Reimbursed expenses to clearing and forwarding agents were held outside TDS disallowance where separate bills showed the amounts were not income.

Reimbursement of direct expenses paid separately to clearing and forwarding agents was treated as outside the scope of tax deduction at source where the reimbursed portion was supported by distinct bills and was not income in the agents' hands. On that basis, the corresponding disallowance under section 40(a)(ia) for alleged non-deduction of tax under section 194C could not be sustained. The same reasoning applied to both assessment years because the issue was identical, and the addition was deleted in favour of the assessee.

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Issues: Whether reimbursement expenditure paid to clearing and forwarding agents, shown separately in bills, was liable to disallowance under section 40(a)(ia) for alleged non-deduction of tax at source under section 194C.

Analysis: The assessee's cargo-handling arrangement involved payments to C&F agents who raised invoices separately for agency charges and reimbursement of direct expenses. The reimbursement component was supported by separate bills and was not found to represent income in the hands of the agents. On the facts, the payment fell outside the mischief of tax deduction at source on the reimbursed portion, and the disallowance under section 40(a)(ia) could not be sustained. The reasoning was applied uniformly to both assessment years as the issue was identical.

Conclusion: The reimbursement expenditure was not liable to disallowance under section 40(a)(ia), and the addition was deleted in favour of the assessee.

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