2017 (8) TMI 1613 - AT - Income Tax

Disallowance u/s 40(a)(ia) - commission payment - contract between the assessee and the transporters and the bills received from the transporters were forwarded to the principals - whether assessee is under obligation to deduct TDS or not? - HELD THAT - The case of the assessee is that he is acting on behalf of the principals once transporters send the bills to the assessee in turn the assessee forwarded the same to the principals and the principals deducted TDS and commission payment is paid to the assessee. CIT(A) after calling all the details and after examining the same he accepted the submissions made by the assessee and deleted the addition. The Departmental Representative is not able to point out any mistake or error committed by the ld. CIT(A). As gone through the order passed by the ld. CIT(A). CIT(A) after examining each and every detail passed a detailed order. No infirmity in the order passed by the revenue. Thus this appeal filed by the revenue is dismissed.

Summary

Issues Involved:
1. Obligation to deduct TDS under Section 194C.
2. Application of Section 40(a)(ia) for disallowance of expenses.
3. Genuineness of transport charges.
4. Reimbursement of expenses and its treatment.
5. Estimated addition towards interest on loans/advances.

Issue-wise Detailed Analysis:

1. Obligation to Deduct TDS under Section 194C:
The primary issue revolves around whether the assessee was obligated to deduct TDS on transport payments under Section 194C. The Assessing Officer (AO) found that the assessee made contract payments to various transport companies without deducting TDS, leading to an addition of Rs. 41,63,417/- under Section 40(a)(ia). The assessee argued that the payments were made on behalf of the principals, who deducted TDS, and thus, Section 194C was not applicable. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's submission, noting that there was no contract between the assessee and the transporters, and the transport charges were not claimed as expenditure in the profit and loss account.

2. Application of Section 40(a)(ia) for Disallowance of Expenses:
The AO applied Section 40(a)(ia) to disallow the transport charges due to non-deduction of TDS. The CIT(A) overturned this, citing precedents where it was held that if the expenses are not claimed in the profit and loss account, Section 40(a)(ia) does not apply. The CIT(A) referenced cases such as M/s Name Constructions (P) Ltd. and M/s Godavari Developers, where it was established that disallowance under Section 40(a)(ia) is not warranted if the expenses are not debited to the profit and loss account.

3. Genuineness of Transport Charges:
The genuineness of the transport charges was not in dispute. The CIT(A) verified that the transport operators raised bills in the name of the principal, and the principal reimbursed the transportation costs to the assessee. The CIT(A) concluded that the payments were genuine, supported by proper evidence, and there was no contract between the assessee and the transporters.

4. Reimbursement of Expenses and Its Treatment:
The assessee acted as a conduit for the principal, incurring expenses on behalf of the principal and getting reimbursed. The CIT(A) detailed the process: the transport bills were raised in the name of the principal, the assessee forwarded these bills, and the principal reimbursed the expenses after deducting TDS. The CIT(A) emphasized that the assessee did not claim these expenses in the profit and loss account, and thus, Section 40(a)(ia) was not applicable. The CIT(A) supported this with the decision of the Delhi High Court in CIT Vs DLF Commercial Project Corporation, which held that TDS obligations apply only to income and not to reimbursements.

5. Estimated Addition Towards Interest on Loans/Advances:
The AO pointed out that the assessee advanced amounts to certain parties without admitting any income from these advances and estimated income based on the interest rate paid by the assessee on loans taken. The CIT(A) did not explicitly address this issue in the detailed order provided.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal and the assessee's cross-objection. The Tribunal found no error in the CIT(A)'s detailed examination and conclusions, affirming that the assessee was not obligated to deduct TDS on the transport payments and that Section 40(a)(ia) was not applicable since the expenses were not claimed in the profit and loss account. The Tribunal concluded that the CIT(A) correctly deleted the addition of Rs. 41,63,417/- and supported the genuineness and proper treatment of the reimbursement of expenses.