2012 (6) TMI 704 - AT - Income Tax

TDS - reimbursement of actual freight charges paid to the airlines - disallowance made u/s. 40(a)(ia) in respect of freight on export outward on which no tax was deducted at source Held that - provision of section 40(a)(ia) does not apply to such payments made towards reimbursement of actual freight charges paid to the airlines. CBDT Circular No. 715 dated 08.8.1995 provide that the TDS is required to be made only in cases where the bills are raised for gross amount inclusive of professional fees as well as reimbursement of actual expenses and accordingly no TDS is required to be made when bills are raised separately by agents for reimbursement of actual expenses incurred by them. Decided in favor of assessee.

Summary

Issues:
Disallowance of &8377; 48,61,509/- under section 40(a)(ia) for non-deduction of TDS on freight outward charges.

Analysis:
The appeal by the Revenue challenged the deletion of disallowance of &8377; 48,61,509/- made under section 40(a)(ia) for freight outward charges where no tax was deducted at source. The Assessing Officer disallowed the claim due to non-deduction of TDS on the payment made by the assessee. However, the Ld. Commissioner of Income Tax (Appeals) held that payments made on the basis of separate bills for reimbursement of actual freight charges to airlines are not covered by section 194C read with section 40(a)(ia) of the Act. The Commissioner relied on judicial pronouncements and a CBDT Circular to support this decision, emphasizing that no TDS is required when bills are raised separately for reimbursement of actual expenses without any element of profit. The Ld. Commissioner also cited a similar decision from a previous case for the same assessee for a different assessment year, where the disallowance was deleted. The Tribunal upheld the Commissioner's order, citing precedents and the CBDT Circular, concluding that the disallowance cannot be sustained.

The Tribunal considered the arguments and precedents presented by both parties. The counsel for the assessee referred to a previous tribunal order that favored the assessee in a similar issue. The Tribunal agreed with the Ld. Commissioner of Income Tax (Appeals) that section 40(a)(ia) does not apply to payments made for the reimbursement of actual freight charges to airlines. The Tribunal also referenced a relevant case and the CBDT Circular, which clarified that TDS is only required when bills include professional fees along with reimbursement of expenses. As the bills in this case were raised separately for reimbursement of actual expenses, the Tribunal concurred with the Commissioner's decision to delete the disallowance. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the decision in favor of the assessee.

In conclusion, the Tribunal's decision was based on the interpretation of relevant legal provisions, judicial precedents, and the CBDT Circular, which collectively supported the assessee's position that no TDS was required for payments made towards reimbursement of actual freight charges. The consistent application of this interpretation across similar cases and the absence of any profit element in the reimbursed expenses further strengthened the Tribunal's decision to dismiss the Revenue's appeal and uphold the deletion of the disallowance.