TMI Blog2015 (12) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... short deduction / lesser deduction as in case of section 201(1A) of the Act. There is an obvious omission to include short deduction / lesser deduction in section 40(a)(ia) of the Act. Therefore, this Tribunal is of the considered opinion that in case of short / lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the assessing officer, cannot be disallowed. Accordingly, the orders of lower authorities are set side and the entire disallowance is deleted - Decided in favour of assessee. - ITA No. 586/Mds/2014, ITA No.610/Mds/2015, ITA No.1169/Mds/2014 & C.O. No. 55/Mds/2014 - - - Dated:- 18-12-2015 - Shri N.R.S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Shri Raghunathan Sampath, Advocate For the Respondent : Dr. Milind Madhukar Bhusari, CIT ORDER Per N.R.S. Ganesan, Judicial Member: Both assessee and Revenue have filed appeals against the order of the Assessing Officer dated 16.01.2014. The assessee has also filed a cross-objection. Therefore, we heard these appeals and the cross-objection together and disposing of the same by this common order. 2. Let's first take the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the assessee, according to the Ld.counsel for the assessee, the Transfer Pricing Officer observed in the transfer pricing order as if the assessee is a 'captive', 'routine', full-fledged distributor at para 6.1.3. Referring to para 6.2 of the transfer pricing order, the Ld.counsel submitted that the Assessing Officer again classified the assessee as 'routine' distributor and also a service provider. Again in para 6.2.2, the Transfer Pricing Officer classified the assessee as an agent. Further, referring to para 6.2.4 of the transfer pricing order, the Ld.counsel submitted that the assessee was classified as 'captive' 'distributor' and 'agent' for the associate enterprise. 6. Referring to the observation made in the order of Dispute Resolution Panel at page 8, the Ld.counsel for the assessee submitted that the DRP observed that the assessee-company performed all the valuable functions with risks as an independent entity. Therefore, according to the Ld. counsel, both TPO and Dispute Resolution Panel could ascertain the exact functions of the assessee and they have assigned multiple characterization. Due to misunderstanding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. According to the Ld. counsel, Du Pont is a company in Switzerland. The Transfer Pricing Officer quoted that this Switzerland company by taking possession of inventory had acted as full-fledged distributor for its United States parent company. According to the Ld. counsel, Du Pont was the world's largest chemical company and intended to establish a market in Europe. Du Pont de Nemours International S.A. was established intentionally located in a low tax jurisdiction in Switzerland, sheltered from US income-tax, to finance its European expansion. Dr. Charles Berry arguing for the US Revenue, used Berry Ratio to demonstrate that the operating expenses of the Du Pont company was so low that it did not have to spend as many dollars to provide service and otherwise operate its business as distributors who bought and sold products and services at prices determined by free market forces. The Ld.counsel further clarified that Berry Ratio is an appropriate profit indicator to test the transfer pricing rate of limited risk distributor with guaranteed operational performance. In the case before us, according to the Ld. counsel, Roca India operates as a full-fledged distributor perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirement of the assessee. The assessee- company has no say in the purchase price. Therefore, according to the Ld. D.R., Resale Price Method would not give correct Arm's Length Price. 11. Referring to OECD Guidelines, more particularly para 2.31, the Ld. D.R. pointed out that Transaction Net Margin Method would be the most appropriate method to determine the Arm's Length Price of the goods purchased by the assessee from associate enterprise. Referring to Berry Ratio, the Ld. D.R. pointed out that the functions carried out by the assessee-company are not proportionate to the sale. According to the Ld. D.R., the most appropriate method has to be determined on the facts of the case on year to year basis. Therefore, merely because the Transfer Pricing Officer accepted the method adopted by the assessee for earlier assessment year that does not mean that the same has to be adopted for the year under consideration also. According to the Ld. D.R., the assessee incurred expenses in advertisement, marketing, sales promotion which were subsequently reimbursed by Roca Sanitaria S.A. Spain. The Ld. D.R. further submitted that the assessee used the tangible assets for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also characterizing the assessee as an agent in one place and captive distributor and agent in another place. For the purpose of determining most appropriate method for determining Arm's Length Price, the functions performed by the assessee need to be ascertained. In other words, whether the assessee is an independent distributor or it acts only as an agent without any risk has to be ascertained. If assessee is an independent distributor having all the risks, then this Tribunal is of the considered opinion that Resale Price Method would be the most appropriate method. However, the authorities below could not determine the actual functions performed by the assessee. In view of the misunderstanding of the facts by the Transfer Pricing Officer and Dispute Resolution Panel, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Dispute Resolution Panel once again on the basis of the agreement entered into between the assessee and Roca Sanitaria S.A. Spain. In other words, the Dispute Resolution Panel shall re-examine the issue afresh on the basis of the agreement entered into between the parties and determine the actual function performed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. The Assessing Officer found that the payment made to BSNL and Tulip Telecom Ltd. is for the use of the commercial equipment, therefore, tax has to be deducted under Section 194J of the Act. It is an admitted fact that the assessee has deducted tax under Section 194C of the Act. Therefore, it is not a case of non-deduction of tax but, it is a case of short deduction. We have carefully gone through the provisions of Section 40(a)(ia) of the Act. Section 40(a)(ia) of the Act clearly says that disallowance has to be made on the failure of the assessee to deduct tax in respect of the payment which is otherwise to be deducted under the provisions of Income-tax Act. In this case, in fact, the assessee has deducted tax under Section 194C of the Act. The Assessing Officer found that the tax has to be deducted under Section 194J of the Act. Therefore, the question arises for consideration is when the assessee made a TDS under Section 194C of the Act instead of Section 194J of the Act, whether any disallowance can be made under Section 40(a)(ia) of the Act for short deduction of tax An identical issue was considered by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. v. DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 201(1A) which reads as follows: (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- (i) At one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) At one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of subsection (3) of section 200.) Section 201(1A) enables the assessing officer to levy interest in case the tax was not deducted either wholly or partly or after deduction it was not paid as required under the Act. In fact, the provisions of section 201(1A) was amended by Finance Act, 2001 with retrospective effect from 01-04-1962 after the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in subsection (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). 35. This section has two limbs, one is where the employer does not deduct the tax and the second where after deducting the tax fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under this Act, there is a default. But the fact is that this expression 'as required by or under this Act' grammatically refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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