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2013 (9) TMI 1072 - AT - Income TaxTDS u/s 194C - reimbursement of expenses by C&F Agents - Held that - There is no need to deduct TDS on reimbursement of expenses to C& F Agents which are separately billed and accordingly uphold the order of the learned CIT(Appeals). Disallowance due to shortage - Held that - In the absence of any basis for the Assessing Officer to adopt shortages at 2% in the absence of any industry average, we find that, the learned CIT (Appeals) examined the shortages claimed by the assessee in the period 2004-05 to 2006-07. It is seen that the shortage of Assessment Year 2004-05 was 9.75% and that of Asst. Year 2006-07 was 4.68% which fluctuated and was in excess of the 3.64% shortage of the current year. In this factual view of the matter, we agree with the learned CIT (Appeals) that the shortages at 3.64% in the current year is less than that of both the earlier and subsequent year and is therefore reasonable. In view of the above, we find no infirmity in the order of the learned CIT (Appeals) and uphold the same. Seed Development Expenses disallowed - Held that - It is an uncontroverted fact that the assessee does not carry out any research and development activity. The facts on record establish that the expenses incurred by the assessee were towards purchase of parent seeds. If a part of the amount paid by the assessee have been utilised by Metahelix for development of seeds, the expenses can be capital in nature for Metahelix but not for the assessee. Merely because the expenses paid by the assessee to Metahelix is towards defraying the expenses of development of parent seeds, it does not change the nature of the expenditure by the assessee which is for procurement of parent seeds. As far as the assessee is concerned, the entire expenditure is incurred towards purchase of parent seeds and therefore it is entirely revenue in nature. There is no enduring benefit to the assessee due to the purchase of parent seeds as they lose their existence and form once they are converted into hybrid seeds. In this view of the matter, we are of the considered opinion that the entire expenditure is revenue in nature and are therefore entirely allowable expenditure.
Issues Involved:
1. Disallowance under Section 40(a)(ia) - Reimbursement of Expenses to C&F Agents. 2. Disallowance due to shortage of raw materials. 3. Seed Development Expenses disallowed. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) - Reimbursement of Expenses to C&F Agents: The Assessing Officer (AO) disallowed Rs. 4,78,499 under Section 40(a)(ia) for non-deduction of tax on reimbursements made to C&F Agents. The CIT(A) deleted this disallowance, observing that these were actual expenses incurred on behalf of the assessee, supported by necessary evidence, and did not contain any element of income. The revenue argued that TDS should be on the gross sum paid, relying on CBDT Circular No.715. However, the Tribunal upheld the CIT(A)'s decision, stating that TDS is applicable only on the income element of a payment, not on reimbursements of actual expenses. The Tribunal cited judicial decisions supporting the principle that TDS is not required on reimbursements without an income element. 2. Disallowance due to shortage of raw materials: The AO disallowed Rs. 11,70,705 out of Rs. 25,96,379 claimed by the assessee as shortage of raw materials, allowing only 2% of the consumption as reasonable. The CIT(A) deleted the disallowance, noting that shortages are inherent in the seed processing business and that the claimed shortage of 3.64% was reasonable compared to shortages in other years (9.75% in A.Y. 2004-05 and 4.68% in A.Y. 2006-07). The Tribunal upheld the CIT(A)'s decision, finding no basis for the AO's ad-hoc estimate and agreeing that the claimed shortage was reasonable based on the assessee's historical data. 3. Seed Development Expenses disallowed: The AO treated the entire Rs. 55,18,529 spent on seed development as capital expenditure, disallowing it but allowing for depreciation. The CIT(A) partially allowed the assessee's claim, treating Rs. 47,58,542 as revenue expenditure and only Rs. 7,59,989 as capital expenditure. The Tribunal found that the entire amount was spent on acquiring parent seeds used as raw material for multiplying and selling hybrid seeds, which is a revenue expenditure. The Tribunal disagreed with the CIT(A)'s partial disallowance, holding that since the expenditure was for acquiring parent seeds, it did not provide an enduring benefit and was entirely revenue in nature. Conclusion: The Tribunal dismissed the revenue's appeal and allowed the assessee's cross objections, confirming that: - Reimbursements to C&F Agents are not subject to TDS if they do not contain an income element. - The claimed shortage of raw materials was reasonable and supported by historical data. - The entire seed development expenditure was revenue in nature and allowable.
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