O/TAXAP/646/2015 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 646 of 2015 ================================================================ PRI.COMMISSIONER OF INCOME TAX-1....Appellant Versus CONSUMER MARKETING(INDIA)PVT.LTD.....Respondent ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for Appellant ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR.JUSTICE A.G.URAIZEE Date : 21/09/2015 ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ), appellant revenue has challenged order dated 30.03.2015 passed by Income Tax Appellate Tribunal, Ahmedabad Bench B in ITA No.2125/Ahd/2011 by proposing following two questions, stated to be substantial questions of law : [1] Whether Appellate Tribunal has substantially erred in upholding decision of CIT (A) in deleting addition of Rs.8,33,252/- made on account of disallowance of interest under section 36(1)((iii) of Act? [2] Whether Appellate Tribunal has substantially Page 1 of 8 HC-NIC Page 1 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER erred in upholding decision of CIT (A) in deleting addition of Rs.55,94,825/- made on account of disallowance under section 40(a)(ia) of Act ? 2. assessment year is 2008-09 and relevant accounting period is previous year 2007-08. assessee filed return of income on 30.10.2008 declaring total income of Rs.80,79,294/-. case was selected for scrutiny. Assessing Officer noticed that assessee had given interest free loans of Rs.81,14,103/- out of which, Rs.70,14,103/- was given to M/s Arti Impex, Rs.6,00,000/- to Shri Ashok Sharma and Rs.5,00,000/- to Mrs. Rajkumari Sharma. assessee submitted that it had entered into purchase and sale transactions with M/s Arti Impex and since party was delaying payment and in fact, did not want to pay them, they had transferred such amount to loan account, which was mis-classification on their part as it should have been taken as debtor . assessee further pointed out that in any case, they had sufficient interest free funds to tune of Rs.1,99,40,000/- to take care of advances. It was also pointed out that payment of interest was specifically for term loan obtained for acquisition of assets for business and had been obtained on hypothecation of that particular asset. interest free loans (which were, in fact, debts) were not advanced out of said term loan, which were directly disbursed for acquisition of particular business asset. 3. Assessing Officer computed interest disallowance at Rs.9,73,692/-, but allowed expenditure on account of interest paid and limited disallowance to Rs.8,33,252/-. assessee carried matter in appeal before Page 2 of 8 HC-NIC Page 2 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER Commissioner of Income Tax (Appeals), who deleted additions made by Assessing Officer. revenue carried matter before Tribunal, but did not succeed. 4. In respect of proposed question No.1, Mrs. Mauna Bhatt, learned senior standing counsel for appellant submitted that Tribunal has upheld order passed by Commissioner (Appeals) basically for sake of consistency and that Tribunal has not relied on its decision in assessee s case, but has relied on decision of Commissioner (Appeals) in assessee s own case for assessment year 2007-08 in respect of which, further appeal was not filed in view of low tax effect involved. It was submitted that findings recorded by Commissioner (Appeals) as well as Tribunal being erroneous, matter requires consideration. 5. perusal of order passed by Commissioner (Appeals) reveals that he has noted that there was direct nexus between borrowings and utilization of funds, and therefore, it could not be said that interest bearing funds were diverted for non-business purpose. He further took note of fact that similar issue had come up for consideration in previous year when such disallowance was deleted. Since facts were identical in year under consideration, he held that interest free funds were not diverted for non-business use and deleted addition made by Assessing Officer. Tribunal concurred with findings recorded by Commissioner (Appeals) and upheld said order. 6. From facts noted hereinabove, it is apparent that Page 3 of 8 HC-NIC Page 3 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER term loan, on which deduction of interest was sought, had entirely been used for purpose of purchasing assets which were hypothecated to bank. assessee had also produced sufficient evidence before Assessing Officer to indicate that it had sufficient interest free funds to take care of advances even if same were accepted to be advances. Commissioner (Appeals) has recorded categorical finding of fact to effect that Assessing Officer has failed to establish any nexus between borrowings and utilization of funds. It is in these circumstances, that Tribunal has recorded concurrent finding of fact to effect that it could not be said that interest bearing funds were diverted for non-business purpose. 7. Having regard to fact that conclusion arrived at by Tribunal is based upon concurrent findings of fact recorded by it after appreciation of evidence on record, in absence of any perversity being pointed out in findings of fact recorded by Tribunal, same does not give rise to any question of law. 8. As regards proposed question No.2, assessee debited Rs.62,85,013/- as clearing and forwarding charges, but out of this amount, deducted TDS (Tax Deducted at Source) only on amount of Rs.7,45,801/-. It was case of assessee that C & F agent incurs expenses on behalf of company and he is merely acting as front man of company; and that these expenses have no nexus with commission he is supposed to get for his work. Before Assessing Officer assessee submitted that part of clearing and forwarding expenses, which forms reimbursement Page 4 of 8 HC-NIC Page 4 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER of expenses, does not attract TDS provisions. nature of such expenses was also pointed out to Assessing Officer. It was submitted that C & F agent raises debit note for expenses to be reimbursed by company along with necessary bills/receipts/supporting evidence. He also raises invoice for services rendered by him with service tax. It is this invoice which attracts TDS, which has been duly deducted. 9. Assessing Officer disallowed amount of Rs.55,94,825/- on which tax was not deducted at source and added it back to total amount. While making such addition, Assessing Officer placed reliance upon decision of Supreme Court in case of Associated Cement Company Ltd. v. Commissioner of Income Tax, Bihar, Patna and another, (1993) 2 SCC 556. assessee carried matter in appeal before Commissioner (Appeals), who deleted disallowance. revenue carried matter before Tribunal, but did not succeed. 10. Mrs. Mauna Bhatt, learned senior standing counsel, submitted that Tribunal has failed to appreciate that Assessing Officer had recorded finding that assessee had entered into contract for carrying out work as per requirement of assessee. Therefore, for payment made for carrying out any work, TDS is liable to be deducted as per section 194C of Act. Under circumstances, payment made without deducting TDS is not allowable under section 40(a)(ia) of Act. Referring to assessment order, it was pointed out that same clearly shows that there is no evidence that no TDS was made on reimbursement and TDS was deducted on bills separately raised. It was, Page 5 of 8 HC-NIC Page 5 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER accordingly, urged that matter requires consideration on question proposed or as may be deemed fit by this court. 11. perusal of order passed by Commissioner (Appeals) reveals that he has taken note of fact that assessee did not deduct TDS on reimbursements made to C & F agent on separate bills of reimbursement on account of freight and other payments made on behalf of assessee. Commissioner (Appeals) placed reliance upon decision of Tribunal in case of M/s Om Satya Exim Private Ltd. rendered on 13.05.2011 in ITA No.1335/Ahd/2010 wherein, Tribunal had considered circular issued by C.B.D.T. bearing No.715 dated 08.08.1975 and found that since in facts of said case, no composite bill had been raised by commission agent, circular would not be applicable. Tribunal, in that decision, also placed reliance upon earlier decision in which it was held that when bill for reimbursement of expenses has been separately raised, section 194J of Act is not applicable. It was held that TDS is not required to be deducted from such reimbursement of expenses and hence, section 40(a)(ia) of Act is not applicable with regard to such payments. Commissioner (Appeals) noted that jurisdictional Tribunal in case of payment to Customs House Agent held that no TDS is required to be deducted in case where reimbursement bills were separately raised. assessee had also made payment to clearing and forwarding agents and separate bills were raised in respect of reimbursement of expenses incurred by agents on behalf of assessee. fact that separate bills were issued for services and for reimbursements is not in dispute as per assessment order. Since facts of Page 6 of 8 HC-NIC Page 6 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER assessee s case were identical to case decided by Tribunal, Commissioner (Appeals) followed same and accordingly, held that disallowance in respect of those claims under section 40(a)(ia) of Act cannot be made and deleted additions. Tribunal, in impugned order, has concurred with findings recorded by Commissioner (Appeals), namely, that no TDS is required to be deducted in case where reimbursement bills were separately raised. 12. Thus, from concurrent findings of fact recorded by Tribunal, it is apparent that assessee had deducted TDS in respect of payment made to C & F agent and separate bills had been raised in respect of reimbursement expenses incurred by agent. Since reimbursement bills were separately raised, there was no requirement to deduct TDS in respect thereof. Under circumstances, it cannot be said that there is any legal infirmity in impugned order passed by Tribunal in holding that disallowance under section 40(a)(ia) of Act could not be made in respect of reimbursement bills which were separately raised as no TDS was required to be deducted in respect thereof. Under circumstances, impugned order passed by Tribunal does not give rise to any question of law, much less substantial question of law, as proposed or otherwise. 13. In light of above discussion, appeal fails and is, accordingly, dismissed. (HARSHA DEVANI, J.) Page 7 of 8 HC-NIC Page 7 of 8 Created On Mon Dec 14 10:14:44 IST 2015 O/TAXAP/646/2015 ORDER (A.G.URAIZEE, J) parmar* Page 8 of 8 HC-NIC Page 8 of 8 Created On Mon Dec 14 10:14:44 IST 2015 Pri. Commissioner of Income-tax-1 v. Consumer Marketing(India) Pvt. Ltd