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ACIT vs. St. Marys Rubbers Private Ltd (ITAT Cochin)
August, 08th 2017

S. 40(a)(ia): Amounts paid by way of reimbursement of expenses do not constitute income in the hands of the recipient. Consequently, the payer is under no obligation to deduct TDS u/s 194C and no disallowance of the expenditure can be made u/s 40(a)(ia). CBDT Circular No.715 dated 08.08.1995 distinguished

(i) Mark Logistics has also given details of bills, copies of which are placed in paperbook pgs. 23 to 32 and these also clearly show that they were claiming reimbursement of expenditure incurred by them on behalf of the assessee. In the case of ITO vs. Deepak Bhargava ITA No. 343/Del/2012 dated 13th November 2014, where also the question was disallowance u/s. 40(a)(ia) of the Act for non deduction of tax at source on payments effected to clearing and forwarding agents, what was held by the Tribunal is reproduced hereunder:

“6.1 The CIT(A) has categorically held that the amount of Rs. 18,16,637/- is nothing but reimbursement of expenses incurred by the payee on behalf 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 dearly 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.”

(ii) The Tribunal, while giving the above decision, had also considered the effect of CBDT Circular No.715 dated 08.08.1995 and also ruled that the said Circular was applicable only where consolidated bills were raised inclusive of contractual payments and re-imbursement of actual expenditure. Same view was taken by the Bangalore Bench of this Tribunal in the case of DCIT vs. Dhanyaa Seeds (P) Ltd. (supra). Hon’ble Gujarat High Court in the case of Pr. CIT vs. Consumer Marketing (India) (P.) Ltd.(supra) held that when separate bills are there for reimbursement of expenditure received by C&F agent, TDS was not required to be made on reimbursement. It is an admitted position in the case before us that assessee had in addition to reimbursement of expenses, separately paid brokerage and commission Rs.2,52,410/- which was subjected to disallowance in the original assessment.

(iii) Considering all these, we are of the opinion that the CIT(A) was justified in deleting the disallowance made u/s. 40(a)(ia) of the Act.


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