ITA No./509/Coch/2015 , IN INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM I.TA No.509/Coch/2015 (Assessment Year : 2011-12) Assistant Commissioner of Vs M/s. Premier Marine Foods, Nizam Income-tax, Circle-1, Alleppey. Manzil, Vandanam, Alleppey. Revenue Appellant) Revenue -Respondent) .PAN No. AAEFP 7788C Revenue By Shri Shantam Bose, CIT(DR) Assessee By Shri R. Sreenivasan, FCA Date of Hearing 08/09/2016 Date of pronouncement 26/09/2016 ORDER PER B.P. JAIN, AM: This appeal of Revenue arises from order of Ld. CIT(A), Kottayam dated 27-08-2015 for AY 2011-12. 2. Revenue has raised following grounds of appeal: a. order of Ld. In so far as points stated below are concerned is opposed to law on facts and in circumstances of case. b) Ld. CIT(A) has erred in deleting disallowance of Rs.1,14,07,877/- holding that amount paid to M/s. Geo Acquatic under head Plant Repair represented reimbursement of expense and hence, no tax was deducted at source. 1 ITA No./509/Coch/2015 c)The agreement entered into by assessee with M/s. Geo Acquatic (the processor) clearly states works to be undertaken by processor/contractor as Washing, Cleaning, Processing, Freezing, Packing and Storing and payments made include storing charges, peeling charges repacking charges, labour charges etc. d) name of work undertaken by processor and nature of payments made to them itself show that assessee had to necessarily deduct tax at source u/s. 194C of Act. e) Ld. CIT(A) has erred in deleting addition u/s. 40(a)(ia) of Rs.20,02,535 for non deduction of tax at source from clearing and forwarding charges. f. Ld. CIT(A) ought to have noted that payments made under head Clearing and Forwarding are usually also inclusive of commission/service charges paid to agency. Circular No. 5/2002 of CBDT clarifies that clearing and forwarding agents acts as independent contractors and any payment made to them would, hence, be liable for deduction of tax at source. g. interest on vehicle loan paid by assessee to M/s. Sundaram Finance and other private companies was separately debited in profit and loss account and hence, tax was deductable at source on interest paid. 2. brief facts of case are that by order dated 28/02/2014, Additional Commissioner of Income Tax has completed assessment of assessee firm determining total income of Rs.4,16,47,383/- as against returned income of Rs.35,20,460/-. Various additions have been made which have been deleted by Ld. CIT(A). This Revenue is in appeal. 3. During year assessee had claimed expenditure of Rs.1,14,07,877/- under head plant repairs. According to Assessing Officer 2 ITA No./509/Coch/2015 assessee firm is liable to deduct tax on this expenditure paid to M/s. Geo Acquatic. During assessment proceedings, it was explained to Assessing Officer that this amount comprises of reimbursement of expenses to M/s. Geo Acquatic as per list enclosed. M/s. Geo Acquatic is processing marine product for assessee by virtue of agreement. According to Assessing Officer assesses is having contract for processing, freezing and storing marine products for export by firm, which are mentioned in agreement. According to Assessing Officer, one each of bill raised by M/s. Geo Acquatic, item wise charges under various heads are mentioned. Assessing Officer concluded that this is nature of work and on this assessee is liable to deduct tax at source. Further, she concluded that bills raised by M/s. Geo Acquatic is consolidated one and hence on entire amount of tax has to be deducted under sec. 194C. 4. Ld. CIT(A) in his order has partly allowed various issues raised by assessee against which Revenue is in appeal before us. 5. Ground No. 2(b), (c) and (d) relate to deletion of addition made to extent of Rs.1,14,07,877/- holding that amount paid as plant repairs to M/s. Geo Acquatic (P) Ltd. represent reimbursement of expenses and hence no tax was deductable at source. According to revenue agreement entered into by assessee with M/s. Geo Acquatic (P) Ltd. (the principal) 3 ITA No./509/Coch/2015 clearly states that work to be undertaken by processor/contractor was freezing, processing, packing and storing and payment includes peeling charges, repacking charges, labour charges etc. According to them nature of work undertaken by processor and nature of payment made by them itself shows that assessee has to necessarily deduct tax at source u/s. 194C of Act. On this basis Ld. DR contended that agreement read with nature of work would suggest that this is contract within meaning of Sec. 194C of I.T. Act liable to tax deduction at source. 6. Ground No. 2(e) and (f) relate to deletion of addition of Rs.20,02,535/- under head clearing and forwarding for non deduction of tax u/s. 40(a)(ia). According to Ld. DR, Ld. CIT(A) has not appreciated fact that payment made under head clearing and forwarding are normally inclusive of commission, service charges paid to agency. In this regard Circular No. 05/2002 of CBDT was relied upon which clarify that clearing and forwarding agents act as independent contractors and any payment made to them would be liable for deduction of tax at source. 7. Ground No. 2(g) relates to interest on vehicle loan paid by assessee to M/s. Sundaram Finance and others which are separately debited in profit and loss account and hence liable for deduction of tax on interest paid. 4 ITA No./509/Coch/2015 8. Ld. Counsel for assessee, Shri R. Sreenivasan, FCA reiterated arguments made before Ld. CIT(A). As for non deduction of tax at source on reimbursement of expenses paid to M/s. Geo Acquatic, it was submitted to Assessing Officer that ratio of case of Hon ble Apex Court in Hindustan Coco Cola Beverages Pvt. Ltd. vs. CIT squarely applies to facts since recipient firm is also assessed to tax and have included all receipts in their income. According to Assessing Officer, case of Hon ble Supreme Court (supra) cannot be applied in case where addition is made u/s. 40(a)(ia) of Act. 9. It was also submitted that sec. 40(a)(ia) of Act has been amended from 01.04.2013 by which no addition should be made unless assessee was deemed to be in default and recipient having filed their return of income within due date. In assessee s case, recipient was assessee on record by PA number and amendment being procedural applies for all pending cases. 10. It was also submitted that assessee had actually paid entire amount to M/s. Geo Acquatic before close of previous years. So much so nothing is outstanding, and having regard to decision of Hon ble Supreme Court in case of CIT vs. Vector Shipping Services Pvt. Ltd., provisions of sec. 40(a)(ia) are not applicable. Copy of decision of 5 ITA No./509/Coch/2015 Hon ble Supreme Court and Hon ble Allahabad High Court of same enterprise were filed. Copy of decision of Chennai Bench of ITAT in case of Thekkathir Press Madras was also referred to. As case law stands today by verdict of Hon ble Supreme Court disallowance is not warranted. Reliance was also placed on Jurisdictional High Court in case of Muthoot Fincorp Ltd. and Hon ble Delhi High Court in case of DLF Commercial Projects. 11. Ld. CIT(A) held that in respect of various reimbursements of expenses as given in list assessee had not deducted tax. According to assessee these payments have been made in consonance with clause 3, sub-section (b) to (h) of agreement of 07/10/2010. agreement clearly shows that apart from payment made by virtue of clause 3a to agreement, being processing charges which would attract TDS and which has been deducted, rest of payments are in nature of reimbursement. M/s. Geo Acquatic have also raised bill, separately showing processing charges and various expenses incurred by them. According to authorized representative, reimbursement of expenses is not taxable in hands of recipient. This will only go to reduce their expenditure incurred under particular heads and in such cases there is no liability to deduct tax. assessee has placed reliance on decision of ITAT Delhi Bench D in case of ITO vs. Dr. Willmar Schwab (I) Pvt. Ltd., copy of which has been filed. It has been 6 ITA No./509/Coch/2015 held in said decision that reimbursement of expenses does not attract provisions of TDS. 12. Now issue to be decided here is whether payment made under head plant repair represents reimbursement of expenses. In our view split up given by assessee has to be read in conjunction with clause 3(b) to (h) of agreement. It would be clear that payments are in nature of reimbursement of expenses. Respectfully following decision of ITAT Delhi Bench D, and decision of Hon ble Kerala High Court (supra), we hold that payment made to M/s. Geo Acquatic, debited under head plant repairs does not attract TDS liability. 13. Further Ld. AR filed second paper book showing copy of bills raised by M/s. Geo Acquatic Pvt. Ltd., Chandiroor. He stated that page 1 to 32 of paper book relates to bills raised for processing charges on which TDS has been deducted. Page 33 to 116 relates to bills raised with annexure for reimbursement of various expenses incurred which is subject matter of dispute. According to him, separate bills have been raised for expenses on which TDS has been deducted and for reimbursement of expenses and hence they are not liable for TDS. He also referred to decision of ITAT Delhi Bench in case of ITO vs. Willmar Schwabe India (P) Ltd. to effect that reimbursement of expenses does not attract provisions of TDS. He also 7 ITA No./509/Coch/2015 referred to decision of ITAT Delhi Bench D in case of DLF Commercial Projects to this effect. Reference was also placed on decision of Hon ble Kerala High Court in case of Muthoot Fincorp Ltd., Trivandrum, wherein Hon. Jurisdictional High Court have given direction to Assessing Officer to verify nature of reimbursement of expenses in that case where separate bills have been raised. ACIT, Cir(1) TVM by her order dated 11/08/2014 have given effect to order of Hon. High Court wherein she had also referred to various decisions at Page 3 of order and concluded that since assessee raised separate bills for reimbursement of expense they are not liable to deduct tax and deleted addition made u/s. 40(a)(ia). It was argued that assessee has also given separate bill and therefore provisions of TDS are not applicable for them also. 14. second issue relates to deletion of clearing and forwarding charges paid to M/s. Al Mustafa agencies without deduction of tax. According to Ld. Counsel for assessee M/s. Al Mustafa Agencies are engaged for filing of documents at customs, inspection by customs, labour charges, payment for trailer and other port payments. None of these expenditure are within purview of TDS provisions. Ld. CIT(A) held that it is fact that Al Mustafa Agencies were carrying out various services to assessee for effective 8 ITA No./509/Coch/2015 export and shipping of goods like filing documents with customs, payment of cess, payment for inspection by customs, labour charges in port, rent for trailer and other port dues. May be they are charging service charges for all activities. Nevertheless above payments pertains to payment made to statutory authorities, labourers and trailer rent on behalf of assessee and none of them have accrued to agent. Accordingly, this payment will not be liable to tax deduction. assessment order is also not clear or Assessing Officer has not quantified what are exact charges paid to Al Mustafa Agencies towards these services. In these circumstances and in absence of material on record he has held that disallowance of clearing and forwarding charges as he has done is not warranted. He has also considered decision of Hon ble Delhi High Court. 15. Yet another point in revenue s appeal is on deletion of addition made out of vehicle loan hire charges of Rs.3,61,136/- without deduction of tax. This is mainly paid to M/s. Sundaram Finance. Here also this is paid as EMI along with principal payment. Therefore provisions of TDS are not applicable. Ld. CIT(A) held that hire purchase payment would not come within meaning of sec. 194C for purpose of tax deduction. Further payments are made under Equated Monthly Instalment Scheme. It is not covered by TDS provisions. Accordingly, addition made on this score has been deleted. 9 ITA No./509/Coch/2015 16. We have considered rival submissions and perused facts of case. first issue is regarding deletion of addition made under section 40(a)(ia) on reimbursement of expenses paid to M/s. Geo Acquatic (P) Ltd. In this case as pointed out by Ld. AR separate bills have been raised for processing charges and reimbursement of expenses and assessee has deducted on portion of processing charges and not deducted tax on reimbursement of expenses. Reimbursement of expenses comprises of various items like storing charges, peeling charges, flake ice charges, utility of lab and consumables, re-glazing and hardening repacking charges, tunnel, lab charges, maintenance, disposal expense, generator charges etc. Agreement 3b to h prescribes rate for all these activities. In our view this agreement is based on parties having regard to actual expenses incurred. processing charges paid is separately billed on which TDS has been deducted. Having regard to fact that separate bills have been given and based on various Judicial Pronouncements cited by Ld. AR and having regard to fact that revenue has accepted this fact of separate bill is another case as directed by Jurisdictional High Court. We are of considered opinion that assessee is not liable to deduct tax on reimbursement of expenses to tune of Rs.11407877 and accordingly, we uphold decision of Ld. CIT(A) in this regard. 10 ITA No./509/Coch/2015 17. With regard to addition of cleaning and forwarding charges to Al Mustafa Agencies, amount paid is in nature of documentation charges, customs charges, payment for trailer and other port payments. According to Assessing Officer bills issued by them only shows breakup of work done and therefore payment is within provisions of TDS. Ld. CIT(A) has held that M/s. Al Mustafa Agencies were carrying out various services to assessee for export of goods such as documentation with customs, registration, insurance, rent and other port dues. Nevertheless all above payment relates to payment to statutory authorities, labourers and others, on behalf of assessee and none of them accrued to agent. In our view above payment will also not be liable to TDS. Assessing Officer has neither quantified nor clear of exact charges paid to M/s. Al Mustafa Agencies. In absence of any material on record, we uphold view of Ld. CIT(A) in this regard. 18. As regards vehicle loan hire charges of Rs.361136 made to m/s. Sundaram Finance, as stated by Ld. AR this is paid as Equated Monthly Instalment (EMI) along with principal. Ld. CIT(A) has held that hire purchase payment would not come within meaning of section 194C for purpose of tax deduction. In our view merely because claim for hire charges portion has been made in account, it cannot be stated that such payment are liable to TDS. Further assessee has been claiming such payment in 11 ITA No./509/Coch/2015 earlier years also which has been accepted by department. legislature thought it fit to introduce Form 26a with effect from 01/04/2013, for obtaining certificate from receiver to effect that they have included such receipts as part of their income. In view of above we are of view that verdict of Ld. CIT(A) on this score has also to be upheld. Thus all grounds raised by Revenue in its appeal fails. 19. In result, appeal of Revenue is dismissed. Pronounced in open court on 26-09/2016. sd/- sd/- (GEORGE GEORGE K.) (B. P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Cochin Dated: 26th September, 2016. GJ copy to: 1. M/s. Premier Marine Foods, Nizam Manzil, Vandanam, Alleppey. 2. Assistant Commissioner of Income-tax, Circle-1, Alleppey. 3. Commissioner of Income-tax(Appeals),Kottayam. 4.The Commissioner of Income-tax, Kottayam. 5.The DR/ITAT, Cochin Bench. 6. Guard File. By Order /Assistant Registrar I.T.A.T., COCHIN 12 ITA No./509/Coch/2015 13 Assistant Commissioner of Income-tax, Circle-1, Alleppey v. M/s. Premier Marine Food