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TMI Blog2019 (6) TMI 1470X X X X Extracts X X X X X X X X Extracts X X X X ..... e Memo of expenses which is placed on record at pages 9 10 of the paper book. From the above Memo, it is clear that all the expenses incurred by the agents were supported by invoices and certain expenses were incurred by ICMS on the field and the service charges for the services of ICMS. TDS provision can be invoked only on the compensation for the services rendered by the agents and all other expenses are supported with the relevant supporting papers. AO cannot insist to deduct taxes on the payment, which is not the income of the agent. In the shipping line of business, the agents are utilized to collect the charges on behalf of the shipping companies and container charges. The office of agents are passing entity. Payment made by the assessee towards port handling are not completely to the agent and for their services. Therefore, assessee is liable to deduct TDS only on the service charges to the agent and expenses which are not properly supported or the agent has taken services of other agents. The charges paid to shipping companies are not taxable, they are not expected to come under TDS provision. Imagine a situation, the agent renders services for the compensation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has incurred an amount of ₹ 32,75,617/- towards Port Handling Charges under the head Works Cost during the relevant year and also the assessee has not deducted TDS on the said payment. 2.2 The AO further observed that in absence of any documentary evidence to substantiate assessee's claim and moreover, since the assessee has failed to deduct TDS on the said payment of ₹ 32,75,617/- and deposit the same into the Government Account within stipulated time. He, therefore, disallowed the above amount invoking the provisions of section 40(a)(ia) of the Act and added back to the total income of the assessee-JV. 3. When the assessee carried the matter in appeal before the CIT(A), the CIT(A) after discussing the issue at large with various case law, upheld the disallowance to the extent of ₹ 25,48,251/-. 4. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1. Learned Commissioner of Income Tax (Appeals) - 6 [CIT(A)] has erred on facts and in law. 2. Learned CIT(A) is not justified in upholding the disallowance to the extent of ₹ 25,48,251/- u/s 40(a)(ia) of Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursements are concerned. 5. Reliance by A.O on the decisions in the case of Om Satya Exim Pvt Ltd vs. ITO (ITA No. 1335/ Ahd/2010 dated 13.05.2011 and ITO Vs. Dr William India (P) Ltd [2005] 3 SOT 71 (ITAT) (Delhi) is misplaced as what fell for consideration were separate bills. Similar are the facts in the case of CIT Vs. Consumer Marketing (India(P) Ltd [2015] 64 taxmann.com 16 (Guj). They are not cases where any composite invoices fell for consideration nor of reimbursements. As regards the observations of the supreme court in the case of Associated Cement Co Ltd Vs. CIT [1993] 201 ITR 435 (SC), the passage on which reliance is sought to be placed by Learned CIT(A) is misquoted by him and it is torn out of context. That is basically a case where the contractor is liable to TDS and not a case of reimbursement at all. The contract amount was decided between the contractor and contractee on the basis of certain rates to be paid towards various categories of work. There is a clause 13 in the contract whereby if the rate payable to labour increases that increase must be reimbursed by the contractee Reimbursement rate becomes a part of the contract amount originally fixed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (P 22 to 34) iv. ACIT Vs. Modicon Network (P) Ltd [2007] 14 SOT 2014 (ITAT[Del]) Para 14 15. (P 35 to 41) v. ACIT Vs. Grandprix Fab. (P) Ltd [2010] 128 TTJ 60 (ITAT[Del]) Para 14 15 (P 42 to 46) 11. It is submitted that in terms of the above judgments of the provisions of section 40(a)(ia) are not applicable except to the extent of ₹ 5,56,774/- covered by Al(iii), (iv) v (P 10) . The case law cited above is applicable. Disallowance of ₹ 64,000/- commission is not disputed in Grounds of Appeal. Out of ₹ 32,69,025/- disallowance sustained by CIT(A) ₹ 5,56,774/- only may be upheld, in the light of above submissions. 6. On the other hand, ld. DR relied on the orders of revenue authorities. 7. Considered the rival submissions and perused the material on record. We notice from the record that at the time of clearing the imported consignment, assessee utilized the services of M/s International Cargo Management Services (ICMS). The agent (ICMS) accepted to handle the clearing assignment and gave estimate for the port clearing expenses along with the service charges for handling the above assignment. It is the trade practice in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total port handling charges and he pays the above 95% to the shipping company and gets the required invoices. If the assessee deducts TDS on total amount, can the service agent survive. The AO and first appellate authority have to understand the trade practice before coming to a conclusion, which may end up enforcing hardship on the assessee as well as on service provider. 7.3 In the given case, ld. CIT(A) has categorized the expenses in 4 categories, viz., 1) Expenses incurred towards services rendered by third parties to ICMS on behalf of the assessee, which amounted to ₹ 24,50,980/- 2) Expenses incurred towards services rendered by ICMS on its own for the assessee, but without outsourcing the same to a third party, which amounted to ₹ 6,56,774/-. 3) Expenses incurred towards service charges paid to ICMS towards various services rendered by ICMS, some on its own and some other services by outsourcing to a third party amounting to ₹ 64,000/-. 4) Expenses incurred towards service tax on service charges paid to ICMS amounting to ₹ 6,592/-. The assessee is not expected to deduct tax on category 1. Therefore, AO is directed to restrict the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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