IT: Once assessee has not claimed expenditure qua reimbursement of expenses, assessee is not liable to deduct tax at source
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[2013] 40 taxmann.com 120 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'B'
Deputy Commissioner of Income-tax
v.
Maruti Freight Movers Ltd.*
N.S. SAINI, ACCOUNTANT MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER
IT APPEAL NO. 766 (KOL.) OF 2011
[ASSESSMENT YEAR 2002-03]
[ASSESSMENT YEAR 2002-03]
JULY 11, 2013
Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Reimbursement of expenses] - Assessment year 2002-03 - Assessee entered into an agreement with 'NLP' to work as an agent for assessee - Assessing Officer having information that assessee had not deducted tax at source on certain payment to 'NLP' disallowed said amount - Whether payment made to NLP as an agent in pursuance of agreement for supply of trucks were merely reimbursement, and assessee had already deducted tax at source under section 194C on contractual payment of freight, nothing was to be deducted from reimbursement - Held, yes - Whether as amounts in question were never claimed as expenditure by assessee, assessee was not liable to tax deduction at source under section 194C - Held, yes - Whether as payment made of reimbursement of expenses were purely for business expenses, impugned disallowance made by Assessing Officer was to be deleted - Held, yes [Para 6] [In favour of assessee]
K.K. Tripathi for the Appellant. Narendra Kedia for the Respondent.
ORDER
Mahavir Singh, Judicial Member - This appeal by the Revenue is arising out order of the Commissioner of Income-tax (Appeals)-IV, Kolkata, in Appeal No. 127/CIT(A)-IV/09-10 dated November 1, 2010. The assessment was framed by the Deputy Commissioner of Income-tax, Circle-4, Kolkata under section 147 read with section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") vide his order dated nil for the assessment year 2002-03.
2. The only issue in this appeal of the Revenue is against the order of the Commissioner of Income-tax (Appeals) deleting the addition of reimbursement of expenses of Rs. 72,83,181 paid to truck drivers by the agent of M/s. Newman Lefin P. Ltd. For this, the Revenue has raised following ground No. 1 :
| "1. | That on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law as well as on facts, in directing the Assessing Officer 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 P. 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 P. Ltd., is in the same premises and controlled by the same group/relatives." |
3. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the Assessing Officer received information from the Income-tax Officer, Ward-6(3) Kolkata, that the assessee made contractual payments of Rs. 1,45,14,602 as per tax deducted at source (TDS) return but no tax is deducted on the payment of Rs. 72,83,181. This information came to the Assessing Officer of the assessee after the Assessing Officer, Ward-6(3) Kolkata, informed him. The assessee of that Assessing Officer, claimed that the amount of Rs. 72,83,181 relates to payments of reimbursement made by the assessee to the agent. But the Assessing Officer noted that as per section 194C of the Act, these payments fall under the purview of tax deduction at source 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 the Assessing Officer made disallowance by invoking the provisions of section 40A(3) of the Act. According to the Assessing Officer, the alleged reimbursement amount was nothing but inflated expenses made by the assessee in its books of account. 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 P. 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 tax deduction at source 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 tax at source was deducted on gross amount paid to these trucks supplier on total freight including this amount of Rs. 72,83,181 which was reimbursed. These reimbursement charges were already included in the total freight and it was claimed by the assessee. But the Assessing Officer was not convinced by the reply then he made disallowance.
4. Aggrieved, the assessee preferred appeal before the Commissioner of Income-tax (Appeals), who after considering the submissions of the assessee deleted the addition vide paragraphs 4.1 and 4.2 of his order, which are 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 an example of pure book entry. But in the case of the 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 the Income-tax Officer, Ward 6(3)/Kol under section 147/143(3) of the Act, submitted in the hearing which did not highlight any ambiguity in making payment to truck driver/drivers on behalf of the principal as such the opinion of the 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 the 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. 72,83,181 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."
5. Aggrieved, the Revenue is in appeal before us.
6. We have heard rival contentions and gone through the 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. 72,83,181 and the assessee has already deducted the tax at source under section 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 the assessee and once the assessee has not claimed the expenditure qua this reimbursement, the assessee is not liable to tax deduction at source under section 194C of the Act. Further, the Assessing Officer has wrongly made disallowance by holding that the expenses incurred are not for the purpose of business rather according to him, these are inflated expenses booked by the assessee. This finding of the Assessing Officer 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 Commissioner of Income-tax (Appeals) has rightly deleted the addition and we confirm the same. This ground of the Revenue's appeal is dismissed.
7. In the result, the Revenue's appeal stands dismissed.
USPRegards
Prarthana Jalan
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