2020 (8) TMI 825 - AT - Income Tax

TDS u/s 194H OR 194J - Disallowance 40(a)(ia) on account of trade offers - HELD THAT:- As relying on own case [2020 (2) TMI 1038 - ITAT DELHI] Relationship between the assessee and HCL is that of principal to principal and not that of principal to agent. The discount which was offered to distributors is given for promotion of sales. This element cannot be treated as commission. There is absence of a principal-agent relationship and benefit extended to distributors cannot be treated as commission under Section 194H of the Act. As regards to applicability of Section 194J of the Act, the Assessing Officer has not given any reasoning or finding to the extent that there is payment for technical service liable for withholding under Section 194J.

Marketing activities have been undertaken by HCL on its own. Merely making an addition under Section 194J without the actual basis for the same on part of the Assessing Officer is not just and proper. The Ld. DR’s contention that discounts were given by way of debit notes and the same were not adjusted or mentioned in the invoice generated upon original sales made by the assessee, does not seem tenable after going through the invoice and the debit notes. In fact, there is clear mentioned about the discount for sales promotion. Thus, on both the account the addition made by the Assessing Officer does not sustain.

Disallowance on account of trade price protection extended to distributors against reduction in prices of hands - HELD THAT:- As requisite confirmations were filed before the Assessing Officer. Thus, this expenditure is allowable as revenue expenditure under Section 37(1) of the Act since it has been incurred wholly and exclusively for business and same cannot be questioned by the Assessing Officer. Ground is allowed.

Disallowance of marketing expenditure incurred on account of issuance of handsets on free of cost basis - depreciation to be allowed on such handsets as an alternate plea if the free of cost handsets are held to be in the nature of capital expenditure - HELD THAT:- As decided in own case [2020 (2) TMI 1038 - ITAT DELHI] relying on the present assessment year, the assessee is engaged in manufacture, import and sale of mobile handsets. The assessee has given mobile handsets to its employees, dealers, sale personnel etc. for free of cost and thus no longer owned the said handsets. Thus, the said cost was rightly taken as business expenditure by the assessee and was rightly reduced from the inventory.