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TMI Blog2013 (4) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance of cash discount amounting to Rs.1,58,96,413/- u/s 40(a)(ia). The assessee allowed cash discount amounting to Rs.1,58,96,413/- to the dealers and sub-dealers for promotion of goods and assessee failed to deduct or collect any tax at source on this cash discount, therefore, provisions of section 40(a)(ia) of the Act were applicable in the case of the assessee. The decision of Honorable Kerla High Court in the case of Vodafone Essar Cellular v/s ACIT reported in 194 Taxman 518 is applicable in the case of the assessee. 2. The Ld. CIT(A) has erred in law and facts in deleting the addition of Rs.14,91,637/- which was made by the AO, by disallowing interest attributable to Rs.1,10,49,168/- invested on capital work in progress out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the order of AO and submitted that the assessee was giving discount to the dealers/subdealers. They are not the ultimate end user/customers. He submitted that these dealers/sub-dealers function for all practical purposes as agent of the assessee, therefore, there existed the relationship of principal to agent. In view of these facts, there was obligation on assessee to deduct tax at the time of payment which has not been done. For not making TDS, the provisions of section 40(a)(ia) are applicable. Therefore, order of CIT (A) deserves to be set aside. 6. On the other hand, the learned AR submitted that the commission or the brokerage has been defined in Explanation to Section 194H of the Income-tax Act and as per this section, any paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions with the dealers/sub-dealers are direct and on the basis at arm's length. The relationship is principal to principal basis. For this proposition, he relied on the decision of Bhopal Sugar India Ltd. vs. STO reported in AIR 1977 S 1275. He also submitted that there is no agency agreement between the assessee and its dealers/sub-dealers. These dealers/sub-dealers were only asked to fill up customer appointment forms before appointing them as dealers/subdealers but as per the sales policy of the company, no commission was to be paid to the dealers/sub-dealers. The property including all risks and liabilities are transferred to these dealers/ sub-dealers upon the delivery of the goods by the assessee company and any further dealing with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factually and legally incorrect. The relationship between assessee and the dealers/ sub-dealers was of principal - principal basis. He also submitted that the contention of the AO that payment was made for promotion of goods is also factually incorrect. There is no such sale policy of the company. These cash discounts were only for prompt payment of the goods sold to dealers/ sub-dealers. He also submitted that the decision of CIT vs. Idea Cellular Limited reported in 325 ITR 148 (Del.) and Vodafone Essar Cellular Ltd. vs. ACIT reported in 194 Taxman 518 (Kar) has no applicability in the case of assessee. Those cases were having completely different set of facts than the assessee's case. The identical expenditure has been allowed in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company, no commission was payable to the dealers/ sub-dealers for promotion of the selling of the goods. This cash discount was for the prompt payment for the goods supplied to them. Such discounts were in the form of abetment of cost and not in the nature of commission, therefore, in our considered view, the provisions of section 194H are not applicable. In view of these, we find no fault in the order of CIT (A) on this issue and we sustain the same. Accordingly, this ground of revenue's appeal is dismissed. 8. In the ground no.2, the issue involved is deleting the addition of Rs.14,91,637/- which the AO held by disallowing interest attributable to the amount invested on the capital work in progress of Rs.1,10,49,168/-. This capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that there was an opening balance at the beginning of the year under the head 'capital work in progress'. Further as per the audited accounts of the assessee, there was no closing balance under the head 'capital work in progress'. This shows that the work was completed during the relevant year. The assets were ready for use or used for the business purposes during the year. Since there was nothing under the head 'capital work in progress', therefore, there is no question of establishing the nexus between the borrowed fund and the investment made. In view of these facts, we sustain the order of the CIT (A) on this issue and dismiss this ground of revenue's appeal. 11. In the ground no.3, the issue involved is deleting the addition of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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