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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
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)-XX, Kolkata dated 18.02.2014. Assessment was framed by ITO Ward- 36(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 16.12.2010 for assessment year 2008-09. Shri Manish Tiwari, Ld. Authorized Representative appeared on behalf of assessee and Md. Ghyas Uddin, Ld. Departmental Representative represented on behalf of Revenue. 2. First issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹16,07,830/- on account of non deduction of Tax Deducted at Source (TDS for short) u/s 194C vis-à-vis 40(a)(ia) of the Act. 3. Briefly stated facts are that assessee is an individual and engaged in trading business of fabric and aluminum panel sheets. During the course of assessment A.Y. 2008-09 Mrs. Sarla Bhaiya Vs. ITO Wd-36(3) Kol. Page 2 proceedings, AO observed that assessee has claimed ‘clearing charges’ for ₹17,08,432/-. Out of this said expense TDS was deducted only in respect of the payment of ₹1,00,602/ and the balance payment was made without deduction of TDS. On question by AO about such disallowance of said expense the assessee submitted that the balance clearing charges represent the reimbursement of the expense and on reimbursement there is no need to deduct the TDs. The assessee in support her claim has relied on the order of ITAT Delhi Bench in the case of ITO vs. Dr. Willmar Schwabe India Pvt. Ltd. (2005) 3 SOT 71. However, AO disregarded the claim of assessee by observing that the aforesaid decision was delivered under the provision of Sec. 194J of the Act and the instant case relates to the provision of Sec. 194C of the Act. Accordingly, AO disallowed the claim of assessee 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 the aforesaid clearing charges are representing reimbursement of expense and therefore such expenses are out of the purview of TDS provision. However, Ld. CIT(A) disregarded the claim of assessee and confirmed the order of AO by observing as under:- “4.2 I have perused the assessment order and considered the submission of the appellant. The fact of the case is that the appellant made payments of Rs.17,08,432/- on account of clearing charges to Shipping Agents, however, tax was deducted only on the amount of Rs.1,00,602/-. But on the balance amount of Rs.16,07,830/-, no tax was deducted, therefore, the AO invoked section 40(a)(ia) and made addition accordingly. However, the appellant submitted that the said amount pertained to reimbursement of expenses incurred by them on behalf of the appellant, no tax was deductible on the expenses reimbursed to the clearing and forwarding agents. After going through the facts and circumstances of the case, I find that in view of the CBDT’s Circular in this regard, tax was required to be deducted on the gross amount in the case of clearing and forwarding agents, therefore, the AO was justified to make addition u/s. 40(a)(ia) of the IT Act.”
Being aggrieved by this, assessee came in second appeal before us.
Before us Ld. AR for the assessee reiterated the arguments that were made before the Ld. CIT(A). On the other hand Ld. DR submitted that there is no evidence whether the clearing charges represent reimbursement of expense. The ld. DR requested the Bench to restore the matter to the file of Assessing Officer for fresh adjudication to ascertain A.Y. 2008-09 Mrs. Sarla Bhaiya Vs. ITO Wd-36(3) Kol. Page 3 whether the clearing charges are reimbursement of expenses. He left the issue to the discretion of the Bench.
We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that AO has disallowed the clearing charges on the ground that TDS was not deducted and which was subsequently confirmed by Ld. CIT(A) . However, on perusal of the order of AO we find that assessee has made a submission that aforesaid clearing charges are representing the reimbursement of expenses as evident as under:- “The A/R explained that the Hon'ble ITAT, Delhi Bench in the case of ITO Vs. Dr. Willmar Schwabe India Pvt. Ltd. (2005) 3 SOT 71 has decided that if a separate bills given for reimbursement of out of pocket expenditure, is not subject to tax deduction. He has also placed reliance upon the judgement of the Hon'ble ITAT, Delhi Bench in the case of ACIT Vs. Modicon Network Pvt. Ltd. (2008-TIOL-473-ITAT-DEl) and circular no. 4/2008 of the CBDT.”
However, the AO without adjudicating the submission of assessee has disregarded the plea of assessee by observing as under:- “the explanation of the assessee has been duly considered the jdgement in the case of ITO Vs. Dr. Willmar Schwabe India Pvt. Ltd was passed in respect of payment attracting provisions of section 194J and not 194C. Therefore, the ratio of the said judgement is not applicable in the instant case. Similarly, the decision impugned order Modicon Network Pvt. Lt., was given on a different issue. Moreover, in circular no 4/2008 dated 28.4.2008, the Board has given clarification on deduction of TDS on service tax component of rental under section 194I. Therefore, the contents of this circular have also no application in the present case.”
Similarly, on perusal of the order of Ld. CIT(A) we find that Ld. CIT(A) has disregarded the plea of assessee without adducing any reason on assessee’s submission. In view of the above, we find that claim of assessee has not been adjudicated by Authorities Below in-spite of specific submission on the issue made by assessee. Therefore, in the aforesaid facts and circumstances of the case, we conclude that aforesaid expenses are nothing but reimbursement of expense which is not subject to TDS. In holding so, we rely on the following case:- a) ITO vs. Dr. Willmar Schwbe India Pvt. Ltd. (2005) 3 SOT 71 b) ACIT vs. Modicon Network Pvt. Ltd. (2008-TIOL-473-ITAT-DEL)
ITA No.1335/Kol/2014 A.Y. 2008-09 Mrs. Sarla Bhaiya Vs. ITO Wd-36(3) Kol. Page 4 In this view of the matter, we have no hesitation in reversing the order of Authorities Below and direct the AO to delete the addition. Hence, this ground of assessee’s appeal is allowed.
Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the disallowance made by AO for ₹3,89,337/- on account of interest expense.
The assessee in the year under consideration has prepared two profit and loss accounts (i) for its proprietary concern and (ii) for her individual capacity. The assessee has claimed interest expense in her personal profit and loss account for ₹4,78,663/-. The AO during the course of assessment proceedings observed that assessee in her personal capacity has shown the following income:- i) Business income for ₹6,09,476; ii) Interest on loan for ₹91,207; iii) Dividend income of ₹19,933/-; iv) Interest on loan for ₹1,187/- v) Income from UTI for ₹5,636/-; vi) Mis. Income for ₹6,998/- vii) Interest of PPF for ₹45,369/-; viii) Interest on saving account for ₹121/- The Assessing Officer also observed that assessee has utilized substantial portion of unsecured loan towards investment in jewellery, flat, land property, PPF and share investment. As such, the unsecured loan was not utilized for any taxable income of the assessee. Accordingly, the AO disallowed the interest expense after giving relief up to the amount of income earned by assessee during the year under consideration i.e. interest income of ₹91,207/- miscellaneous income for ₹6,998/- and interest of saving account for ₹121/-. The AO disallowed a sum of ₹3,80,337/- (478663 – 98326) and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- “7.2 The fact of the case is that the AO found that the appellant claimed to have paid interest on borrowed fund. However, he further found that the loan funds on which interest was paid includes payment of personal loan also which was not utilized for A.Y. 2008-09 Mrs. Sarla Bhaiya Vs. ITO Wd-36(3) Kol. Page 5 the purpose of business. After careful consideration of the facts and circumstances of the assessee and submission of the appellant, I find that the appellant could not controvert the finding of the AO with the supporting details/documents. Therefore, I find no infirmity in the A O's order in this regard.”
Being aggrieved by this, assessee came in second appeal before us.