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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI G. S. PANNU, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Dharmesh Shah & Dhaval Shah. Department by: Shri Ram Tiwari (Sr. AR) सुनवाईकीतारीख / Date of Hearing: 16.05.2018 घोषणाकीतारीख /Date of Pronouncement:. 20.07.2018 आदेश / O R D E R
PER AMARJIT SINGH, JM:
This is an appeal filed by the assessee against the order dated 19.09.2016passed by the Commissioner of Income Tax (Appeals)-7, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2012-13.
2. The assessee has raised the following grounds:- “The Ld. CIT(A)-3 has erred in sustaining the disallowance u/s 40(a)(ia) of Rs.5,53,822-00 being the re-imbursement of expenses incurred by the Clearing Agent on behalf of the appellant.
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The appellant craves leave of your honour to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal
.”
3. The brief facts of the case are that the assessee company was a Pvt. Ltd. Company and filed its return of income on 23.09.2012 declaring total income to the tune of Rs.6,29,80,302/-. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny. Therefore, notice u/s 143(2) of the Act dated 06.08.2013 was issued and served upon the assessee. Notices u/s 142(1) of the Act dated 03.06.2014, 16.09.2014 & 10.11.2014 were issued and served upon the assessee. The assessee company was engaged in the business of Manufacturing of various kinds of bulk drugs which were being used as raw material in the production of medicine by its clients. Some purchases were not verified and also after disallowance on account of non deduction of TDS on clearing expenses and excess claim of purchase of computers, rent/repair expenses and purchase of furniture, the income of the assessee was assessed to the tune of Rs.8,92,53,900/-. The assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but disallowed the claim of reimbursement expenses incurred by agent on behalf of appellant to the tune of Rs.5,53,822/- u/s 40(a)(ia) of the Act, therefore, the assessee has filed the present appeal before us. ISSUE No. 1:-
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Under this issue the assessee has challenged the disallowance u/s 40(a)(ia) of the Act of Rs.5,53,822/- being the re-imbursement of expenses incurred by the Clearing Agent on behalf of the appellant. The Ld. Representative of the assessee has argued that the assessee has paid the clearing and forwarded charges to the Bombay Shipping Agency to the tune of Rs.5,53,822/- which was purely re-imbursement and assessee was not under obligation to the deduct the tax u/s 40(a)(ia) of the Act but the CIT(A) has wrongly confirmed the addition u/s 40(a)(ia) of the Act of Rs.5,53,822/-, therefore, the finding of the CIT(A) is wrong and is liable to be set aside. In support of these contentions, the Ld. Representative of the assessee submitted the details of re-imbursement expenses which lies at page no. 2 to 12 of the paper book. It is also argued that the matter of controversy has been adjudicated by Tribunal in number of case such as ACIT Vs. P.P. Overseas (ITA. No. 733/M/2010) dated 18.02.2011, Enterprises (India) Pvt. Ltd. Vs. ITO (ITA. No.5678 & 5679/M/2013) dated 29.12.2017, ACIT Vs. National Timbers (ITA. No. 645/Coch/2013 CO. NO. 125/Coch/2013) dated 14.03.2014. Therefore, in the said circumstances, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The Assessing Officer specified in his order that the assessee has incurred clearing expenses on export. The assessee also produced the bills/invoices. The AO was of the view that the assessee failed to give the evidence in support of A.Y. 2012-13 claim, therefore, the expenses to the tune of Rs.5,53,822/- was not allowable in view of the provision u/s 40(a)(ia) Rule 194C of the Act. The said disallowance has been confirmed by CIT(A). The assessee furnished the details of re-imbursement of expenses and C & F charges which lies at page no. 1 of the paper book. The re- imbursement amount has been shown to the tune of Rs.5,53,822/- and C&F charges has been shown to the tune of Rs.5,53,822/-. Upon the C&F charges, the TDS has been deducted. The TDS was not deducted on re-imbursement of 5,53,822/-. It is quite clear that the said amount is clearly re-imbursement which has been incurred for clearing expenses on export. The various courts of law has held that the said amount is not liable to tax in view of the provision u/s 40(a)(ia) Read with 194C of the Act. Mumbai Tribunal in the case of ACIT Vs. P.P. Overseas (ITA. No. 733/M/2010) dated 18.02.2011 has held the following finding in para no. 6 &8 below.: - “6. We have carefully considered the facts and the rival contentions. The Ld. counsel for he assessee has also filed brief written submissions dated 13.11.2009. In the judgment in the case of East India Hotels Ltd. (supra), which is also reported in 320 ITR 526, the Hon’ble Bombay High Court has held as under:- (i) From the decision of the Apex Court in the case of Birla Cement Works Vs. CBDT (2001) 248 ITR 216/115 Taxman 359, it is clear that the words carrying out any work in section 194C are limited to any work which on being carried out culminates into a product or result. In other words, the word 'work' in section 1 94C is limited to doing something with a view to achieve the task undertaken or carry out an operation which produces some results. A.Y. 2012-13 (ii) As illustrated in Circular No.86 dated 29.05-1972 section 194C would apply to payments for carrying out the work such as constructing buildings or dams or laying of roads and air fields or railway lines or erection of installation of plant and machinery etc. In all these contracts, the execution of the contract by a contractor / sub-contractor results in production of the desired object or accomplishing the task under the contract. (iii) From the fact that the contracts for supply of labour to carry out any work have been specifically brought within the purview of section J94C and the fact that four categories of service contracts have been specifically brought within the purview of section 194C by inserting Explanation HI to section 194C, it cannot be inferred that the services rendered by a hotel to its customers are also covered under section 194C. (iv) It is true that the uxtrd 'work' in section 194C is not restricted for 'works contract' only, as held by the Apex Court in the case of Associated Cement Co.Ltd. Vs. CIT (1993)201 ITR345/ 67 Taxman 346. However, as held by the Apex: Court in the case of Birla Cement Works (supra) the word 'work' in section 194C has to be understood in a limited sense and would extend only to the service contracts specifically included in the said section by ut&y of Explanation III." The contract, between the assessee and the C & F agent is a service contract which has not been specifically included in Explanation III below section 194C. In this view of the matter, the provisions of section 194C are not applicable to the payments to t he C &F agents. If that is so, there was no obligation on the part of the assessee to deduct tax from the payments made to the C & F agents. Even otherwise and assuming that section 194C is applicable to the assessee and to the payments made to the five C & F agents, the payments made to M/s. Eagle Global, M/s. Sham Octrai and M/s. Jayashree Shipping were less than Rs.20,000/- each and even the aggregate payments to them was less than Rs.50,000/-. Under sub-section (5) of Section 194C, no deduction need to be made if the amount paid to each contractor does not exceed Rs.20,000/- or Rs.50,000/- in the aggregate. Even on this score, the section is not applicable.
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In respect of the remaining two agents namely M/s. Vidhi Enterprises and M/s. Sar Marine, the payments made included the payment of statutory liabilities such as customs duty, DEPB licence etc. which is actually the liability of the assessee and the receipt for the payment is issued by the concerned authority only in the name of the assessee. The C & F agents merely collected the payments from the assessee for payment to the concerned_authorities. Such payments cannot be considered to be covered by section 194C as they are not for any work of the nature mentioned in Explanation III. It has been so held by the Punjab & Haryana High Court in the case of S.S.C Vs. State of Punjab, (2004} 268 ITR 39S. Such payments amount to Rs.76,643/- in the case of M/s. Sar Marine and Rs.l,6B,242/-in the case of Vidhi Enterprises. Therefore, these amounts in any, case are not subject to TDS, even if it is held that section 194CJ is applicable to the payments in question. However, it must be remembered that the basic question as to whether the payment of the nature made by the assessee are covered by the assessee are covered by Explanation III below section 194C has been answered in favour of the assessee by the judgement of the Hon’ble Bombay High Court cited above and on this ground alone the decision of the CIT(A} has to be upheld. We do so and dismiss the first ground raised
by the department,
5. The other law relied by the Ld. Representative of the assessee also speaks this fact that the expenses which are nature in re- imbursement of expenses and C & F charges is not subject to TDS u/s 40(a)(ia) Read with 194C of the Act in view of law settled above. We are of the view that the finding of the CIT(A) is not justifiable because the expenses is clearly re-imbursement on clearing/forwarded expenses which are not liable for TDS u/s 40(a)(ia) Rule 194C of the Act. Therefore, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.
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