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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI RAVISH SOOD
सुनवाई की तायीख / Date of Hearing : 19.9.2016 घोषणा की तायीख /Date of Pronouncement : 28.09.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM: There are four appeals under consideration involving the cross appeals for the assessment years 2008-09 and 2009-2010. Since, the issues raised in these appeals are inter-connected / identical, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paras of this order. I. Cross appeals for the AY 2008-2009 2. This appeal filed by the assessee on 7.12.2011 is against the order of the CIT (A)-33, Mumbai dated 30.9.2011 for the assessment year 2008-2009. In this appeal, assessee raised the following grounds which read as under:- “1. On the facts and in the circumstances of the case and in law, the Ld CIT 9A) erred in confirming the action of the AO in holding that the reimbursement of expenses received by the appellant constituted appellant‟s turnover.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in dismissing the ground of appeal pertaining to disallowance made u/s 40(a)(ia) of the Act.
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in sustaining the disallowance to the extent of 10% of the Telephone expenses incurred during the course of carrying on of the business.
4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in sustaining the disallowance to the extent of 10% of the Mobile Telephone expenses incurred during the course of carrying on of the business.
5. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in sustaining the disallowance to the extent of 10% of the travelling expenses incurred during the course of carrying on of the business.”
3. Briefly stated relevant facts of the case are that the assessee is a „Cargo Clearing & Forwarding agent‟ in the name of a proprietorship concern named M/s. Max Shipping Agencies. Assessee filed the return of income declaring the total income of Rs. 8,12,850/-. Assessment was completed u/s 143(3) of the Act and the assessed income was determined at Rs.1,00,19,527/-. In the assessment, AO made disallowance u/s 40(a)(ia) of the Act in respect of the payments on accounts of CWC charges (rent); Examination Expenditure; Forwarding Agent Expenses; Commission and Brokerage expenses and Consultancy Charges. Assessee made payment of Rs. 91,49,234/- and failed to effect TDS. Accordingly, AO made addition in the assessment. Aggrieved, assessee carried the matte in appeal before the first appellate authority.
4. During the proceedings before the first appellate authority, assessee submitted that the said amounts are basically reimbursements and such reimbursements should not be considered not only for the purpose of turnover determination but also for the purpose of TDS. As per the assessee, there is no income angle in such reimbursements. Before the CIT (A) assessee took a plea that the TDS provisions do not apply to the case of the assessee who happened to be an individual and that too in respect of these expenses which are reimbursements in nature. These reimbursements should not be included for the purpose of turnover and relied on the decision of the Tribunal in the case of Shri Anand D. Tambe vs. ITO (ITA No. 3379/M/2000, dated 27.1.2004). He argued that the said decision of the Tribunal consequently applicable to the facts of the present case. Therefore, he prayed for exclusion of the said amounts for the purpose of turnover as well as for the purpose of section 40(a)(ia) of the Act. After considering the submission of the assessee, CIT (A) dismissed the appeal of the assessee as per the discussion given in para 5.2 of his order. Aggrieved, assessee filed the present appeal before the Tribunal.
During the proceedings before us, Ld Counsel for the assessee submitted that the CIT (A) has not property appreciated the facts of the case and not followed the precedents cited by the assessee before him. He fairly submitted that Ground no.1 and 2 are required to be re-adjudicated by the AO and seeks an opportunity for want of proper appreciation of the facts and the settled legal propositions.
After hearing both the parties, we find, the issue of inclusion of reimbursements for the purpose of turnover calculations as well as for the purpose of attracting the provisions of section 40(a)(ia) of the Act, is now settled legally. The reimbursements are outside the scope of the provisions. Considering the prayer of the Ld Counsel for the assessee, we are of the opinion Ground no.1 and 2 should be remanded to the file of the AO for fresh adjudication of the issues raised in the said grounds. We order accordingly and direct the AO to adjudicate the issues afresh after granting a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Thus, Ground nos. 1 and 2 are allowed for statistical purposes.
In connection with Ground no.3 (relating to the Telephone expenses); Ground no.4 (relating to Mobile Telephone expenses) and Ground no.5 (relating to Travelling Expenses), Ld Counsel for the assessee submitted that the Bench may consider these issues and restrict the disallowance to the minimum possible.
However, Ld Counsel for the assessee is of the opinion that whole of these Telephone, Mobile and Travelling Expenses were incurred for the purpose of the business and they are fully allowable. Further, Ld Counsel for the assessee submitted that the CIT (A) has erred in restricting the disallowance uniformly to 10% of the said expenses in the P&L Account. In this regard, we have perused the paras 6 and 6.1 of the CIT (A)‟s order and find, the AO disallowed 20% of the Telephone / Mobile expenses and 10% of the Travelling Expenses and CIT (A) uniformly restricted to 10% in all the three heads of expenses. Considering the same, we find it relevant to extract the para 6.1 of the CIT (A)‟s order and the same reads as under:- “6.1. During the appellate proceedings, the appellant has not argued on this and has also not furnished any submissions for the same though orally it has been argued that the disallowances are on higher side ie 20% for telephone and mobile and 10% for travelling expenses. I have considered the same and I find that disallowances of expenses under the heads telephone and mobile for personal element have to be made. However, the disallowances are restricted to 10% under these heads. Again for travelling expenses, as there is no log book maintained some disallowance are called for. Since, they are made at 10% only, I have no reason to interfere with the same. Accordingly, ground no.4 is partly allowed.”
Considering the above, we are of the opinion, the conclusions drawn by the CIT (A) in the above extracted para are fair and reasonable and it does not call for any interference. Accordingly, Grounds no.3, 4 and 5 raised by the assessee are dismissed.
In the result, appeal of the assessee is partly allowed for statistical purposes.
This appeal filed by the Revenue on 25.11.2011 is against the order of the CIT (A)-33, Mumbai dated 30.9.2011 for the assessment year 2008-2009. In this appeal, Revenue raised the following grounds which read as under:-
“1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred by holding that disallowance of expenses of Rs. 88,44,970/- made by the AO u/s 40(a)(ia) do not attract the provisions of section 194 as the same are reimbursement of expenses.
Once the reimbursement of expenses is included in the part of sales turnover and not distinguishable from bills raised by assessee and the corresponding TDS benefit is available by the assessee, it is not open for the assessee to argue that the provisions of section 40(a)(ia) of the Act are not applicable especially when such expenses are debited to P&L Account.”
In the above grounds, Revenue raised the issues relating to applicability of the provisions of section 40(a)(ia) r.w. section 194 of the Act. In our opinion, these issues are already remanded by us while dealing with the grounds of the assessee‟s appeal in the above paragraphs of this order. We are aware of the fact that the Revenue is aggrieved with the relief granted by the CIT (A) so far as the clear reimbursements are concerned. CIT (A) confirmed such expenditure which are in the nature of „reimbursements‟ that are figuring in the composite bills. Considering the fact that there is no income on the reimbursements, we are of the opinion that the order of the CIT (A) on this issue is fair and reasonable and it does not call for any interference. There is no need for effecting TDS on the amounts which are paid by the assessee and are in the nature of reimbursements. Accordingly, grounds raised
by the Revenue are dismissed.
12. In the result, appeal of the Revenue is dismissed. II. Cross appeals for the AY 2009-2010
13. This appeal filed by the Revenue 19.12.2012 is against the order of the CIT (A)-33, Mumbai dated 30.10.2012 for the assessment year 2009-2010. In this appeal, Revenue raised the following grounds which read as under:- “1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that disallowance of expenses of Rs. 54,98,808/- made by the AO u/s 40(a)(ia) do not attract the provisions of section 194 as the same are reimbursement of expenses.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in allowing the assessee appeal without considering the fact that once the reimbursement of expenses is included in the part of sales turnover and not distinguishable from bills raised by assessee and the corresponding TDS benefit is available by the assessee, it is not open for the assessee to argue that the provisions of section 40(a)(ia) of the Act are not applicable especially when such expenses are debited to P&L Account.”
14. In the above grounds, Revenue raised the issues relating to the relief granted by the CIT (A) in respect of the addition of Rs. 54,98,808/- made u/s 40(a)(ia) read with section 194 of the Act. On going through the facts, we find, these issues are identical to the ones already adjudicated by us in connection with appeal by the Revenue for the AY 2008-2009. In the said appeal for the AY 2008-2009, we held that the relief granted by the CIT (A) in connection with the payments made by the assessee which are in the nature of reimbursements of expenses is fair and reasonable. Considering the commonality of the issues, our decision given on the identical issues raised in the Revenue‟s appeal for the AY 2008-2009 squarely applies to the present appeal too. Considering the same, we are of the opinion, the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, Grounds raised by the Revenue are dismissed.
15. In the result, appeal of the Revenue is dismissed.
16. This appeal filed by the assessee on 7.11.2013 is against the order of the CIT (A)-33, Mumbai dated 30.12.2012 for the AY 2009-2010.
17. In this appeal, assessee raised the issues identical to the ones raised in Grounds no.1 and 2 of the assessee‟s appeal for the AY 2008-2009. In connection with the decision of the AO in invoking the provisions of section 40(a)(ia) of the Act in respect of the payments by virtue of reimbursements and composite bills, CIT (A) confirmed the addition. Aggrieved with the same assessee is in appeal before the Tribunal. While dealing with the similar issues in the assessee‟s appeal for the AY 2008-2009 in the above paragraphs of this order, we remanded the same to the file of the AO with a direction that so far as the amounts are in the nature of reimbursements, the provisions of section 40(a)(ia) of the Act cannot be invoked. In the remanding proceedings, AO is directed to examine each of the payments after granting a reasonable opportunity of being heard to the assessee and decide the issue afresh in accordance with law. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
18. In the result, appeal of the assessee is allowed for statistical purposes.
19. Conclusively, both the appeals filed by the Revenue are dismissed. Assessee‟s appeal for the AY 2008-09 is partly allowed for statistical purposes and appeal for the AY 2009-2010 is allowed for statistical purposes. Order pronounced in the open court on 28th September, 2016. (RAVISH SOOD) ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 28.09.2016 व.नन.स./ OKK , Sr. PS आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :