVICE (P) LTD. WHEREAS IN RESPECT OF THE SHIPPING CHARGES WHICH WERE REIMBURSED TO THEM AND IN TURN PAYABLE TO M/S. MAERSK INDIA P. LT D., THE APPELLANT DID NOT DEDUCT TAX AT SOURCE AS THERE WAS NO T D S LIABILITY BY RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. MITHRA LOGISTICS(P) LTD., 27 TAXMANN.CO M 151] IN WHICH IT WAS HELD THAT SEC TION 40(A)(IA) IS NOT ATTRACTED IN RESPECT OF REIMBURSEMENT OF EXPENDITURE. THE ASSESSEE HAS FURTHER RELIED ON THE DECISION OF THE HYDERABAD BENCHES OF THE ITAT IN THE CASE OF M / S . C I PRO PHARMACEUTICALS IN ITA NO.1537/HYD/ 2015 DATED 1706.2015 FOR ASS ESSMENT YE AR 2006 - 07 IN WHICH IT WAS HELD THAT THE REIMBURSEMENT OF EXPENSES PAID DID NOT ATTRACT THE LIABILITY TO DEDUCT TAX AT SOURCE, AND MOREOVER IN THAT CASE , THE ASSESSEE PAID FREIGHT CHARGES TO M/S. BALAJI SHIPPING SERVICES WHICH IN TURN PAID TO THE ACTUAL SH IPPING OWNER AND THE ASSESSEE DID NOT DEDUCT TAX ON THE GROUND THAT IT REPRESENTED I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 10 REIMBURSEMENT OF EXPENSES AND THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE DISALLOWANCE U NDER SECTION 40(A)(IA) OF THE ACT . 9.3 T HE ASSESSEE HAS FURTHER CONTENDED THAT IN ANY CASE THE AMOUNT PAYABLE TO M/S. VVD SHIPPING SERVICE CHARGES (P) LTD. WA S NIL AT THE END OF THE YEAR AS THE ENTIRE PAYMENT HAD BEEN MADE DURING THE YEAR ITSELF. BY FILING COPY OF ACCOUNT OF M/S. VVD SHIPPING SERVICE (P) LTD. IN THE BO OKS OF ACCOUNTS OF THE ASSESSEE AS PER WHICH AS ON 31.03.2012 THE BALANCE WAS ONLY DEBIT BALANCE AT .49,279.37 AND, THEREFORE, THE ASSESSEE HAS SUBMITTED THAT THERE CAN BE NO DISALLOWANCE U NDER SECTION 40(A)(IA) OF THE ACT AS THE WORD USED IN SEC TION 40( A )( IA) IS 'PAYABLE' AND 'NOT PAID'. FOR THE ABOVE PROPOSITION, THE ASSESSEE HAS RELIED ON THE DECISION O F THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES(P) LTD., (351 ITR 642). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: 7.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE. ADMITTEDLY, THE APPELLANT PAID SHIPPING CHARGES TO M/S. VVD SHIPPING SERVICE (P) LTD., AND THE PAYMENT INCLUDED SERVICE CHARGES AND REIMBURSEM ENT OF EXPENDITURE. THE ASSESSING OFFICER HELD THAT AS PER SEC. 194C(1) THE APPELLANT IS LIABLE TO DEDUCT TAX AT SOURCE ON 'ANY SUM' WHICH INCLUDED THE REIMBURSEMENT OF EXPENDITURE. HOWEVER, AS HELD BY THE KOLKATTA TRIBUNAL IN THE CASE OF M/S. MITHRA LOGIS TICS (P) LTD., (CITED ABOVE) THERE CAN BE NO DISALLOWANCE U/S.40(A)(IA) IN RESPECT OF REIMBURSEMENT OF EXPENDITURE EVEN IF THE TAX WAS NOT DEDUCTED AT SOURCE FURTHER, IN THE CASE RELIED ON BY THE ASSESSEE IN THE CASE OF M/S. CIPRO PHARMACEUTICAL (P) LTD. ( CITED ABOVE) THE HON'BLE TRIBUNAL HELD AS UNDER: - I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 11 '17 WITH RESPECT TO THE PAYMENTS MADE TO BALAJI SHIPPING SERVICES, THE AMOUNTS PAID ARE ONLY TOWARDS REIMBURSEMENT OF SHIPMENT CHARGES AND THEREFORE, NO TAX WAS DEDUCTED AT SOURCE. ASSESSEE DID NOT ATTRAC T THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AS REIMBURSEMENT OF EXPENSES DO NOT CONSIST THE INCOME OF THE RECIPIENT AND THE PAYMENTS ARE NOT GOVERNED BY THE PROVISIONS OF SECTION 194C OF THE ACT. WE ALSO RELY ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF USHODAYA ENTERPRISES IN ITA NO. 676/HYD/2009 & 411/HYD/2010 DATED 0701.2015 ' FROM THE ABOVE, IT IS CLEAR THAT SEC.194C IS NOT APPLICABLE IN RESPECT OF REIMBURSEMENT OF EXPENSES PAID BY THE APPELLANT. ACCORDINGLY, I ACCEPT THE PLEA OF THE RE PRESENTATIVE THAT THERE IS NO LIABILITY TO DEDUCT TAX AT SOURCE IN RESPECT OF REIMBURSEMENT OF EXPENSES PAID TO M/S. VVD SHIPPING SERVICE (P) LTD., WHICH IN TURN WAS PAYABLE TO M/S. MAERSK INDIA LTD., AND, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER. 7.3.1 WITHOUT PREJUDICE TO THE ABOVE, IT IS FURTHER SEEN THAT AT THE END OF THE YEAR THERE IS ONLY DEBIT BALANCE IN RESPECT OF M/S.WO SHIPPING SERVICE (P) LTD. IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THIS MEANS THAT NO AMOUNT IS PAYABLE TO THEM BY THE APPELLANT AND, THEREFORE, SEC.40(A)(IA) IS APPLICABLE ONLY WHEN ANY AMOUNT PAYABLE IS AS AT THE END OF THE YEAR AS HELD BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. VVD SHIPPING SERVICE (P) LTD. (CITED ABOVE). IN THE CIRCUMSTANCE S, THE DISALLOWANCE IS INCORRECT AND THE SAME IS DELETED FOR THIS REASON ALSO. 9.4 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION IN THE CASE OF CIPRO PHARMACEUTICALS (P) LTD. (SUPRA), WHEREIN, THE HYDERABAD BENCHES OF THE TRIBUNAL HAS, IN SIMILAR FACTS AND CIRCUMSTANCES ON AN IDENTICAL ISSUE HAS GIVEN A CONCURRENT FINDINGS THAT THE PROVISIONS OF SECTION 194C OF THE ACT IS NOT APPLICABLE IN RESPECT OF REIMBURSEMENT OF EXPENSES PAID BY THE ASSESSEE THROUGH CUSTOMS HOUSE AGENT. OTHERWISE ALSO, THE DECISION IN THE I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 12 CASE OF CIT V. VECTOR SHIPPING SERVICES (P) LTD. (SUP R A) IS SQUARELY APPLIES TO THE CASE OF THE ASSESSEE, THAT THE ASSESSEE HAS MADE THE ENTIRE PAYMENT DURING THE YEAR IT SELF AND NOTHING IS OUTSTANDING OR YET TO PAY. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND NO FLAW IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10. COMING TO CROSS OBJECTION, TH E FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION TO THE EXTENT OF .6,07,379/ - . SINCE , IN ITS APPEAL, THE REVENUE HAS RAISED THE ISSUE OF RESTRICTING DISALLOWANCE MADE ON THIS ACCOUNT AND WE HAVE REMITTED TH E ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION, THE GROUND RAISED BY THE ASSESSEE IS PRE - MATURE AND ACCORDINGLY, DISMISSED. 11. THE NEXT GROUND RAISED IN THE CO IS THAT THE LD. CIT(A) HAS ERRED IN PARTLY DISALLOWING NOTIONAL EXPENSE S UNDER SECTION 14A OF THE ACT. AGAINST THE INVESTMENT IN TAMILNADU MERCANTILE BANK OF .4,53,65,336/ - , THE ASSESSEE HAS EARNED DIVIDEND INCOME OF .27,15,300/ - AND NOT DECLARED EXPENSES TO EARN THE ABOVE INCOME . WHEN THE ASSESSEE HAS EARNED DIVIDEND INCOM E, THE EXPENDITURE COMPONENT IS REQUIRED TO BE DETERMINED IN VIEW OF THE PROVISIONS CONTAINED UNDER RULE 8D. SINCE THE INTEREST COMPONENT UNDER RULE 8D(I) HAS TO BE DETERMINED TO ARRIVE TOTAL DISALLOWANCE, THE ASSESSEE CANNOT ESCAPE FROM THE ADDITION SINCE IT HAS I.T.A. NO . 2146 /M/ 1 6 & C.O. NO. 1 26 /M/1 6 13 EARNED DIVIDEND INCOME. THUS, THE GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTION IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS D ISMISSED . ORDER PRONOUNCED ON THE 24 TH MARCH, 2017 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 24 . 03 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.