Assessee not liable to deduct TDS as payments made to agents were mere reimbursements and they were never claimed as expenditure-Payments made of reimbursement of expenses were purely for business expenses and not inflated expenses

INCOME-TAX APPELLATE TRIBUNAL KOLKATA "B" BENCH

I. T. A. No. 766/Kol/2011 (assessment year 2002-03).

DEPUTY COMMISSIONER OF INCOME-TAX ....................................................Appellant.
v.
MARUTI FREIGHT MOVERS LTD. ........................................................................Respondent

N. S. SAINI (Accountant Member) and MAHAVIR SINGH (Judicial Member)

Date :July 11, 2013 .

Appearances

K K Tripathi, Senior Departmental Representative, for the appellant.
Narendra Kedia for the respondent.

Section 40A(3) & 194C of the Income Tax Act, 1961 — Expenses or payments not deductible in certain cases — Assessee not liable to deduct TDS as payments made to agents were mere reimbursements and they were never claimed as expenditure - Payments made of reimbursement of expenses were purely for business expenses and not inflated expenses

FACTS

Assessee entered into agreement with M/s Newman Lefin P. Ltd(NLP) to work as an agent for the assessee for the state of Orissa who would be allowed Rs. 100 per truck per trip as reimbursement subject to applicability of TDS for making payment to truck drivers/ owners. The said NLP acting as agent in pursuance of an agreement for supply of trucks to the assessee and at the point of urgency the assessee made advance payment to truck drivers for their road expenses etc. but the balance payment were made by NLP at Orissa. These payments were reimbursement by the assessee to its agent for carrying out a contract which was in the nature of work contract for supply of truck and tax was deducted at source on gross amount paid to these truck suppliers on total freight including the reimbursed amount. The reimbursement charges were already included in the total freight and it was claimed by the assessee. A.O. was of the opinion that reimbursement was nothing but an inflated expense made by the assessee in its books of account and assessee has understated its income by showing excess freight payment. Accordingly, A.O. made disallowance by invoking the provisions of section 40A(3). Being aggrieved, assessee went on appeal before CIT(A). CIT(A) deleted the additions made by the A.O. on the ground that addition was unwarranted and the opinion of the A.O. was not based on any material facts. Being aggrieved, Revenue went on appeal before Tribunal.

HELD

That the payments made to agent for final settlement of bills at Orissa i.e., payment to NLP as an agent in pursuance of an agreement for supply of trucks are merely reimbursement. Assessee has claimed total freight charges including the amount of reimbursement and assessee has already deducted tax at source u/s 194C on contractual payment of freight i.e. total freight and nothing is to be deducted from reimbursement. These were never claimed as expenditure by the assessee and once the assessee has not claimed the expenditure qua this reimbursement the assessee was not liable to tax deduction at source u/s 194C. The finding of the A.O. that these are inflated expenses for the reason that the payments made of reimbursement of expenses were purely business expenses. CIT(A) rightly deleted the additions made by the A.O. In the result, appeal was answered in favour of assessee.

ORDER

The order of the Bench was delivered by

1 MAHAVIR SINGH (Judicial Member).- This appeal by Revenue is arising out order of Commissioner of Income-tax (Appeals)-IV,Kolkata ('CIT(A)' for short) in appeal No.127/CIT(A)-IV/09-10 dated 01-11-2010. Assessment was framed by DCIT, Circle-4, Kolkata u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated nil for the assessment year (AY) 2002-03.

2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition of reimbursement of expenses of Rs.72,83.181/- paid to truck drivers by the agent of M/s Newman Lefin Pvt. Ltd. For this, Revenue has raised following ground No.1:-

"1. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law as well as on facts, in directing the AO to delete the addition of Rs.72,83,181/- on account of reimbursement of the expenses without considering the fact that in Orissa there is no office of M/s. Newman Lefin Pvt. Ltd. then how it is possible for that company to pay cash to truck drivers and secondly the location of the assessee company and M/s. Newman Lefin Pvt. Ltd., is in the same premises and controlled by the same group / relatives."

We have heard rival contentions and gone through facts and circumstances of the case. We find that Assessing Officer received information from ITO, Ward-6(3) Kolkata that assessee made contractual payments of Rs.1,45,14,602/- as per Tax Deducted at Source (TDS) return but no TDS is deducted on the payment of Rs.72,93,181/-. This information came to the AO of the assessee after the AO, Ward-6(3) Kolkata informed him. The assessee of that AO, claimed that the amount of Rs.72,83,181/- relates to payments of reimbursement made by the assessee to the agent. But AO noted that as per Section 194C of the Act, these payments fall under the purview of TDS provisions and no TDS is deducted on reimbursement. The assessee explained that these are merely reimbursement and no TDS is to be deducted. The submission in regard to reimbursement cannot be accepted as true and fair and accordingly AO made disallowance by invoking the provisions of section 40A(3) of the Act. According to AO, the alleged reimbursement amount was nothing but inflated expenses made by the assessee in its books of accounts. Therefore, the assessee has understated its income by way of showing of excess freight payment. The assessee during the course of assessment proceedings had explained that it entered into an agreement with M/s. Newman Lefin Pvt. Ltd. ('NLP' for short) to work as an agent for the assessee for the state of Orissa who would be allowed Rs.100/- per truck / per trip as reimbursement subject to applicability of TDS for making payment to truck drivers / owners. The said NLP acting as an agent in pursuance of an agreement for supply of trucks to the assessee and at the point of urgency the assessee made advance payment to truck drivers for their road expenses etc., but the balance payments were made by NLP at Orissa. These payments were reimbursement by the assessee to its agent for carrying out a contract which was in the nature of work contract for supply of truck and TDS was deducted on gross amount paid to these trucks supplier on total freight including this amount of Rs.72,83,181/- which was reimbursed. This reimbursement charges already included in the total freight and it was claimed by assessee. But the AO was not convinced by the reply then he made disallowance.

Aggrieved, assessee preferred appeal before CIT(A), who after considering the submissions of the assessee deleted the addition vide para- 4.1and 4.2 of his order, which reproduced as under:-

"4.1 I agree with the submission of the appellant that clause(b)of section 22(1A) of the companies act 1956 required the Auditor to inquire and report about transaction of the company which represented merely by book entries. The appellant has also given a example of pure book entry. But in the case of appellant company's transaction does not fall under the category of book entry. As it was evident from the assessment order of the Agent passed by ITO, Ward 6(3)/Kol u/s. 147/143(3) of the Act, submitted in the hearing which did not highlights any ambiguity in making payment to truck driver/drivers on behalf of the principal as such the opinion of Assessing Officer that the transaction of the appellant is a book entry does not hold water and also even reasonable suspicion required a higher degree of certainty which was totally absent in the said assessment. The opinion formed by Assessing Officer suffered by any certainty in his findings.

4.2 On a consideration of the relevant facts and evidences produced in the hearing I conclude that the addition under disallowance of expenses and added back to the income of the appellant of the amount of Rs.72,83,1891.00 is unwarranted and the opinion of the assessing Officer is not based on any material facts. On careful observation of the facts, I direct the Assessing Officer to delete the addition of Rs.72,83,181/- as inflated expenses."

Aggrieved, Revenue is in appeal before us.

We have heard rival contentions and gone through facts and circumstances of the case. We find that these payments made to agent for final settlement of bills at Orissa i.e., payment made to NLP as an agent in pursuance of agreement for supply of trucks are merely reimbursement. The assessee has claimed total freight charges at Rs.1,45,14,602/- including this amount of reimbursement of Rs.72,83,818/- and assessee has already deducted the TDS u/s. 194C of the Act on contractual payment of freight i.e., total freight at Rs.1,45,14,602/- and nothing is to be deducted from reimbursement. These were never claimed as expenditure by assessee and once the assessee has not claimed the expenditure qua this reimbursement, the assessee is not liable to TDS u/s. 194C of the Act. Further, the AO has wrongly made disallowance by holding that the expenses incurred are not for purpose of business rather according to him, these are inflated expenses booked by assessee. This finding of the AO is erroneous for the reason that the payments made of reimbursement of expenses are purely for business expenses. In such circumstances, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. This ground of Revenue's appeal is dismissed.

In the result, the Revenue's appeal stands dismissed.

The order is pronounced in the open court on July 11, 2013.

[2013] 26 ITR [Trib] 305 (KOL)