Ratika P. Khurana, Mumbai vs Department Of Income Tax

ी संजय अरोड़ा, लेखा सद य, एवं ी िवजय पाल राव, याियक सद य के सम । BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER

आयकर अपील सं./ I.T.A. No.2481/Mum/2012 ( िनधा रण वष / Assessment Year : 2008-09)

ITO -25(3)(3) बनाम/ बनाम Smt. Ratika P. Khurana rd Room No.304, 3 Vs. R-1401, Panchsheel Gardens Floor,Bldg. No. C-11, Mahavir Nagar, Kandivali(W) Pratyakshakar Bhavan, Mumbai-400 067. Bandra Kurla Complex Bandra (E), Mumbai-400 051. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AGVPK 8112 E (अपीलाथ /Appellant) .. ( यथ / Respondent)

या ेप /C.O. No.86/Mum/2013 Arising out of I.T.A. No.2481/Mum/2012 ( िनधा रण वष / Assessment Year : 2008-09)

Smt. Ratika P. Khurana बनाम/ बनाम ITO -25(3)(3) R-1401, Panchsheel Vs. Room No.304, 3 r d Floor,Bldg. Gardens No. C-11, Pratyakshakar Mahavir Nagar, Bhavan, Bandra Kurla Kandivali(W) Complex Bandra (E), Mumbai-400 067. Mumbai-400 051. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AGVPK 8112 E ( या ेपक / Cross Objector .. ( यथ / Respondent)

Revenue by : Shri Love Kumar-DR Assessee by : Shri Nishit Gandhi-AR

सुनवाई क# तारीख / Date of Hearing : 29/01/2015 घोषणा क# तारीख /Date of 12/02/2015 Pronouncement : 2 ITA No.2481/M/12 & C.O. No.86/M/13

आदेश / O R D E R

PER VIJAY PAL RAO, JM :

This appeal by the revenue and the cross objection by the assessee are directed against the order dated 04/1/2012 for the assessment year 2008-09. The revenue has raised the following grounds :-

"(i). On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance u/s. 40(a)(ia) towards freight charges of Rs.

6,58,588/- paid to agent of foreign shipping companies, even though the assessee failed to deduct TDS on it. The provisions of section 172 are not overriding to provisions of section 194, and therefore, assessee was liable to deduct TDS and the nature of expense is TDS deductible..

(ii) On the fact and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance u/s 40(a)(ia) being transport charges of Rs. 2,94,192/- without appreciating the fact that in the case of M/s Patil Transport Services (Rs 2,12,775/-) the liability to deduct TDS is on the assessee and the act of declaring the receipts properly by the recipient is secondary which is independent of liability of deduction of TDS by the payer and also in case of M/s Shreenath Roadways (Rs 90,881/-) that there need not be an official contract. As per section 194C the nature of expense is TDS deductible as it is akin to contract and also gross payment has exceeded Rs. 50,000/-.

(iii) On the fact and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance u/s 40 a(ia) being Machinery maintenance charges paid to M/s. Urna Engg. Co. for Rs. 92,700/-,without appreciating the fact that the aggregate payment has exceeded Rs. 50,000/-"

2. Ground No.1 regarding disallowance under section 40(a)(ia) in respect of freight charges paid to agent of foreign shipping companies.

2.1 During the course of assessment proceedings the AO noted that the assessee has made the various payments including freight charges of Rs.6,58,588/- for which no TDS has been deducted. Accordingly the AO disallowed the expenses on account of freight charges of Rs.6,58,588/- under section 40(a)(ia) of the Income tax Act for want of TDS. On appeal, the CIT(A) deleted the addition on the ground that the payment was made to the agent of foreign shipping companies to whom section 172 are applicable and for calculation of their business income in India section 28 to 43 are not applicable. Further, the tax on the expenditure by the assessee which can be income for 3 ITA No.2481/M/12 & C.O. No.86/M/13

the respondent has been already paid under section 172. Therefore, TDS of such income is not required.

2.2 Before us, the ld. DR has submitted that section 172 does not affect the applicability of section 40(a)(ia) of the Income tax Act and therefore, the finding of the CIT(A) is not sustainable under law. In support of his contentions he has relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. M/s. Orient Goa Pvt. Ltd. Tax Appeal No. 7/2005 order dated October 16, 2009 and submitted that the Hon'ble High Court after considering the issue of applicability of section 172 as well as the CBDT Circular No.723of 1995 held that the disallowance under section 40(a)(ia) for non deduction of TDS by the AO is legal and proper. Thus, the ld. DR has submitted that the provisions of section 172 are not overriding provisions of section 194 and therefore, the AO is justified in disallowing this amount paid to foreign shipping companies under section 40(a)(ia) .

2.3 On the other hand the ld. AR of the assessee has submitted that identical issue has been considered by the co-ordinate Bench of this Tribunal in the case of Ramu s. Deora vs. DCIT vide ITA No.1704/Mum/12 order dated 17/04/2014 for the assessment year 2008-09 whereby it was held that as per Circular No.723 of 1995 dated 19/9/1995 the provisions of section 194C and 195 will not apply in the case where recipient is assessed under section 172 of the Income tax Act. He has further contended that even otherwise when the recipient has paid the tax for the said amount, therefore, a disallowance under section 40(a)(ia) is not justified. In support of his contention he has relied upon the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. vs. CIT (293 ITR 226) .

3. We have considered the rival submissions and relevant material available on record. As far as the binding nature of Circular issued by CBDT Cir. No.723 dated 19/9/1995 is concerned it is pertinent to note that the Circular and Instructions issued by the Board are binding on the taxing authorities and not on the Courts. Further, if the Hon'ble Supreme Court or Hon'ble High Court declares the law on the question arising 4 ITA No.2481/M/12 & C.O. No.86/M/13

for consideration then, it would not be appropriate for the Court or this Tribunal to direct the taxing authority to give effect to the Circular and not the view accepted in the decisions of the Courts. Thus, if under a particular provision, a legal question arises, and has been answered and explained by the Hon'ble High Court or Hon'ble Supreme Court then, the said explanation in the decisions of Hon'ble Supreme Court or Hon'ble High Court will be binding and not the Circular issued by the CBDT as held by the Larger Bench of Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. Rattan Melting & Wire Industry (2008)13 SSC-1.

3.1 As regards the alternative plea it is to be noted that the Hon'ble Supreme Court in case of Hindustan Coca-cola Breweries (P) Ltd. (supra), while considering the issue of deduction of tax under section 194C, 194I and consequential tax liability under section 201 and 201A has held in para-10 as under :-

"10. Be that as it may, Circular No.275/201/95-IT(B) dated January 29, 1997, issued by the central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand vizualized under section 201(1) of the Income tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201(A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under section 271C of the Income tax Act."

3.1.1 The finding of the Hon'ble Supreme Court in the said case is only issue of liability under section 201(1) and 201(1A). However, by the subsequent amendment under the provisions of section 40(a)(ia) by Finance Act, 2012 w.e.f 01/04/2013 whereby a 2nd proviso has been inserted as under :-

"Section 40(a)(ia) ....

1st proviso ....

26 Provided further that where an assessee fails to deduct the whole or any part to the tax in accordance with the provisions of chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1)of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso."

5 ITA No.2481/M/12 & C.O. No.86/M/13 3.1.2 As per the 2nd proviso if the assessee failed to deduct the tax in accordance with Chapter XVII-B on any payment but is not deemed to be an assessee in default as per the first proviso to section 201(1) then for the purpose on this sub- clause it shall be deemed that the assessee has deducted and paid tax on such sum on the date of furnishing of return of income by the resident assessee. The decision of Hon'ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. (supra), was in respect of the payment to the resident payee and only on the point of liability under section 201(1) when the payee already paid the tax on such amount. The 2nd proviso to section 40(a)(ia) has made it clear that the benefit of payee having paid tax on such income is available only when the payee is resident. In the case in hand the payee is a non-resident, being a foreign shipping company, therefore, the 2nd proviso to section 40(a)(ia) as well as the first proviso to section 201(1) and 201(1A) are not applicable in such payments. Accordingly we do not agree with the alternative plea of the ld. AR.

3.2 The Hon'ble Jurisdictional High Court in the case of CIT vs. Orient Goa Pvt. Ltd. (supra), while considering an identical issue has held in para-8 as under :-

"8. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as "LIABILITY IN SPECIAL CASES". We have no concern with sections, starting from Section 159, till Section 171 from this Chapter XV. Section 172 comes under sub-title "H-Profits of non-residents from occasional shipping business". Title of Section 172 is "Shipping business of non-residents." For bringing a case under Chapter XV, H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. "Nonresident" is defined under section 2(30), as a person who is not a "resident" and for the purpose of Sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of Section 6. The respondent assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. We have also taken notice of section 6 i.e. "Residence in India". In short, respondent assessee cannot be said to be nonresident. The present appeal pertains to the respondent assessee. In our view, in the facts of the present case, the respondent assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent assessee has earned some profit from 6 ITA No.2481/M/12 & C.O. No.86/M/13

occasional shipping and is a non-resident. In our view, Section 172 does not have application in relation to the respondent assessee and in the facts and circumstances of the present case. The company from Japan viz.

Mitsui & Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company i.e. Mitsui & Co. Ltd., Japan. On our query to the learned Senior Advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from the Judgment of the learned Commissioner of Income- tax has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. "3. We have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of Rs. 1,08,53,980/- being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The Assessing Officer opined that since the assessee did not deduct tax at source, as such the case of the assessee falls within the mischief of section 40(a)(i) of the Income Tax Act, 1961." Provisions of Section 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of Section 194C and 195 relating to tax deduction at source, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of Section 172. In this view, these observations of the learned Vice President of Income Tax Appellate Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of Section 172 or Section 195. Crucial point is as to how Section 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act. 1956. In our view, the learned Vice President of the ITAT has recorded a perverse observation/finding in para-3 regarding application of Section 44B and 172 of the Act, 1961."

3.2.1 Accordingly, following the decisions of Hon'ble Jurisdictional High Court we set aside the order of CIT(A) qua this issue and restore the order of the AO. The disallowance is confirmed.

4. Ground No.2 is regarding the disallowance of transportation charges under section 40(a)(ia). The AO has disallowed transportation charges paid to M/s. Patil Transport Services and M/s. Shreenath Roadways total amounting to Rs.2,94,194/- under section 40(a)(ia) for want of TDS. On appeal, CIT(A) deleted the disallowance on the ground that the recipients have paid the tax on the transportation charges collected from the assessee and therefore, no TDS was required to be deducted on the 7 ITA No.2481/M/12 & C.O. No.86/M/13

same payment. The CIT(A) has followed the judgment of Hon'ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. (supra).

4.1 We have heard the ld. DR as well as the ld. AR and considered the relevant material on record. There is no dispute that the resident transporters have paid the tax for transportation charges collected from the assessee. Therefore, we donot find any error in the order of CIT(A) in deleting the disallowance by following the judgment of Hon'ble Supreme Court in case of Hindustan Coca-cola Breweries (P) Ltd.(supra). It is pertinent to note that as per the 2nd proviso to section 40(a)(ia) no disallowance can be made in case where the payee has paid the tax on the said amount. Though, the said proviso is applicable w.e.f. 01/04/2013 however, in view of the judgment of Hon'ble Supreme Court we find that this amendment is remedial in nature and similar to the amendment under section 43B. The Hon'ble Delhi High Court in CIT vs. Naresh Kumar (362 ITR 256) while considering the amended proviso to section 40(a)(ia) has held in para 26 to 29 as under :-

"26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40(a)(ia) is invoked in large number of cases.

27. One important consideration in construing a machinery section is that it must be so construed so as to effectuate the liability imposed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard.

28. It is, in this context, that we had in Rajinder Kumar's case (supra) observed as under(page 252 of 362 ITR):

8 ITA No.2481/M/12 & C.O. No.86/M/13 "Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P) Limited (supra) and Commissioner of Income Tax versus Alom Extrusions Limited, (2009) 319 ITR 306 (SC). In the case of Allied Motors (P) Limited (supra), the Supreme Court was examining the first proviso to Section 43B and whether it was retrospective. Section 43B was inserted in the Act with effect from 1st April 1984 for curbing claims of taxpayers who did not discharge or pay statutory liabilities but claimed deductions on the ground that the statutory liability had accrued. Section 43B states that the statutory liability would be allowed as a deduction or as an expense in the year in which the payment was made and would not be allowed, even in cases of mercantile system of accountancy, in the year of accrual. It was noticed that in some cases hardship would be caused to assessees, who paid the statutory dues within the prescribed period though the payments so made would not fall within the relevant previous year. Accordingly, a proviso was added by Finance Act, 1987 applicable with effect from 1st April, 1988. The proviso stipulated that when statutory dues covered by Section 43B were paid on or before the due date for furnishing of the return under Section 139(1), the deduction/expense, equal to the amount paid would be allowed. The Supreme Court noticed the purpose behind the proviso and the remedial nature of the insertion made. Of course, the Supreme Court also referred to Explanation 2 which was inserted by Finance Act, 1989 which was made retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated(page 686 of 224 ITR):

'In the case of Goodyear India Ltd. V. State of Haryana(1991) 188 ITR 402 (SC), this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act.

Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodhamal Kuthiala v. CIT (1971) 82 ITR 570 (SC), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, (1994) 209 ITR 7 (Guj.), the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with Assessment Year 1985-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn.(1991) 191 ITR 676 (Cal.) has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. (1991) 189 ITR 70 (Patna). The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. At p. 291: "It is well -settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." In fact 9 ITA No.2481/M/12 & C.O. No.86/M/13

the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained........

Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose.

In Podar Cement Private Limited (1997) 226 ITR 625(SC), the Supreme Court considered whether term 'owner' would include unregistered owners who had paid sale consideration and were covered by Section 53A of the Transfer of Property Act. The contention of the assessees was that the amendments made to the definition of term 'owner' by Finance Bill, 1987 should be given retrospective effect. It was held that the amendments were retrospective in nature as they rationalise and clear the existing ambiguities and doubts. Reference was made to Crawford: 'Statutory Construction' and 'the principle of Declaratory Statutes', Francis Bennion: 'Statutory Interpretation', Justice G.P. Singh's 'Principles of Statutory Interpretation', it was observed that sometimes amendments are made to supply an obvious omission or to clear up doubts as to the meaning of the previous provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though it was noticed that as per Transfer of Property Act, Registration Act, etc. a legal owner must have a registered document.

In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17 - 20 that the expression "said due date" used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance.'

Accordingly, we do not find any error or illegality in the order of CIT(A) qua this issue.

5. Ground No.3 is regarding disallowance under section 40(a)(ia) in respect of maintenance charges. We have heard the ld. DR as well as the ld. AR and considered the relevant material on record. The assessee claimed machinery maintenance expenses of Rs.92,700/-. The AO disallowed the said amount under section 40(a)(ia) for want of TDS. On appeal CIT(A) has noted that out of total amount of Rs.92,700/- a sum of Rs.51,000/- relates to purchase of dye plats and punches and balance amount 10 ITA No.2481/M/12 & C.O. No.86/M/13

consisted of expenses on account of repair and maintenance not exceeding Rs.20,000/- of individual bills. Accordingly CIT(A) has deleted the disallowance made by the AO. We note that out of total expenditure of Rs.92,700/- Rs.51,000/- relates to the purchase of machinery parts, therefore, provisions of chapter XVII-B are not applicable so far as the expenditure relates to purchase of machinery parts. The remaining expenditure is comprising of several bills and the amount of one individual bills does not exceed Rs.20,000/-. Accordingly we do not find any error or illegality in the impugned order of CIT(A). This ground of the revenue is disallowed.

6. Revenue appeal is partly allowed.

7. Cross Objection No. 86/Mum/2013

7.1 The assessee has raised the following grounds :-

"1.1 The learned Commissioner of income tax (Appeals) - 35. Mumhai ["the id. CIT (A)'] erred in confirming the action of the income Tax Officer - 25 (3) (3), Mumbal ['the A.O."] in disallowing Rs. 1,10,964/- [part of total clearing and forwarding expenses of Rs. 5,40,469/-] u/s. 40(a) (ia) of the Income --tax Act. 1961 [the Act"].

1.2 While doing so, the A.O. failed to appreciate that:

(i) The case of the Appellant did not fall within the purview of section 40 (a) (ia) of the Act; and (ii) In any case, no such disallowance was called for."

7.2 The AO has disallowed a sum of Rs.5,30,469/- on account of clearing and forwarding expenses under section 40(a)(ia) for want of deduction of tax. Before CIT(A) the assessee has submitted that the entire expenses does not consist of agency commission but it includes an amount of Rs.4,19,505/- towards reimbursement of expenses. The assessee also pointed out that the bills for such expenses incurred by C&F agents were separately raised by the assessee in addition to the bills for agency charges payable. The assessee therefore, relied upon the CBDT Circular No.715 dated 08/08/1995 in support of its claim that the reimbursement of actual expenditure having no element of profit involved cannot be subject to TDS. Accordingly the CIT(A) deleted the disallowance made by the AO to the extent of reimbursement of expenses 11 ITA No.2481/M/12 & C.O. No.86/M/13

amounting to Rs.4,19,505/- and confirmed the disallowance of the balance amount of Rs.1,10,964/-. The assessee has raised this issue in cross objection.

7.3 Before us, the ld. AR of the assessee has submitted that the payment made towards clearing and forwarding expenses does not fall under section 40(a)(ia) as there was no contract between the assessee and the agency. On the other hand the ld. DR has submitted that the service availed by the assessee from the C&F agency is under the agency contract and even if there is no written contract there exists oral contract between the two parties.

7.4 We have considered the rival submissions as well as relevant material available on record. We note that this plea of having no contract between assessee and C&F agency has been raised by the assessee for the first time before us. Before the CIT(A) the assessee made the submissions which has been reproduced from para 5.1 of the order of CIT(A):-

"5.1 The Authorised Representative of the appellant has filed the, following written submissions.

"Clearing & Forwarding Expenses amounting to Rs. 5,30,469/- has been disallowed by Learned A.0. but the entire expense does not constitute agency commission, and included in the above amount is reimbursement of expenses amounting to Rs.4,19,505/-. It has been agreed between assessee and R P Patel Shipping and Logistics Pvt. Ltd. (Customs House Agents) that various expenditure such as transportation charges, documentation charges, unloading charges etc. will be initially paid by C.H.A. on behalf the assessee and subsequently be reimbursed by the assessee as and when the C.H.A. will raise a separate bill for reimbursement of actual expenditure incurred.

Bills for such expense incurred by C H A were separately raised by them on assessee in addition to bills for agency charges payable and since the amount of bills so raised was towards the actual expenses incurred by them, there is no element of profit involved in the said bills. It is a clear case of reimbursement of actual expenses of the assessee and the same, therefore was not of the nature of payment covered by section 194C/J requiring the assessee to deduct tax there from.

The above contention is been supported by C'BDT Circular no. 715 dated 8-8-1995, wherein if is stated that where the bills are raised for the gross amount inclusive of charges/fees as well as reimbursement of actual expenses, reimbursements cannot be deducted out of the bill amount for the purpose of TDS. Conversely put if there is no composite bill but separate bill has been raised for charges/fees and reimbursement of actual 12 ITA No.2481/M/12 & C.O. No.86/M/13

expenditure borne, the same cannot be subject to TDS as a part of gross bill as there being no income included in the amount of reimbursement which was on the basis of actual expenses incurred. Same position of law is also been clarified in Boards Circular No. 714 dated 3.8-1995.

As such the A. 0. is not justified in treating assessee as "Assessee in Default"

for non deduction of TDS on the reimbursed amount and also in charging interest u/s.234B. Hence the expenditure should be disallowed."

7.5 Thus it is clear that the grievance of the assessee before CIT(A) is only in respect of the amount of Rs.4,19,505/- claimed to be reimbursement of expenses. The CIT(A) has accepted the said contention of the assessee and allowed to the extent of said amount of Rs.4,19,505/-. Accordingly, the balance amount of Rs.1,10,964/- was confirmed by CIT(A). As it is manifest from the record, that no such grievance was raised before CIT(A), and further, the fresh plea raised before this Tribunal required the finding of fact, whether any contract between the parties did exist or not. Even otherwise the payment of service charges to C&F agent is based on agreed rate/charges which constitute an agreement between the parties. Accordingly in the facts and circumstances of the case we do not find any merit or substance in the cross objection of the assessee hence, the same is dismissed.

8. In the result, appeal of the revenue is partly allowed and the cross objection raised by the assessee is dismissed.

Order pronounced in the open court on 11/02/2015 आदेश क# घोषणा खुले यायालय म) *दनांकः 11/02//2015 को क# गई ।

Sd/- Sd/- ( Sanjay Arora ) ( Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य / JUDICIAL MEMBER मुंबई Mumbai; *दनांक Dated 11/02 /2015 व.िन.स./ Jv, Sr. PS 13 ITA No.2481/M/12 & C.O. No.86/M/13

आदे श क ूितिल प अमे षत/Copy षत of the Order forwarded to :

1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. आयकर आयु (अपील) / The CIT(A)- 4. आयकर आयु / CIT 5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड$ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स या पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai.