TMI Blog2018 (2) TMI 1587X X X X Extracts X X X X X X X X Extracts X X X X ..... ER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri Deba Kumar Sonowal, DR For The Respondent : Shri S. Rama Rao, AR ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal filed by the revenue is directed against order of the Commissioner of Income Tax (Appeals), {CIT(A)}, Guntur vide ITA No.93/CIT(A)-1/GNT/2014-15 dated 29.3.2016 for the assessment year 2007-08. 2. Assessee filed return of income declaring total income of ₹ 3,90,370/- on 3.10.2007. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act') on 31.12.2009 determining the total income at ₹ 6,90,370/-. Subsequently, the case was reopened u/s 147 of the Act by issue of notice u/s 148 of the Act for not considering the disallowance u/s 40a(ia) of IT Act. During the re-assessment proceedings, the A.O. found that the assessee has made the payment of ₹ 4,36,13,708/- towards the conversion expenses but not deducted TDS as required u/s 194C of the Act, hence made the addition of ₹ 4,36,13,708/- u/s 40(a)(ia) of the Act. 3. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. With regard to the other proposition submitted by the assessee stating that the respondent has admitted the income in its hands, hence, the assessee should not be treated as assessee in default. The Ld. D.R. submitted that the amendment has come into force with prospective effect but not retrospective, hence argued that the amendment to second proviso of section 40(a)(ia) of the Act is not applicable in the assessment year under consideration. Accordingly, the Ld. D.R. argued that the A.O. has rightly disallowed the expenditure u/s 40(a)(ia) of the Act which require to be upheld. 6. On the other hand, the Ld. A.R. argued that the assessee has made the payments to M/s. Aditya Spinners Pvt. Ltd., a company registered under Companies Act as per job conversion agreement dated 1.4.2006. According to the agreement, the assessee would make the payment of job conversion charges to M/s. Aditya Spinners Pvt. Ltd. for converting spin 30s 100s count of Polyester staple figre and viscos staple fibre. For this purpose, the assessee would supply the raw material in required quantities and the contractor M/s. Aditya Spinners would undertake the job work as per the agreement. The expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The remaining amount of ₹ 4,36,13,708/- was conversion expenses which was reimbursed to the contractor on actual basis hence TDS ia not applicable. In fact, this was the actual expenses incurred by the contractor for executing the contract, which was reimbursed by the assessee. The fact regarding the payment of conversion charges and reimbursement of expenses was evidenced by the agreement entered by the assessee with M/s. Aditya Spinners Pvt. Ltd., which was also relied upon by the Ld. CIT(A). As per the job conversion agreement, the assessee required to reimburse the production cost, power, wages, consumables, packing, etc. Therefore, the Ld. A.R. argued that job conversion charges would not attract TDS. The assessee relied on the decision of Hon ble ITAT, Hyderabad B Bench in the case of ACIT, Circle-2(2), Hyderabad Vs. Louis Berger International Inc. in ITA Nos.1073/Hyd/2004, 1074/Hyd/2004, 720/Hyd/2005 and 721/Hyd/2005 dated 30.6.2010. The Hon ble ITAT in the cited decision held that there is no profit element in the reimbursement of expenses, hence the reimbursement of expenditure received by the recipient does not form part of total income. Since the reimbursement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. In this case also the money was received by the assessee on behalf of their clients for incurring the expenditure. Therefore, the money received did not have the profit making quality as held by the Calcutta High Court. In our opinion, this judgement of the Calcutta High Court also supports the case of the assessee. 23. We have also carefully gone through the judgement of the Apex Court in the case of CIT Vs. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95. The assessee before the Apex Court acted as a selling agent of Ciba (India) Ltd. The assessee was entitled to commission of 12.5% on sales. Out of the 12.5%, 7.5% was treated as selling commission and 5% as compensation in lieu of contingency expenses which it had to meet. The question arise before the Apex Court was whether the 5% selling commission in lieu of the contingency expenditure would form part of the total income or not. The Apex Court held that 5% of the expenses in lieu of the contingency expenses was for the expenditure incurred in the performance of the duties of the respondent as selling agent. Therefore, it will not form part of the taxable income Accordingly, the same was exempt. In view of this judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us the money was received after incurring the expenditure by way of reimbursement. Therefore, the reimbursable expenditure received by the assessee cannot form part of the total income In view of the above discussion, in our opinion, the reimbursable expenditure received by the assessee cannot form part of the total income. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. 8. The CIT(A) also observed that reimbursement of expenditure does not attract TDS, hence no addition required to be made u/s 40(a)(ia) of the Act. This view is supported by ITAT, Delhi Bench in the case of ACIT Vs. Modicon Network Pvt. Ltd. reported in (2007) 14 SOT 204 (2007) (Del). For ready reference, we extract the relevant portion of the order as under: Obligation to deduct tax under s. 195(1) is only with reference to the income element imbedded in the remittance. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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