Income Tax Appellate Tribunal - Chandigarh
M/S Yamuna Oils, Yamunanagar vs Assessee on 19 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.1435 /Chd/2010
(Assessment Year : 2007-08)
M/s Yamuna Oils, Vs. The D.C.I.T.,
Near Kamani Chowk, Circle Yamunanagar.
PAN: AAAFY5459K
(Appellant) (Respondent)
Appellant by : Shri Rohit Goel
Respondent by : Shri N.K.Saini, DR
Date of hearing : 19.03.2013
Date of Pronouncement : 16.04.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals), Panchkula dated 28.09.2010 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 a g a i n s t t h e o r d e r p a s s e d u / s 1 4 3 ( 3 ) of the Income Tax Act, 1961 (in short 'the Act').
2. The assessee has raised following grounds of appeal:
"1. The authorities below has erred in law and facts in making addition of Rs.44,92,123/- u/s 40(a)(ia) being freight paid on purchases.
2. The authorities below have erred in law and facts in making an addition of Rs.21552/- u/s 40A(3) being 20% of Rs.107759/- debited under "Building Repair" expenses.
3. The authorities below have erred in law and facts in making an adhoc disallowance of Rs.25000/- out of expenses debited under "Building Repair"
expenses.
4. The authorities below have erred in law and facts in making an addition of Rs.300.000/- out of legal expenses.
5. The authorities below have erred in law and facts in making an addition of Rs.51974/- being an adhoc 15% disallowance out of Telephone expenses, Tea Expenses, Vehicle Running expenses, Depreciation on Car and interest on 2 Car Loan whereas Fringe Benefit Tax has already been paid on these heads of expenditures
6. The authorities below have erred in law and facts in making an addition of Rs.136450/- by treating loss on account of sale of Tractor as Capital Loss."
3. The issue in ground No.1 raised by the assessee is against the addition of Rs.44,92,123/- under section 40(a)(ia) of the Act.
4. The brief facts of the case are that the assessee was running a petrol pump and was dealing in purchase and sale of motor spirit, high speed diesel and lubricants of M/s Reliance Industries Ltd. During the year under consideration the assessee had claimed total freight expenses of Rs.44,92,123/- out of which p a ym e n t of freight amounting to Rs.44,59,412/- was made to M/s Reliance Industries Ltd. The Assessing Officer found the assessee not to have deducted TDS out of the said f r e i g h t p a ym e n t . The Assessing Officer further observed that As per details filed, the assessee firm, running Reliance Petrol Pump, has made its purchases from M/s Reliance Industries Ltd., Mumbai and for every purchase so made, the relevant invoice is also accompanied with an invoice of M/s Reliance Logistics Pvt. Ltd., Mumbai in respect of freight charges payable by the assessee firm. On such invoices issued by M/s Reliance Logistics Pvt. Ltd., Mumbai, a note is appended at the end of the invoice of freight, as under:-
"Please make payment in favour of M/s Reliance Industries Limited A/C PLPL, who is our collecting agent".
5. T h e a s s e s s e e w a s s h o w c a u s e d a s t o w h y t h e s a i d f r e i g h t p a ym e n t of Rs.44,92,123/- be not disallowed as per the provisions of section 40(a)(ia) of the Act as no TDS was deducted. The Assessing Officer also called for information under section 133(6) of the Act from M/s Reliance Industries Ltd., Mumbai. In repl y dated 27.11.2009 M/s 3 R e l i a n c e I n d u s t r i e s L t d . c o n f i r m e d t h e f r e i g h t p a ym e n t s b y t h e a s s e s s e e firm without deduction of any tax at source. Another show cause notice was issued to the assessee. However, the assessee failed to furnish any information/explanation, thus the freight p a ym e n t s aggregating Rs.44,92,123/- were disallowed under section 40(a)(ia) of the Act.
6. The CIT (Appeals) upheld the order of the Assessing Officer rejecting the claim of the assessee that no disallowance was warranted w h e r e t h e a m o u n t i n q u e s t i o n s t o o d p a i d a t t h e e n d o f t h e ye a r .
7. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee pointed out that there is no merit in the said disallowance of freight paid by invoking the provisions of section 40(a)(ia) of the Act which are no applicable. The learned A.R. for the assessee referred to the bill raised by M/s Reliance Industries Ltd. for purchase of diesel which is placed at page 1 of the Paper Book and further to the bill of freight of M/s Reliance Logistics Pvt. Ltd. placed at page 2 of the Paper Book in which it had been mentioned that t h e p a ym e n t i s t o b e m a d e t o M / s R e l i a n c e I n d u s t r i e s L t d . w h o i s t h e collecting agent. It was further pointed out by the learned A.R. for the assessee that M/s Reliance Logistics Pvt. Ltd. in turn hired RITCO Logistics for transportation of diesel and this is a case of reimbursement of expenses. The learned A.R. for the assessee placed reliance on the r a t i o l a i d d o w n b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n CIT(TDS), Chandigarh Vs. Assistant Manager (Accounts), Food Corporation of India (Pay office), J agadhri in ITA No.407 of 2008 - date of decision 21.8.2008 and the Chandigarh Bench of the Tribunal in M/s Rana Wines (L-1), HO Klin Area, Nangal Vs. Addl.CIT, R-1, Chandigarh in ITA No.599/CHD/2011 - date of decision 17.10.2011. The second aspect of the argument of the learned A.R. for the assessee was that the 4 case of the assessee was sale of petrol products and all the costs were part of the purchase cost as the assessee was only getting margin on sale of diesel. The learned A.R. for the assessee in this connection placed r e l i a n c e o n t h e d e c i s i o n o f t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n CIT Vs. Bhagwati Steels [326 ITR 108 (P&H)].
8. The learned D.R. for the Revenue pointed out that though the case built up by the learned A.R. for the assessee was that the present case was reimbursement of expenses but the invoice does not say so.
9. In rejoinder the learned A.R. for the assessee pointed out that the bill was raised by M/s Reliance Logistics Pvt. Ltd. and the same was r e i m b u r s e d b y w a y o f p a ym e n t t o M / s R e l i a n c e I n d u s t r i e s L t d .
10. We have heard the rival contentions and perused the record. The assessee was running a petrol pump of M/s Reliance petro products. As per the Dealership Agreement entered into between M/s Reliance Industries Ltd. and, the dealer i.e. the assessee was to sale, suppl y or deal in the products supplied either by M/s Reliance Industries Ltd. or by authorized dealer of Reliance. In addition to the other conditions agreed upon between the parties it was also agreed upon as per clause 22 a t p a g e 1 3 t h a t t h e d a y- t o - d a y c o n t r o l o v e r t h e s a l e a t t h e o u t l e t o f t h e assessee and all the operating expenses had to be incurred by the assessee even the handling expenses. Further as per clause 33 it was agreed that the dealer shall not sell the products at rates or prices higher than those at which Reliance or any authority under law shall from time to time prescribe. From the reading of the above said clauses of the agreement entered into between the parties it is apparent that M/s Reliance Industries Ltd. was to deliver the products to the dealer at the rates specified on the date of delivery and the assessee was bound to sell 5 the products at the prices prescribed b y M/s Reliance Industries Ltd. The cost incurred by the assessee was part of the operating cost of the assessee and the assessee was only entitled to the margin of sale of diesel.
11. The copy of the bill of purchase of diesel is placed at page 1 of the Paper Book which reflects the amount due to be paid against the cost of diesel delivered by M/s Reliance Industries Ltd. At page 2 of the Paper Book the assessee has enclosed the freight bill raised by M/s Reliance Logistics Pvt. Ltd. and on the face of the said bill it is mentioned that t h e p a ym e n t o f t h e s a m e i s t o b e m a d e t o M / s R e l i a n c e I n d u s t r i e s L t d . who was collecting agent for M/s Reliance Logistics Pvt. Ltd. The goods were delivered to the assessee b y M/s RITCO Lo gistics Pvt. Ltd. As per the copy of the bill enclosed at page 3 of the Paper Book in which the consignor's name is mentioned to be M/s Reliance Industries Ltd. and the consignee is mentioned as Jamuna Oil i.e. the assessee before us. The assessee claimed to have reimbursed transportation cost incurred by M/s Reliance Logistics Pvt. Ltd. by engaging service of RITCO Logistics Pvt. Ltd. and such reimbursement of expenses was made by the assessee without deduction of tax at source. The case of the Revenue is that the s a i d p a ym e n t s a r e n o t t o b e a l l o w e d a s d e d u c t i o n b e c a u s e o f n o n deduction of TDS in view of the provisions of section 40(a)(ia) of the Act. We find no merit in the orders of the authorities below in view of the facts of the present case where the amount paid by the assessee was in relation to reimbursement of freight expenses incurred by M/s Reliance Logistics Pvt. Ltd. who was not a transporter. The transportation of the goods has been carried out b y M/s RITCO Logistics Pvt. Ltd. who was engaged by M/s Reliance Logistics Pvt. Ltd. and this transaction may attract deduction of tax at source. However, 6 reimbursement of freight expenses by the assessee to M/s Reliance L o g i s t i c s P v t . L t d . b y w a y o f p a ym e n t t o M / s R e l i a n c e I n d u s t r i e s L t d . i s outside the purview of deduction of tax at source. In the totalit y of the above said facts and circumstances of the case we find no merit in invoking of provisions of section 40(a)(ia) of the Act and disallowance of freight expenses in the hands of the assessee. We find support from the ratio laid down by the Chandigarh Bench of the Tribunal in M/s Rana Wines Vs. Addl. CIT (supra). We also find merit in the alternate plea of the assessee that where the expenditure incurred was part of purchase cost of the goods, which are taken care of while fixing the cost of petro products to be sold by the assessee in it is petrol pump, the said cost b e i n g c u m u l a t e d c a n n o t b e h e l d t o b e p a ym e n t f o r t r a n s p o r t a t i o n u n d e r separate head of accounting and hence liable for deduction of tax at source. We find support from the ratio laid down by the Hon'ble Punjab & H a r ya n a H i g h C o u r t i n C I T V s . B h a g w a t i S t e e l s ( s u p r a ) w h e r e i n i t h a s been held as under:\ "The revenue has filed the present appeal against the order passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A 1 , Chandigarh (for short, "the Tribunal"), in I.T.A. No. 374/Chandi/2006 dated 16.10.2007, raising the following substantial question of law:-
"Whether in the facts and in the circumstances of the case, the Hon'ble ITAT was right in holding that provisions of section 194A, 1941 and 194C were not applicable as no payment has been made separately on account of interest, rent etc. The transaction was a transaction of purchase & sale and not payment of expenses ?"
The assessee in the present case is Food Corporation of India which is engaged in procurement of food grains for the Central pool. The food grains is procured through the State agencies and directly as well. The proceedings were initiated under Section 201 of the Income Tax Act, 1961, with the allegations that the assessee had failed to deduct tax at source on the interest, rent and transportation charges paid by it to various agencies. The order came to be passed by the Income Tax Officer (TDS) on 25.2.2005 raising a demand of Rs.12,34,814/-. The order was upheld by the Commissioner of Income Tax (Appeals). In further appeal before the Tribunal, the plea set up by the assessee was accepted. It was noticed that in the invoices raised by various State agencies who procured food grains on behalf of the assessee, cost of wheat has been shown apart from the cost on account of other incidental expenses incurred by the procurement agencies. VAT had also been charged. It 7 was not evident from there that the expenses so incurred by the procurement agencies were on behalf of the assessee rather it was found to be part of the cost at which the food grains were to be transferred by the procurement agencies to the assessee. With these facts, it was found that as the assessee had not paid any amount to the procurement agencies on account of transportation, interest or storage charges as such, accordingly, there was no liability for deduction of tax. The contention of learned counsel for the revenue that in fact all these factors had been taken care of while fixing the price at which the food grain was to be billed to the assessee, carries no weight. If expenses incurred by a person on account of transportation, interest, storage etc. are added to the cost of the goods, it cannot be inferred that the person who is billed had paid certain amount on account of those services separately as the same becomes part of the commodity so sold. For the reasons mentioned above, we do not find any substantial question of law arises in the present appeal. The same is accordingly dismissed."
12. Following the above we direct the Assessing Officer to delete the addition of Rs.44,92,123/-. The ground No.1 raised by the assessee is allowed.
13. The ground No.2 raised by the assessee is not pressed and hence the same is dismissed as not pressed.
14. The ground No.3 raised by the assessee is against the disallowance of Rs.25,000/- out of building repair expenses. The Assessing Officer noted the assessee to have spent sum of Rs.3,51,734/- under the head building repair. The said expenditure included cash p a ym e n t of Rs.1,07,759/- and 20% of the same amounting to Rs.21,552/- was disallowed in view of the provisions of section 40A(3) of the Act. The assessee is not in appeal against the said disallowance. Further the A s s e s s i n g O f f i c e r n o t e d t h a t t h e r e m a i n i n g p a ym e n t s u n d e r t h e h e a d building repair were made in cash for which there were self prepared vouchers and further disallowance of Rs.25,000/- was made by the Assessing Officer, which was confirmed b y the CIT (Appeals).
15. We find that the total expenditure made in cash was Rs.1,07,759/- out of which disallowance under section 40A(3) of the Act was made 8 amounting to Rs.21,552/- and further disallowance was made of R s . 2 5 , 0 0 0 / - a s t h e c a s h p a ym e n t s w e r e a g a i n s t s e l f m a d e v o u c h e r s . We find no merit in the double disallowance made in the hands of the assessee wherein the expenditure was taken to be business expenditure b u t b e c a u s e o f t h e c a s h p a ym e n t s a b o v e R s . 2 0 , 0 0 0 / - d i s a l l o w a n c e u n d e r section 40A(3) of the Act was made. Further disallowance of Rs.25,000/- under the same head out of the cash expenses is thus not warranted. Thus ground No.3 raised by the assessee is allowed.
16. The issue in ground No.4 raised by the assessee is against the disallowance out of legal expenses. The assessee during the course of assessment proceedings was not able to explain the nature of the said expenditure and further no TDS was deducted out of the said expenses. Hence disallowance was made in view of the provisions of section 40(a)(ia) of the Act, which was confirmed by the CIT (Appeals). The plea of the assessee before us was that the said amount of Rs.3 lacs was paid as signing fee to M/s Reliance Industries Ltd. As per the agreement, the copy of which is placed at page 4 onwards of the Paper Book, the said amount of Rs.3 lacs was towards training charges of the e m p l o ye e s o f t h e a s s e s s e e . It was further pointed out b y the learned A.R. for the assessee that the said payment was made by M/s HKTC Oil Division as the assessee had not come into existence.
17. On the perusal of the record we find that the Dealership Agreement was entered into by the partners on 21.2.2005 and sum of Rs.3 lacs was paid as signing fee towards expenses to be incurred by the Reliance towards training of the dealer and its staff and supervision and coordination of the construction of the said retail outset by Reliance. T h e a s s e s s e e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n h a d s h o w n i n c o m e f r o m running of petrol pump and the products of Reliance. The said amount 9 of Rs.3 lacs which initially was paid by its sister concern was claimed as a n e x p e n d i t u r e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n a n d t h e a m o u n t w a s debited on 31.3.2007 on account of HKTC Oil Division. The nature of expenditure being training of the dealer and its staff and also monitoring of the construction of the retail outset of the assessee being relatable to running of the business b y the assessee was allowable expenditure. Merely because the amount was initially paid by the sister concern of the a s s e s s e e a n d w a s a l s o c l a i m e d a s e x p e n d i t u r e d u r i n g t h e ye a r d o e s n o t merit the disallowance in the hands of the assessee. Further under the provisions of the Act there is no requirement for deduction of tax out of s u c h p a ym e n t s a n d c o n s e q u e n t l y n o n - d e d u c t i o n d o e s o f t h e A c t a t t r a c t the provisions of section 40(a)(ia) of the Act. In view thereof, we direct the Assessing Officer to allow the expenditure of Rs.3 lacs in the hands of the assessee. The ground No.4 raised by the assessee is thus allowed.
18. The issue in ground No.5 raised by the assessee is in relation to the disallowance out of telephone expenses, tea expenses, vehicle running expenses, depreciation on car and interest on car running on which the assessee had paid fringe benefit tax. We find no merit in the said disallowance wherein the fringe benefit tax had been paid by the assessee on particular expenditure, which was incurred in the course of c a r r yi n g o n t h e b u s i n e s s . There is no merit in disallowing any part of the said expenditure for personal use as held by the authorities below. We find support from the ratio laid down by the Chandigarh Bench of the Tribunal in M/s ADELTA OPTEC Vs. ITO, Yamunanagar in ITA No.1265/Chd/2009. In view thereof, we direct the Assessing Officer to delete the addition of Rs.51,974/-.
10
19. The ground No.6 raised by the assessee is not pressed and the same is dismissed as not pressed.
20. In the result, the appeal of the assessee is partl y allowed.
Order pronounced in the open court on this 16th day of April, 2012.
Sd/- Sd/-
(T.R. SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 16 t h April, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh