ORDER
S. Rifaur Rahman, Accountant Member.- The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 04.02.2025 for the Assessment Year 2016-17.
2. Brief facts of the case are, assessee filed its return of income declaring total income of Rs.31,32,270/- on 10.09.2016. The case was selected for limited scrutiny under CASS, accordingly notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee through e-filing portal. In reply, assessee filed relevant information through e-filing portal. The assessee is engaged in the business of freight/forwarding including handling of documents pertaining to cargo. The case was selected for the reasons that receipts declared u/s 194C & 194J of the Act are more than the receipts shown in ITR and mis-match in sales turnover reported in audited report and ITR. During assessment proceedings, the AO observed that assessee has gross receipt of Rs.3,80,90,475/-. However, from the perusal of the financial statement, he observed that assessee has declared turnover of Rs.2,23,12,103/- only. The assessee was asked to furnish party-wise details of receipt and reconciliation of the difference. In response, assessee has furnished the list of parties from whom it has received amount and the details of TDS deducted. Further he observed that to the extent of gross receipts of Rs.56,31,716/- wherein no TDS was deducted by the parties. After considering the submissions of the assessee, AO observed that assessee has accepted that gross receipts from the business was of Rs.4,37,42,768/- out of which TDS of Rs.7,64,147/- was deducted on an amount of Rs.3,81,11,052/- and no TDS was deducted on receipt of Rs.56,31,716/-. Accordingly, the AO disallowed the difference of amount not declared by the assessee to the extent of Rs.2,14,30,665/- as income of the assessee.
3. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions and also submitted that assessee is engaged in business of clearing and forwarding activities pertaining to import and export of consignments. The consignments received and sent are on behalf of the customers. Documents in the form of e-way bills are in the name of the customers. The amounts collected are from customers on behalf of the principal and the same was remitted to them. Since the documentation in the form of e-way bills or shipping bills are in the name of the customers, these are routed through the freight payable account. The difference in freight payable account is treated as income of the assessee and accordingly offered to tax. This is being consistently followed. This has no impact on the Profit and Loss account since the difference becomes part of the total income. Since the customers have deducted the TDS on gross amount, the assessee has claimed the same and declared the proper income which pertains to the assessee. In this regard, assessee has filed detailed chart and submissions before the ld. CIT (A), pattern and break up of bills. After considering the above facts available on record and considering the details submitted by the assessee, ld. CIT (A) deleted the addition by observing as under:-
“I have gone through the above submissions of the Appellant and have considered the facts and evidence on record.
The appellant, MKF Logistics Private Limited filed return of income declaring total income of Rs.31,32,270/- on 10/09/2016. Later the AO completed the assessment u/s 143(3) of the Income tax Act, 1961 by assessing total income at Rs. 2,45,62,940/- by adding an amount of Rs. 2,14,30,665/- on account of mismatch in sales turnover to the total income. Being aggrieved by the above mentioned order passed by the AO, the appellant filed the instant appeal.
The AO stated that the case was selected under limited scrutiny as receipts u /s 1940 and 194J of the Income tax Act, 1961 (as per 26AS) were more than the receipts shown in ITR 4/5/6 (Service Receipts as per 26AS and Total revenue from operations in P&L Account) and mismatch in sales turnover reported in Audit Report and ITR (Form 3CD and Total Sales/Gross Receipt in Part A-P&L of ITR). The appellant was engaged in the business of freight / forwarding including handling of documents pertaining to cargo. As per the AIR report, appellant has gross receipt of Rs. 3,80,90,475/-. However, from the perusal of the financial statement, it was seen that the appellant has disclosed turnover of Rs.2,23,12,103/- only. The appellant furnished a list of parties from whom receipts amounting to Rs. 3,81,11,052/- was received on which the parties deducted the TDS amounting to Rs. 7,64,147/- and a list of parties from whom it has receipts amounting to Rs.56,31,716/- but TDS was not deducted by the parties on these payments. Further, on examination of the copy of the ITR it was observed that the appellant claimed TDS of Rs. 7,64,147/-, which corresponds to gross receipt of Rs. 4,37,42,168/-. As the gross receipt from business activity during the year was Rs. 4,37,42,768/-whereas the appellant has disclosed turnover of Rs. 2,23,12,103/- only therefore, the difference in sales turnover amounting to Rs.2,14,30,665/- was added back to the total income of the appellant.
The appellant stated that they are engaged in the business of Freight/ Forwarding agents including handling of documents pertaining to cargo. The Services of the Freight/Forwarding agent is to act as mediator between the organization which is either importing or Exporting the material out of country and the Airlines/Shipping lines engaged in the Transporting the Material. The AO had considered the total receipt as per 26AS amounting to Rs.3,81,11,052/- against the revenue as disclosed by them amounting to Rs. 2,23,12,103/- without considering the reply wherein all the facts and figures were disclosed including reason of difference between revenue reported and as appearing in 26AS was explained. That the AO has failed to appreciate the norms and Practice of the industry in which the Freight/ Forwarding Agent acts as mediator between Customer (who is either import or export of the goods on behalf of its customer. They deal as intermediate channel between the Importer / Exporter located in India and abroad on one side and the Airlines / Shipping Lines which are transporting the goods on other side and the Custom Authorities. Similarly while exporting the goods, material is picked / received from the Godown of the Exporter to their representatives in Indian Custom Department located at Port or Air cargo Terminal. Their Rep files various documents as per the requirement of the Indian Custom Authorities, makes payment of Custom duty, Charges as imposed by the Indian Custom Authority, to clear the material from custom Authorities to onward movement to Shipping Line in case of Ship Transport or to Air Cargo in case of Air Consignment. These Expenses are reimbursable from the Actual Importer or Exporter of the Goods. While preparing the Bill for the Service rendered, since amount related to Expenses incurred and reimbursable from Importer / Exporter is also included but it is clear that the amount collected is entirely not its Income, rather a major part is reimbursement of cost already paid by them during the course of providing its Services. Further, according to the appellant, the AO failed to appreciate the fact that the amount collected from customer and paid to the Airlines/ Shipping Lines is neither income of them nor expenditure, as they are operating in a industry where it is a part of every freight and Forwarding agent to perform its services in similar way.
I have gone through all the submissions and documents furnished by the appellant. In this case the AO completed the assessment by assessing total income at Rs. 2,45,62,940/- by adding an amount of Rs. 2,14,30,665/- on account of mismatch in sales turnover to the total income. The AO has considered the total receipt as per 26AS amounting to Rs. 3,81,11,052/- but the appellant disclosed Rs. 2,23,12,103/-. On perusal of party-wise and bill wise details with reconciliation of amount as appearing in AS-26 i.e. Rs. 3,81,11052/- on which TDS was deducted by the Parties and even detail related to those parties where TDS was not deducted it is observed that the AO has brushed aside all the documents submitted by the appellant. Further expenses amounting to Rs. 2,14,30,665/- which relates to Airlines / Shipping Line were never claimed by the appellant as evident from the Profit and Loss Account. Appellant has explained the mismatch by submitting party-wise break up of Total Revenue containing Freight collected and Paid, Terminal and other Charges, appellant’s Share of Income, Service Tax Collected and paid duly reconciled with AS-26, party-wise detail of Freight collected and Payment, Reconciliation between Income as per TDS certificate (26AS) with Bills Issued. Since the customer has deducted TDS on Gross value of Bills without differentiating the appellant’s Share or Airlines/ Shipping Line Share, the values therefore are reflected in 26AS. It is pertinent to mention here that in earlier years, The AO accepted similar claim of appellant while accepting the Income Tax Return U/S 143(1) of the Income Tax Act, 1961. The AO is required to analyze the reason of mismatch and to consider the explanation offered. However in the present case, the AO has failed to follow the instructions and proceeded arbitrarily without considering the reply wherein all the facts and figures were disclosed including reason of difference between revenue reported and as appearing in 26AS.
In view of the factual matrix of the case at hand and the discussion above, these grounds of appeal are, accordingly, allowed and the addition made by the AO on this account is, hereby, deleted.”
4. Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
“1. On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in deleting the addition of Rs,2,14,30,665/- on account of mismatch in sales turnover without taking into account the provisions of Section 199 read with 37BA of Income Tax Rules 1962.
2. On the facts and in the circumstances of the case, the ld. C!T(A) was not justified in deleting the addition of Rs. 2,14,30,665/- on account of mismatch in sales turnover without seeking the remand report from the AO on this count.
3. On the facts and in the circumstances or tile case, the ld. CIT(A) has erred in deleting the addition relying upon the fact that in the earlier years the AO accepted the similar claim of the assessee while accepting the Income Tax Return under section 143(1) of the Income Tax Act,1961.
4. On the facts and in the circumstances of the case, the Id. CIT(A) was not justified that intimation under section 143(1) is a self assessment, intimates about processing of return, and is not an assessment framed by the AO.”
5. At the time of hearing, ld. DR of the Revenue brought to our notice relevant facts on record and submitted as under :-
“DR’s Contentions for Ground No. 1:
1. Error in Law: Misapplication of Section 199 r/w Rule 37BA
• The Id. CIT(A) failed to appreciate that under Section 199 of the Income Tax Act, 1961 read with Rule 37BA of the Income Tax Rules, 1962, credit of TDS is permissible only in respect of income that is assessable in the hands of the assessee.
• In the present case, the assessee claimed full TDS credit of Rs.7,64,147/-, but did not offer the corresponding receipts of Rs.2,14,30,665/- as income.
• By deleting the addition, the ld. CIT(A) has conferred a benefit of TDS credit without ensuring that the related receipts are included in taxable income, which is contrary to the statutory mandate.
2. Failure of Assessee to Discharge Onus of Proof
• The burden of proving that certain receipts were not in the nature of assessee’s income squarely lies upon the assessee.
• The assessee merely relied on internal reconciliations and accounting entries without furnishing any corroborative material such as:
• Agreements with Airlines/Shipping Lines,
• Confirmations from such third parties,
• Proof of onward remittance of the alleged pass-through payments.
• In absence of such independent evidence, the CIT(A) erred in law in accepting a bald explanation and rejecting the addition made by the AO.
3. Reliance on Past Acceptance is Misconceived
• The ld. CIT(A) placed reliance on the fact that in earlier years, similar claims were accepted under processing u/s 143(1).
• Processing of return w/s 143(1) involves no scrutiny or verification, and hence cannot constitute a binding precedent for subsequent years where detailed scrutiny is undertaken u/s 143(3).
• Therefore, reliance on past acceptance is legally untenable.
4. Perverse Finding: Failure to Appreciate AO’s Reasoning
• The AO had cogently established that:
• Gross receipts were Rs.4,37,42,768/-,
• Declared revenue was only Rs.2,23,12,103/-,
• Difference of Rs.2.14.30,665/- remained unexplained.
• The assessee claimed complete TDS credit corresponding to higher receipts while suppressing turnover.
• The AO’s conclusion was thus based on documentary evidence from Form 26AS and ITR, and not on conjectures.
5. Non-consideration of Revenue’s Rights
• By deleting the addition. the ld. CIT(A) has effectively allowed the assessee to avail TDS credit on receipts not offered to tax, causing double prejudice to Revenue:
• Loss of tax on undisclosed receipts, and
• Grant of TDS credit against such non-taxed receipts.
• This results in unjust enrichment of the assessee at the cost of public exchequer, which is impermissible in law.
In View of the above contentions, it is respectfully submitted that:
1. The order of the ld. CIT(A) suffers from errors of fact and law.
2. The deletion of the addition of Rs. 2,14,30,665/- is unjustified and unsustainable.
3. The order of the AO be restored and the appeal of the Revenue be allowed.
2. On the facts and in the circumstances of the case, the CIT(A) was not justified in deleting the addition of Rs. 2,14.30,665/- on account of mismatch in sales turnover without seeking the remand report from the Assessing Officer.
3. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs. 2,14,30,665/- on account of mismatch in sales turnover relying upon the fact that in the earlier years the A0 accepted the similar claim of the assessee while accepting the Income Tax Return under section 143(1) of the Income Tax Act, 1961.
4. On the facts and in the circumstances of the case, the ld. CITA) was not justified that intimation under section 143(1) is a self-assessment, intimates about processing of return, and is not an assessment framed by the AO.
Therefore the order of the Ld. CIT[A] may kindly be set aside and order of the AO be restored allowing the present appeal of the revenue.”
6. On the other hand, ld. AR of the assessee submitted as under :-
“1.1 The receipts as per 26AS/AIS amounted to Rs.83,81,052/-, whereas the receipts as per Profit & Loss Account were Rs.2,23,12,103/-.
In this regard, the assessee submitted:
• A list of parties from whom receipts of Rs.3,81,11,052/- were received, on which TDS of Rs.7,64,147/- was deducted. (Page 98 to 100 of PBK)
• A list of parties from whom receipts of Rs.256,31,716/- were received, on which no TDS was deducted. (Page 101 – 104 of PBK)
The assessee also submitted a reconciliation of the difference between receipts as per 26AS and receipts as per the Profit & Loss Account, as under:
| Particulars | Amount (Rs.) |
| Receipts as per 26AS | 3,81,11,052 |
| Receipts not reflected in 26AS | 56,31,716 |
| Gross Receipts (incl. Freight Charges) | 4,37,42,768 |
| Income disclosed in P&L Account | 2,23,12,103 |
| Freight Charges Reimbursements included in 26AS (Page 373- 374 of PBK) | 2,14,30,665 |
1.2. The breakup of freight charges included in Form 26AS is provided at Pages 373-374 of the PBK. An illustrative list of bills raised by the assessee and the corresponding bills issued by the shipping companies to the assessee is placed at Pages 464-506 of the PBK, where the assessee has separately shown the freight charges. These charges are merely reimbursements of expenses incurred by the assessee on behalf of its customers.
The freight charges were not routed through the Profit & Loss Account of the assessee but were accounted for through the Freight Payable Account (Pages 380 to 442 of the PBK). The differential amount was taken as income, which clearly implies that the assessee has neither claimed the freight charges as an expense nor included the same in gross receipts. Only the income portion was reflected in the Profit & Loss Account, in line with the accounting practice prevailing in the industry in which the assessee operates.
The assessee had furnished various documentary evidences to Ld. Assessing Officer to substantiate his claim, including:
• Reconciliation between receipts as per 20AS and as per books (Page 49 of PBK).
• List of parties from whom receipts of Rs.3,81,11,052/- were received, on which Rs.7,04,147/- was deducted. (Page 98 to 100 of PB).
• A list of parties from whom receipts of Rs.56,31,716 were received, on which no TDS was deducted. (Page 101- 104 of PBK).
• Copy of contract receipts as per books (Pages 110-215 of PBN).
• Copy of contract receipts as per 26AS (Pages 216-281 of PBK).
• Details of contract receipts on which TDS was claimed (Pages 282-338 of PBK)
• Customer-wise freight details included in 26AS (Pages 352-353 of PBK)
1.3. The Assessing Officer vide order dated 18/12/2018 /s 143(3) of the Act comp assessment by considering the gross receipts at Rs.84,37,42,768/-. This figure was derived by taking (i) gross receipts as per Form 26AS amounting to Rs.3,81,11,052/- (on which TDS was deducted), and (ii) gross receipts of Rs.56,13,716/- (on which TDS was not deducted by the parties). The Assessing Officer then compared the gross receipts of Rs.4,37,42,768/- with the receipts of Rs.2,23,12,103/- as per the Profit & Loss Account of the assessee, and added he differential amount of Rs.2,14,30,665/- as income of the assessee. However, the said addition of Rs.2,14,30,665/- represents nothing but freight charges included in receipts as per Form 26AS of the assessee.
Despite the assessee filing detailed submissions of around 350 pages, the Assessing Officer failed to appreciate the business model and the method of accounting consistently followed by the assessee. As a result, an addition of Rs.2,14,30,665/- was made, which is purely in respect of reimbursement of freight charges. While passing the assessment order, the Assessing Officer neither considered nor dealt with the detailed submissions placed on record, thereby rendering the order a non-speaking one.
2. CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION
2.1. Aggrieved by the order of AO, the Assessee filed appeal before CIT(A) on 12/01/2019, the CIT (A) vide his order dated 04/02/2025 deleted the addition on the following:
“AO completed the assessment by assessing total income at Rs.2,45,62,940/- by adding an amount of Rs.2,14,30,665/- on account of mismatch in sales turnover to the total income. The AO has considered the total receipt as per 264S amounting to Rs.3,81,11,052/-but the appellant disclosed Rs.2,23,12,103/-. On perusal of partywise and bill-wise details with reconciliation of amount as appearing in AS-26 i.e. Rs.3,81,11,052/- on which TDS was deducted by the Parties and even detail related to those parties where TDS was not deducted it is observed that the A0 has brushed aside all the documents submitted by the appellant. Further expenses amounting to Rs.2,14,30,665/- which relates to Airlines /Shipping Line were never claimed by the appellant as evident from the Profit and Loss Account. Appellant has explained the mismatch by submitting party-wise break up of Total Revenue containing Freight collected and Paid, Terminal and other Charges, appellant’s Share of Income, Service Tax Collected and paid duly reconciled with AS-26, party-wise detail of Freight collected and Payment, Reconciliation between Income as per TDS certificate (264S) with Bills Issued, Since the customer has deducted TDS on Gross value of Bills without differentiating the appellant’s Share or Airlines/Shipping Line Share, the values therefore are reflected in 26AS. It is pertinent lo mention here that in earlier years, The A0 accepted similar claim of appellant while accepting the Income Tax Return U/S 143(1) of the Income Tax Act 1961. The A0 is required to analyze the reason of mismatch and to consider the explanation offered. However in the present case, the A0 has failed to follow the instructions and proceeded arbitrarily without considering the reply wherein all the facts and figures were disclosed including reason of difference between revenue reported and as appearing in 26AS.
In view of the factual matrix of the case at hand and the discussion above, these grounds of appeal are, accordingly, allowed and the addition made by the AO on this account is, hereby deleted,”
2.2. The CIT(A), after considering the documents already available on record and duly submitted before the Assessing Officer, allowed the appeal and deleted the addition of Rs.2,14,30,665/-, holding that the said amount represented reimbursement off freight charges.
3. REIMBURSEMENT ARE NOT INCOME OF THE ASSESSEE AND HENCE NOT TAXABLE
3.1. The Chennai Tribunal, in Assistant Commissioner of Income-tax v. K.M. Trade Link , in a case similar to that of the assessee, held that the Assessing Officer had erred in making additions towards the difference between gross receipts as per Form 26AS and the books of account of the assessee.
3.2. It has been consistently held by various courts that reimbursements are not taxable as no profit element included therein:
• Commissioner of Income-Tax Versus Industrial Engineering Projects Pvt. Limited, 202 ITR 1014, Delhi High Court
• COMMISSIONER OF INCOME-TAX Versus SIEMENS AKTIONGESELLSCHAFT 310 ITR 320, Bombay High Court
• Director of Income Tax (International Taxation) Scindia House, Versus Krupp Udhe GMBH. 354 ITR I73, Bombay High Court.
4. GROUND RAISED BY DEPARTMENT IS INCORRECT AND APPEAL DESERVED TO BE DISMISSED
In the grounds of appeal, the Department has also incorrectly invoked Section 199, which merely deals with credit of TDS and is not relevant in the present case. Without prejudice to this the assessee shall be entitled to credit of TDS even in respect of credits which are not liable to tax as held by:
• Escorts Lid. Versus Deputy Commissioner of Income-tax, Circle Il (1), New Delhi, 15 SOT 368 (1TAT Delhi)
• Siemens International Trading Ltd. Versus Income Tax Officer, Ward-3 (1) (2), New Delhi (TTAT Delhi)
• Arvind Murjani Brands (P) Ltd. Versus Income-tax Officer, Ward 5(l), Mumbai, IT Appeal NO. 6708 (MUM) of 2010 (ITAT Mumbai)
5. In view of the above, the order of the CIT(A) deserves to be upheld and the Department’s appeal is liable to be dismissed.”
7. Considered the rival submissions and material placed on record. We observed that the real issue raised by the Revenue are that the assessee has received gross receipt of Rs.3,81,11,052/- and on which TDS was deducted of Rs.7,64,147/-. Since the assessee has declared the net receipt from the operation retaining its income alone in its financial statement and return of income filed by the assessee, the AO had added the difference of gross receipt received by the assessee and the income declared by the assessee in its return of income as income of the assessee.
8. After considering the detailed submissions made before us, we observed that the assessee is in the business of freight forwarding and handling. It is a peculiar nature of the business in which assessee raises the bill for the services rendered by it to its customers including the freight charges and it collects the freight charges plus for the fees towards services rendered by it. The freight charges have to be paid to the respective airlines or shipping company. The net service charges are the real income of the assessee. This being the peculiar nature of the assessee, assessee will collect gross amount from the customers, retains the service charges rendered by it and balance has to be remitted to the airlines or shipping company. The assessee also maintained separate freight charges payable account. After considering the reconciliation submitted by the assessee and also considering the peculiar nature of the business, the assessee can only disclose its real income and not the gross income which is not pertained to the assessee.
9. Even otherwise, if we consider the method adopted by the tax authorities that they have considered the gross receipts as income of the assessee, since the assessee has brought on record the relevant freight charges of the assessee remitted to the airlines or shipping companies, they should have considered the same. Since the assessee has not claimed the above said freight payment in their Profit & Loss account, they simply rejected the same and proceeded to make the difference as income of the assessee. The Revenue authorities have to determine the real income of the assessee and taxed the same. In our view, merely on the basis of transaction, the addition cannot be made unless it is proved that the gross receipt is actually for the compensation rendered by the assessee. Considering the overall facts on record, in our considered view, there is tax neutral as far as nature of business carried on by the assessee. Therefore, we are inclined not to disturb the findings of the ld. CIT (A).
10. In the result, the appeal filed by the Revenue is dismissed.