Deduction of TDS on reimbursed expenses cannot constitute the amount the Income of the assessee

IN THE INCOME TAX APPELLATE TRIBUNAL

"E" Bench, Mumbai

Before Shri B. Ramakotaiah, Accountant Member

and Shri Vivek Verma, Judicial Member

ITA No. 3595/Mum/2011

(Assessment Year: 2007-08)

Income Tax Officer

2(3)3 Room No.555

Aayakar Bhavan

Mumbai 400020

Appellant

Vs

Travels & Shopping (P) Ltd

Ground Floor, Dorabshaw

House,Narootam Morarjee

 Marg, Ballard Estate

Mumbai 400038

PAN No.AAACT 1396 H

Respondent

Revenue by: Shri C.G.K. Nair, D.R

Assessee by: None

Date of Hearing: 5/3/2012

Date of Pronouncement: 14/3/2012

O R D E R

Per B. Ramakotaiah, A.M.

This is a Revenue appeal against the order of the CIT (A)-6 Mumbai dated 3.2.2011. The issue in the appeal is with reference to the addition made by the Assessing Officer on reconciliation of receipts with reference to TDS amounts.

2. Briefly stated the Assessing Officer noticed that the assessee had total receipts of Rs.1,40,54,731/- out of which Rs.1,27,70,141/- were the bills raised during the year, but the assessee accounted for the net commission at Rs.41,19,613/-. He further noticed that the TDS was deducted on total contract amount of Rs.96,32,530/-. On enquiry, assessee explained that some of the clients have deducted the tax on the reimbursed amounts also but the assessee’s net commission was only Rs.41,19,613/-. It filed various reconciliation statements. However, the Assessing Officer observed that the assessee did not explain the difference between Rs.1.40 crores and Rs.1.27 crores and further there were credits in the bank account to an extent of Rs.1.60 crores and on the basis of the TDS certificates, the difference of Rs.55,12,917/- was held to be the commission received by the assessee, not accounted. Therefore, he made the addition.

3. Before the CIT (A) it was explained that assessee was carrying on business of clearing and forwarding agent for more than 50 years and in the business of assessee, the amounts were spent on behalf of the clients while clearing the exports/imports, such as custom duty, freight, port charges and octroi and such payments were made by the assessee for and on behalf of the clients which were reimbursed on actual basis. Assessee filed additional evidence and reconciled various amounts including that of the difference of the gross receipts and gross billed amounts, various expenditures and submitted that net commission was correctly accounted. It was further contended that the amount deposited in the bank account of Rs.1.60 crores was not correct and reconciled the amount with the receipts, transfers from other accounts etc., and substantiated before the CIT (A) that all the amounts received were duly accounted for and the Assessing Officer’s observations were not correct. After considering various evidences, remand report of the Assessing Officer and examining the contentions/replies of the assessee on the remand report, the CIT (A) has deleted the amount by stating as under:

“I have considered the facts of the issue and the submissions made by the Authorized Representative and find merit in them. The Authorized Representative of the appellant has clearly brought out that mere deduction of TDS out of a receipt does not necessarily mean that the said receipt constitutes income of an assessee. Further the Authorized Representative has been able to reconcile the figures mentioned in the assessment order and bring out that the said amount of Rs.1,40,54,731/- was not the correct figure and that the correct figures was Rs.1,40,85,366/- which included an opening balance of debtors of Rs.13,15,225/-. Clearly, no adjustment entries had been made by the appellant in their books to adjust or reduce the commission income received by them. Further, the Authorized Representative has been able to bring out that the Assessing Officer was wrongly guided by the impression that the credit entries in their bank account aggregated Rs.1.60 crores. There is merit in the Authorized Representative’s contention that the reimbursement of expenses like customs duty, freight and other expenses incurred on behalf of the clients did not have an element of income and hence could not be considered as ‘income of the appellant’ only for the reason that some of the clients had deducted TDS from such reimbursement of expenses. There is merit in the Authorized Representative’s contention that mere deduction of tax at source from a receipt would not covert the related receipt into income. Looking at all the facts and circumstances brought out by the Authorized Representative, it is noticed that there is no under statement of income from commission by the appellant. Hence, the addition made by the Assessing Officer on that account is deleted. This ground is allowed”.

The Revenue is aggrieved and raised this specific ground vide Ground No.2 as under:

“2. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the addition on account of commission receipt without taking into account the issues raised by the Assessing Officer in the assessment order and in the remand report”.

4. We have heard the learned Departmental Representative, whereas assessee was not represented, hence decided exparte. Considering the order of the Assessing Officer and the CIT (A) and various explanations filed before the authorities, we do not see any reason to interfere with the order of the CIT (A). The assessee is a clearing and forwarding agent and has correctly reconciled the amounts received during the year, which were very elaborately discussed by the CIT (A) in the order. Not only that the Assessing Officer also took some of the amounts wrongly and the assessee has clearly explained that the gross receipts of Rs.1,40,51,731/- was not correct and the correct receipts was Rs.1,40,87,304/-. It was further submitted that the gross bills raised was Rs.1,27,70,141/- out of which agency charges of Rs.41,19,613/- was correctly taken as commission, whereas receipts reimbursed to an extent of Rs.81,49,477/- were spent on behalf of the clients and service tax of Rs.5,01,051/- was also spent and reimbursed. The assessee was able to reconcile all the figures and after examining the amounts involved, we are of the opinion that the Revenue has not made out any case for making the addition on the basis of the difference between TDS certificates and the actual receipts accounted for as net commission. The assessee is able to explain that the TDS was made by some of the clients even on the reimbursed expenditure which cannot be taken as income. In view of this, we reject the Revenue ground.

5. In the result, Revenue appeal is dismissed.

Order pronounced in the open court on 14th March, 2012.

                                                     Sd/-                          Sd/-

                                           (Vivek Verma)         (B. Ramakotaiah)

                                             Judicial Member   Accountant Member

Mumbai, dated 14th March, 2012.

Vnodan/sps

Copy to:

1. The Appellant

2. The Respondent

3. The concerned CIT (A)

4. The concerned CIT

5. The DR, “E“ Bench, ITAT, Mumbai

By Order

Assistant Registrar

Income Tax Appellate Tribunal,

Mumbai Benches, MUMBAI