M/S. TAO PUBLISHING PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeals), Pune-5 dated 25.02.2016 for assessment year 2007-08.

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“DISALLOWANCE UNDER SECTION 40(a) OF THE ACT Rs. 5,60,269/-: 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax Appeals [hereinafter CIT(A)] erred in upholding the disallowance made by the learned AO of Rs. 5,60,269/- to M/s. Imperial Packers u/s.40(a) of the IT Act. The learned authorities failed to appreciate that this amount merely represented reimbursement of expenses, according to separate memos/bills clearly stated to be for reimbursement of expenses, and was not subject to deduction of tax at source at all. 2. Appellant craves leave to add/ amend/ alter the above grounds.”

income declaring total income of Rs. Nil. During assessment proceedings, the

Assessing Officer noted that the assessee-company incurred postage expenses

and the same is in the nature of a contract u/s. 194C of the Act. Further, the

Assessing Officer observed that the assessee- company failed to deduct TDS at

the time of making the payment. Therefore, the provisions of section 40(a) of

the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were invoked and

the Assessing Officer made addition of Rs.15,75,910/- u/s. 40(a) of the Act.

The recipients of the payment includes Osho International Foundation

(Rs.10,15,641/-) and M/s. Imperial Packers (Rs.5,60,269/-). During First

Appellate proceedings, the assessee submitted that payments in question

constitute reimbursement of expenditure and therefore, necessity of making

TDS do not exist. Eventually, the CIT(A) granted relief to the assessee to the

extent of addition made to M/s. Osho International Foundation. However, with

regard to addition made on account of M/s. Imperial Packers, the CIT(A)

confirmed the addition made by the Assessing Officer. The discussion given by

the CIT(A) in Para Nos. 4 and 5 are relevant in this regard.

above extracted grounds.

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run a Magazine named Osho Times magazine. The assessee reimbursed the

postage expenses amounting to Rs.15,75,910/-. Out of this, an amount Rs.

10,15,415/- was reimbursed to Osho International Foundation and Rs.

5,60,269/- reimbursed to M/s. Imperial Packers. For the purpose of circulation

of magazine named Osho Times magazine, the assessee used the services of

M/s. Imperial Packers who worked as Courier service provider. The assessee

paid Rs.5,60,269/- to the said organization for the purpose of postal expenses.

As in the case of Osho International Foundation, the assessee reimbursed the

said amount of Rs. 5,60,269/- to M/s. Imperial Packers towards the cost of

postal stamps affixed for mailing of the Osho Times Magazine. The assessee

submitted that the same constitutes reimbursement of postal expenses on

actual basis and hence, there is no element of income to assessee and relied on

the notings on the memos/bills raised by the parties. The assessee made

written submission in this regard dated 27.01.2016 which is extracted in Para

4.2 of the CIT(A)’s order. On considering the same, the CIT(A) granted relief to

the assessee so far as payment made by assessee to Osho International

Foundation relying on the order of CIT(A) for the assessment year 2005-06. The

Revenue did not file any appeal on the relief granted by the CIT(A) for both the

assessment years 2005-06 and 2007-08.

5.1 However, when it comes to payment made to the M/s. Imperial Packers,

the CIT(A) observed that the facts of payment made to M/s. Imperial Packers

are on different footing. The assessee argued that the payment made to M/s.

Imperial Packers is in the nature of postage expenses reimbursed to it and

there could be no element of income in reimbursement of expenses on actual

basis. The CIT(A) did not consider the argument of reimbursement to that

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extent considering the facts that M/s. Imperial Packers is engaged in the

business of packing, clearing and forwarding agents. According to him, the said

agent mails the magazines and books on behalf of the assessee-company and

payment received is towards the services rendered by it. The CIT(A) held that

the assessee failed to substantiate with evidence that the payment made to

M/s. Imperial Packers constitutes reimbursement of actual postage. From the

copies of invoices raised by M/s. Imperial Packers, the CIT(A) observed that the

company hired an agent for its mailing work and therefore, payment towards

the service is not reimbursement. The CIT(A) opined that the payment made to

M/s. Imperial Packers falls within the ambit of section 194C of the Act and

justified the decision of Assessing Officer invoking provisions of section 40(a) of

the Act. The contents of Para 4.2 are relevant in this regard.

made to M/s. Imperial Packers is exactly same to the one made by assessee to

Osho International Foundation. There is no question of attracting the section

194C of the Act for invoking provision of section 40(a) of the Act. Bringing our

attention to page 5 of the paper book, the Ld. Counsel submitted that there is

break up of postage expenses of Rs.5,60,269/- involved in the case of M/s.

Imperial Packers. Further, referring to page 6 of the paper book, the Ld.

Counsel contended that the invoice No. 321/A dated 04.12.2006 clearly

mentions that the said invoice constitutes a “Reimbursement bill of postage for

Osho Times for the month of December, 2006”. Further, referring to the note

provided with said invoice, the Ld. Counsel submitted that payment to M/s.

Imperial Packers does not warrant any TDS in view of the reimbursement

nature of the amount. Further he mentioned that the similar bills are raised

by M/s. Imperial Packers with a note that M/s. Imperial Packers has borne

5 ITA No.1140/PUN/2016 A.Y. 2007-08

expenditure on behalf of the party and accordingly, no TDS needs to be made

on this amount.

the orders of Assessing Officer/ CIT(A). As per Ld. DR , M/s. Imperial Packers

is engaged in packing and postages and the amount is received toward the said

services and not the reimbursement of expenses.

making TDS on the payment Rs.5,60,269/- made to M/s. Imperial Packers.

The case of the assessee on this issue is that it is a case of reimbursement by

Company to M/s. Imperial Packers as the expenses are borne already by the

M/s. Imperial Packers on behalf of the party. Non- requirement of making TDS

made by the Company as well as the Reimbursement nature of the bill-wise

clearly was also indicated on the face of cash invoice raised by M/s. Imperial

Packers. Further the Reimbursement bill for Osho International Foundation is

same in line with the reimbursement bill of M/s. Imperial Packers and both the

reimbursements are on accounts of postage expenses on actual usage.

invoking the provisions of section 194C of the Act which only mandates for

effecting TDS as per the contract norm. Considering clear mentioning of the

non requirement of effecting TDS, we are of the opinion that this is a case of

reimbursement by Company to M/s. Imperial Packers. This fact was not

appreciated by the CIT(A) at the time of deciding the issue against the assessee.

Therefore, we find the submission made by assessee is fair and reasonable and

hence, ground raised by assessee is to be allowed.

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In the result, appeal of the assessee is allowed. 10.

Order pronounced on Wednesday, the 23rd day of May, 2018.

Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 23rd May, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-5, Pune. 4. The Addl. CIT, Range-7, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.