PRAYAS PEN & PLASTIC INDUSTRIES, MUMBAI V. DCIT 24(3), MUMBAI

ITA 6140/MUM/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5651 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 17-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: TDS
• Section: 143(3); 40(a)(ia); 194C; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT ITA NO. 6140/MUM/2016 : A.Y : 2011 - 12 M/S. PRAYAS PEN & PLASTIC INDUSTRIES 207, SATI INDUSTRIAL ESTATE, I.B. PATEL ROAD, GOREGAON (E), MUMBAI 400 063. (APPELLANT) PAN : AAAFP7978C VS. DCIT - 24(3), MUMBAI (RESPONDENT) APPELLANT BY : SHRI SAMEER DALAL RESPONDENT BY : SHRI SAURABH DESHPANDE DATE OF HEARING : 31/08/2018 DATE OF PRONOUNCEMENT : 28 /1 1 /2018 O R D E R PER G.S. PANNU , VICE PRESIDENT : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 42 , MUMBAI DATED 24.05.2016 , PERTAINING TO THE ASSESSMENT YEAR 2011 - 12 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 19.03.2014 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, THE ONLY ISSUE RELATES TO DISALLOWANCE OF ` 15,63,741/ - MADE BY THE INCOME - TAX AUTHORITIES BY INVOKING SEC. 40(A)(IA) OF THE ACT. 2 ITA NO. 6140/MUM/2016 M/S. PRAYAS PEN & PLASTIC INDUSTRIES 3. BRIEFL Y PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE OF WRITING INSTRUMENTS SUCH AS PENS, BALL - PENS, ETC. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD MADE PAYMENTS AMOUNTING TO ` 15,63,741/ - TO VARIOUS PARTIES TOWARDS FREIGHT AND FORWARDING CHARGES. ON BEING ASKED WHETHER THE REQUISITE TAX HAS BEEN DEDUCTED AT SOURCE, ASSESSEE EXPLAINED THAT THE AFORESAID SUM WAS IN THE NATURE OF REIMBURSEMENT OF ACTUAL EXPE NSES INCURRED BY THE FREIGHT AND FORWARDING AGENTS AND THUS, THE SUM DID NOT FALL WITHIN THE PURVIEW OF DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE NOT ACCEPTED THE PLEA OF THE ASSESSEE. AS PER BOTH THE LOWER AUTHORITIES , THE AMOUNT WAS LIABLE TO BE SUBJECT TO DEDUCTION OF TAX AT SOURCE, ESPECIALLY IN TERMS OF THE CLARIFICATION ISSUED BY CBDT VIDE CIRCULAR NO. 715 DATED 08.08.1995. IN PARTICULAR, THE CIT(A) HAS REFERRED TO QUESTION NO. 30 ANSWERED IN THE SAID CBDT CIRCULA R TO MAKE OUT A CASE THAT DEDUCTION OF TAX AT SOURCE IS REQUIRED TO BE MADE ON THE GROSS AMOUNT OF THE BILL , INCLUDING REIMBURSEMENTS. THUS, NOTICING THE FAILURE OF ASSESSEE TO DEDUCT THE REQUISITE TAX AT SOURCE, THE CORRESPONDING EXPENDITURE DEBITED TO T HE PROFIT & LOSS ACCOUNT OF ` 15,63,741/ - HAS BEEN DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. 4. BEFORE ME, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FREIGHT AND FORWARDING AGENTS HAVE SEPARATELY CLAIMED REIMBURSEMENT FOR THE EXPENSES INCURRED ON BEHALF OF THE ASSESSEE IN THE BILLS ISSUED. BY REFERRING TO PAGE 18 OF THE PAPER B OOK, WHEREIN IS PLACED A COPY OF INVOICE RAISED BY ONE OF THE AGENT AS A SAMPLE , IT IS SOUGHT TO BE 3 ITA NO. 6140/MUM/2016 M/S. PRAYAS PEN & PLASTIC INDUSTRIES POINTED OUT THAT IT COMPRISE S OF ITEMS OF REIMBURSEMENT OF VARIOUS EXPENSES INCURRED ON BEHALF OF THE ASSESSEE AS AL SO THE PROFESSIONAL/ SERVICE CHARGES LEVI ED. IT IS EXPLAINED BY THE LEARNED REPRESENTATIVE THAT SO FAR AS THE COMPONENT OF PROFESSIONAL/ SERVICE CHARGE S IS CONCERNED, THERE IS NO DISPUTE THAT THE SAME IS LIABLE FOR DEDUCTION OF TAX AT SOURCE AND ASSESSEE HAS COMPLIED WITH THE SAME WHEREVER NECESS ARY. SO FAR AS REIMBURSEMENT OF EXPENSES IS CONCERNED, RELIANCE HAS BEEN PLACED ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS DHAANYA SEEDS (P.) LTD., [2014] 42 TAXMANN.COM 277 (BANGALORE TRIB.) , TO SAY THAT NO TAX WAS LIABLE TO BE DEDUCTED AT SOURCE ON PAYMENTS MADE TO C&F AGENT FOR EXPENSES INCURRED ON BEHALF OF A CLIENT. 5. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS DEFENDED THE DECISION OF THE AUTHORITIES BELOW BY PLACING RELIANCE THEREON. 6. HAVING CO NSIDERED THE RIVAL STANDS, I FIND THAT THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DHAANYA SEEDS (P.) LTD. (SUPRA). THE RELEVANT DISCUSSION IN THE ORDER OF TRIBUNAL READS AS UNDER : - 6.4.2 THE RELI ANCE PLACED BY REVENUE ON CBDT CIRCULAR NO.715 DT.8.8.1995 TO HOLD THESE REIMBURSEMENTS LIABLE TO TDS IS, IN OUR VIEW, MISPLACED. THE QUESTION NO.30 IN THIS CIRCULAR WAS WHETHER TDS SHOULD BE MADE ON THE GROSS AMOUNT OF THE BILL INCLUDING REIMBURSEMENTS OR EXCLUDING REIMBURSEMENTS. THE ANSWER THERETO WAS THAT TDS IS ON ANY SUM PAID AND HENCE REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR TDS. THIS DOES NOT MEAN TO LAY DOWN A PROPOSITION THAT ANY PAYMENT MADE TO A C&F AGENT SHOULD BE SUBJECTED TO TDS. THE CIRCULAR DOES NOT AND CANNOT DILUTE THE PROPOSITION THAT TDS IS LIABLE ONLY ON THE INCOME 4 ITA NO. 6140/MUM/2016 M/S. PRAYAS PEN & PLASTIC INDUSTRIES ELEMENT. IF THE PAYMENT INCLUDES BOTH AN INCOME ELEMENT AND A REIMBURSEMENT ELEMENT, THEN TDS HAS TO BE ON THE TOTAL AMOUNT. THIS IS THE PRINCIPLE ENUNCIA TED BY THE HONBLE APEX COURT IN THE CASE OF TRANSMISSION CORPORATION OF A.P. LTD. (SUPRA). IF THE PAYMENT IS ONLY FOR REIMBURSEMENT OF EXPENSES, THEN TDS IS NOT LIABLE TO BE MADE ON SUCH PAYMENTS. IN THIS REGARD, WE AGREE WITH THE FINDING OF THE LEARNED C IT(APPEALS) AT PARA 4.6 OF HIS ORDER WHICH IS EXTRACTED AS UNDER : 4.6 AS REGARDS THE AMOUNT OF RS.4,78,499 TOWARDS REIMBURSEMENT OF ACTUAL EXPENSES, THE ASSESSING OFFICER RELIED ON THE BOARDS CIRCULAR NO.715 DATED 8.8.1995. I HAVE CONSIDERED THE SAID CIRCULAR AND ALSO THE VARIOUS DECISIONS RELIED ON BY THE APPELLANT IN THIS REGARD. THERE IS NO DISPUTE ABOUT THE NATURE OF EXPENDITURE CLAIMED BY THE APPELLANT. IT IS TOWARDS THE REIMBURSEMENT OF EXPENSES INCURRED BY THE C&F AGENTS ON BEHALF OF THE APPELLANT. AS EXPLAINED BY THE APPELLANT, THESE EXPENSES WERE INCURRED BY THE C&F AGENTS ON BEHALF OF THE APPELLANT AND CLAIMS WERE MADE IN THEIR BILLS ON ACTUAL BASIS AND THE AMOUNTS WERE SHOWN SEPARATELY SUPPORTED BY NECESSARY EVIDENCE. THEREFORE, THESE PAYMENTS WERE MADE ON ACTUAL BASIS AND THEY DO NOT CONTAIN ANY ELEMENT OF INCOME. HENCE, SUCH A PAYMENT IS NOT LIABLE FOR DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. FURTHER THE BOARDS CIRCULAR IS APPLICABLE ONLY WHERE THERE IS NO INDICATION ABOUT THE REIMBURSABLE AMOUNTS IN THE BILLS SEPARATELY. IN THAT CASE, THE GROSS AMOUNT HAS TO BE CONSIDERED FOR DEDUCTION OF TAX. IN VIEW OF THIS FACTUAL AND LEGAL POSITION, THE AMOUNT OF RS.4,78,499 IS NOT LIABLE FOR TDS. HENCE, IT CANNOT BE DISALLOWED UNDER SECTION 40(A)(IA). IN VIEW OF THE ABOVE FINDINGS, THE DISALLOWANCE OF RS.12,41,217 (RS. 87,807 AND THE AMOUNT OF RS.11,53,410) IS SUSTAINED AS AGAINST THE AMOUNT OF RS.43,93,515 MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ON VARIOUS ITEMS DISCUSSED ABOVE. 6.4.3 IN THE CASE ON HAND, AS POINTED OUT BY THE LEARNED CIT(APPEALS), THE EXPENSES HAVE BEEN INCURRED BY THE C&F AGENTS ON BEHALF OF THE ASSESSEE; THE CLAIMS WERE MADE ON ACTUAL BASIS AND THE AMOUNTS WERE SEPARATELY SHOWN WITH PROPER EVIDENCE. THE FACT THAT THE REIMBURSEMENT OF EXPENSES HAVE BEEN SEPARATELY BILLED, IN THE CASE O N HAND, IS NOT DISPUTED. THE C&F AGENTS ARE APPOINTED TO PROVIDE THE SERVICE OF CARRYING 5 ITA NO. 6140/MUM/2016 M/S. PRAYAS PEN & PLASTIC INDUSTRIES OUT SALES FOR WHICH THEY ARE PAID SERVICE CHARGES ON WHICH TDS HAS BEEN MADE AND NOT FOR THE PURPOSE OF INCURRING EXPENSES ON BEHALF OF THE ASSESSEE. IN THIS VIEW OF T HE MATTER, THE REIMBURSEMENT OF EXPENSES BY C&F AGENTS CANNOT BE HELD TO BE CONTRACT / SERVICE ON WHICH THE PROVISIONS OF SECTION 194C OF THE ACT WOULD COME INTO PLAY AND APPLY. IN VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND FOLLOWING THE DECISION O F THE HON'BLE DELHI HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA (P) LTD. (SUPRA), WE HOLD THAT THERE IS NO NEED TO DEDUCT TDS ON REIMBURSEMENT OF EXPENSES TO C& F AGENTS WHICH ARE SEPARATELY BILLED AND ACCORDINGLY UPHOLD THE ORDER OF THE LEARNED CIT(APPEA LS). CONSEQUENTLY, WE DISMISS GROUND NO.2 RAISED BY REVENUE. AS THE AFORESAID DISCUSSION SHOWS, THE TRIBUNAL DULY CONSIDERED THE CBDT CIRCULAR NO. 715 (SUPRA), WHICH HAS BEEN RELIED UPON BY THE CIT(A) IN THE PRESENT CASE. AS PER THE BANGALORE BENCH OF T HE TRIBUNAL, TAX IS LIABLE TO BE DEDUCTED AT SOURCE ONLY ON THE INCOME ELEMENT EMBEDDED IN THE PAYMENTS. WHEREVER THE PAYMENT INCLUDES BOTH THE ELEMENT S, I.E. INCOME AS WELL AS REIMBURSEMENT ELEMENT, THEN, DEDUCTION OF TAX AT SOURCE IS TO BE MADE ON THE G ROSS AMOUNT . SO H OWEVER, WHERE THE REIMBURSEMENT ELEMENT IS SEPARATELY SHOWN WITH APPROPRIATE EVIDENCE, THE SAME WILL NOT REQUIRE THE PAYER TO DEDUCT TAX AT SOURCE ON THE ELEMENT OF REIMBURSEMENT OF EXPENSES. CONSIDERED IN THIS LIGHT, AND ALSO THE MANNER IN WHICH THE BILLS HAVE BEEN RAISED BY THE RECIPIENT - FREIGHT AND FORWARDING AGENT S IN THE PRESENT CASE, THERE DOES NOT APPEAR TO BE ANY LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE ELEMENT OF REIMBURSEMENT OF EXPENSES BECAUSE THE SAME HAVE BEEN SEPARATELY SHOWN. THUS, IN THIS VIEW OF THE MATTER, I FIND THAT THE INCOME - TAX AUTHORITIES HAVE UNJUSTLY ERRED IN HOLDING THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE IN NOT DEDUCTING TAX AT SOURCE ON THE PAYMENT OF ` 15,63,741/ - MADE TO THE FR EIGHT AND FORWARDING AGENTS. AS A CONSEQUENCE, 6 ITA NO. 6140/MUM/2016 M/S. PRAYAS PEN & PLASTIC INDUSTRIES THE DISALLOWANCE MADE BY THE INCOME - TAX AUTHORITIES UNDER SECTION 40(A)(IA) OF THE ACT IS LIABLE TO BE SET - ASIDE. I HOLD SO. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 T H NOVEMBER, 2018. SD/ - ( G.S. PANNU ) VICE PRESIDENT MUMBAI, DATE : 2 8 T H NOVEMBER , 2018 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, SMC BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI