2014 (6) TMI 738 - AT - Income Tax

Deletion of disallowance u/s 40(a)(ia) of the Act TDS not deducted - Payments made for freight and forwarding expenses and transport expenses Held that - The addition has been made by the AO by invoking the provision of section 40(a)(ia) of the Act in respect of reimbursed expenses Following Prayas Engineering Limited Versus The Addl. Commissioner of Income Tax 2014 (5) TMI 268 - ITAT AHMEDABAD - the commission paid by the assessee to the agent for clearing and forwarding tax was duty deducted - expenses were incurred by agent on behalf of assessee-principal for transportation and other charges, which had been spelt out in bill itself - So far as obligation to deduct tax at source form payment of transport charges and other charges was concerned, same was complied with by agent, who had made payment on its behalf thus, there is no need to interference with the order of the CIT(A) Decided against Revenue.

Summary

Issues: Revenue's appeal against deletion of addition under section 40(a)(ia) of the Income Tax Act for disallowance of expenses.

Analysis:
1. The issue in this case revolves around the disallowance of expenses under section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) disallowed payments made towards freight, forwarding, and transport expenses as the tax was not deducted at source by the assessee. The AO rejected the assessee's contention that these expenses were reimbursed by the respective parties and not the assessee's liability for TDS deduction. The AO also disagreed with the assessee's argument that he was not liable for tax audit under section 44AB. The AO disallowed the amounts under section 40(a)(ia) of the Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition after considering the submissions and evidence provided by the assessee.

2. The CIT(A) observed that the expenses were incurred by the assessee as a clearing and forwarding agent on behalf of clients, and these expenses were reimbursed by the clients, not forming part of the assessee's profit. The CIT(A) agreed with the assessee's argument that the AO's opinion on TDS deduction was not in line with the provisions of section 194C of the Act. The CIT(A) highlighted that the liability to tax was only in respect of payments made to the agency, not on the reimbursement of expenses. The CIT(A) also referred to the definition of "gross receipts" by the Institute of Chartered Accountants of India to support the assessee's position that reimbursements do not constitute trading receipts. The CIT(A) concluded that no TDS was required to be deducted for reimbursement of expenses, thereby deleting the addition made by the AO.

3. The Revenue appealed against the CIT(A)'s order, arguing that the view taken by the CIT(A) was consistent with a previous decision by the Tribunal in a similar case. The Tribunal noted that the addition made by the AO under section 40(a)(ia) for reimbursed expenses was not in dispute. The Tribunal referred to the jurisdictional High Court's decision in a related case, which supported the assessee's position that no disallowance should be made for expenses reimbursed without tax deduction. The Tribunal upheld the CIT(A)'s order, stating that there was no need to interfere with it.

4. Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition under section 40(a)(ia) for disallowance of expenses. The Tribunal's decision was based on the interpretation of relevant provisions of the Income Tax Act and previous judicial precedents supporting the assessee's contention regarding the treatment of reimbursed expenses.