2012 (11) TMI 513 - AT - Income Tax

Non deduction of TDS - transportation charges - reimbursement of expenses - security expenses, courier fees, bus hire charges, consultancy fees and accounting charges - Held that - The said expenditure stands incurred only for and on behalf of the principal, who was obliged to reimburse the same in full, and indeed did so, so that there is no claim in respect to the same by the assessee per its return of income. As decided in ITO v. Dr. Willmar Schwabe India (P.) Ltd. 2005 (3) TMI 398 - ITAT DELHI-D the reimbursable expenses, separately billed, would not be subject to tax deduction at source. Thus even though the assessee may be liable for tax deduction, which has not been deducted, where the same, whatever be the method of accounting or methodology employed, is not claimed as expenditure, there is no question of any disallowance in its respect - in favour of assessee. Transportation charges of Rs. 28,63,254/- Held that - As it is not in the nature of payment to any third party, but only represents the deduction made by the principal on account of short delivery of stock and, therefore, is by way of transportation shortage, thus no question of application of sec. 40(a)(ia) - in favour of assessee. Transportation charges of Rs. 3,07,98,732/- Held that - Even though the privity of contract may be between the assessee (whose obligation it is for the transportation of goods) and the transporter, rather, irrespective of whether the contract is between the assessee and the transporter or the principal and the transporter - the payment in either case being only in pursuance to a contract, the liability u/s 194C being on the person responsible for making the payment and not on the one who may finally bear it, so that it (the payment) could be on account of a different person, as the assessee s principal in the instant case, the disqualification and the consequential disallowance under section 40(a)(ia) would apply only where the claim for expenditure is preferred in its respect by the assessee. The matter, therefore, as in the case of other expenses forming part of the assessee s appeal, is restored back, on identical terms and scope, to the file of the Assessing Officer - in favour of revenue for statistical purposes..

Summary

Issues:
1. Disallowance of charges under section 40(a)(ia) for assessment year 2007-08.
2. Dispute over transportation charges and other expenses being reimbursable or subject to TDS.

Issue 1: Disallowance of charges under section 40(a)(ia) for assessment year 2007-08.
The judgment involves cross-appeals by the Assessee and Revenue regarding the disallowance of charges under section 40(a)(ia) for the assessment year 2007-08. The Appellate Tribunal noted that the issue had been considered in the Tribunal's order for the Assessee's case for other years. The Tribunal emphasized that the burden is on the Assessee to demonstrate that the expenditure was incurred on behalf of the principal and fully reimbursed, not claimed as an expense. The Tribunal clarified that if an expense is fully reimbursable, no disallowance under section 40(a)(ia) would apply. The decision was based on the consistent view of the Tribunal and the need to show that the expenditure was not claimed as an expense but was fully reimbursable.

Issue 2: Dispute over transportation charges and other expenses being reimbursable or subject to TDS.
Regarding transportation charges and other expenses, the Tribunal found that the matter needed to be sent back to the Assessing Officer based on previous Tribunal orders. The Tribunal highlighted the importance of clear accounting procedures and methods to avoid confusion regarding expenses claimed. The Tribunal emphasized that if expenses were reimbursable and not claimed as an expense, they would not be subject to disallowance under section 40(a)(ia). The Tribunal differentiated between expenses claimed by the Assessee and those fully reimbursed by the principal. In the case of transportation charges, the Tribunal noted that certain deductions made by the principal were not subject to section 40(a)(ia) as they were related to transportation shortage. However, for other transportation charges, the Tribunal found discrepancies in the Assessee's claims and upheld the Assessing Officer's findings.

In conclusion, the Assessee's appeal was allowed for statistical purposes, while the Revenue's appeal was partly allowed for statistical purposes. The judgment reiterated the importance of demonstrating that expenses were fully reimbursable and not claimed as expenses to avoid disallowance under section 40(a)(ia).