The ACIT, Guntur V. M/s. Veera Associates, Guntur

ITA 332/VIZ/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8749 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Non-deduction of tax
• Section: 143(3); 194C; 147; 148

Judgement Text

ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.332/VIZAG/2016 ( / ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE - 2(1), GUNTUR M/S. VEERA ASSOCIATES GUNTUR [PAN NO. A AFFV1624C ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. 55/VIZAG/2016 (ARISING OUT OF I.T.A.NO.332/VIZAG/2016) ( / ASSESSMENT YEAR: 2007-08) M/S. VEERA ASSOCIATES GUNTUR ACIT, CIRCLE - 2(1 ), GUNTUR ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI DEBA KUMAR SONOWAL, DR / RESPONDENT BY : SHRI S. RAMA RAO, AR / DATE OF HEARING : 08.02.2018 / DATE OF PRONOUNCEMENT : 2 1.02.2018 ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), {CIT(A)}, GUN TUR VIDE ITA NO.93/CIT(A)-1/GNT/2014-15 DATED 29.3.2016 FOR THE ASSESSMENT YEAR 2007-08. 2. ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ` 3,90,370/- ON 3.10.2007. THE ASSESSMENT WAS COMPLE TED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'TH E ACT') ON 31.12.2009 DETERMINING THE TOTAL INCOME AT ` 6,90,370/-. SUBSEQUENTLY, THE CASE WAS REOPENED U/S 147 OF THE ACT BY ISSUE OF NOTICE U/S 148 OF THE ACT FOR NOT CONSIDERING THE DISALLOWANCE U/S 40A(IA) OF IT ACT. DURING THE RE-ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THE ASSESSEE HAS MADE THE PAYMENT OF ` 4,36,13,708/- TOWARDS THE CONVERSION EXPENSES BUT NOT DEDUCTED TDS AS REQUIRED U/S 194C OF THE ACT, H ENCE MADE THE ADDITION OF ` 4,36,13,708/- U/S 40(A)(IA) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND MADE THREEFOLD ARGUMENT. FIR STLY THE ASSESSEE ARGUED THAT THE ASSESSEE HAD MADE SHORT DEDUCTION O F TDS, BUT NOT THE NON DEDUCTION HENCE, THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT IS NOT ATTRACTED. THE SECOND PROPOSITION MADE BY THE ASSE SSEE BEFORE THE ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 3 CIT(A) WAS THAT THE EXPENDITURE IN QUESTION WAS REI MBURSEMENT OF EXPENSES AND TDS HAS NO APPLICATION. THIRDLY RELIE D ON THE DECISION OF SPECIAL BENCH IN THE CASE OF MERYLIN SHIPPING AND T RANSPORTS VS. ACIT, VISAKHAPATNAM AND ARGUED THAT THERE WAS NO OUTSTAND ING PAYMENT HENCE NO ADDITION UNDER SECTION 40(IA) IS APPLICABL E. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE PLACING RELIANCE ON THE DECISION OF HONBLE ITAT, VISAKHAPATNAM IN THE CASE OF MERYLIN SHIPPING AND TRANSPORTS VS. ACIT VISAKHAPATNAM AS WELL AS HOLDING THAT THERE IS NO NECESSITY TO MAKE TDS ON REIMBURSEMENT OF EXPENSES. ACCORDINGLY , DELETED THE ADDITION. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 5. APPEARING FOR THE REVENUE, LD. A.R. ARGUED THAT IN VIEW OF THE HONBLE SUPREME COURT DECISION IN THE CASE OF PALAM GAS SERVICE VS. CIT(2017) 81 TAXMANN.COM 43 (SC) THE DECISION OF S PECIAL BENCH IN THE CASE OF MERILYN SHIPPING IS NO MORE GOOD LAW. FURTHER THE LD. D.R. ARGUED WITH REGARD TO THE SECOND PROPOSITION OF REI MBURSEMENT OF EXPENSES, THAT THIS ISSUE WAS NOT CONSIDERED BY THE LD. A.O. AND THE ASSESSEE HAS NOT BROUGHT THE ISSUE BEFORE THE A.O. WITH REGARD TO THE THIRD PROPOSITION OF SHORT DEDUCTION OF TAX AT SOUR CE, THE LD. D.R. ARGUED THAT THERE IS NO SHORT DEDUCTION IS A NON DEDUCTION OF TAX AT SOURCE. THE ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 4 ASSESSEE HAD DEDUCTED TDS ON PAYMENT OF ` 43,71,049/- AND FAILED TO DEDUCT TDS ON ` 4,36,13,708/-. HENCE, THE ISSUE IS NOT A SHORT DEDUCTION OF TAX AT SOURCE AND IT IS THE ASSESSEES FAILURE TO DEDUCT TAX AT SOURCE. THE LD. D.R. FURTHER ARGUED THAT AS PER PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS DEBITED THE CONVERSION CHARGES INT O TWO PARTS I.E. CONVERSION CHARGES & CONVERSION EXPENSES. ON CONVE RSION CHARGES, THE ASSESSEE HAD MADE THE TDS BUT ON CONVERSION EXPENSE S, THE ASSESSEE DID NOT MAKE THE TDS. BOTH CONVERSION CHARGES AND CONVERSION EXPENSES WERE PAID TO M/S. ADITYA SPINNERS, THEREFO RE, IT IS CLEARLY EVIDENT THAT THE ASSESSEE FAILED TO DEDUCT THE TDS ON WHICH THE PROVISIONS OF SECTION 194C OF THE ACT ATTRACTS.. H ENCE, REQUESTED TO UPHOLD THE ORDER OF THE ASSESSING OFFICER. WITH REG ARD TO THE OTHER PROPOSITION SUBMITTED BY THE ASSESSEE STATING THAT THE RESPONDENT HAS ADMITTED THE INCOME IN ITS HANDS, HENCE, THE ASSESS EE SHOULD NOT BE TREATED AS ASSESSEE IN DEFAULT. THE LD. D.R. SUBMI TTED THAT THE AMENDMENT HAS COME INTO FORCE WITH PROSPECTIVE EFFE CT BUT NOT RETROSPECTIVE, HENCE ARGUED THAT THE AMENDMENT TO S ECOND PROVISO OF SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE IN T HE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, THE LD. D.R. ARG UED THAT THE A.O. HAS RIGHTLY DISALLOWED THE EXPENDITURE U/S 40(A)(IA) OF THE ACT WHICH REQUIRE TO BE UPHELD. ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 5 6. ON THE OTHER HAND, THE LD. A.R. ARGUED THAT THE ASSESSEE HAS MADE THE PAYMENTS TO M/S. ADITYA SPINNERS PVT. LTD. , A COMPANY REGISTERED UNDER COMPANIES ACT AS PER JOB CONVERSIO N AGREEMENT DATED 1.4.2006. ACCORDING TO THE AGREEMENT, THE ASSESSEE WOULD MAKE THE PAYMENT OF JOB CONVERSION CHARGES TO M/S. ADITYA SP INNERS PVT. LTD. FOR CONVERTING SPIN 30S & 100S COUNT OF POLYESTER STAPL E FIGRE AND VISCOS STAPLE FIBRE. FOR THIS PURPOSE, THE ASSESSEE WOULD SUPPLY THE RAW MATERIAL IN REQUIRED QUANTITIES AND THE CONTRACTOR M/S. ADITYA SPINNERS WOULD UNDERTAKE THE JOB WORK AS PER THE AGREEMENT. THE EXPENDITURE IN PRODUCTION I.E. POWER, WAGES, PRODUCTION, CONSUM ABLES, ETC. WOULD BE BORNE BY THE ASSESSEE AND ARGUED THAT AS PER THE AG REEMENT THE ASSESSEE REQUIRED TO MAKE THE PAYMENT TO M/S. ADITY A SPINNERS, CONTRACTORS ON JOB CONVERSION CHARGES AND THE JOB C ONVERSION EXPENSES SHOULD BE BORNE BY THE ASSESSEE. THEREFORE, THE LD . A.R. ARGUED THAT THE JOB CONVERSION CHARGES WOULD NOT ATTRACT TDS. THE JOB CONVERSION EXPENSES ARE THE REIMBURSEMENT OF EXPENSES AND THE REIMBURSEMENT OF EXPENSES DOES NOT INVOLVE THE ELEMENT OF PROFIT AND DOES NOT ATTRACT THE TDS, HENCE REQUESTED TO DELETE THE ADDITION. THE L D. A.R. FURTHER ARGUED THAT EVEN IF IT IS PRESUMED THAT JOB CONVERS ION EXPENSES ATTRACT TDS THE ASSESSEE HAS DEDUCTED THE TDS ON PART AMOUN TS HENCE IT SHOULD BE CONSIDERED THAT ASSESSEE HAS MADE SHORT D EDUCTION BUT NOT ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 6 NON DEDUCTION OF TAX AT SOURCE. THE LD. A.R. ARGUE D THAT THE SHORT DEDUCTION OF TAX AT SOURCE DOES NOT ATTRACT DISALLO WANCE U/S 40(A)(IA) OF THE ACT BUT NON DEDUCTION OF TAX AT SOURCE THE DISA LLOWANCE U/S 40(A)(IA) OF THE ACT THEREFORE THE LD. A.R. SUBMITTED THAT IN ANY CASE THE ASSESSING OFFICER ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND THE CIT(A) HAS RIGHTLY DELETED THE ADDITION WHI CH REQUIRED TO BE UPHELD. RESPONDING TO THE ARGUMENT OF THE LD. A. R. THE D.R. ARGUED THAT THE CASE LAW WAS RELIED UPON BY THE LD. A.R. IN RES PECT OF SHORT DEDUCTION AT SOURCE IS NOT APPLICABLE IN THE ASSESS EES CASE SINCE THE ASSESSEE HAS DEDUCTED THE TDS ON PART PAYMENTS BUT NOT DEDUCTED THE REST OF THE PAYMENTS, WHEREAS THE DECISION RELIED U PON BY THE LD. A.R. IN THE CASE OF HONBLE KOLKATA HIGH COURT JUDGEMENT REFERENCE TO SHORT DEDUCTION OF TAX AT SOURCE. EX. I.E. DEDUCTION OF TDS @ 1% INSTEAD OF 2%. IT IS NOT SO IN THE CASE OF THE ASSESSEE. WITH REGARD TO THE AMENDMENT TO SECTION 40(A)(IA) OF THE ACT THE LD. D .R. ARGUED THAT IT WAS EFFECTIVE FROM 1.4.2013 BUT NOT RETROSPECTIVE E FFECT. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 007-08, THE ASSESSEE HAS PAID A SUM OF ` 4,83,71,049/- TO M/S ADITYA SPINNERS. AS ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 7 PER THE PROFIT & LOSS ACCOUNT ENCLOSED ALONG WITH T HE RETURN OF INCOME, THE ASSESSEE SUBMITTED THAT ` 43,71,049/- WAS CONVERSION CHARGES, WHICH IS A CONTRACT AMOUNT AND THE TDS WAS DEDUCTED . THE REMAINING AMOUNT OF ` 4,36,13,708/- WAS CONVERSION EXPENSES WHICH WAS REIMBURSED TO THE CONTRACTOR ON ACTUAL BASIS HENCE TDS IA NOT APPLICABLE. IN FACT, THIS WAS THE ACTUAL EXPENSES INCURRED BY THE CONTRACTOR FOR EXECUTING THE CONTRACT, WHICH WAS RE IMBURSED BY THE ASSESSEE. THE FACT REGARDING THE PAYMENT OF CONVERS ION CHARGES AND REIMBURSEMENT OF EXPENSES WAS EVIDENCED BY THE AGRE EMENT ENTERED BY THE ASSESSEE WITH M/S. ADITYA SPINNERS PVT. LTD., W HICH WAS ALSO RELIED UPON BY THE LD. CIT(A). AS PER THE JOB CONVERSION AGREEMENT, THE ASSESSEE REQUIRED TO REIMBURSE THE PRODUCTION COST, POWER, WAGES, CONSUMABLES, PACKING, ETC. THEREFORE, THE LD. A.R. ARGUED THAT JOB CONVERSION CHARGES WOULD NOT ATTRACT TDS. THE ASSE SSEE RELIED ON THE DECISION OF HONBLE ITAT, HYDERABAD B BENCH IN TH E CASE OF ACIT, CIRCLE-2(2), HYDERABAD VS. LOUIS BERGER INTERNATIO NAL INC. IN ITA NOS.1073/HYD/2004, 1074/HYD/2004, 720/HYD/2005 AND 721/HYD/2005 DATED 30.6.2010. THE HONBLE ITAT IN THE CITED DEC ISION HELD THAT THERE IS NO PROFIT ELEMENT IN THE REIMBURSEMENT OF EXPENS ES, HENCE THE REIMBURSEMENT OF EXPENDITURE RECEIVED BY THE RECIPI ENT DOES NOT FORM PART OF TOTAL INCOME. SINCE THE REIMBURSEMENT OF E XPENDITURE DOES NOT ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 8 FORM PART OF TOTAL INCOME, THE TDS DOES NOT ATTRACT IN RESPECT OF THE REIMBURSEMENT OF EXPENDITURE. FOR READY REFERENCE, WE EXTRACT PARA NOS.21 TO 24 OF THE ORDER RELIED UPON BY THE LD. A. R AS FOLLOWS: 21. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGE MENT OF THE DELHI HIGH COURT IN CIT VS. INDUSTRIAL ENGINEERING PROJECTS PVT. LTD. (1993) 202 ITR 1014. IN THE CASE BEFORE THE DELHI HIGH CO URT THE ASSESSEE HAD AGREEMENT WITH M/S. ETAG, A SWISS COMPANY, FOR REND ERING SERVICES. THE ASSESSEE WOULD RECEIVE A MINIMUM SUM OF ` 1,20,000/- PER MONTH FOR THE SERVICES RENDERED BESIDES REIMBURSEMENT OF CERTAIN COSTS AND EXPENDITURE INCURRED BY THE ASSESSEE WHILE RENDERING THE SERVIC ES AS PER THE AGREEMENT. THE INCOME-TAX OFFICER DISALLOWED THE E XPENSES INCURRED. ON APPEAL BY THE ASSESSEE BEFORE THE DELHI BENCH OF THIS TRIBUNAL, IT WAS HELD THAT THE REIMBURSEMENT OF THE EXPENDITURE DID NOT CONSTITUTE INCOME AS THE EXPENSES WERE INCURRED ON BEHALF OF THE SWIS S COMPANY. ON A REFERENCE TO THE DELHI HIGH COURT AT THE INSTANCE O F THE REVENUE, THE DELHI HIGH COURT AFTER CONSIDERING THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CIT VS. TEJAJI FARASRAM KHARAWALLA LTD. (19 68) 67 ITR 95 HELD THAT THE REIMBURSABLE EXPENDITURE CANNOT FORM PART OF THE TAXABLE INCOME. ACCORDINGLY IT WAS HELD THAT THE REIMBURSABLE EXPEN DITURES ARE TO BE EXCLUDED FROM THE TOTAL INCOME IN VIEW OF THIS JUD GEMENT OF THE DELHI HIGH COURT, IN OUR OPINION, THE REIMBURSABLE EXPEND ITURE RECEIVED BY THE ASSESSEE FOR THE PURPOSE OF RENDERING SERVICES CANN OT FORM PART OF THE TOTAL INCOME. THEREFORE, IT HAS TO BE EXCLUDED. 22. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGEM ENT OF THE CALCUTTA HIGH COURT IN CIT VS. SANDERSON & MORGAON (1970) 75 ITR 433. IN THE CASE BEFORE THE CALCUTTA HIGH COURT A FIRM OF SOCILICITORS RECEIVED MONEY FROM THEIR CLIENTS. THE QUESTION AROSE BEFOR E THE CALCUTTA HIGH COURT WAS WHETHER THE MONEY RECEIVED BY THE SOLICIT ORS IN THE COURSE OF THEIR PROFESSIONAL ACTIVITIES WOULD FORM PART OF TH E TOTAL INCOME OR NOT. THE CALCUTTA HIGH COURT HELD THAT THE MONEY RECEIVE D BY THE SOLICITORS WAS NOT REVENUE RECEIPT. IT WAS FURTHER HELD THAT W HEN A SOLICITOR RECEIVED MONEY FROM HIS CLIENTS HE DOES NOT DO SO A S A TRADING RECEIPT BUT HE RECEIVES THE MONEY FROM THE PRINCIPAL IN CAPACIT Y AS AN AGENT. THEREFORE, THE MONEY RECEIVED DOES NOT HAVE ANY PRO FIT MAKING QUALITY. IN THIS CASE ALSO THE MONEY WAS RECEIVED BY THE ASSE SSEE ON BEHALF OF THEIR CLIENTS FOR INCURRING THE EXPENDITURE. THERE FORE, THE MONEY RECEIVED DID NOT HAVE THE PROFIT MAKING QUALITY AS HELD BY T HE CALCUTTA HIGH COURT. IN OUR OPINION, THIS JUDGEMENT OF THE CALCUTTA HIGH COURT ALSO SUPPORTS THE CASE OF THE ASSESSEE. 23. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGEM ENT OF THE APEX COURT IN THE CASE OF CIT VS. TEJAJI FARASRAM K HARAWALLA LTD. (1968) 67 ITR 95. THE ASSESSEE BEFORE THE APEX COURT ACTE D AS A SELLING AGENT ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 9 OF CIBA (INDIA) LTD. THE ASSESSEE WAS ENTITLED TO COMMISSION OF 12.5% ON SALES. OUT OF THE 12.5%, 7.5% WAS TREATED AS SELLI NG COMMISSION AND 5% AS COMPENSATION IN LIEU OF CONTINGENCY EXPENSES WHI CH IT HAD TO MEET. THE QUESTION ARISE BEFORE THE APEX COURT WAS WHETHE R THE 5% SELLING COMMISSION IN LIEU OF THE CONTINGENCY EXPENDITURE W OULD FORM PART OF THE TOTAL INCOME OR NOT. THE APEX COURT HELD THAT 5% O F THE EXPENSES IN LIEU OF THE CONTINGENCY EXPENSES WAS FOR THE EXPENDITURE INCURRED IN THE PERFORMANCE OF THE DUTIES OF THE RESPONDENT AS SELL ING AGENT. THEREFORE, IT WILL NOT FORM PART OF THE TAXABLE INCOME ACCORD INGLY, THE SAME WAS EXEMPT. IN VIEW OF THIS JUDGEMENT OF THE APEX COURT , THE REIMBURSABLE EXPENDITURE RECEIVED BY THE ASSESSEE IN PURSUANCE T O THE AGREEMENT CANNOT FORM PART OF THE TAXABLE INCOME ACCORDINGLY , THE SAME HAS TO BE EXCLUDED. 24. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGEM ENT OF THE BOMBAY HIGH COURT IN CIT VS. TANUBAI D. DESAI (1972 ) 84 ITR 713. IN THE CASE BEFORE THE BOMBAY HIGH COURT, THE ASSESSEE WAS A PRACTICING SOLICITOR. IN THE COURSE OF CARRYING ON HIS PROFES SION THE ASSESSEE USED TO RECEIVE MONEY FROM OR ON BEHALF OF HIS CLIENTS. TH E MONEY RECEIVED WAS DEPOSITED BY HIM IN SEPARATE CURRENT ACCOUNT WITH IM PERIAL BANK OF INDIA. SUBSEQUENTLY, THE ASSESSEE WITHDREW A SUM OF ` 3.25 LAKHS AND PLACED THE SAME IN FIXED DEPOSIT WITH CHARTERED BANK. THE ASSESSEE RENEWED THE ACCOUNT FROM TIME TO TIME TOGETHER WITH INTERES T EARNED THEREON. THE ASSESSEE EARNED INTEREST ON THE FIXED DEPOSIT. THE INTEREST EARNED ON THE FIXED DEPOSIT WAS NOT ADJUSTED BY APPORTIONING IT T O DIFFERENT CLIENTS WHOSE MONEYS WERE DEPOSITED IN THE BANK ACCOUNT. T HE ASSESSEE DID NOT SHOW THE INTEREST IN THE RETURN OF INCOME. THE QUE STION AROSE BEFORE THE BOMBAY HIGH COURT WAS WHETHER THE INTEREST ACCRUED IN THE FIXED DEPOSIT WITH CHARTERED BANK WAS THE INCOME OF THE ASSESSEE OR NOT. THE BOMBAY HIGH COURT AFTER ELABORATELY EXAMINING THE ISSUE FO UND THAT THE MONEYS RECEIVED BY THE SOLICITOR FROM HIS CLIENTS ARE HELD BY HIM IN FIDUCIARY CAPACITY. EVEN THE INCOME RECEIVED FROM SUCH MONEY MUST EQUALLY BE HELD BY THE SOLICITOR IN A FIDUCIARY CAPACITY. WHA T THE SOLICITOR ACTUALLY DOES WITH THE INCOME, I.E., WHETHER HE APPROPRIATES IT TO HIMSELF OR NOT IS A MATTER OF NO CONSEQUENCE. IF THE SOLICITOR APPROP RIATES THE INTEREST ACCRUED ON SUCH DEPOSIT TO HIMSELF THAT WOULD AMOUN T TO A BREACH OF HIS FIDUCIARY RELATIONSHIP AND WHATEVER MAY BE THE CONS EQUENCES IN LAW WOULD FOLLOW. BUT HIS UNAUTHORIZED ACT OF CONVERTI NG ANY PART OF THE CORPUS OR EVEN THE INCOME DERIVED THEREFROM WOULD N OT CONVERT THOSE MONEYS HELD BY HIM FOR HIS BENEFIT. ACCORDINGLY, I T WAS HELD THAT THE INTEREST INCOME WHICH WAS NEITHER DISCLOSED IN THE RETURN OF INCOME NOR ADJUSTED TO THE CLIENTS WAS HELD TO BE NOT TAXABLE. IN THE CASE BEFORE US THE FACTS ARE ALMOST SIMILAR. THE ASSESSEE RECEIVE D THE MONEY AS A REIMBURSEMENT AFTER INCURRING THE EXPENDITURE. IN THE CASE BEFORE THE BOMBAY HIGH COURT, THE MONEY WAS RECEIVED BY THE SO LICITOR IN ADVANCE. IN THE CASE BEFORE US THE MONEY WAS RECEIVED AFTER I NCURRING THE EXPENDITURE BY WAY OF REIMBURSEMENT. THEREFORE, TH E REIMBURSABLE EXPENDITURE RECEIVED BY THE ASSESSEE CANNOT FORM PA RT OF THE TOTAL INCOME IN VIEW OF THE ABOVE DISCUSSION, IN OUR OPINION, THE REIMBURSABLE ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 10 EXPENDITURE RECEIVED BY THE ASSESSEE CANNOT FORM PA RT OF THE TOTAL INCOME. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 8. THE CIT(A) ALSO OBSERVED THAT REIMBURSEMENT OF EXPENDITURE DOES NOT ATTRACT TDS, HENCE NO ADDITION REQUIRED TO BE M ADE U/S 40(A)(IA) OF THE ACT. THIS VIEW IS SUPPORTED BY ITAT, DELHI BEN CH IN THE CASE OF ACIT VS. MODICON NETWORK PVT. LTD. REPORTED IN (200 7) 14 SOT 204 (2007) (DEL). FOR READY REFERENCE, WE EXTRACT THE RELEVANT PORTION OF THE ORDER AS UNDER: OBLIGATION TO DEDUCT TAX UNDER S. 195(1) IS ONLY WI TH REFERENCE TO THE INCOME ELEMENT IMBEDDED IN THE REMITTANCE. T HE OBLIGATION OF THE ASSESSEE TO DEDUCT TAX UNDER S. 1 95 IS LIMITED ONLY TO THE APPROPRIATE PROPORTION OF INCOME CHARGE ABLE UNDER THE ACT. IT IS THEREFORE CLEAR THAT ANY REMITTANCE WHICH DOES NOT HAVE AN INCOME ELEMENT WHICH IS CHARGEABLE TO TAX N EED NOT SUFFER TAX DEDUCTION AT SOURCE.TRANSMISSION CORPOR ATION OF A.P. LTD. &ANR. VS. CIT (1999) 155 CTR (SC) 489: (1 999) 239 ITR 587 (SC) RELIED ON. (PARA 12) 9. THE HONBLE ITAT DELHI RELIED ON THE DECISION OF TRANSMISSION CORPORATION OF INDIA OF AP LIMITED VS. CIT 155 CTR (SC) 489. IN THE INSTANT CASE, THE EXPENDITURE DEBITED TO P&L ACCOUN T TOWARDS THE CONVERSION EXPENSES IS REIMBURSEMENT OF EXPENDITURE , WHICH IS SUPPORTED BY THE AGREEMENT ENTERED INTO BY THE ASSE SSEE. THE A.O. MADE ADDITION U/S 40(A)(IA) OF THE ACT BUT NOT GIVE N ANY REASONING. THE LD. CIT(A) HELD THAT THE SAME IS REIMBURSEMENT OF E XPENSES. M/S. ADITYA SPINNERS LIMITED HAS ADMITTED THE ENTIRE AMO UNT OF REIMBURSEMENT OF EXPENSES AS WELL AS CONVERSION CHA RGES AS INCOME IN ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 11 THEIR HANDS AND FILED THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. AS HELD BY THE COORDINATE BENCH OF HYDERABAD IN THE CASE OF M/S. LOUIS BERGER INTERNATIONAL INC. (SUPRA) SINCE NO EL EMENT OF PROFIT IS INVOLVED, THE REIMBURSEMENT OF EXPENDITURE DOES NOT FORM PART OF TOTAL INCOME. THEREFORE WE ARE OF THE CONSIDERED VIEW THA T THE CONVERSION EXPENSES OF RS.4,36,13,708 WAS THE REIMBURSEMENT OF EXPENDITURE AND DOES NOT ATTRACT THE TDS AND CONSEQUENT DISALLOWANC E U/S 40A(IA). THE SPECIAL BENCH DECISION IN THE CASE OF MERYLIN SHIPP ING HAS NO APPLICATION IN VIEW OF HONBLE APEX COURTS DECISION IN THE CAS E OF PALAM GAS. IN THE ASSESSEES CASE THE RECIPIENT HAS A DMITTED THE ENTIRE RECEIPT AS INCOME AND FILED THE RETURN OF INCOME. FOLLOWING THE DECISION OF COORDINATE BENCH IN THE CASE OF B. DWARAKANATHA REDDY VS. DCIT IN ITA NOS.703 & 704/HYD/2015, DATED 11/09/2015 WE HOL D THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE PROVIDED THE PAYER HAS OFFERED THE AMOUNT FOR TAX PURPOSE AND HAVE PAID OR DEEMED TO HAVE PAID THE TAXES ON SUCH INCOME. SINCE THE RECIPIENT HAS ALREADY HAS ADMITTED THE INCOME AND PAID THE TAXES AND THE AMOU NT IN QUESTION WAS REIMBURSEMENT OF EXPENSES, WE HOLD THAT THE ADDITIO N MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT IS UNSUSTAINABLE AND ACCOR DINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES A PPEAL. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.332/VIZAG/2016 M/S. VEERA ASSOCIATES, GUNTUR 12 11. THE ASSESSEE HAS FILED CROSS OBJECTION SUPPORTI NG THE ORDERS OF THE CIT(A). SINCE THE REVENUES APPEAL HAS BEEN DISMIS SED, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND ACCORDINGLY DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 21 ST FEB18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 21.02.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-2(1), GUNTUR 2. / THE RESPONDENT M/S. VEERA ASSOCIATES, 5-60-1/9 9, 4/4, ASHOK NAGAR, GUNTUR 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM