JUDGMENT : (Prayer: Writ Petition is filed under Article 226 of the Constitution of India, praying to issue a Writ of Certiorari, calling for the records on the files of the 2nd respondent passed u/s 264 of I.T. Act relating to the year 2006 – 07 dated 08.02.2011 confirming the proceedings of the 1st respondent in AAGFB0131M/2006 – 07 dated 31.12.2008 and quash the same being illegal, invalid, contrary to the law laid down by the Honourable Delhi High Court reported in 218 CTR 695 and violated the principles of natural justice.) 1. Heard the detailed submissions of Mr.R.Sivaraman, learned counsel for the petitioner and Mrs.Hema Murali Krishnan, learned Senior Standing Counsel for the respondents. 2. The petitioner is an on-board agency engaged in the transportation of parcels entrusted to it by various courier companies to destinations across the world. The business of the petitioner is thus not that of a courier itself, but, an on-board agency as the parcels are transported from courier companies in Chennai for delivery to their counterparts in other destinations. This is done via air, paying air cargo or freight charges. The petitioner does not have any oral or written contract with the courier agencies in question. 3. Upon booking of the parcel with the airlines agent, airway bills are provided to the petitioner by the respective airlines. These bills are a receipt for the parcels themselves and are issued in duplicate, one to the petitioner and one to the consignee/agent oversees. Freight charges are collected in this regard, on a weekly/monthly basis based on the airway bills issued by the air cargo authority. 4. An alternative mode of operation is that the petitioner purchases an air ticket from the airlines and physically carries the materials as accompanying baggage, either checked-in or in-cabin. The cost of the ticket and additional cost if any paid for the baggage would constitute direct cost in respect of the transport of materials. These are the two methodologies stated to be followed by the petitioner for the rendition of the services. 5. In respect of assessment year 2006-2007, an order of assessment dated 31.12.2008 has been passed in terms of Section 143(3) of the Income Tax Act 1961 (in short Act). A disallowance was effected in terms of Section 40(a)(ia) in respect of the freight payment that had been effected without deduction of tax at source (in short TDS). 6. 5. In respect of assessment year 2006-2007, an order of assessment dated 31.12.2008 has been passed in terms of Section 143(3) of the Income Tax Act 1961 (in short Act). A disallowance was effected in terms of Section 40(a)(ia) in respect of the freight payment that had been effected without deduction of tax at source (in short TDS). 6. The petitioner challenged the assessment by way of revision under Section 264 of the Act. After consideration of matter as well as a remand report received from the Assessing Officer, the revisional authority, arrayed as respondent No.2 before me, rejects the same in the following terms: ‘7. After carefully going through the facts of the case and the relevant records, it is noticed that assessee is taking the view that payment of Rs.1,75,76,637/- to the various contractors falls under u/s 29. The payment made to the following concerns for the courier services are: (a) Pawan Cargo Forwards (P) Ltd 1,56,27,051 (b) EDS International (P) Ltd. 17,82,475 (c) Mudita Marketing 78,286 (d) Anjalin Enterprises 35,631 (e) Sai OBC 28,225 (f) Southern Cargo 17,293 (g) Sachet OBC 7,676 1,75,76,637 According to the assessee, as these are not listed to in section 30 to 38, section 40a(ia) is not applicable. Assessee has received courier charges of Rs.1,95,18,536/- and against that receipt it has given freight charges / courier charges to the tune of Rs.1,75,76,637/-. It is for carriage of goods by the online courier services promoted by the various airlines. Those courier services are working on behalf of the appellant. Hence, it will come under the work contract and TDS is applicable under Chapter XVII-B. Board’s Circular No.713 is not applicable in the assessee’s case as the courier services are accepting the goods of other parties also. And assessee, is not only reimbursing the ticket expenses. It is also making the full payment for the work contract for carriage of goods. In view of the aforesaid discussion, the application filed by the appellant is rejected and the addition made by the learned AO is confirmed. Assessee is directed to pay the demand as per the Demand Notice issued by the AO.’ 7. It is also making the full payment for the work contract for carriage of goods. In view of the aforesaid discussion, the application filed by the appellant is rejected and the addition made by the learned AO is confirmed. Assessee is directed to pay the demand as per the Demand Notice issued by the AO.’ 7. The Commissioner of Income Tax, in my view, has not appreciated the modus operandi followed by the petitioner in proper perspective and has proceeded upon the erroneous understanding that the petitioner is rendering courier services in respect of which the income there from would be tax deduct able. The petitioner is not, in fact, a courier agency itself, but an on-board courier, that transports/carries parcels for transport from one courier agency to its counterpart in other States. For these services it receives a commission, which undisputedly, has been offered to tax. The payment received by the petitioner as freight charges represents the direct cost incurred as charges for cargo or cost of ticket purchased. Such payment constitutes a direct cost and hence would not fall within the sweep of ‘income’ upon the tax is liable to be deducted. 8. Incidentally, the identical question appears to have arisen in the assessment of the petitioner in AY 2008-2009, challenged by it in statutory appeal. The Commissioner of Income tax (Appeals), upon a proper consideration of the relevant facts and legal position has passed an order dated 28.01.2013 allowing the appeal of the petitioner. The relevant portion is extracted below: ‘5.2 I have perused the appellant’s submissions carefully. As seen from the provisions of sec. 28 of the Act, the income chargeable to tax under the head “Profits and gains of business or profession” includes the profits and gains of any business or profession carried on by the assessee. The relevant provisions are – Sec. 28 The following income shall be chargeable to income tax under the Head ‘Profits and gains of business or profession’- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; Thus what is to be included in the sec. 28 as Income under the head “Profits and gains of business or profession” is “Profits and gains of business or profession carried on by the assessee”. 28 as Income under the head “Profits and gains of business or profession” is “Profits and gains of business or profession carried on by the assessee”. The word Profits and Gains of the business means the surplus income earned by the appellant after meeting all the outgoings, as could be understood in the common general pariance. Thereafter, from such “Profits and gains of business or profession” the expenses provided under sections 30 to 43 are to be allowed in order to arrive at the net income to be included under the head “Profits and gains of business or profession.” 5.3 The above view has been clearly held by the Hon’ble Supreme Court in the case of Madeva Upendra Sinai v. Union of Indian (1975) 98 ITR 209 (SC). In the said case the Apex Court observed that section 2(2)(i) of the Act defines “income” to include “Profits and gains”. Section 28(i) makes the “profits and gains of any business or profession which was carried on by the assessee at any time during the previous year chargeable to income tax. Section 29 requires that the income referred to in section 28 shall be computed in accordance with the provisions including those for deductions contained in sections 30 to 43A. Since the tax is chargeable on “profits and gains” and not on gross receipts, the profits to be assessed must be the real profits computed, subject to the special requirements of the Act in accordance with the ordinary principles of commercial accounting. It follows that if the deduction of a particular item from the incomings of the business or profession is neither expressly covered by the aforesaid sections, nor prohibited expressly or by necessary implication by those provisions, it can be allowed under section 28(i) provided, on ordinary commercial principles, it is a proper item to be debited against the incomings in ascertaining the “profits and gains” properly so called. While delivering the judgment, the Hon’ble court also relied on Badridas Daga vs. Commissioner of Income tax (1958) 34 ITR 10 (SC) and Commissioner of Income tax vs. Mysore Sugar Co. Ltd. (1962) 46 ITR 649 (SC). 5.4 The Supreme Court in the case of Badridas Daga v. CIT (1958) 34 ITR 10 (SC), held that ordinary commercial principles should be applied. Ltd. (1962) 46 ITR 649 (SC). 5.4 The Supreme Court in the case of Badridas Daga v. CIT (1958) 34 ITR 10 (SC), held that ordinary commercial principles should be applied. Profits and gains which are liable to be taxed under section 10(1) of the 1922 Act [corresponding to section 28 of 1961 Act] are what are understood to be such according to ordinary commercial principles. The expression ‘profits and gains’ has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from (Calcutta Co. Ltd. V. CIT (1959) 37 ITR 1 (SC). The value of the stock-in-trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. Attar Singh Gurmukh Singh v. Income tax Officer [1991] 191 ITR 667 (SC). 5.5 Similarly, the ITAT Hyderabad Bench, in the case of Teja Construction vs. ACIT (2010) 39 SOT 13 (Hyd.) also held that provisions of section 40(a)(ia) are applicable only to items covered by sections 30 to 38 and not to section 28 and, therefore, all direct costs / expenditures covered by section 28 are beyond scope of disallowance under section 40(a)(ia). 5.6 The Hon’ble ITAT of Chennai (C Bench) in the case of ACIT vs. Lakshmi Jewellery, (ITA No.2005/Mds/2010 dated 6.9.2011) held that the making charges paid by a jeweler constitutes direct expenses allowable u/s 28 and hence cannot be disallowed as per the provisions of section 40(a)(ia) for want of non deduction/non remittance of TDS. 5.7 Thus, from the above judicial pronouncements it is clear that all the direct expenses are allowable u/s 28 of the Act itself. The only expense specified u/s 30 to 38 alone are subjected to the provisions of sec.40(a)(ia) of the Act before allowance. In the instant case the payment of freight being direct expenses, are allowable u/s 28 itself and not under the provisions of sec. 30 to 38. However, the AO has not considered that this expenditure is allowable u/s 28 of the Act being the direct cost, and the provisions of Sec. 40 of the Act are not applicable for the deduction allowable u/s 28. 30 to 38. However, the AO has not considered that this expenditure is allowable u/s 28 of the Act being the direct cost, and the provisions of Sec. 40 of the Act are not applicable for the deduction allowable u/s 28. In other words, the AO has treated the freight payments as allowable expenditure u/s 30 to 38 of the Act and hence applied the provisions u/s 40 for making the above disallowance of Rs.3,23,34,423/-. 5.8 Therefore, the payments of freight are not within the purview of the provisions of section 40(a)(ia) of the Act and hence the AO is not justified in disallowing the freight payments of Rs.3,23,34,423/- on the ground that the TDS was not deducted. The AO is therefore directed to delete the addition of Rs.3,23,34,423/-. This ground of appeal is allowed. 6. With regard to addition of Rs.50,732/- made on various heads of expenditure as stated in para 3.1 above, the AO disallowed the same to the extent of vouchers not product. During appeal proceedings also the appellant has not produced any evidence in support of its claim. Therefore, the addition made by the AO in this regard is justified and hereby confirmed. 7. In the result, the appeal is partly allowed.’ 9. The above order has attained finality and has been accepted by the Revenue. In such a case, I see no justification for the revenue to take a different stand for the present year on, admittedly, identical facts and legal position. The impugned order is liable to be set aside and I do so. This writ petition is allowed. No costs. Consequently, connected miscellaneous petition is closed.