ACIT, CHENNAI V. M/s. Allied Trading, CHENNAI

ITA 277/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5117 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DUTTA
• Assessee Lawyers: M BALAGANESH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI HARI OM MARATHA, J.M. AND SHRI N.S. SAINI, AM .. I.T.A. NO. 277/MDS/2011 ASSESSMENT YEAR 2007-08 THE A.C.I.T CIRCLE XV CHENNAI VS. M/S ALLIED TRADING NO. 15 LAKE AREA, 6 TH CROSS STREET NUNGAMBAKKAM CHENNAI 600 034. (PAN NO. AAJFA 6419 L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M. BALAGANESH DEPARTMENT BY : SHRI TAPAS KUMAR DUTTA O R D E R PER HARI OM MARATHA, JM THIS APPEAL OF THE DEPARTMENT FOR ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE LD. CI T(A)-XII, CHENNAI, DATED 29.11.2010. PAGE 2 OF 8 I.T.A. NO. 1496/MDS/2010 2. FACTS LEADING TO THIS APPEAL ARE THAT FOR ASSESS MENT YEAR 2007-08, THE ASSESSEE FILED RETURN OF INCOME [ROI] ON 30.12.20097 ADMITTING TAXABLE INCOME OF ` 27,82,481/- AGAINST WHICH REGULAR ASSESSMENT ORDER WAS FRAMED ON 30.12.2009 AT A TOTA L INCOME OF ` 71,66,265/. THE ASSESSING OFFICER HAS MADE THE FOL LOWING ADDITIONS ON ACCOUNT OF : I. EXPENSES CLAIMED TO HAVE BEEN MADE IN THE EARLIER ASSESSMENT YEAR `. 12,44,924/- II. ADDITION TOWARDS NON-DEDUCTION OF TDS `. 13 ,14,100/- III. INTEREST PAID TO NON-RESIDENT IN USD ` 18, 24,760/- 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX [APPEALS], WHO HAS DELET ED THE TWO ADDITIONS OF ` 13,14,100/- AND ` 18,24,760/-. BUT THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ` 13,14,100/- ALONE. 4. FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF TRADING IN PAPER STATIONERY AND OTHER A LLIED PRODUCTS WHICH ARE IMPORTED ON REGULAR BASIS. FOR THE SMOOT H RUNNING OF THE BUSINESS THE ASSESSEE, IN CERTAIN AREAS OF ITS WORK , HAD ENGAGED PAGE 3 OF 8 I.T.A. NO. 1496/MDS/2010 M/S S.K. ARORA & SONS TO INTERACT WITH CUSTOMS, EXC ISE, ETC AND ALSO TO DO NECESSARY PAPER WORK IN RESPECT OF TOLL AND E SCOT CHARGES, SURVEY, INSURANCE, ETC ON BEHALF OF THE ASSESSEE. IT WAS AGREED BETWEEN THE ASSESSEE AND M/S S.K. ARORA & SONS THAT THE LATTER WOULD RAISE DEBIT-NOTES ON CERTAIN ITEMS OF EXPENDI TURE WHICH WERE TO BE REIMBURSED ON DAILY BASIS/OR AS WORKED OUT TH EN AND THERE. THE ASSESSEE HAD DEDUCTED TDS ON THE CLEARING AND F ORWARDING CHARGES PAID TO THE ABOVE PARTY. THE EXPENSES OF ` 13,14,100/- WERE REIMBURSED BY THE ASSESSEE ON THE ERRANDS THAT M/S S.K. ARORA & SONS HAD ACTUALLY DONE AND RAISED DEBIT NOTES. T HE COMMISSIONER OF INCOME-TAX [APPEALS] HAS DELETED THIS ADDITION O N THE REASONING THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE INC OME-TAX ACT, 1961 [IN SHORT, THE ACT] IS NOT ATTRACTED BECAUSE THESE PAYMENTS WERE MADE ON THE BASIS OF DEBIT NOTES RAISED BY THE SAID PARTY. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE RECORD. IT WAS ARGUED BY THE LD . D.R. THAT THE ASSESSEE HAD MADE A SHORT DEDUCTION OF TDS ON THE C LEARING AND FORWARDING CHARGES PAID TO M/S S.K. ARORA & SONS, A ND, AS SUCH, PAGE 4 OF 8 I.T.A. NO. 1496/MDS/2010 DISALLOWANCE WAS MADE ON PROPORTIONATE BASIS. THER EFORE, THE DELETION OF ` 13,14,100/- U/S 40(A)(IA) OF THE ACT IS NOT JUSTIF IED. PER CONTRA, THE LD. A.R. HAS RELIED ON THE DEICSON OF ITAT C BENCH IN THE CASE OF G.F. SECURITIES VS. DCIT REPORTED IN 2010-TIOL-360- ITAT-MAD AND THE CASE OF K. SRINIVASA NAIDU VS. ACI T REPORTEDIN 131 TTJ [HYD] 17 OF THE HYDERABAD ITAT A BENCH TO SUP PORT THE DECISION OF THE COMMISSIONER OF INCOME-TAX [APPEALS ]. IT WAS ARGUED THAT AS PER THE TERMS OF THE AGREEMENT, THE THIRD PARTY HAS DONE THE ABOVE MENTIONED WORK ON BEHALF OF THE ASSE SSEE, THAT TOO, IN CERTAIN SPECIFIC AREAS, AND THIS FACT HAS NOT BE EN DISPUTED BY THE REVENUE. WHAT IS DISPUTED IS THAT THE ASSESSEE HAS DEDUCTED SHORT TAX ON PAYMENTS MADE TO M/S S.K. ARORA & SONS. THI S SHORT PAYMENT IS ALLEGED IN RELATION TO REIMBURSEMENT OF PAYMENT MADE BY RAISING DEBIT NOTES. IN THIS REGARD, IT WAS ARGU ED BY THE LD. A.R. THAT THE DECISION OF THE DELHI BENCH OF THE TRIBUNA L IN THE CASE OF ITO VS. DR. WILMAR SCHWABE INDIA [P] LTD REPORTED I N 3 SOT 71 [DEL] IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE WHE REIN IT HAS BEEN HELD AS UNDER: PAGE 5 OF 8 I.T.A. NO. 1496/MDS/2010 THE ASSESSEE-COMPANY ENTERED INTO AN AGREEMENT WIT H T LTD. TOP CONSULTANCY IN CONNECTION WITH MANUFACTURE OF MEDICINES. AS AGREEMENT, THE ASSESSEE MADE PAYMENTS FOR PROFESSIONAL CHARGES ALSO REIMBURSED CAR MAINTENANC E EXPENSES OF THE CONSULTANT. THE ASSESSING OFFICER WA S OF THE VIEW THAT THE REIMBURSEMENT OF EXPENSES WAS PART OF THE PROFESSIONAL FEE PAID TO THE CONSULTANT AND THE SAME WAS COVERED UNDER SEC. 194J THE ASSESSING OFFICER RELIED ON THE CBDT CIRCULAR NO. 715 DATED 8.8.1995. IN VI EW OF THE SAID FINDING, THE ASSESSING OFFICER TREATED THE ASSESSEE IN DEFAULT IN RESPECT OF THE TAX WHICH WAS NOT DEDUCTED ON THE REIMBURSEMENTS AND ALSO CHARGED INTEREST U/S 201(IA) ON SUCH DEDUCTION. ON APPEAL, COMMISSIONER (APPEALS) HELD THAT THE PRO VISION OF SEC. 194J WOULD APPLY ONLY TO THE BILLS OF PROFES SIONAL FEE AND NOT TO THE BILLS FOR REIMBURSEMENT OF ACTUAL EXPE NSES. HE, ACCORDINGLY, DELETED THE INTEREST CHARGED BY TH E ASSESSING OFFICER. PAGE 6 OF 8 I.T.A. NO. 1496/MDS/2010 ON APPEAL, IT WAS POINTED OUT THAT IT WAS ONLY FEE F OR RENDERING TECHNICAL/PROFESSIONAL SERVICES WHICH WOUL D BE LIABLE FOR DEDUCTION OF TAX AT SOURCE AND NOT ANY OTH ER AMOUNT WHICH WAS NOT IN THE NATURE OF FEE PAID BY ASS ESSEE: HELD-II IT WAS OBSERVED THAT AS AGREED BY AND BETWEEN THE A SSESSEE AND T LTD VEHICLE WAS TO BE PROVIDED BY THE ASSESSE E TO THE CONSULTANT FOR ATTENDING TO ITS WORK AND THUS, THE AS SESSEE- COMPANY WAS TO BEAR THE EXPENSES ACTUALLY INCURRED BY THE SAID PARTY. BILLS FOR SUCH EXPENSES INCURRED BY THE S AID CONSULTANT WERE SEPARATELY RAISED BY THEM ASSESSEE- COMPANY IN ADDITION TO BILLS FOR FEES PAYABLE ON AC COUNT OF TECHNICAL SERVICES AND SINCE THE AMOUNT OF BILLS SO RAISED WAS TOWARDS THE ACTUAL EXPENSES INCURRED BY THEM, THE RE WAS NO ELEMENT OF ANY PROFIT INVOLVED IN THE SAID B ILLS. IT WAS, THUS, A CLEAR CASE OF REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE AND THE SAME, THEREFORE, WA S NOT NATURE OF PAYMENT COVERED BY SECTION 194J REQUIRING T HE ASSESSEE TO AT SOURCE THEREFROM. THE CBDT CIRCULAR NO . 715, DATED 8-8-1995 N BY THE ASSESSING OFFICER IN SUPPOR T 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, SAME, THEREFORE, WAS NOT APPLICABLE TO TH E FACTS OF THE PRESENT CASE BILLS WERE RAISED SEPARATELY BY THE PAGE 7 OF 8 I.T.A. NO. 1496/MDS/2010 CONSULTANTS FOR REIMBURSEMENT ACTUAL .EXPENSES INCURRED BY THEM. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE , THE PROVISIONS OF SECTION 194J WERE NOT APPLICABLE TO T HE REIMBURSEMENT OF ACTUAL EXPENSES AND THE ASSESSEE- COMPANY WAS NOT LIABLE TO AT SOURCE FROM SUCH REIMBURSEMENT. THUS, THE IMPUGNED ORDER OF THE COMMISSIONER (APPEALS) WAS UPHELD. [PARA 12]] 6. AFTER GOING THROUGH THE ABOVE MENTIONED DECISION S AND WHEN THE RATIO OF THIS DECISION IS APPLIED TO THE FACTS OF THE GIVEN CASE, WE ARE SATISFIED THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX [APPEALS] IS IN ORDER. THE COMMISSIONER OF INCOME- TAX [APPEALS] IS QUITE JUSTIFIED IN DELETING THE ADDITIONS. THUS IT BECOMES CLEAR FROM THE ABOVE THAT ON THE REIMBURSEMENT OF PAYMENTS MAD E TO THIRD PARTY THROUGH DEBIT NOTES NO TDS IS REQUIRED TO BE DEDUCTED AND IN THIS WAY, THERE IS NO SHORT DEDUCTION OF TAX AS HAS BEEN CONTENDED BY THE LD. D.R. PAGE 8 OF 8 I.T.A. NO. 1496/MDS/2010 7. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 23 RD MAY 2011. SD/- SD/- (N.S. SAINI) ((HARI OM MARATHA ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 23 RD MAY, 2011. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE