2018 (6) TMI 507 - AT - Income Tax

Tribunal orders reassessment on expenses and TDS, citing contract scrutiny.

The Tribunal restored the issue to the Assessing Officer for fresh adjudication, emphasizing the need to verify the agreement between the assessee and the ... TDS u/s 194C - Disallowance u/s 40(a)(ia) - non deduction of TDS in respect of payment representing reimbursement of expenses to Clearing and Forwarding Agent - Held that:- It is necessary to observe the fact whether M/s. S. K. Agency has incurred cost on behalf of the assessee and for this purpose the agreement between the assessee and M/s. S. K. Agency was required to be referred - thus in the absence of specific documents we restore this issue to the file of the AO for fresh adjudication by the law - ground of appeal of the Revenue is allowed for statistical purposes. Issues Involved:1. Deletion of addition due to non-deduction of TDS on reimbursement of expenses.2. Applicability of Section 194C r.w.s. 40(a)(ia) of the Income Tax Act on reimbursement of expenses.3. Verification of the agreement between the assessee and the clearing and forwarding agent.Issue-wise Detailed Analysis:1. Deletion of Addition Due to Non-Deduction of TDS on Reimbursement of Expenses:The Revenue contested the deletion of an addition of Rs. 58,03,774 by the CIT(A), arguing that the assessee admitted during the assessment proceedings that a portion of the payments made was not allowable as a deduction due to non-deduction of TDS. The CIT(A) had deleted the addition, relying on the precedent set by the jurisdictional High Court of Gujarat in the case of CIT Vs. Gujarat Narmada Valley Fertilizers Co. Ltd., where it was held that no part of the amount reimbursed should be disallowed if the expenses were incurred by an agent on behalf of the assessee-principal. The CIT(A) noted that the Special Leave Petition (SLP) of the department had been dismissed by the Supreme Court, affirming this view.2. Applicability of Section 194C r.w.s. 40(a)(ia) of the Income Tax Act on Reimbursement of Expenses:The Revenue argued that the CIT(A) erred in law and on facts by not considering the Board's Circular No. 715 dated 08.08.1995, which clarified that payments to clearing and forwarding agents are liable for deduction of tax at source, including reimbursements. However, the assessee maintained that the expenses represented reimbursement of actual expenses incurred by M/s S.K. Agency on behalf of the assessee, and thus, TDS was not applicable as per the Gujarat High Court's decision.3. Verification of the Agreement Between the Assessee and the Clearing and Forwarding Agent:The Tribunal found it necessary to verify the agreement between the assessee and M/s S.K. Agency to determine whether the expenses were indeed incurred on behalf of the assessee. The assessee's counsel failed to produce the agreement, leading the Tribunal to restore the matter to the Assessing Officer (AO) for fresh adjudication. The Tribunal directed the AO to verify the agreement and determine the applicability of TDS on the reimbursement of expenses in accordance with the law.Conclusion:The Tribunal restored the issue to the AO for fresh adjudication, requiring verification of the agreement between the assessee and M/s S.K. Agency to ascertain whether the expenses were reimbursement and whether TDS was applicable. The Tribunal's decision was influenced by the precedent set by the Gujarat High Court and the necessity to examine the contractual relationship between the parties involved. The Cross Objection by the assessee was also allowed for statistical purposes, following the same rationale.Order Pronouncement:The appeal by the Revenue and the Cross Objection by the assessee were both allowed for statistical purposes, with the directive for fresh adjudication by the AO. This order was pronounced in open court on 08.06.2018.