ITO, WD-1(2), BURDWAN, BURDWAN vs. M/S CEMCO MARKETING, BURDWAN

आयकर अपील�य अधीकरण, �यायपीठ – “D” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “D” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.1056 & 1418/Kol/2016 Assessment Years :2010-11 & 2012-13 Income Tax Officer, V/s. M/s Cemco Marketing Ward-1(2), Aayakar Bhanga Kuthi, G.T. Road, bhawan, Court Burdwan-713101 Compound, [PAN No. AADFC 0235 E] Burdwan-713101 .. अपीलाथ� /Appellant ��यथ�/Respondent S..S.Tauheed, Addl. CIT-SR-DR आवेदक क� ओर से/By Assessee Shri B. Ghosh, Advocate राज�व क� ओर से/By Respondent 06-06-2018 सुनवाई क� तार�ख/Date of Hearing 13-06-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- These two Revenue’s appeals for assessment years 2010-11 and 2012- 13 are directed the Commissioner of Income Tax (Appeals)-Burdwan’s separate orders dated 29.02.2016 and 29.04.2016 in case No.146/CIT(A)/Asl/W-1(2)/Bwn/2013-14 and 28/CIT/Asl/W-1(2)/Bwn/2015-16; respectively involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. 2. We come to the former assessment year 2010-11 involving ITA 1056/Kol/2016. The Revenue’s first substantive ground seeks to revive the Assessing Officer’s action deleting the amount in question of C&F transportation charges of ₹64,84,134/- declined for non-deduction of TDS u/s.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 2 40(a)(ia) in the course of assessment(s) as deleted in lower appellate proceedings vide following discussion:- “I have carefully examined the Assessing Officer' order, the remand report, the rebuttal of the appellant and other material on record and that produced by the appellant during appeal proceedings. The undisputed facts relevant to this ground are summarized as bellow: That the appellant is a C&F Agent of Ultrratech Cement Ltd - henceforth called the principal company, which is a manufacturer of cement. For the activity relevant to this round, the appellant handles the cement from the railway rake point till it reaches the dealer’s godown. The appellant, therefore, unloads the. Cement from the railway siding and loads it on to trucks, forwarding it by truck to thee godown, where he unloads these bags into the godown. The expenses incurred on this activity are called CF & Transportation Charges and such amounts are reimbursed by the principal company to the appellant. The appellant, thereafter, arranges delivery of the cement bags from the godown to the various dealers points by truck with the expense incurred for this activity being called Secondary Freight Charges being reimbursed by the principal company as well. All reimbursements are made on actual basis as per rates prefixed with the company. In the case of Secondary Freight Charges, it is the dealers who pay to the truck drivers and then raise necessary bills. The appellant reimburses such moneys to the dealers on actual basis on behalf of the principal company as it the liability of the principal company to settle such reimbursement with the job of the appellant only being to facilitate such payment on behalf of the principals. Therefore, as an intermediary, the appellant’s job is to act as a facilitator agent of the principal company to ensure the smooth implementation of the transfer of cement form the principals to the dealers. It is necessary to understand this functioning of the appellant for a proper appreciation of the lawfulness of the impugned additions. During assessment proceedings, we find that the AO observed that the appellant had claimed CF & Transportation charges in the profit & loss account amounting to 64,84,134.00 and during the assessment proceedings the appellant was asked to provide reasons as to why the said claim of expenditure should not be disallowed. To this the appellant responded, vide letter dated 11/03/2013, contending that the said expenditure had been made to pay the labour sardars and transporters and that the payments had not been made to any contractor or sub contractor. The AO, however, held the view that the said payments were made under directions of the principal company and hence were evidently made under some form of contractual obligation. Thus, while accepting that the said payments were at the instance of the principal company, the AO held that they, on account of the implied contractual agreement, fell within the ambit of section 194C of the Act. He, on this premise, preceded to make the impugned disallowance by holding that while making these payments – which came within the ambit of section 194C of the Act. – TDS had to be deducted – and since it admittedly was not, the mischief of section 40(a)(ia) was attracted.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 3 During the appeal proceedings, the appellant has submitted that the AO failed to fully appreciate the facts of the case. • As regards labour charges, the appellant stated that the payments were made to the labour sardars to facilitate the payment to the respective labourers as it was not possible for the assessee to disburse the labour payments on their own and to the truck drivers to move the bags from the railway rake point to the godown. • The appellant further submitted that the labour sardars were nothing but the leaders of the local labour union and they themselves were also nothing but labourers - and for this last capacity that they received their payments in the form of regular wages. • That the actual labour wages paid and the acknowledgement from the labour union also corroborated the fact that the labour sardars were in reality nothing but a part of the labour union and that they were not contractors or sub contractors. • That the agreement between the appellant and the principal company suggested that the appellant's job was to facilitate the payments that were actually made and all the expenses were reimbursed by the principal company on actual basis. • That the above fact had also been accepted by the ITO Ward -1 (2), Burdwan in his remand report. • The appellant has further submitted that the AO also could not establish any contract between the appellant and the labour sardars and/or the truck drivers. During appellate proceedings, the matter was remanded to the concerned ITO ward 1 (2), Burdwan and whose report was received in this office. The summary of the findings of the remand report, as summed up by the ITO himself are as under: 1. The assessee was under a contractual obligation to transport cement to the dealers premises from the rake point or from the godown as per instructions of the principals as a clearing and forwarding agent. 2. The principals were under contractual agreement to pay to the C&F agent handling, transportation and other charges as well as C&F margin at agreed rates per MT of cement handled/transported. 3. The principals have deducted tax on the payment made to the C&F agent in accordance with the relevant provisions of law. 4. The appellant however did not deduct tax on its payments to transporters or labourers. 5. That there was no clause in the agreement between the principal and the appellant which provided for payments to be made by the principals to the appellant for disbursal amongst dealers etc. for transportation/handling of cement. The appellant, when confronted with this report has filed a rejoinder dated 10.2.2016 the sum and substance of which is reproduced below.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 4

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 5 as the rejoinder, I also have had occasion to study the order of the Hon'ble ITAT Kolkata passed in the appellant's own case for the AY 2008-09 in ITA No 443/Kol/2012 in which the revenue was in appeal on identical issues against the deletion by the Ld CIT(A) of the additions made by the AD on identical issues. The Hon'ble Tribunal had upheld the order of the CIT(A) holding that the appellant was actually incurring expenditure on behalf of the principals and therefore was not liable to be covered by the mischief of section 194C of the Act and that he was not under obligation to deduct tax at source. • Respectfully following the averments of the Hon'ble Tribunal and for the reasons cited above, that the appellant since he was merely making payments on behalf of the principals for which he was duly compensated, I am of the opinion that there was no requirement for the appellant to deduct tax at source u/s 194C from the payments. It is pertinent to note in this context that the remand report has unequivocally also observed that the principals have paid to the appellant after due deduction of TDS - which sets at rest the AO's apprehension that there might be loss of revenue, since for the said work tax has been deducted by the principals. Thereafter, it is just a matter of reimbursing the expenses incurred b the appellant - which is a matter of record. • Therefore I cannot find merit in the view taken by the AD that TDS had to be deducted on CF & Transportation Charges and the said disallowance therefore is not upheld. 3. For that on the fact and circumstances of the case, it is begged before your honour to note that the Ld. A.D has erred in disallowing Rs.95,05,125.00 on account of secondary transport and assessee firm handles cement from the railway rake point until it reaches to the dealer' point, as per the direction of the company, for which assessee firm gets commission from the company . Now the Ld. AO has made the addition U/s 40(a)(ia) of the Income Tax Act, 1961 on account of secondary transport and freight charges, which is nothing but the caring cost of reimburses the money to the dealers of the company after getting the money from the company and in the first instance the dealers pay for the secondary transportation and freight charges. Which include the truck hire charges that are at a fixed rate per kilometer and calculated as per distance covered. Here the assessee firm does not pay the money to any transport contractor but actually the money is paid to the dealers as reimbursements to their truck hire charges and other associated costs. Thus the ultimate beneficiaries to the payment are the truck owners and not the dealers and therefore the onus of deducting T.D.S u/s 194C of the Income Tax Act, 1961 does not fall upon the assessee firm. Please also not that in order to invoke section 40(a)(ia) of The Income Tax Act, 1961, there has to be an existence of a contract. But the Ld. AD could not establish any such contract as there is none, as the payment not being made to any contractor and/or sub-contractor. Moreover the payment has been reimbursed by the company and it is evident from the Profit & Loss Account of the year under consideration, where the assessee firm paid Rs. 95,05,125.74 whereas it received Rs. 95,04,703.55 that is Rs. 422.19 less than that is paid.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 6 Please also note that in the case CIT-Vs-United Rice Land Ltd. (2008) 217 CTR (P & H) 332. Rakshit Transport - Vs - ACIT, Circle - 2, BDN ITA No. 261/Kol/2009, Mythri Transport Corp. - Vs - AClT (2010) 124 ITO 40 (Visakhapatnam) and CIT - Vs - D. Rathinam (2011) 241 CTR (Mad) 476, it was held that the question of deduction of T.D.S. u/s194C of The Income Tax Act, 1961 will depend upon the fact whether there was any oral or written agreement or contract between the assessee and the recipient of income and if there was nothing on record to show the existence of any such contract, then section 194C of The Income Tax Act, 1961 will have no applicability and consequently section 40(a)(ia) of the Income Tax, 196iwill not come into play. Thus the Ld. AO's contention does not hold good in the eye of law. Please also note that section 40a(ia) of the Income Tax Act, 1961 enumerates the word payable (and not paid) to contractors and/or sub-contractors. In the case of Merilyn Shipping & Transports, Visakhapatnam- Vs – ACIT (2012) 44 (II) ITCL, 454 (Visakha- Trib)(SB) it was held that the section only speaks on the amount payable on which tax is not deducted and therefore it should apply only if the amount is payable but once the amount has already been "payable' cannot be “paid” as well as “payable” because in the case of CIT-Vs-TVS Lean logistics Ltd. (2007) 293 ITR 432 (Mad) the Madras High Court held that where the words of a statute are absolutely clear and unambiguous, then rule of literal construction has to be followed and the court cannot enlarge the scope of legislation when the language of the provision is plain and unambiguous. For the sake of argument, even if it is assumed that the term “payable” means “paid” and “payable” , still the assessee must get relief because the Apex Court in the case of CIT-Vs-vegetable Products Ltd. (1973) 88 ITR 192 (SC) held that if the court finds that the language of taxing statute is ambiguous or capable of more meanings then one, then the court has to adopt the interpretation which favours the assessee, more particularly so where the provision relates to imposition of Tax. Thus the Ld. A.O has acted vindictively and added Rs.95,05,125.00 for reasons to him only and by any stretch of mind, it cannot be said to be a lawful act. The facts for the sake of ground -wise completion are being briefly stated again: 1) The appellant is a C&F Agent of the agent of Ultratech Cement Ltd who is manufacturer of cement. The assessee handles the cement from the railway rake point till it reaches the dealer's godown. So the assessee unloads the cement from the railway siding and forward the same by truck to the godown and the expense incurred for this activity is called the Primary Transportation and/ or Freight and such amount is reimbursed by the principal company. Then the assessee arranges delivery of the cement bags from the godown to the various dealers point by truck and the expense incurred for it is called the Secondary Freight Charges and this amount is reimbursed by the company as well and all such reimbursements are made in actual basis as per the prefixed rates. In the case of Secondary Freight Charges, the dealers pay to the truck drivers and then raise the bill and the assessee reimburses such money to the dealers on actual basis on behalf of the company as the principal company pays such reimbursement and the job of the assessee is only to facilitate such payment.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 7 • During the assessment proceedings, the AO observed that the appellant claimed Secondary Freight Charges in the profit a loss account amounting to 95,05,125.00 and during the hearing stage the assessee was asked to provide explanation as to why the claim of expenditure should not be disallowed to which the assessee responded vide letter dated 11/03/2013 contending that the said expenditure is reimbursement expenditure and the payments were not made to any contractor or sub contractor and the expenses are not in pursuance of the assessee's business but the assessee only acts as a C&F Agent and facilitated such payments on behalf of the company. The AO contended that section 194C speak of tax deduction by the person making payment and also the payments were made under some contract and added them to the total income of the assessee. Before me the appellant has submitted that the AO failed to consider the facts of the case. • He stated that the deduction of tax at source U/s 194C on Secondary Freight Charges is not necessary. This is because such Secondary Freight Charges paid to the tune of Rs. 95,05,125.001 - are reimbursement of expenses and it is not any expenses of the assessee but it is the expenses of the company for which the assessee firm acts as a C&F agent. That the assessee is a C&F agent of Ultratech Cement Ltd who is manufacturer of cement. The assessee handles the cement from the railway rake point till it reaches the dealer's godown. The assessee arranges delivery of the cement bags from the godown to the various dealers point by truck and the expense incurred for it is called the Secondary Freight and this amount is reimbursed by the company as well and all such reimbursements are made in actual basis as per the prefixed rates. In the case of Secondary Freight Charges, the dealers pay to the truck drivers and then raise the bill and the assessee reimburses such money to the dealers on actual basis on behalf of the company as the principal company pays such reimbursement and the job of the assessee is only to facilitate such payment. • The assessee also placed reliance on the ratio of the assessee's own case before the CIT(Appeals) - XXXII, Kolkata and ITAT, Kolkata C Bench for the A/Y 2008-09, where the assessee got relief based on the facts that liability to deduct tax at source u/s 194C would only arise when the payment is made under a contract, which is not true in this instant case as there is no finding by the AO that the impugned payments were made to a contractor or sub-contractor under some contract. Rather the facts of the case suggest that the impugned payments are made to the dealers of the company and not to any transporters.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 8 • There is nothing on record to suggest the existence of any contract between the assessee and the recipient of the impugned payment and such is denied by the assessee as well. I have carefully examined the issues at hand as well all the relevant material as listed above. The issue has been discussed at length in the preceding paragraphs. The fact is that it has been established that the appellant was under contractual obligation with the principal company to ensure the handling and delivery of cement to the dealers and the principals would reimburse the entire expenses on actual terms to the C&F agent - the appellant. The secondary freight and transport charges which were incurred were similarly reimbursed by the principals on actuals. In fact these figures have appeared in the P&L account of the appellant and not contested by the AD. The payments have been reimbursed by the principals as is evident from the Profit & Loss Account for the year under consideration, where the appellant has paid Rs.95,0:5.125.74 whereas it has received Rs. 95,04,703.55. The fact that at first the dealers paid for the freight and had it reimbursed by the appellant in turn to be reimbursed by the principals makes no difference to the fact that ultimately the reimbursement came from the principals and the proposition that if the appellant had been making payments on behalf of the principals - as it has been established they were - then there was no obligation on the appellant to deduct tax at source. In view of the discussions above, the said disallowance is therefore not upheld.” 3. We have considered Revenue’s instant grievance in light of relevant facts and circumstances narrated in the CIT(A)’s discussion.Too clinching aspects emerge from the same. The first and foremost one is that its identical appeal stands already rejected before this tribunal in assessment year 2008- 09 on the very issue (supra). It further evident that the impugned sum of C&F transportation charges is a case of reimbursement on principal to principal basis. The Revenue fails to rebut the same during the course of hearing before us. We therefore conclude that the CIT(A) has rightly deleted the impugned disallowance. 4. Next comes the Revenue’s latter substantive ground that CIT(A) has made in law as well as on facts in deleting secondary freight charges disallowance of ₹95,05,125/- with the following discussion: The facts for the sake of ground -wise completion are being briefly stated again: 1) The appellant is a C&F Agent of the agent of Ultratech Cement Ltd who is manufacturer of cement. The assessee handles the cement from the railway rake point till it reaches the dealer's godown. So the assessee unloads the cement from the railway siding and forward the same by truck to the godown and the expense incurred for this activity

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 9 is called the Primary Transportation and/ or Freight and such amount is reimbursed by the principal company. Then the assessee arranges delivery of the cement bags from the godown to the various dealers point by truck and the expense incurred for it is called the Secondary Freight Charges and this amount is reimbursed by the company as well and all such reimbursements are made in actual basis as per the prefixed rates. In the case of Secondary Freight Charges, the dealers pay to the truck drivers and then raise the bill and the assessee reimburses such money to the dealers on actual basis on behalf of the company as the principal company pays such reimbursement and the job of the assessee is only to facilitate such payment. • During the assessment proceedings, the AO observed that the appellant claimed Secondary Freight Charges in the profit a loss account amounting to 95,05,125.00 and during the hearing stage the assessee was asked to provide explanation as to why the claim of expenditure should not be disallowed to which the assessee responded vide letter dated 11/03/2013 contending that the said expenditure is reimbursement expenditure and the payments were not made to any contractor or sub contractor and the expenses are not in pursuance of the assessee's business but the assessee only acts as a C&F Agent and facilitated such payments on behalf of the company. The AO contended that section 194C speak of tax deduction by the person making payment and also the payments were made under some contract and added them to the total income of the assessee. Before me the appellant has submitted that the AO failed to consider the facts of the case. • He stated that the deduction of tax at source U/s 194C on Secondary Freight Charges is not necessary. This is because such Secondary Freight Charges paid to the tune of Rs. 95,05,125.001 - are reimbursement of expenses and it is not any expenses of the assessee but it is the expenses of the company for which the assessee firm acts as a C&F agent. That the assessee is a C&F agent of Ultratech Cement Ltd who is manufacturer of cement. The assessee handles the cement from the railway rake point till it reaches the dealer's godown. The assessee arranges delivery of the cement bags from the godown to the various dealers point by truck and the expense incurred for it is called the Secondary Freight and this amount is reimbursed by the company as well and all such reimbursements are made in actual basis as per the prefixed rates. In the case of Secondary Freight Charges, the dealers pay to the truck drivers and then raise the bill and the assessee reimburses such money to the dealers on actual basis on behalf of the company as the principal company pays such reimbursement and the job of the assessee is only to facilitate such payment. • The assessee also placed reliance on the ratio of the assessee's own case before the CIT(Appeals) - XXXII, Kolkata and ITAT, Kolkata C

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 10 Bench for the A/Y 2008-09, where the assessee got relief based on the facts that liability to deduct tax at source u/s 194C would only arise when the payment is made under a contract, which is not true in this instant case as there is no finding by the AO that the impugned payments were made to a contractor or sub-contractor under some contract. Rather the facts of the case suggest that the impugned payments are made to the dealers of the company and not to any transporters. • There is nothing on record to suggest the existence of any contract between the assessee and the recipient of the impugned payment and such is denied by the assessee as well. I have carefully examined the issues at hand as well all the relevant material as listed above. The issue has been discussed at length in the preceding paragraphs. The fact is that it has been established that the appellant was under contractual obligation with the principal company to ensure the handling and delivery of cement to the dealers and the principals would reimburse the entire expenses on actual terms to the C&F agent - the appellant. The secondary freight and transport charges which were incurred were similarly reimbursed by the principals on actuals. In fact these figures have appeared in the P&L account of the appellant and not contested by the AD. The payments have been reimbursed by the principals as is evident from the Profit & Loss Account for the year under consideration, where the appellant has paid Rs.95,0:5.125.74 whereas it has received Rs. 95,04,703.55. The fact that at first the dealers paid for the freight and had it reimbursed by the appellant in turn to be reimbursed by the principals makes no difference to the fact that ultimately the reimbursement came from the principals and the proposition that if the appellant had been making payments on behalf of the principals - as it has been established they were - then there was no obligation on the appellant to deduct tax at source. In view of the discussions above, the said disallowance is therefore not upheld.” We notice herein as well that the amount in question is a reimbursement on principal to principal basis as per assessee’s profit and loss account. The same has also gone unrebutted from Revenue’s side during the course of hearing wherein it has failed to dispute that assessee had first paid the dealers concerned followed by its reimbursement from the concerned principal. We thus decline Revenue’s instant substantive ground as well as its former appeal ITA No.1056/Kol/2016.

ITA No.1056 & 1418/Kol/2016 A.Ys 10-11 & 12-13 ITO Wd.1(2) Bwd. Vs. M/s Cemco Marketing Page 11 disallowance ₹1,47,59,499/- pertaining to secondary freight charges. Both learned representatives are very fair in informing us the issue is covered by our discussion in preceding assessment year upholding the CIT(A) similar findings. We thus reject Revenue’s instant latter appeal as well. 6. These two Revenue’s appeals are dismissed. Order pronounced in the open court 13/06/2018 Sd/- Sd/- (लेखा सद�य) (�या(यक सद�य) (Dr. A.L. Saini) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp, Sr.P.S )दनांकः- 13/06/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Cemco Marketing, Bhang khuti, G.T.Rd. Burdwan-713101 2. राज�व/Revenue-ITO Ward-1(2), Aayakar Bhawan, Court Compound, Burdwan-713101 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय �(त(न4ध, आयकर अपील�य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ4धकरण, कोलकाता ।