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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI G.S. PANNU, HONBLE & SHRI C.N. PRASAD, HONBLE
ITA.No.760/MUM/2016 “1. On the facts and circumstances of the case the Ld.CIT(A) erred in directing to delete the disallowance of ₹.3,00,19,647/- (u/s 40(a)(ia) merely on the ground that on the identical issue the Hon'ble IT,AT Mumbai, in ITA.No.1756/MUM/2011 and ITA.No.2300/MUM/2011 dated 24.07.2015 for the Assessment Year 2007-08 held that the assessee was not liable for deduction of tax u/s 194C as in the immediately preceding Assessment Year the assessee was not liable to get his Books of Accounts audited u/s 44AB of the I.T. Act without appreciation the fact that the Hon'ble ITAT has not decided the issue on merit.
2. On the facts and circumstances of the case the Ld.CIT(A) erred in directing to delete the disallowance of ₹.3,00,19,647/- u/s 40(a)(ia) without appreciation the fact that the assessee was liable for getting the Books of Accounts audit u/s 44AB of the Act as in the reimbursement of expenses did for the part of gross receipts exceeding ₹.40,00,000/- as borne out by the Assessing Officer in the order u/s 143(3) r.w.s. 147 of the I.T Act.”
ITA.No.761/MUM/2016 “1. On the facts and circumstances of the case the Ld.CIT(A) erred in directing to delete the disallowance of ₹.2,96,69,595/- u/s 40(a)(ia) merely on the ground that on the identical issue the Hon'ble IT,AT Mumbai, in ITA.No.1756/MUM/2011 and ITA.No.2300/MUM/2011 dated 24.07.2015 for the Assessment Year 2007-08 held that the assessee was not liable for deduction of tax u/s 194C as in the immediately preceding Assessment Year the assessee was not liable to get his Books of Accounts audited u/s 44AB of the I.T. Act without appreciation the fact that the Hon'ble ITAT has not decided the issue on merit.
2. On the facts and circumstances of the case the Ld.CIT(A) erred in directing to delete the disallowance of ₹.2,96,69,595/- u/s 40(a)(ia) without appreciation the fact that the assessee was 3 ITA.No.760 & 761/MUM/2016) Vijay S Poojari liable for getting the Books of Accounts audit u/s 44AB of the Act as in the reimbursement of expenses did for the part of gross receipts exceeding ₹.40,00,000/- as borne out by the Assessing Officer in the order u/s 143(3) r.w.s. 147 of the I.T Act.”
At the outset, we noticed from the records that identical issue came up before the Coordinate Bench in ITA.No.1756/Mum/2011 for the Assessment Year 2007-08 and the Coordinate Bench by order dated 24.07.2015 deleted the disallowance made u/s 40(a)(ia) for non-deduction of TDS u/s 194C in respect of reimbursement of expenses. Copy of the order is placed on record.
The Ld. DR supported the orders of the Assessing Officer.
4. On a careful perusal of the orders of the lower authorities and the Coordinate Bench decision in assessee’s own case, we find that the Assessing Officer disallowed expenses incurred by the assessee on behalf of his clients as liable for TDS u/s 194C of the Act and since assessee did not deduct TDS on various payments such as agency charges, Steam freight charges, Terminal and handling charges, Transport charges and Documentation charges incurred by the assessee on behalf of its clients, the Assessing Officer treated the assessee as a defaulter u/s 194C and disallowed the said expenses by invoking the provisions of section 40(a)(ia) of the Act. The contention of the assessee 4 ITA.No.760 & 761/MUM/2016) Vijay S Poojari was all these expenses were reimbursed by the clients and therefore cannot be subjected to TDS provision.
5. The Ld.CIT(A) considered the submissions of the assessee and by following the Coordinate Bench of this Tribunal deleted the disallowance observing as under: - “8. Ground No.3, 4 and 5 filed by the appellant are considered together. These three grounds relate to the invocation of Section 194C on the payment of various charges to many parties for and on behalf of appellant's clients. The Assessing Officer noticed that the appellant had been paying substantial amounts such as steamer freight, technical and handling charges, documentation charges, transportation charges and other miscellaneous charges for and on behalf of the appellant's clients. The appellant was requested to furnish party-wise details of these expenses and also details of TDS, if any, which had been deducted. The appellant replied that he was only a mere intermediary between shipping lines and its customers. His job is to facilitate the carriage of goods and services for and on behalf of customers. His remuneration is only of agency commission. The expenses reimbursed by the customers do not form part of his income, and therefore, this cannot be considered as his sales or turnover. The appellant has also relied on the following decisions to support his stand. (1) DCIT 72 Mumbai vs. M/s. Rank Shipping Agency Pvt.Ltd. (ITAT Mumbai) (2) Rolls Royce India Vs. ITO (ITAT Delhi) (3) CIT Vs. Dunlop Co.Ltd, (142 ITR 493) 9. The appellant also relied on the Circular No.452 to support its claim the commission agents do not include the sales effected on behalf of the principals. The Assessing Officer did not find the submission of the appellant acceptable. The Assessing Officer felt that the turnover should include the reimbursement of expenses from his clients. According to him, the payments made 5 ITA.No.760 & 761/MUM/2016) Vijay S Poojari to the appellant were contractual payments and the appellant according to his convenience passes on the same to other parties based on sub-contracts. On perusal of the bills which have been raised on his clients, it was noticed by the Assessing Officer that it includes receipted items like steamer freight, technical handling charges etc and also, other non-receipted items. In fact, the accounts between the appellant’s as well as his clients shows regular receipts and payments and the closing balance appear in the balance sheet of the appellant. The mode of business of the appellant does not support his contention that he was only earning commission income. This is borne out by the fact that the bills raised on his clients include; items which are on reimbursement basis was well as items which are not on reimbursement basis. In view of the above, the Assessing Officer came to the conclusion that the appellant was duty bound to deduct tax on the payments made to various entities and failure on the part of the appellant would result in the application of section 40(a)(ia).
The appellant in his submission has stated that he receives only commission as income. He incurs various expenditure which are reimbursed to him by his clients. It can be seen that he had charged service tax only on the amount of commission earned and not on the expenses reimbursed. According to Circular 119/30/2009 dated 21.12.2009, taxable service shall not include amount incurred on behalf of the customer. The job of the appellant is to facilitate the transfer of goods belonging to exporters and he receives remuneration by way of commission for rendering services for clearance of goods and articles, preparation of custom documents etc. As the appellant is an individual, he is not liable to tax audit u/s. 44AB. The provisions of section 194C are not applicable. He has also relied on following case laws to support his stand that reimbursement of expenses are not income and therefore not taxable. (1) CIT Vs. Siemens (310 ITR 320 Bom) (2) CIT Vs. Industrial Engineering Projects Pvt. Ltd. (202 ITR 1004 Del) (3) CIT Vs. Dunlop Rubber Co.Ltd. (142 ITR 493 (Cal) (4) Mahindra 86 Mahindra (313 ITR) (SB)(Mum)
6 ITA.No.760 & 761/MUM/2016) Vijay S Poojari 11. It is also stated by the appellant that the Hon'ble Delhi High Court in CIT Vs Cargo Linkers (218 CTR 695) has held that C & F agent is only an intermediary, and therefore, is not a person responsible for deduction u/s. 194C.
I have carefully considered the submission of the appellant. The Hon'ble ITAT F. Bench, Mumbai, in appellant's own case for the A.Y.2007-08 in 86 ITA No.2300/Mum/2011 by order dated 24.07.2015 has held that the appellant was not liable for deduction of tax u/s. 194C and therefore, disallowance u/s.40(a)(ia) cannot be made. According to the Hon'ble ITAT, the provisions of section 194C, as it stood prior to 1.6.2008 provided that in the case of individual or HUF whose total sales, gross receipts or turnover from business or profession does not exceed monetary limits specified u/s. 44AB during the immediate proceeding the finance year in which such sums are credited or paid, then he is not liable to deduct Income tax u/s. 194C. In fact, the Hon'ble ITAT while dealing with the departments grounds relating to the non deduction of tax u/s. 194C on reimbursement of expense had dismissed the case stating that these were not liable for deduction u/s. 194C. As the facts leading to the disallowance u/s. 40(a)(ia) for the year under consideration are exactly on similar lines as for year A.Y.2007- 08, I hold that the disallowance made by the Assessing Officer is not warranted and is therefore, the appeal on these grounds are allowed.”
Further we also find that the Coordinate Bench in assessee’s own case in ITA.No. 1756/Mum/2011 for the Assessment Year 2007-08 held as under: - “3. The brief facts are that the assessee is a proprietor of M/s Srinivas Clearing & Shipping Agency and is engaged in the business of undertaking Clearing and Forwarding Agent providing services to customers for facilitating import/export of goods by sea as well as for related services. The Assessing Officer noted that the assessee has not deducted tax on the payments shown under the head "commission and freight income", which the assessee was liable to deduct u/s 194C. The assessee's case was that it has received total amount of Rs. 4,98,78,202/- out of which Rs.
7 ITA.No.760 & 761/MUM/2016) Vijay S Poojari 4,60,21,743/- was received towards expenses incurred on behalf of customers, which has been considered as reimbursement of expenditure. The assessee had shown a profit of Rs. 35,25,576/- as agency charges (sale) along with Rs. 3,30,883/- as freight charges. However, the Assessing Officer held that the assessee was liable to deduct TDS u/s 194C and, therefore, he disallowed the payment u/s 40(a)(ia). Similarly, he made disallowance on account of amount paid and claimed as expenditure under the head "freight charges" "termination and handling and documentation expenses", which were actually reimbursement of expenses. The Ld. CIT(A) has partly allowed the said expenses after detailed discussion.
However, before us, the main plea of the Ld. Counsel is that the provisions of section 194C is not applicable in the case of the assessee because, the assessee's receipts in the earlier year was below the audit report as prescribed under section 44AB and, therefore, there was no liability to deduct TDS and consequently no disallowance can be made in the hands of the assessee under section 40(a)(ia). Further in case of assessee in the earlier year Tribunal while dealing with the issue of penalty u/s 271B in dated 02.12.2014 have analyzed this issue and held that amount of reimbursement received by the assessee is not part of the total turnover. Similar is the position in this year also.
After hearing both the parties, we find that the preliminary argument raised by the Ld. Counsel appears to be correct, because the provisions of section 194C as it stood prior to 01.06.2008 provided that in case of individual or HUF whose total sales, gross receipts or turnover from business or profession does not exist monetary limits specified under section 44AB during the financial year immediately preceding the financial year in which such sums is credited or paid then he has no liability to deduct income tax under section 194C(2). In this case, it is has not been rebutted that assessee's turnover in the immediately preceding financial year had not exceeded monetary limit specified u/s 44AB and this fact also gets strengthen by the order of the Tribunal as relied by the Ld. Counsel. Accordingly, the assessee was not liable to deduct TDS, therefore, no disallowance u/s 40(a)(ia) can be made. Thus Ground no. 1, as raised by the assessee is allowed.”
8 ITA.No.760 & 761/MUM/2016) Vijay S Poojari 7. Following the said decision of the Coordinate Bench we uphold the order of the Ld.CIT(A) in holding that assessee is not liable to deduct on reimbursement of expenses.
In the result appeals of the Revenue are dismissed.
Order pronounced in the open court on the 13th September, 2017.