ACIT, Ernakulam V. M/s.National Timbers, Cochin

ITA 645/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73897 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A MOHANAN
• Section: 194C

Judgement Text

ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA NO. 645/COCH/2013 & CROSS OBJECTION NO. 125/COCH/2013 (ASST YEAR 2006 - 07 ) THE ASSISTANT COMMR OF INCOME TAX CIRCLE 2(2), ERNAKULUM VS M /S NATIONAL TIMBERS KATHRIKADAVU KALOOR KOCHI 682 017 ( APPELLANT /RESPONDENT ) (RESPONDENT /CROSS OBJECTOR ) PAN NO. AAEFN7304C ASSESSEE BY SHRI A MOHANAN REVENUE BY SMT LATHA V KUMAR, JR DR/ SHRI M ANIL KUMAR, CIT - DR DATE OF HEARING 9 TH JAN 2014 D ATE OF PRONOUNCEMENT 14 TH MARCH 2014 OR D ER PER B.R. BASKARAN, AM: THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 8.7.2013 PASSED BY THE LD CIT(A) - II, KOCHI AND THEY RELATE TO THE A Y 2006 - 07. 2 THE REVENUE IS ASSAILING THE DECISION OF THE LD CIT(A) IN DELETING THE DISALLOWANCE OF PURCHASE AMOUNT OF RS. 39,55,287/ - MADE BY THE AO. IN THE CROSS OBJECTION , THE ASSESSEE IS ASSAILING THE DECISION OF THE LD CIT(A) IN CONFIRMING THE DISAL LOWANCE MADE U/S 40(A)(IA) OF THE ACT. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 2 3 THE FACTS RELATING TO THE ISSUE S CITED ABOVE ARE STATED IN BRIEF: THE ASSESSEE IS A TRADER IN TIMBER. ON VERIFICATION OF THE PURCHASES ACCOUNT , THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED TIMBERS FROM THE FOLLOW ING PE RSON S: I) M/S INDIAN TIMBERS - RS. 30,22,746/ - II) M/S VICTORY TIMBERS - RS. 9,32,541/ - THE AO CONDUCTED ENQUIRIES WITH REGARD TO THESE PURCHASES AND FOUND OUT THE FOLLOWING: A) THE BILLS RELATING TO PURCHASES DID NOT GIVE ANY DETAILS OF DELIVERY NOTE AND ALSO DETAILS OF TRANSPORTATION OF MATERIAL. B) UPON ENQUIRY MADE BY THE INSPECTOR OF INCOME TAX, CIRCLE 2(1), KANNUR, IT WAS FOUND THAT THE ADDRESSES OF THE ABOVE TWO SAID CONCERNS COULD NOT BE LOCATED . C) ENQUIRIES WITH THE CHIRAKKAL PANCHAYAT REVE AL ED THAT THE ABOVE SAID CONCERNS DID NOT GET LICENSES FROM THE VILLAGE AUTHORITIES. D) ON ENQUIRY MADE WITH THE BANK ER OF THE ASSESSEE, IT WAS NOTICED THAT THE CHEQUE S ISSUED TO THE ABOVE SAID CONCERNS WERE FOUND EN - CASHED THROUGH PUNJAB NATIONAL BANK, PALA , KOTTAYAM DIST. HENCE, THE AO ASKED THE ASSESSEE TO CLARIFY THE ABOVE POINTS. 3.1 IN THIS REGARD, A PERSON NAMED MR. ZAHEER, REPRESENTATIVE OF M/S INDIAN TIMBERS AND M/S VICTORY TIMBERS SUBMITTED THE F OLLOWING DOCUMENTS: - (A) COPIES OF VAT REGISTRATI ON CERTIFICATE RELATING TO INDIAN TIMBER AND NATIONAL TIMBER; ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 3 (B) C OP IES OF DELIVERY NOTE (SELF ADDRESSED) SHOWING TRANSPORTATION OF GOODS FROM TUTICORIN HARBO U R TO PUTHIYATHERURU, KANNUR . (C) COPIES OF S TOCK REGISTER OF M/S INDIAN TIMBER ; WHEREIN THE SALES MADE TO NATIONAL TIMBER WAS FOUND RECORDED. THE ASSESSEE FURTHER EXPLAINED THAT THE GOODS WERE TRANSPORTED TO TUTICORIN BY WAY OF SELF ADDRESSED DELIVERY NOTE . IT WAS FURTHER SUBMITTED THE TIMBERS ARE UNLOADED EN - ROUTE TO THE CUSTOMERS , DEP ENDING UPON THE DEMAND . IT WAS SUBMITTED THAT THE GOODS WERE SUPPLIED T O THE ASSESSEE UNDER IDENTICAL CIRCUMSTANCES AND HENCE, THE PURCHASE INVOICES DID NOT CONTAIN DELIVERY DETAILS. 3.2 THE AO NOTICED THAT THE DOCUMENTS PERTAINING TO M/S VICTORY TIMBER S AND M/S INDIAN TIMBERS WERE FURNISHED BY A PERSON NAMED MR ZAHEER CLAIMED TO BE THE ACCOUNTANT OF THE ASSESSEE. HOWEVER, THE ABOVE SAID PERSON MR ZAHEER DID NOT HAVE THE PROPER AUTHORIZATION FROM THE ABOVE SAID PART IES TO FURNISH THE DETAILS. HENCE, THE AO DID NOT TAKE COGNIZANCE OF THE DOCUMENTS FILED BY MR ZAHEER. SINCE THERE IS NO EXPLANATION ABOUT THE LOCATION OF THE OFFICE OF THE ASSESSEE, THE AO CAME TO THE CONCLUSION THAT THE ADDRESS ES MENTIONED IN THE SALES TAX REGISTRATION; BILL BOOK ETC., ARE BOGUS. THE AO NOTICED THAT THE ASSESSEE HEREIN DID NOT MAINTAIN DAY - TO - DAY STOCK REGISTRAR AND HENCE HE DOUBTED ABOUT THE CLAIM OF PURCHASES OF TIMBERS FROM THE ABOVE SAID CONCERN S . THE AO ALSO NOTICED THAT THE PURCHASE INVOICES ISSUED BY M/S VICTORY TIM BERS WERE FOUND TO BE DATED ONE DAY PRIOR TO THE ENTRY OF GOODS TO THE STATE OF KERALA. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 4 3.3 IN VIEW OF THE ABOVE SAID DISCREPANCIES, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO IDENTIFY BOTH THE SELLER S AND ALSO THE LOCATION OF THE IR R ESPECTIVE OFFICE S. THE AO ALSO TOOK THE VIEW THAT T HE ASSESSEE HAS ALSO FAILED TO PROVE THAT THE GOODS COVERED BY THE ABOVE SAID INVOICES WERE DELIVER ED TO IT. ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT THE PURCHASES MADE BY THE ASSESSEE FROM M/S VI CTORY TIMBERS AND M/S INDIAN TIMBERS WE RE NOT GENUINE . A CCORDINGLY, THE AO DISALLOWED THE AMOUNT OF RS. 39,55,287/ - , BEING THE AGGREGATE AMOUNT OF PURCHASES MADE FROM THE ABOVE TWO PARTIES. 4 THE AO ALSO NOTICED THAT THE ASSESSEE HAS INCURRED EXPENSES ON CLEARING OF GOODS. HE FURTHER NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS TO THE FOLLOWING PERSON S AS DETAILED BELOW TOWARDS CLEARING OF GOODS : S.NO NAME AMOUNT 1 HARI AND COMPANY 7,11,497/ - 2 ST JOHN FREIGHT SYSTEM 1,46,740/ - 3 ORIENTAL EXIM AGENCY 1 ,06,763/ - 4 DIX ENTERPRISES 51,894/ - 10,16,894/ - THE AO NOTICED THAT THE ASSESSE E DID NOT DEDUCT TAX AT SOURCE FROM THE ABOV E SAID PAYMENTS. ON BEING QUESTIONED, THE ASSESSEE SUBMITTED THAT THE MAJOR PART OF THE PAYMENTS MADE TO THE ABOVE SAID PARTI ES CONSIST ED OF REIMBURSEMENT OF EXPENSES INCURRED (A) ON P AYMENT OF GOVERNMENT TAXES AND DUTIES AND (B) O THE R EXPENSES INCURRED ON BEHALF OF THE ASSESSEE. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 5 4.1 ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE C & F AGENTS HAVE INCURRED EXPENSES ON ITS BEHA LF AND HENCE THERE IS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE ON SUCH KIND OF REIMBURSEMENT S. T HE AO DID NOT ACCEPT THE SAID SUBMISSIONS MADE BY THE ASSESSEE. INSTEAD, THE AO PLACED RELIANCE ON THE CIRCULARS NO. 715 DATED 8 TH AUG 1995 ISSUED BY THE CBDT WHEREIN THE CBDT HAS CLARIFIED AS UNDER: Q NO. 7 WHETHER A TRAVEL AGENCY/CLEARING AND FORWARDING AGENT WOULD BE REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SUM PAYABLE BY THE AGENT TO AN AIRLINER OR OTHER CARRIER OF GOODS OF PASSENGERS. A NO. 7 THE TR AVEL AGENTS ISSUING TICKETS ON BEHALF OF THE AIRLINES FOR TRAVEL OF INDIVIDUAL PASSENGERS WOULD NOT BE REQUIRED TO DEDUCT TAX AT SOURCE AS HE ACTS ON BEHALF OF THE AIRLINES. THE POSITION OF CLEARING AND FORWARDING AG ENT IS DIFFERENT. THEY ACT AS INDEPENDEN T CONTRACTORS. ANY PAYMENTS MADE TO THEM WOULD HENCE BE LIABLE FOR DEDUCTION OF TAX AT SOURCE. THEY WOULD ALSO BE LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS TO A CARRIER OF GOODS. 4.2 ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF BILL RAISED BY THE CLEARING & FORWARDING AGENTS AND THERE IS NO SCOPE TO SPLIT THE PAYMENT INTO VARIOUS COMPONENTS. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, THE AO DISALLOWED THE AMOUNT OF RS. 1 0,16,894/ - BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 4.3 IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CONFIRMED THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT AND DELETED THE DISALLOWANCE OF PURCHASES . AGGRIEVED, BOTH THE PARTIES ARE CONTES TING THE DECISION OF LD CIT(A) ON THE POINTS DECIDED AGAINST EACH OF THEM. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 6 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF AMOUNT RELATING TO THE PURCHASES MADE FROM M/S INDIAN TIMBERS AND M /S VICTORY TIMBERS. WE HAVE ALREADY NOTICED THAT THE AO HAS DISALLOWED THE SAID CLAIM ON THE FOLLOWING REASONING: - (A) THE IDENTITY OF THE OWNER OF THE TWO CONCERNS AND THEIR RESPECTIVE ADDRESSES WERE NOT PROVED. (B) DELIVERY OF GOODS TO M/S NATIONAL T IMBER IS NOT SUBSTANTIATED. (C) THE ASSESSEE DOES NOT MAINTAIN STOCK REGISTER TO SUBSTANTIATE THE CLAIM OF RECEIPT OF GOODS CLAIMED TO HAVE BEEN PURCHASED FROM THE ABOVE SAID TWO CONCERNS. WITH REGARD TO THE IDENTITY OF THE TWO CONCERNS REFERRED ABOVE, W E NOTICE THAT THE ASSESSEE, THROUGH A PERSON NAMED MR. ZAHEER, HAS FURNISHED DETAILS OF VAT REGISTRATION OF THE TWO CONCERNS, THEIR RESPECTIVE PAN NUMBERS, EXPORT DOCUMENTS RELATING TO THE ABOVE SAID DOCUMENTS, COPIES OF DELIVERY NOTES EVIDENCING TRANSPORT ATION OF GOODS FROM TUTICORIN PORT TO KANNUR. WE NOTICE THAT THE AO HAS REFUSED TO EXAMINE THESE DOCUMENTS ONLY FOR THE REASON THAT THEY WERE FURNISHED BY AN UNAUTHORIZED PERSON, I.E., THE AO HAS DOUBTED ABOUT THE AUTHORITY OF MR. ZAHEER TO FURNISH ALL TH ESE DOCUMENTS. THE ACTION OF THE AO IN REJECTING THE DOCUMENTS BY DOUBTING THE AUTHORITY OF MR. ZAHEER DOES NOT APPEAR TO BE CORRECT. IN OUR VIEW, THE AO COULD HAVE VERY WELL ASKED THAT PERSON TO FURNISH HIS AUTHORITY TO FURNISH ALL THESE DOCUMENTS. IN ANY CASE, THE COPIES OF VAT REGISTRATION, PAN NUMBERS, EXPORT DOCUMENTS COULD VERY WELL BE EXAMINED INDEPENDENTLY BY THE ASSESSING OFFICER. HENCE, IN OUR VIEW, THE AO WAS NOT JUSTIFIED IN REJECTING THESE DOCUMENTS AND IN THAT PROCESS IN DOUBTING THE GEN UINENESS OF THE TWO CONCERNS CITED ABOVE. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 7 5.1 HOWEVER, IN OUR VIEW, THE QUESTION THAT NEEDS EXAMINATION IS - WHETHER THE ASSESSEE HAS PURCHASED THE TIMBERS FROM THE ABOVE SAID TWO CONCERNS OR NOT, SINCE THE ASSESSEE HAS CLAIMED THE SAME AS DEDUCTION I N COMPUTING THE TOTAL INCOME. WE NOTICE THAT THE AO HAS DOUBTED THE CLAIM OF PURCHASES, SINCE (A) THERE WAS NO DELIVERY CHALLAN FOR DELIVERY OF GOODS TO THE ASSESSEE (B) THERE WAS NO STOCK REGISTER TO VERIFY THE RECEIPT OF GOODS AT THE PREMISES OF THE ASSESSEE. FURTHER THE AO HAS NOTICED THAT THE CHEQUES ISSUED BY THE ASSESSEE TO THE ABOVE SAID TWO CONCERNS HAVE BEEN ENCASHED THROUGH PUNJAB NATIONAL BANK, PALA IN KOTTAYAM DISTRICT, WHERE AS THE ABOVE SAID TWO CONCERNS HAVE CLAIMED TO HAVE OFFICE AT KAN NUR, A FARAWAY PLACE. FURTHER THE AO HAS ALSO NOTICED THAT THE PURCHASE INVOICES HAVE BEEN DATED PRIOR TO THE ENTRY OF GOODS TO THE BORDER OF KERALA. 5.2 WE HAVE ALREADY NOTICED THAT THE ASSESSING OFFICER HAS DISALLOWED THE PURCHASES AMOUNT FOR TWO REASONS VIZ., (A) GENUINENESS OF THE SUPPLIERS WERE NOT PROVED AND (B) CLAIM OF RECEIPT OF GOODS BY THE ASSESSEE WAS NOT PROVED. WE NOTICE THAT THE LD CIT(A) WAS SATISFIED WITH THE GENUINENESS OF THE SUPPLIERS ON THE BASIS OF VARIOUS DOCUMENTS FURNISHED BY THE ASSESSEE AND ACCORDINGLY DELETED THE DISALLOWANCE . HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS NOT EXAMINED THE SECOND REASON AT ALL VIZ., THE CLAIM OF RECEIPT OF GOODS BY THE ASSESSEE. IN OUR VIEW, THE SAID ACTION OF LD CIT(A) IS NOT CORRECT. WHEN THE ASSESSING OFFICER IS MAKING DISALLOWANCE FOR MORE THAN ONE REASON, IT MAY NOT BE POSSIBLE TO GIVE RELIEF ON THE SATISFACTION OF ONE OF THE REASONS ONLY. THE LD CIT(A) SHOULD HAVE CONSIDERED BOTH THE REASONS BEFORE COMING TO A CONCLUSION. I N OUR ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 8 VIEW , THE SECOND REASON CITED BY THE ASSESSING OFFICER IS MORE RELEVANT THAN THE FIRST REASON, I.E., EVEN IF THE ASSESSEE IS ABLE TO PROVE THE GENUINENESS OF THE SUPPLIERS, STILL THE DISALLOWANCE IS POSSIBLE IF THE ASSESSEE IS NOT ABLE TO PROVE THAT IT HAS ACT UALLY RECEIVED THE GOODS. ACCORDINGLY, THE SECOND REASON CITED BY THE ASSESSING OFFICER AND THE EXPLANATIONS GIVEN BY THE ASSESSEE NEEDS TO BE EXAMINED AT THE END OF THE LD CIT(A) . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO HIS FILE WITH THE DIRECTION TO EXAMINE THE SECOND REASON CITED BY THE ASSESSING OFFICER AND ALSO THE EXPLANATIONS FURNISHED OR THAT MAY BE FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 6. THE NEXT IS SUE RELATES TO THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF THE ACT. THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO C & F AGENTS ON THE PLEA THAT THE PAYMENTS MADE TO THEM CONSISTED OF REIMBURSEMENT OF PAYMENT OF GOVERNMENT DUES AN A LSO REIMBURSEMENT OF EXPENSES. HOWEVER, THE AO MADE THE DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS: - THE ASSESSEE HAS FURNISHED A CHART INDICATING BILL NUMBER AND DATES AS WELL AS THE NATURE OF THE VARIOUS EXPENSES CLAIMED BY THE CLEARING AND FORWARDIN G AGENTS IN THEIR BILLS. IT WAS STATED THAT SOME OF THESE PAYMENTS WERE IN THE NATURE OF DUTIES PAYABLE AT THE PORT OF THE GOVERNMENT AND PORT OPERATORS WHEREAS THE OTHER CHARGES WERE PRIMARILY FOR HANDLING, FORWARDING, TRANSPORTATION ETC. IT HAS, THEREF ORE, BEEN STATED THAT ONLY IN RESPECT OF THOSE CHARGES EXCLUSIVELY FOR THE CLEARING AND FORWARDING EXPENDITURE LIKE HANDLING AND FORWARDING AND TRANSPORTATION SHOULD BE SUBJECT TO DISALLOWANCE U/S 40(A)(IA). SEC. 194C SPEAKS OF PAYMENT OF ANY SUM TO A CON TRACTOR, THERE IS A LIABILITY TO DEDUCT TAX AT THE RATES IN FORCE. THERE IS NO EXEMPTION PROVIDED IN THE SECTION FOR NON - DEDUCTION OF TAX ON A SPECIFIC PAYMENT MADE BY THEM. IN RESPECT OF A CONTRACT, WHICH IS THAT OF CLEARING AND FORWARDING, THE AGENT UN DERTAKES TO REMOVE THE GOODS WHICH HAVE ARRIVED IN A SHIP TO A DESIGNATED LOCATION IN THE PREMISES OF THE ASSESSEE OR ELSEWHERE ON THE PAYMENT OF A PRICE. THE SERVICES RENDERED MAY INCLUDE PAYMENT OF GOVERNMENT DUTIES, PORT CHARGES ETC. WHICH ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 9 MAY BE PAYAB LE TO THE GOVERNMENT BUT THE PERSON AS CLEARLY VERIFIED GIVES A SINGLE BILL WHEREIN THE VARIOUS PAYMENTS MAY BE SPECIFIED, BUT THE BILL REMAINS THE SAME SINGLE BILL ON WHICH THE ASSESSEE IS DUTY BOUND TO DEDUCT THE TAX AS SPECIFIED U/S 194C. 6.1 BEFORE LD CIT(A), THE ASSESSEE PLACED RELIANCE ON THE CIRCULAR NO. 4/2008 DATED 28.04.2008 ISSUED BY THE CBDT (300 ITR (ST.) 92) IN RESPECT OF DEDUCTION REQUIRED TO BE MADE FROM RENT PAYMENTS U/S 194I OF THE ACT. IN THE SAID CIRCULAR, THE CBDT HAD STATED THAT THERE IS NO REQUIREMENT OF DEDUCTING TAX AT SOURCE ON THE SERVICE TAX COMPONENT INCLUDED IN THE RENT PAYMENTS, SINCE THE SERVICE TAX DOES NOT PARTAKE THE CHARACTER OF INCOME. ACCORDINGLY, THE ASSESSEE SUBMITTED BEFORE THE LD CIT(A) TH AT IT HAS M ERELY REIMBURSED THE CUSTOMS DUTY AND OTHER GOVERNMENT LEVIES TO THE C & F AGENTS, WHICH DO NOT HAVE ANY INCOME ELEMENT. ACCORDINGLY THE ASSESSEE CONTENDED THAT THERE IS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE ON THE SAID PAYMENTS. IN RESPECT OF EXP ENSES LIKE TRANSPORT CHARGES, GROUND RENT PAID TO YARD AT PORT AND SHORT HANDLING CHARGES, THE ASSESSEE SUBMITTED THAT THE C & F AGENTS HAVE INCURRED THESE EXPENSES ON ITS BEHALF AND THE PAYMENTS HAVE BEEN MADE TO VARIOUS PERSONS, EACH RECEIVING LESS THAN THE LIMIT PRESCRIBED U/S 194C FOR DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, IT WAS CONTENDED THAT THERE IS NO REQUIREMENT OF DEDUCTING TDS FROM THE SAID PAYMENTS ALSO. 6.2 THE LD CIT(A), HOWEVER, HELD THAT THE PROVISIONS OF SEC. 194C IS ATTRACTED ON A LL THE PAYMENTS MADE TO C & F AGENTS, SINCE THE SAID SECTION USES THE WORDS ANY SUM. THE LD CIT(A) ALSO HELD THAT THE CIRCULAR ISSUED FOR SEC. 194I CANNOT BE TAKEN SUPPORT OF , SINCE SEC. 194I USES THE WORD INCOME. ACCORDINGLY, THE LD CIT(A) HELD THAT ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 10 ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT ON THE ENTIRE AMOUNT PAID TO C & F AGENTS, SINCE SEC. 194C USES THE WORD ANY SUM. 7. BEFORE US, THE LD A.R INVITED OUR ATTENTION TO THE COPIES OF TERMS AND CONDITIONS PRESCRIBED BY THE C & F AGENTS PLACED IN THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE IS REQUIRED TO REIMBURSE ACTUAL EXPENSES IN ADDITION TO THEIR CHARGES FOR CLEARING THE GOODS. HE FURTHER SUBMITTED THAT THE C & F AGENTS HAVE INCURRED EXPENSES AND ALSO PAID THE GOVERNME NT DUES ON BEHALF OF THE ASSESSEE ONLY . ACCORDINGLY HE SUBMITTED THAT THE PAYMENTS AND EXPENSES, WERE IN EFFECT, WAS INCURRED BY THE ASSESSEE ONLY . ACCORDINGLY, THE LD A.R SUBMITTED THAT IT IS NOT CORRECT TO PRESUME THAT THE ASSESSEE HAS PAID CONSOLIDATE D AMOUNT TO THE C & F AGENTS. ACCORDINGLY, THE LD A.R CONTENDED THAT THERE IS NO REQUIREMENT OF DEDUCTION OF TDS ON THE REIMBURSEMENTS MADE TO THE AGENTS BY THE PRINCIPAL. THE LD A.R PLACED STRONG RELIANCE ON THE CIRCULAR NO.4/2008 (REFERRED SUPRA). THE LD A.R ALSO PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW: - (A) MINPRO INDUSTRIES, JODHPUR (ITA NO.394/JODH/2008) (ITAT JODHPUR) (B) BAYER MATERIAL SCIENCE (P) LTD (ITA NO. 7977/MUM/2010)(ITAT - MUMBAI) (C) ITO DR. WEILMAR SCHWABE INDIA (P) LTD (2005)(9 5 TTJ (DEL) 53). 8. WE HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY THE ASSESSEE. IN THE CASE OF BAYER MATERIAL SCIENCE (P) LTD (SUPRA), THE ISSUE WAS RELATED TO DEDUCTION OF TDS ON COST SHARING EXPENSES, I.E., THE PAYMENT MADE BY THE ASSESSEE IN RESPECT OF ITS SHARE IN THE COMMON EXPENSES INCURRED BY A GROUP CONCERN. WE NOTICE THAT THE LD CIT(A) HAS DISTINGUISHED THE FACTS PREVAILING IN THAT CASE AND ACCORDINGLY HELD THAT THE SAID ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 11 DECISION IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. WE AGREE WITH THE VIEW EXPRESSED BY LD CIT(A) IN THIS REGARD . 8.1 IN THE CASE OF MINPRO INDUSTRIES (SUPRA), IT WAS AGREED BY BOTH THE PARTIES THAT THE PROVISIONS OF SEC. 172 OF THE ACT IS APPLICABLE TO THE FACTS PREVAILING IN THAT CASE. IT WAS FURTHER NOTICED THAT THE CIRCULAR NO.723 DATED 19 - 09 - 199 ISSUED BY THE CBDT HAS SPECIFICALLY STATED THAT THE TDS PROVISIONS OF SEC. 194C AND SEC. 195 SHALL NOT APPLY IN THE CASES WHERE THE PROVISIONS OF SEC. 172 IS APPLICABLE. FURTHER, THE TRIBUNAL NOTICED THAT T HE C & F AGENT HAS DEDUCTED TAX AT SOURCE ON MANY PAYMENTS. UNDER THESE SET OF FACTS, THE TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. HENCE, IN OUR VIEW, THE SAID CASE LAW IS ALSO NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. 8.2 IN THE CASE OF DR. WILMAR SCHWABE INDIA (P) LTD (SUPRA), THE ASSESSING OFFICER HAD REJECTED THE IDENTICAL CLAIM RELATING TO REIMBURSEMENT OF EXPENSES MADE BY THE ASSESSEE THEREIN BY PLACING RELIANCE ON THE CIRCULAR NO.715 DATED 08 TH AUGUST, 1995 ISSUED BY THE CBDT AS IN THE PRESENT CASE. HOWEVER, THE TRIBUNAL HAS CONSIDERED THE CIRCULAR CITED ABOVE AND HAS EXPRESSED THE FOLLOWING VIEW IN PARA 12 OF THE ORDER: - 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF LEARNED CIT(A) ON THIS ISSUE. IT IS OBSERVED THAT AS AGREED BY AND BETWEEN THE ASSESSEE COMPANY AND M/S INDOCHEM TECHNO CONSULTANTS LTD., A VEHICLE WAS TO BE PROVIDED BY THE ASSESSEE COMPANY TO THE SAID CONSULTANT FOR ATTENDING T O ITS WORK AND THUS, THE ASSESSEE COMPANY WAS TO BEAR THE VEHICLE EXPENSES ACTUALLY INCURRED BY THE SAID PARTY. BILLS FOR SUCH EXPENSES INCURRED BY THE SAID CONSULTANT WERE SEPARATELY RAISED BY THEM ON THE ASSESSEE COMPANY IN ADDITION TO BILLS FOR FEES PAY ABLE ON ACCOUNT OF TECHNICAL SERVICES AND SINCE THE AMOUNT OF BILLS SO RAISED WAS TOWARDS THE ACTUAL EXPENSES INCURRED BY THEM, THERE WAS NO ELEMENT OF ANY PROFIT INVOLVED IN THE SAID BILLS. IT WAS THUS A ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 12 CLEAR CASE OF REIMBURSEMENT OF ACTUAL EXPENSES INCU RRED BY THE ASSESSEE AND THE SAME, THEREFORE, WAS NOT OF THE NATURE OF PAYMENT COVERED BY SECTION 194J REQUIRING THE ASSESSEE TO DEDUCT TAX AT SOURCE THERE FROM. THE CBDT CIRCULAR NO. 715 DT 8 TH AUG 1995, RELIED UPON BY THE AO IN SUPPORT OF HIS CASE ON TH IS 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 AND THE SAME, THEREFORE, WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CAS E, WHERE BILLS WE RE RAISED SEPARATELY BY THE CONSULTANTS FOR REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THEM. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 194J WERE NOT APPLICABLE TO THE REIMBURSEMENT OF ACTUAL EXPENSE S AND THE ASSESSEE COMPANY WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM SUCH REIMBURSEMENT. IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DISMISS THE RELEVANT GROUNDS OF THE REVENUES APPEAL. WE NOTICE TH AT THE DELHI BENCH OF TRIBUNAL HAS TAKEN THE VIEW THAT THE CBDT CIRCULAR NO.715 (SUPRA) IS APPLICABLE ONLY IN THE CASES WHERE BILLS ARE RAISED FOR THE GROSS AMOUNT INCLUSIVE OF PROFESSIONAL FEES AS WELL AS REIMBURSEMENT OF ACTUAL EXPENSES. IN THE INSTANT CASE, WE NOTICE THAT THE ITEM WISE DETAILS, I.E., THE NATURE OF EACH PAYMENT SUCH AS CUSTOMS DUTY, PORT CHARGES, TRANSPORTATION CHARGES ETC WERE AVAILABLE IN THE CONSOLIDATED BILL RAISED BY C & F AGENTS. HOWEVER, THE AO HAS TAKEN THE VIEW THAT THE PROVISI ONS OF SEC. 194C SHALL BE APPLICABLE SINCE THE C & F AGENTS HAVE RAISED A SINGLE BILL FOR ALL ITEMS. 8.3 THIS BENCH OF TRIBUNAL HAD AN OCCASION TO CONSIDER ABOUT THE REQUIREMENT OF DEDUCTION OF TDS ON EXPENSES INCURRED BY THE FRANCHISEE LORRY BOOKING AGENTS IN THE CASE OF T.T. KURUVILLA IN ITA NO. 278/COCH/2011 AND 253 & 254/COCH/2013 . THE ASSESSEE THEREIN WAS A LORRY BOOKING AGENT AND HE HAD FRANCHISEES ALL OVER INDIA. HE ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 13 PAID COMMISSION AND ALSO THE EXPENSES INCURRED BY THEM. THIS BENCH OF TRIBUNA L, VIDE ITS ORDER DATED 25.10.2013 , HAS HELD AS UNDER: - UNDER TDS PROCEEDINGS, IT IS NECESSARY TO IDENTIFY THE PAYMENTS ON WHICH THERE IS A LIABILITY TO DEDUCT TAX AT SOURCE. IN OUR VIEW, THE QUESTION WHETHER THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ONLY ON THE COMMISSION AMOUNT OR ON COMMISSION PLUS EXPENSES WOULD DEPEND UPON THE NATURE OF AGREEMENT BETWEEN THE ASSESSEE AND HIS FRANCHISEES. IF THE FRANCHISEE IS ENTITLED TO COMMISSION ALONE AND THE EXPENSES ARE INCURRED ON THE INSTRUCTIONS OF THE ASS ESSEE, THEN IN OUR VIEW, THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ON COMMISSION AMOUNT ALONE. HOWEVER, IF THE FRANCHISEE IS ENTITLED TO COMMISSION PLUS EXPENSES AND HE HIMSELF INCURS EXPENSES, THEN THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ON THE AGGREGATE PAYMENTS MADE. THUS, WE HAVE EXPRESSED THE VIEW THAT THE AGREEMENT ENTERED BETWEEN THE PARTIES PLAY A PIVOTAL ROLE IN DECIDING THE ISSUE OF DEDUCTION OF TAX AT SOURCE ON THE EXPENSES. HENCE, THE VIEW TAKEN BY THE AO THAT A SINGLE BILL HAS BEE N RAISED BY C & F AGENTS FOR EXPENSES AND FOR CHARGES MAY NOT BE, IN OUR VIEW, THE DECIDING FACTOR FOR DEDUCTION OF TDS. IN FACT, THE BILL RAISED BY THE C & F AGENT IS CULMINATION OF THE AGREEMENT ENTERED BETWEEN THE PARTIES. IN THE INSTANT CASE, THE AS SESSEE HAS FURNISHED BEFORE US COPIES OF LETTERS WRITTEN BY THE C & F AGENTS TO THE ASSESSEE SPECIFYING THE TERMS AND CONDITIONS. FOR EXAMPLE, ONE LETTER DATED 18.04.2005 WRITTEN BY ST. JOHN FREIGHT SYSTEMS LIMITED TO THE ASSESSEE READS AS UNDER: - PLEASE REFER TO OUR DISCUSSION REGARDING THE EXECUTION OF CLEARING WORK OF TIMBER FOR YOUR IMPORTS. WE ARE AGREED TO UNDERTAKE THE ABOVE WORK ON YOUR BEHALF ON THE FOLLOWING TERMS: 1. YOUR ACTUAL EXPENDITURE ON CUSTOMS DUTY, CLEARING AND FORWARDING, PORT DUES, TRANSPORTING CHARGES, SHORE HANDING CHARGES, FORWARDING AND LOTTING CHARGES ETC SHALL BE PAID BY US ON YOUR BEHALF. THESE SHALL BE REIMBURSED BY YOU TO US. AS AND WHEN REQUIRED YOU SHALL PAY ADVANCE TO US TO ENABLE US TO MEET THE SAME ON YOUR BEHALF. ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 14 2. O UR CHARGES FOR CLEARING SHALL BE RS. 935.22 PER TON. SERVICE CHARGES WILL BE EXTRA. 3. YOU SHALL SETTLE THE PAYMENT IMMEDIATELY ON RECEIPT OF OUR ADVICE. IF YOU AGREE KINDLY SIGN AND RETURN THIS LETTER TO ENABLE TO TAKE UP THE ASSIGNMENT. A PERUSAL OF THE TERMS EXTRACTED ABOVE WOULD SHOW THAT THE C & F AGENT IS SEEKING REIMBURSEMENT OF EXPENDITURE INCURRED ON CUSTOMS DUTY, CLEARING AND FORWARDING, PORT DUES, TRANSPORTING CHARGES ETC. ON ACTUAL BASIS. FURTHER IT IS CLEARLY STATED THAT THE PAYMENTS RELAT ING TO THE ABOVE SAID EXPENSES IS MADE ON BEHALF OF THE ASSESSEE. THE C & F AGENT IS QUOTING HIS CHARGES AT RS.935.22 PER TON. UPON THE AGREEING THE SAID TERMS, IN OUR VIEW, THE ASSESSEE IS AUTHORIZING THE C & F AGENT TO INCUR THE EXPENSES ON ITS BEHALF. HENCE, IN OUR VIEW, THE BREAK UP DETAILS GIVEN IN THE SINGLE CONSOLIDATED BILL RAISED BY THE C & F AGENTS SHOULD BE CONSIDERED AS SEPARATE BILLS RELATING TO (A) REIMBURSEMENT OF EXPENSES AND (B) CHARGES FOR CLEARING QUOTED BY THE AGENT. ACCORDINGLY, IN O UR VIEW, THE APPLICABILITY OF TDS PROVISIONS ON REIMBURSEMENT OF EXPENSES SHOULD BE CONSIDERED SEPARATELY IN RESPECT OF EACH OF THE ITEM AND IT CANNOT BE CLUBBED WITH THE CHARGES LEVIED BY THE C & F AGENT. 8.4 WE NOTICE THAT THE ASSESSING OFFICER D ID NOT EXAMINE THE BREAK - UP DETAILS OF THE BILLS RAISED BY THE C & F AGENTS. THE LD CIT(A) ALSO DID NOT EXAMINE THE SAME. ACCORDINGLY, WE ARE OF THE VIEW THAT THE APPLICABILITY OF TDS PROVISIONS ON THE CHARGES PAID TO C & F AGENTS AND ALSO ON THE EXPENSE S REIMBURSED TO THEM NEEDS TO BE EXAMINED AFRESH AT THE END OF THE ASSESSING OFFICER IN THE LIGHT OF DISCUSSIONS MADE ITA NO. 645 & CO 125/COCH/2013 NATIONAL TIMBERS 15 SUPRA. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE D IRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH , DAY OF MAR 2014. SD/ - SD/ - (N.R.S. GANESAN) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 14 TH MAR 2014 RAJ* COPY TO: 1. APPELLANT THE ASST COMMR OF INCO ME TAX, CIRCLE 2(2), ERNAKULAM 2. RESPONDENT M/S NATIONAL TIMBERS, KATHRIKADAVU KALOOR, KOCHI 682 017 3. CIT(A) 4. CIT , - KOCHI 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN