Shikha Distributors (P) Ltd… vs ITO | ITAT Kolkata 2017

Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA

Before: Shri N.V.Vasudevan & Shri Waseem Ahmed

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:-

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 11.02.2014. Assessment was framed by ITO Ward-10(3), Kolkata u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2010 for assessment year 2006-07. Shri Subash Agarwal, Ld. Advocate appeared on behalf of assessee and Shri Rajat Kumar Kureel, Ld. Departmental Representative represented on behalf of Revenue.

Ground No.1 to 4 are inter-related and therefore being taken up together to pass a consolidate order.

A.Y 2006-07 Shikha Distributors (P) Ltd. Vs. ITO Wd-10(3) Kol. Page 2 The issue raised by assessee is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹24,35,564/- on account of short reporting of income.

Briefly stated facts are that assessee, a private limited company is a C & F agent of Cipla Ltd. The assessee on behalf of Cipla Ltd. is receiving goods, storing and distributing the goods and earning income from such activities. The assessee in the year under consideration has declared total gross receipts for ₹1,40,07,155/-. However, it was observed by the AO from the Tax Deducted at Source (TDS) certificate that TDS was deducted by Cipla Ltd. at ₹ 1,64,42,719/- only. Thus, AO observed the difference between total gross receipt shown by the assessee and Cipla Ltd., for ₹24,35,564/-. The AO called upon the assessee to clarify the difference of ₹24,35,564/- as discussed above. In compliance thereto, assessee submitted that there was reimbursement of expenses for ₹11,03,562/- and service tax of ₹14,28,730/- which was received from Cipla Ltd and on the same amount the Cipla Ltd. has also deducted TDS though the Cipla Ltd was not liable to deduct TDS from the amount of reimbursement and service tax. Therefore, the impugned difference on account of TDS has arisen in the income declared by the assessee and the income observed by the AO. However, AO after perusal of the agreement between assessee-company and Cipla Ltd. observed that the reimbursement expense by Cipla Ltd. will be over and above the commission on sales. The assessee in support of its claim also submitted a certificate in the name of Cipla Ltd showing that TDS was deducted on reimbursement amount and service tax amount as well. However, AO disregarded the contention of the assessee by observing that the name and designation of the signing authority on the certificate was not mentioned. Finally, AO treated the amount of ₹24,35,564/- as undisclosed income and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that Cipla Ltd., has reimbursed a sum of ₹11,03,562/- on which the TDS was deducted by Cipla Ltd. The assessee A.Y 2006-07 Shikha Distributors (P) Ltd. Vs. ITO Wd-10(3) Kol. Page 3 further submitted that balance amount of ₹14,28,730/- was representing the service tax on which also Cipla Ltd. deducted the TDS. As such, Cipla Ltd was not liable to deduct the TDS on the aforesaid amount. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “I have carefully considered the submissions put forward on behalf of the appellant along with the supporting documents/details furnished, perused the fact of the case including the findings of the AO both in the assessment order as well as in remand report, the counter reply and other materials brought on record. The crux of the explanation provided by the appellant was similar to that provided before the Assessing Officer. The appellant explained that it was entitled to received reimbursement of various expenses incurred by it on behalf of CIPLA and it received an amount of Rs.11,03,562/ on reimbursement of expenses on which CIPLA deducted tax at source. The appellant also submitted that it was charging service tax of the bills and CIPLA educed tax on service tax of Rs.14,28,730/- which was routed through the Balance Sheet. However, after going through the entire facts of the case, I am unable to agree with the submissions of the appellant. The certificate of CIPLA does not clarify the position either. The appellant has not shown the expenditure incurred against which the reimbursement of the expenses were made. The main issue of proving the expenditure incurred by appellant on behalf of CIPLA for which CIPLA has reimbursed the expenses has not been proved and explained by appellant. What was the quantum of expenditure, details of payments made thereof, how such payments were reimbursed from CIPLA was not explained by appellant and the appellant remained silence on this point. Proving of this aspect is important to justify the claim of the appellant that the reimbursement implies that actual expenditure incurred/made on behalf of CIPLA is received which is to be adjusted with the expenses and therefore there is no question of any income on account of reimbursement. Even as per agreement with CIPLA, it is seen that there is only mentioning of commission payments. No tax is required to be deducted by the payer on reimbursement of expenses to the payee and therefore the contention of the appellant that it has received reimbursement of expenses in the garb of commission cannot be accepted. The TDS certificate clearly show that tax was deducted at source u/s. 194H on commission payments by CIPLA and the appellant cannot divert the issue by not reflecting the entire commission by taking the plea of reimbursement. If at all, any reimbursement has been made, it is for the expenses incurred by appellant which is separate and not part of the actual commission received as certified from the TDS certificates filed CIPLA to the appellant and here the appellant has also claimed the entire TDS. Therefore the addition of Rs.11,03,562/- made by the Assessing Officer stands confirmed. The appellant’s further contention the tax was deducted on service tax element has also not been substantiate by the appellant, Bills were not shown and the entire accounts were not explained as to the method of treatment of service tax. Furthermore, what is the method by which service tax is paid and A.Y 2006-07 Shikha Distributors (P) Ltd. Vs. ITO Wd-10(3) Kol. Page 4 deposited was also not explained. The service tax component should form part of the income of the appellant and the payments can be allowed u/s. 43B of the IT Act. In the absence of the details of service tax element in the commission bills, I am of the view that the Assessing Officer is justified in making the addition of Rs.14,28,730/- on this account and hence, the same is also confirmed. Thus, this ground of appeal is dismissed.”

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following grounds:- “

1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of Rs.24,35,564/- made by the AO on account of the alleged difference between the total receipts as per TDS certificates and the gross receipts disclosed in the Profit & Loss Account.

2. For that the Ld. CIT failed to appreciate that a sum of Rs.11,03,562/- was received by the assessee towards reimbursement of expenses on which TDS was deducted by the payer but the same cannot be considered as income of the assessee.

3. For that the Ld. CIT failed to appreciate that out of total receipts, a sum of Rs.14,28,730/- was relating to service tax component on which TDs was deducted by the payer but the same cannot be considered as the income of the assessee.

4. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”

5. Ld. AR for the assessee filed paper book which is running pages from 1 to 40 and submitted that Cipla Ltd. has confirmed the amount of commission paid to the assessee in response to the notice issued u/s. 133(6) of the Act. The Ld. AR drew our attention on pages 22 and 23 of the paper book where the reply of the assessee u/s. 133(6) of the Act was placed. He reiterated the same submissions as were made before Ld. CIT(A). On the other hand, Ld. DR vehemently relied on the order of Authorities Below.

We have heard the rival contentions of both the parties and perused the materials available on record and perused the order of Authorities Below. We find that there is no dispute with regard to the facts of the case therefore, the same are not repeated here for the sake of brevity. At the outset, we find that the reimbursement of expense has been shown by the assessee in its income as reimbursement of expenses for ₹11,03,562/- as evident from the profit and loss account placed on page 6 of the paper book. Therefore, we find that the A.Y 2006-07 Shikha Distributors (P) Ltd. Vs. ITO Wd-10(3) Kol. Page 5 observation of Authorities Below that assessee has not shown reimbursement of expense in the income is factually incorrect. Therefore we reverse the order of Ld. CIT(A) in this regard and direct the AO to delete the addition. 6.1 Now, coming to the addition made by Authorities Below on account of service tax of ₹14,28,730/-, in this regard, we find that Cipla Ltd. has duly furnished its confirmation by stating that TDS was deducted on the amount of service tax. The confirmation of Cipla Ltd. is placed on pages 24 and 25 of the paper book. Besides the above the Authorities Below have not brought any defect in the books of account of assessee. Had there been undisclosed income of the assessee then same could have been ascertained from the ledger copies of Cipla Ltd. As such, we find that the addition has been made by Authorities Below on surmise and conjecture. In rejoinder Ld. DR has also not brought anything on record contrary to the arguments placed by Ld. AR. In this view of this matter we reverse the order of Ld. CIT(A) and directed the AO to delete the addition. Hence, this ground of assessee is allowed. 7. In the result, assessee’s appeal stands allowed. Order pronounced in the open court 02/06/2017

SHIKHA DISTRIBUTORS (P) LTD.,KOLKATA vs. ITO, WD-10(3), KOLKATA, KOLKATA