TaxTMI 
TaxTMI 
2018 (9) TMI 423
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....h Bank of India vide account number 511210100004605. The assessee had drawn Rs. 3,00,000.00 during the year as reflected in the audited Balance Sheet for the year. The total credit in the account during 01.04.2009 to 31.03.2010 was Rs. 2,60,438.00. As the total drawings exceed the total credit in the account there was no unexplained credit. The learned JCIT had erred in making the addition of Rs. 9,01,844.00 as there is no such credit in the bank. Copy of bank statement, Drawing account and the audited balance sheet are enclosed herewith." 5. Since the assessee furnished new evidence, the CIT(A) referred the matter to the assessing officer for verification and submission of the remand report. The assessing officer has filed remand report vide order dated 01.09.2016. The relevant portion is as below: - "A. Addition of Rs. 9,01,844/- on account of undisclosed deposits in SB a/c. Bearing A/c. No. 511210100004605. The assessing officer made an addition of Rs. 9,01,844/- being the credit entries made in the SB account bearing No. 511210100004605 maintained with Bank of India, Kharvel Nagar Branch since the same were not reflected in the books of accounts of th....
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....t the assessee will not manage the household expenses for Rs. 40,000/- for one year and that the assessee has not furnished reconciliation statement showing deposits are from the drawings, the CIT(A) restricted the addition to Rs. 2,60,440/- and partly allowed the appeal of the assessee. 7. We find that during the course of hearing, ld A.R. reiterated the submission made before the CIT(A). He could not bring any cogent and relevant material on record to show that the deposits in the bank account were out of earlier drawings made by the assessee before depositing the same in the bank account. We, therefore, confirm the order of the CIT(A) and dismiss this ground of appeal of the assessee. 8. In Ground Nos.4,5 & 6 of the appeal, the grievance of the assessee is that the CIT(A) is not justified in confirming the addition of Rs. 3,05,26,985/- made by the Assessing Officer on account of payment made to M/s. Sumasankar Sponge Iron Pvt Ltd., by applying section 40(a)(ia) of the Act. 9. The brief facts of the case are that the Assessing Officer found that the assessee has claimed payment of wages of Rs. 3,05,26,985/- to M/s. Sumasankar Sponge Iron Pvt Ltd. On being required ....
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....ssessee failed to produce any material evidences in support of engagement of labour force of M/s. Sumasankar Sponge Iron (P) Ltd. Therefore, the Assessing Officer disallowed wages payment of Rs. 3,05,26,985/- and treated the payment as bogus as the payments made by the assessee were not supported by account of other party. During the course of remand proceedings, the A/R of the assessee appeared and furnished following documents/explanations: That, in query No. 3 your Honour required the Assessee to justify as to why the labour charges paid to M/s. Sumasankar Sponge Iron (P) Ltd. of Rs. 3,05,26,985/- disallowed in Assessment is not justified, further to explain why section 40(a) (ia) of the Act. On this issue, it may be submitted here that, during the year under consideration, M/s. Sumasankar Sponge (P) Ltd., had stopped its business and its labours were lying idle, for which it requested the assessee to use its labour, so that, they will not have any complain against the Company. Since, the labours of the Company were staying nearby the site of the Assessee, he simply used them for his work and paid them through the Company. The Company neither worked as for his ....
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..... Perusal of the agreement revealed that the agreement has been made with the company only for accommodation of labours and company is not a labour contractor/supplier. The assessee also claimed the above expenses of Rs. 3,05,26,985/- under the head wages. The copies of the agreement and confirmation letter of the company M/s. Sumasankar Sponge Iron (P) Ltd. with regard to receipt of Rs. 3,05,26,985/- against use of labours is placed in the file for ready reference. In view of the above facts and circumstances, though the claim of the assessee regarding payment of Rs. 3,05,26,985/- has been explained, the additions on the above ground may be decided on merit. " 12. The assessee filed rejoinder to the remand report vide submission dated 18.10.2016, which reads as follows: "5.1. That, the learned A.O. while completing the Assessment has disallowed Rs. 3,05,26,985.00 paid to M/s. Sumasankar Sponge Iron (P) Ltd. which was paid on account of use of the labour of the Company by the Assessee. During the course of Remand proceeding, the Assessee furnished the Ledger Account of labour charges paid through the said Company, copy of Agreement executed with the Compa....
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....ection 194C are not applicable. I have gone through the agreement dated 01.04.2009 between SSEPL and the appellant which was filed during the course of remand proceedings. The relevant portion is as below:- "The First party is the Managing Director of M/s Sumakar Sponge Iron (P) Ltd running a induction furnace plant situated at Khuntakata, Suakathi, Keonjhar district in the state of Orissa, India. The First Party has idle labour force as the plant is not in operation. The Second Party has approached the First Party for using the Labour force at his work site execution of overburden of iron ore at Gandhamardhan mines, Suakati Keonjhar. As the First Party is unable to make payment to the idle labour he has agreed to the proposal by the Second Party under following terms and conditions. 1. That, this is not a labour contract agreement as the First Party is not a labour contractor and will not raise any such labour bills. This arrangement will be only temporary deputation of labour to the Second Party and the Second Party shall not deduct any TDS from the wages payments. 2. That the second party will pay the monthly wages bill to the labour throug....
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....g the provisions of section 40(a)(ia) of the Act. 15. According to the CIT(A), the assessee has paid wages of Rs. 3,05,26,985/- to M/s. Sumasankar Sponge Iron (P) Ltd. . The assessee was liable to deduct tax u/s.194C of the Act, which he failed to do. The assessee explained that M/s. Sumasankar Sponge Iron (P) Ltd. was not a labour contractor and payment was made to labours through to M/s. Sumasankar Sponge Iron (P) Ltd. because they were under the pay roll of the said company. The assessee pointed out from the agreement dated 1.4.2009 placed at pages 61 to 62 of paper book that the said company was running an induction furnace plant. As at the material time, the said plant was not in operation, the said company has idle labour force with it. In the circumstances, the labour of M/s. Sumasankar Sponge Iron (P) Ltd. was engaged for the work of the assessee and the assessee paid wages to labours through the said party. No income element of M/s. Sumasankar Sponge Iron (P) Ltd was involved in this transaction. At best, it can be held that the labour wages alone were reimbursed to the said company by the assessee. It is a settled position of law that when an amount p....
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....rsement of expenditure. For ready reference, we extract para Nos.21 to 24 of the order relied upon by the Ld. A.R as follows: "21. We have also carefully gone through the judgement of the Delhi High Court in CIT Vs. Industrial Engineering Projects Pvt. Ltd. (1993) 202 ITR 1014. In the case before the Delhi High Court the assessee had agreement with M/s. ETAG, a Swiss Company, for rendering services. The assessee would receive a minimum sum of Rs. 1,20,000/- per month for the services rendered besides reimbursement of certain costs and expenditure incurred by the assessee while rendering the services as per the agreement. The Income-tax Officer disallowed the expenses incurred. On appeal by the assessee before the Delhi Bench of this Tribunal, it was held that the reimbursement of the expenditure did not constitute income as the expenses were incurred on behalf of the Swiss company. On a reference to the Delhi High Court at the instance of the Revenue, the Delhi High Court after considering the judgement of the Apex Court in the case of CIT Vs. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95 held that ....
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....ome Accordingly, the same was exempt. In view of this judgement of the Apex Court, the reimbursable expenditure received by the assessee in pursuance to the agreement cannot form part of the taxable income Accordingly, the same has to be excluded. 24. We have also carefully gone through the judgement of the Bombay High Court in CIT Vs. Tanubai D. Desai (1972) 84 ITR 713. In the case before the Bombay High Court, the assessee was a practicing solicitor. In the course of carrying on his profession the assessee used to receive money from or on behalf of his clients. The money received was deposited by him in separate current account with Imperial Bank of India. Subsequently, the assessee withdrew a sum of Rs. 3.25 lakhs and placed the same in fixed deposit with Chartered Bank. The assessee renewed the account from time to time together with interest earned thereon. The assessee earned interest on the fixed deposit. The interest earned on the fixed deposit was not adjusted by apportioning it to different clients whose moneys were depos....
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..... The obligation of the assessee to deduct tax under s. 195 is limited only to the appropriate proportion of income chargeable under the Act. It is therefore clear that any remittance which does not have an income element which is chargeable to tax need not suffer tax deduction at source.-Transmission Corporation of A.P. Ltd. &Anr. vs. CIT (1999) 155 CTR (SC) 489: (1999) 239 ITR 587 (SC) relied on. 9. The Hon'ble ITAT Delhi relied on the decision of Transmission Corporation of India of AP Limited Vs. CIT 155 CTR (SC) 489. In the instant case, the expenditure debited to P&L account towards the conversion expenses is reimbursement of expenditure, which is supported by the agreement entered into by the assessee. The A.O. made addition u/s 40(a)(ia) of the Act but not given any reasoning. The Ld. CIT(A) held that the same is reimbursement of expenses. M/s. Aditya Spinners Limited has admitted the entire amount of reimbursement of expenses as well as conversion charges as income in their hands and filed the return of income for the relevant assessment year. As held by the coordinate bench of Hyderabad in the case of M/s. Louis Berger International ....
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....ehalf of the assessee. Copies of the few bills raised by the two agencies were placed on record at Pages 40 to 66 of the assessee's paper book. On perusal of the same, it is clearly evident that these are nothing, but reimbursement of expenses incurred by the clearing agencies on behalf of the assessee. Therefore, these amounts did not constitute income of the clearing agent and no TDS was required to made thereon. Therefore, the provision of Section 194C will not be applicable in respect of reimbursement of expenses. 6.2 Circular No.715 dated 08.08.1995 was issued by CBDT on "Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995". The said circular in reply to question no.30, provided as under: "Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source." 6.3 The aforesaid circular was applicable only where the consolidated bills are raised for the gross amount inclusive of contractual payments as well as reimbursement of actual expenses. The same would therefore, not be applicab....
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.... assessee company in addition to bills for fees payable on account of technical services and sine the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear use of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not be the nature of payment covered by section 194J requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dated 08.08.1995 relied upon by the Assessing Officer in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of section 194J were not applicable to the reimbursement of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement. In that view of the matter....
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.... be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4." 11. This provision makes it clear that deduction at source shall be on such income not otherwise. The primary factor to attract Section 194J is the ingredient of "income comprised therein". If no income is reflected in the balance sheet and P & L account of HSL towards the reimbursement charges paid on cost to cost basis by KSL and ML, it ceases to have the character of income. As such, the assessee cannot be treated as the assessee in default in not deducting tax at source under Section 194J of the Act. The arguments of the revenue that the fees paid by the assessee is towards technical services is imaginary one not established with substantial material. 12. The Assessing Officer proceeded to pass the orders under Sections 201 and 201(1A) of the Act on the footing that the assessee was required to deduct tax from the payments made to the HSL irrespective of the fact that the said payments include element of income or not. This approach of the Assessing Officer is contra....
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....ears. Consequently, the provisions of Sections 201 and 201(1A) of the Act are not attracted. We do not find any material irregularity or infirmity in the orders passed by the appellate authorities. For the aforesaid reasons, we answer substantial questions of law against the revenue and in favour of the assessee." 19. The assessee filed before us a copy of audited financial statement of M/s. Sumasanka Sponge Iron (P) Ltd., to show that no income accrued to that company out of payment of wages by the assessee through the said company. The assessee also filed before us a copy of the wage register of M/s. Sumasanka Sponge Iron (P) Ltd and and copy of ledger account of M/s. Sumasanka Sponge Iron (P) Ltd to show that the wages of labours were actually paid to the said company and no income of M/s. Sumasanka Sponge Iron (P) Ltd was involved in this transaction. In view of above decisions discussed above, we are of the view that the assessee is not liable to deduct ITDS on the amounts which are purely in the nature of reimbursement to the payee u/s.194C of the Act when the payment to the payee does not involve any taxable income of the payee. We, therefore, set aside the orders of lowe....