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Income Tax Appellate Tribunal, “B” BENCH, PUNE
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.
The assessee has raised following grounds in appeal:
2 ITA No.1140/PUN/2016 A.Y. 2007-08
“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.”
Briefly stated relevant facts includes that the assessee filed return of
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.
Aggrieved with the order of CIT(A), assessee is in appeal before us raising
above extracted grounds.
3 ITA No.1140/PUN/2016 A.Y. 2007-08
Relevant facts pertains to the addition of Rs. 5,60,269/-. The assessee
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
4 ITA No.1140/PUN/2016 A.Y. 2007-08
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.
Before us, the Ld. Counsel for the assessee submitted that payment
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.
On the other hand, the Ld. DR for the Revenue placed reliance heavily on
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.
We have heard both the parties on the limited issue of requirement of
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.
Considering the same, we are of the opinion that there is no case for
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.
6 ITA No.1140/PUN/2016 A.Y. 2007-08
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.