TMI Blog2021 (11) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... panies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the service providers. Since, the assessee has made payment on behalf of their customers; the assessee ought to have deducted TDS on such payments while making payments. Since, the assessee has failed to deduct TDS, on such payments the AO is right in disallowing such payments u/s. 40(a)(ia) of the Act. Hence, we confirm additions made by the AO. Alternative plea of the assessee that it has made payment to reputed shipping companies and all service providers has filed their return of income u/s. 139 of the Act and included payments made by the assessee in the return of income and thus, the assessee cannot be held as an assessee in default in terms of second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 w.e.f. assessment year 2013-2014 - In this case, the assessee has failed to obtain Form No. 26A and file before the AO and CIT(A) to give the benefit of proviso to section 40(a)(ia) of the Act, and said lapse is continued even before us. Before us, the assessee could not file any Form no 26A obtained from its clients nor fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the view that TDS is not applicable on Reimbursable Expenses. It was applicable only on Income or Trading Receipts(r) The actual reimbursements do not come under the ambit of TDS. E. Notwithstanding the above, the appellant pleas that wherever they had obtained Form 26A, the appellant should not have been treated as 'assessee in default' as provided in Section 40(a)(ia) and on such amounts Section 40(a)(ia) should not have been applied. F. The appellant for the purpose of claiming non deduction of TDS relies on the decision of Supreme Court in the case of Transmission Corporation of AP Ltd. v CIT [1999] 239 ITR 587. G. The appellant for the purpose of not being treated as 'assessee in default' relies on decision of the Supreme Court in the case of Hindustan Cola Beverages Pvt. Ltd. v CIT 293 ITR 226. H. DISALLOWANCE u/s. 36 (1) (ib) -The Assessing Officer failed to examine the Bank Statements of the appellant for the Month of April 2013 to confirm that the payment of Keyman Insurance of ₹ 70,682/- had indeed been paid in Mare 2013 an Bank Account in the month of April 2013. I. The appellant craves leave to adduce additional groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for relevant assessment years and further, wherever the assessee furnishes certificate in prescribed Form 26A along with Annexure to the effect that the deductee has included the same amount in his return of income, for the reason that the assessee could not furnish necessary Form 26A for verification. The AO had also made additions towards disallowance on premium paid for Key man Insurance Policy u/s. 36(1)(ib) of the Act. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its arguments made before the AO to justify non-deduction of tax at source on payment made to shipping companies/CFS Agents on behalf of their clients on the ground that it is mere reimbursement of expenses without any element of profit and thus, is outside the scope of provisions of section 194C of the Act. The assessee has also challenged additions made by the AO towards disallowance of Key man Insurance Premium u/s. 36(1)(ib) of the Act. The Ld. CIT(A) for the reason stated in his appellant order has rejected arguments taken by the assessee and confirmed additions made towards disallowance of payment made to shippi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the scope of TDS provisions. The Ld. AR has also made an alternate argument to the effect that wherever assessee has obtained Form 26A, in such cases the assessee should not have been treated as assessee in default as provided in section 40(a)(ia) of the Act and consequently, no disallowance can be made for failure to deduct TDS u/s. 194C of the Act. 7. The Ld. DR, on the other hand strongly supporting the order of the CIT(A) submitted that there is no merit in arguments taken by the Ld. AR of the assessee that payments made to shipping companies/CFS Agents is in the nature of reimbursement of expenses incurred by the assessee on behalf of their clients, because the payment made by the assessee vis- -vis the expenditure disallowed is not any reimbursement, but first hand payment between principal to principal on the bills raised by the freight stations. The concept of reimbursement of expenses will come into operation only when someone made payments on behalf of the assessee and assessee reimburse such expenditure. In those cases, obviously the TDS liability cannot be bestowed on the assessee because the assessee has not made any direct payments to the service providers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and consequently, no disallowance can be made u/s. 40(a)(ia) of the Act. 10. We have gone through reasons given by the AO to disallow payments made to shipping companies/CFS Agents u/s. 40(a)(ia) of the Act, in light of the arguments advanced by the ld. AR for the assessee and we ourselves do not in agreement with arguments advanced by the Ld. AR of the assessee for the simple reason that payment made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the shipping companies and CFS. No doubt, the assessee has made payment on behalf of their clients for bills raised by shipping companies/CFS Agents and further, the services rendered by the shipping companies/CFS Agents is for their clients. But, what is important is who made payments to service providers and what law say about TDS provisions. The concept of TDS provisions was introduced to withhold tax on income of service providers. As per provisions of section 194C of the Act, it is abundantly clear that any person responsible for paying any sum to any resident for any work. That means while making payment, the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. If you accept the arguments of the assessee, then the purpose of legislature is defeated and the intend to subject the contract payment to deduction of tax at the point of payment is defeated by arranging transaction in such a manner that the purpose is defeated. It is also important to note that it is the assessee who has booked the expenditure towards container storage charges on payment to shipping companies/CFS Agents and debited in their books of accounts. Similarly, the assessee has received charges from its clients including amount paid to shipping companies/CFS Agents and the same has been credited to its P L a/c when it had received payments from its clients. Therefore, we are of the considered view that payments made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the service providers. Since, the assessee has made payment on behalf of their customers; the assessee ought to have deducted TDS on such payments while making payments. Since, the assessee has failed to deduct TDS, on such payments the AO is right in disallowing such payments u/s. 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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