Shri R. S. Syal, AM And Shri C. M. Garg, JM,JJ.

ORDER

R. S. Syal, A. M.-This appeal by the assessee arises out of the order passed by the ld. CIT(A) on 21.02.14 in relation to the assessment years 2008-09.

2. The first major issue in this appeal is against the sustenance of addition amounting to Rs. 12,12,484/-, being 8% of 'Other clearing expenses.' The factual matrix of the case is that the assessee is a customs clearing agent. A return of income was filed. Thereafter, re-assessment was taken up on the ground that the amount of gross receipts of the assessee-firm as shown in Form No.26AS was different from the amount shown by the assessee in its accounts. Filtering out the unnecessary details, it is seen that the assessee did not offer to tax the amount declared as 'Reimbursement of expenses' for the year amounting to Rs. 11,57,42,271/-, included in the gross receipts as per TDS certificates, detailed as under :-

3. The assessee claimed that the above sum of Rs. 11.57 crore was in the nature of expenses paid by it in the first instance during the year on behalf of its clients which were later on reimbursed by the respective clients as such, without any mark- up. That is how the assessee claimed that this amount of Rs. 11.57 crore was not chargeable to tax despite its forming part of gross receipts as per TDS certificates issued by the clients. Unconvinced with the assessee's submissions, the AO treated this amount as containing profit element. By considering certain other material and relying on the net profit rate for the earlier years, the AO held that the assessee earned 8% net profit on these gross receipts of Rs. 11.57 crore. This resulted into an addition of Rs. 92,59,381/-. In the first appeal, the ld. CIT(A) came to hold that items at Sl. No.1, 3-5 of the above extracted Table did not include any profit element. He, therefore, ignored these items from the inclusion in the total income. As regards the sixth item titled 'Other clearing expenses', amounting to Rs. 1.51 crore, the ld. CIT(A) upheld the finding of the Assessing Officer on the question of the income element at the rate of 8% on this amount. Such a view was canvassed as in the opinion of the ld. CIT(A), the assessee did not furnish any third party evidence of such expenses having been incurred. This resulted into sustaining disallowance at Rs. 12,12,484/-, against which the assessee is aggrieved in the present appeal. The Revenue is not in appeal against the relief allowed in the first appeal.

4. We have heard the rival submissions and perused the relevant material on record. It is observed that the assessee categorically claimed that the amount of Rs. 1.51 crore under the head 'Other clearing expenses' was incurred by it on behalf of its customers in the process of clearing the imported goods of its clients from customs. The assessee furnished summary of Rs. 11.57 crore, being the total amount of reimbursement of expenses from its client, which is available at pages 33 and 34 of the paper book. The amount of Rs. 1.51 crore with the caption 'Other clearing expenses', which is part of this detail comprises of other payments made for various miscellaneous services as airway bill amendment fee, assessment of goods, bill of entry processing, bond cancellation, bond acceptance, bond fee, bonding charges, cancellation of warehouse bond, engineer inspection, container grounding charges, DE surfing charges, detention, documentation, entry charges at border, EOU charges, EPCG licence, EPCG registration, escorting charges, fork charges, incidental charges, labeling charges, labour charges, labour for examination, labour for loading & unloading, licence, licence premium, location charges, measurement charges, NIC/EDI Fee, non utilization charges, octroi/toll tax, opening, packing & sealing, escorting charges, shifting & deshifting, survey charges, TRA, TSP charges, wooden box charges, etc. To cite an example of the composition of such expenses, the ld. AR drew our attention towards page 55 of the paper book, being a copy of bill of HB Transport Service, which , inter alia, refers to toll tax of Rs. 5,460/- which was incurred by the assessee on behalf of its client, namely, M/s Aksh Optifibre Ltd. This amount was stated to have been reimbursed by this client under the head 'Other clearing expenses.' It was stated that complete details of such expenses were furnished before the AO. This contention has remained uncontroverted on behalf of the Revenue before us.

5. In order to decide as to whether some profit rate can be applied on the amount received by the assessee under the head 'Other clearing expenses' to form part of total income, as has been held by the authorities below, it is of paramount importance to first ascertain if it includes any mark-up or is a reimbursement simplicitor. In this endeavour, we have examined copies of contracts between the assessee and some of its client, which are available in the paper book. A copy of such contract for customs clearance with M/s Aksh Optifibre Ltd. is available at page 41 of the paper book. From this Contract, it can be seen that the assessee is entitled to a fixed percentage and also fixed amount in respect of certain specified services to be rendered by it in the process of the gets the imported goods cleared from customs. Page 3 of this Contract makes it clear that 'the Duty/AAI charges or any other reimbursable charges upto Rs. 20,000/- shall be paid by Jaguar and the same can be claimed in the respective bill'. Page 44 onwards of the paper book is a copy of Contract of customs clearance with M/s Jubilant Organosys. This Contract also refers to remuneration of the assessee at a fixed amount and a fixed percentage of some of the specified activities to be undertaken by the assessee. Clause (v) of this Contract provides that the assessee shall pay on behalf of M/s Jubilant Organosys various charges to shipping companies/Airport Authority and all other related agencies and will submit the bill, the payment for which shall be effected on the given dates. This indicates that the assessee has to raise bill not only for its remuneration but also for the reimbursements. Pages 47 and 48 of the paper book are copies of the invoices raised by the assessee on Aksh Optifibre Ltd. Page 47 is towards reimbursement of Rs. 1,51,821/- incurred by the assessee on various items, such as, Delivery order fee amounting to Rs. 46,872/-, Godown rent amounting to Rs. 15,489/-, Transport amounting to Rs. 84,000/- and Octroi/toll tax to the tune of Rs. 5,460/-. This sum of Rs. 1,51,821/- is part of Rs. 11.57 crore which represents the total reimbursement of expenses claimed by the assessee from its clients. Page 49 of the paper book is the actual payment of Rs. 46,872/- made to Cosco (India) Shipping Pvt. Ltd. on behalf of Aksh Optifibre, which is the first item of the invoice on page 47 of the paper book towards reimbursements. Pages 50-54 are invoices of godown rent totaling to Rs. 15,489/- paid by the assessee to Container Corporation of India on behalf of Aksh Optifibre Ltd. These amounts totaling Rs. 15,489/- were paid by the assessee and claimed as reimbursement through the same invoice on page 47 of the paper book. Page 55 of the paper book is bill of Transportation charges and toll tax amounting to Rs. 84,000/- and Rs. 5,460/- respectively paid by the assessee on account of Aksh Optifibre Ltd. These two amounts also form part of the invoice raised by the assessee on M/s Aksh Optifibre Ltd. available on page 47 of the paper book towards reimbursement of expenses incurred on behalf of M/s Aksh Optifibre Ltd. towards a specific transaction. Thus, it can be seen that all the amounts listed in invoice on page 47 raised on Aksh Optifibre Ltd. represent the reimbursement of expenses without any profit element. Page 48 of the paper book is a copy of invoice raised by the assessee on Aksh Optifibre Ltd. amounting to Rs. 23,570/ towards its remuneration for rendering services to Aksh Optifibre for this transaction. The amount of such remuneration has been credited by the assessee to its Profit & Loss Account. As against that, the amount as per invoice on page 47 of the paper book totaling Rs. 1,51,821/- is reimbursement of expenses claimed by the assessee from Aksh Optifibre Ltd. Since there is no element of income in the reimbursement of expenses, this amount was neither claimed as deduction nor offered as income. As the total sum of Rs. 11.57 crore, inter alia, including 'Other clearing expenses' of Rs. 1.51 crore is in the nature of expenses incurred by the assessee in getting the goods cleared from customs in the first go, which were paid by the clients as such in terms of the agreements as discussed above, naturally there is no element of income requiring inclusion of this amount as such or in part thereof, in the total income. In view of the fact that none of the items culminating into 'Reimbursement of expenses' amounting to Rs. 11.57 crore contained any profit element, we are of the considered opinion that there is no logic in applying 8% or any other profit rate on 'Other clearing expenses' amounting to Rs. 1.51 crore, which is a part of this total 'Reimbursement'. We, therefore, order for the deletion of addition of Rs. 12,12,484/- sustained by the ld. CIT(A).

6. The next grievance of the assessee is against the making of enhancement of income for a sum of Rs. 4.53 crore representing Godown charges paid and added back to income u/s 40(a)(ia) of the Act. It can be observed that the AO charged 8% profit on this amount of 'Godown rent' as well along with other receipts which were in the nature of reimbursement. The ld. CIT(A) held that there was no income element in this payment of godown rent. He, however, held that the assessee was required to deduct tax at source u/s 194-I of the Act on such payment. Since no tax was deducted at source on it, he made enhancement of income with the equal amount by making disallowance u/s 40(a)(ia) of the Act. The assessee is agitating the above disallowance/enhancement in the present appeal.

7. We have heard the rival submissions and perused the relevant material on record. The question which looms large before us is as to whether the provisions of section 40(a)(ia) are magnetized on the amount of Godown rent paid by the assessee on behalf of its clients. In an attempt to find answer to this question, we need to have a glance at the provisions of section 40 with the title : 'Amounts not deductible'. This section opens by providing that : 'Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--'. This shows that the otherwise grant of deductions under sections 30 to 38 shall be jeopardized if there is violation of any of the clauses of this section. Presently, we are concerned with sub-clause (ia) of clause (a) of the section. This provision provides that where any interest, commission or brokerage or rent etc. on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139, then the amount of such interest, commission or brokerage or rent etc., which is otherwise deductible under sections 30 to 38, shall not be allowed as deduction. This manifests that in order to fall within the ambit of section 40(a)(ia) of the Act, it is sine qua non that the assessee should have been otherwise eligible for deduction of the sum which is sought to be disallowed by invoking the provisions of section 40 of the Act.

8. At this juncture, it is worthwhile to note that the AO treated inter alia the amount of Godown rent as having income element and that is how he brought to tax income at the rate of 8% of this amount. When the assessee assailed such finding in the first appeal by contending that there was no income element in it, the assessee's contention came to be upheld by the ld. first appellate authority. However, in order to buttress his view of the applicability of section 40(a)(ia) of the Act, the ld. CIT(A) held that the there is income as well as expenditure of the godown rent and since the assessee failed to deduct tax at source, the expenditure part was disallowable by keeping the taxability of the income part intact. We are unable to comprehend the view canvassed by the ld. CIT(A) on this score. In order to qualify as income or expenditure, it is of paramount importance that the assessee must have earned the income or incurred the expenditure in his own right. The expenditure should be directed towards the earning of income and the income should ordinarily be the result of incurring of expenditure. If the expenditure is incurred or income is earned not in own capacity, but as representative of some third person, then it is the expenditure or income of such third person and not that of the assessee. In such a later situation, neither the amount of expenditure incurred can be treated as the expenditure of the assessee nor the income so earned can be construed as that of the assessee. The assessee is such circumstances merely acts as representative of the third person on whose behalf he is acting. The real effect of incurring such expenditure or earning such income by the assessee is that the such incurring of expenditure is invariably coupled with the right to recover the same and earning of such income is always saddled with the liability to repay to the person on whose behalf it was earned. Such transactions cannot be considered to have been undertaken by the assessee for his own business so as to form part of its expenditure or income.

9. The Hon'ble Delhi High Court in CIT vs. Cargo Linkers (2009) 179 Taxman 151 (Del) has held that where the assessee was nothing but an intermediary between the exporters and the airlines as it booked cargo for and on behalf of the exporters and mainly facilitated the contract for carrying goods, therefore, it was not the 'person responsible' for deduction of tax at source u/s 194C. The same view has been reiterated in CIT VS. Hardarshan Singh (2013) 350 ITR 427 (Delhi). Reverting to the facts of the instant case, we find that in so far as the payment of godown rent is concerned, the assessee merely acted as an intermediary between its customers, being the ultimate importers on one hand and the godown owners on the other. If we peruse the invoices raised by Container Corporation of India for the charge of godown rent, it can be seen that the assessee nowhere figures in them inasmuch as only the name of importers are depicted on them.

10. Turning back, we find it as an admitted position that the business of the assessee is of custom clearing agent. In that view of the matter, the remuneration allowed by its customers as per the terms of the contracts, is its income. Similarly, expenditure incurred by the assessee for earning such income in his own right and without any obligation or instruction from the clients, is his expenditure. These income and expenses find place on the credit and debit sides of its Profit and loss account. These items of income and expenditure earned/incurred by the assessee in his own capacity, are either includible in the total income or qualfy for deduction as per law. On the other hand, other expenses, including customs duty, freight paid and godown rent etc. incurred for the customers can by no stretch of imagination be construed as the expenses incurred by the assessee for his business so as to make them eligible for deduction. Here is a case in which the assessee did not claim any deduction for godown rent of Rs. 4.53 crore which was paid by it on behalf of its customers and got reimbursement as such. Neither any expenditure was claimed towards payment of godown rent nor any income was offered on this account. The transaction of actually paying godown rent was for and on behalf of its customers. It was for these customers to claim deduction for the payment of godown rent etc. in their accounts. Once these items of expenses including godown rent are otherwise not eligible for deduction under any of the sections 30 to 38 of the Act in the hands of the assessee and further the assessee has neither claimed such deduction nor is it lawfully entitled to the same, the natural corollary which follows is that there can be no question of making disallowance u/s 40(a)(ia) of the Act in this regard.

11. The Delhi Bench of the tribunal in Expeditors International (India) (P) Ltd. VS. CIT (2008) 118 TTJ (Del) 652 has held that the amount paid by the assessee company to its parent company on account of reimbursement of expenditure incurred in respect of global accounts manager cannot be treated as payment of salary subject to deduction of tax at source so as to attract disallowance under s. 40(a)(iii). Albeit, the decision was rendered in the context of an assessee paying reimbursement and we are concerned with the case of an assessee receiving reimbursement, but its ratio would still apply inasmuch as it is not at all the expenditure of the assessee, thereby going out of the purview of section 40(a)(ia) at the outset. We, therefore, delete the disallowance made by the ld. CIT(A) by invoking the provisions of Section 40(a)(ia) of the Act.

12. Before parting with this issue, we want to clarify that failure to deduct tax at source, subject to the relevant provisions, leads to several consequences, such as, the payer is treated as assessee in default u/s 201(1) of the Act; he becomes liable to pay interest on such amount u/s 201(1A); he is liable to be visited with penalty u/s 271 of the Act; and he is liable for prosecution u/s 276B if there is failure to pay after deduction. Apart from these, the assessee also loses the deduction of the amount, if otherwise entitled to, in terms of section 40(a) of the Act as discussed above. It is pertinent to mention here that in the present appeal we were concerned only with the applicability of section 40(a)(ia) of the Act, which was invoked by the ld. CIT(A) for making disallowance of the amount of godown rent. We have held that no disallowance can be made as the assessee did not claim any deduction for such amount. Thus, we have considered only one aspect of the matter of not claiming of deduction and not the other, being the failure of the assessee to deduct tax at source. At the cost of repetition, we state that neither the other questions, such as the liability of the assessee to deduct tax at source and consequences flowing out of such non-deduction, other than disallowance u/s 40(a)(ia), are germane for our limited purpose nor we bestowed our attention upon them. All such issues are ergo left open. It is, therefore, held that the ld. CIT(A) was not justified in making disallowance of the amount of godown rent u/s 40(a)(ia) of the Act as the same was not claimed or allowed as deduction by the assessee.

13. The other ground against the initiation of reassessment proceedings was not pressed by the ld. AR. The same, therefore, stands dismissed.

14. In the result, the appeal is partly allowed.