TMI Blog2010 (3) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings, on examination of books of accounts and other details furnished, the AO found that- I. Cash payments exceeding ₹ 20000/- u/s 40A(3): Under the head 'discount account - tractor - cash', the assessee had made cash payments to the extent of ₹ 73.76 lakhs, out of which, payments to the tune of ₹ 45.78 lakhs were above ₹ 20000/-. On further verification, the AO found that the payments were made to each party splitting the amount below ₹ 20000/- in a single day. After considering the assessee's explanation and also in conformity with the provisions of s.40A(3), the AO was of the view that the different payments made under the head 'discount' to the same party on the same date were below ₹ 20000/- which gives a clear indication that the assessee had intentionally split the payments made to a single party exceeded ₹ 20000/- and thus, 20% of total cash payments made to the extent of ₹ 45.78 lakhs which worked out to ₹ 9.15 lakhs was disallowed. II. Traveling and conveyance: The assessee had claimed ₹ 1.21 lakhs being Singapore Dealers' Conference, Bangkok air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t want of vouchers he has disallowed the expenses. Agreeing with the AR that since AO had agreed that these expenses were meant for business purpose there was no scope for disallowance and also on the case laws relied by the AR, the CIT(A) observed that in view of the case laws relied on by the AR that a normal expenditure has to be judged from the point of view of prudent businessman after establishing the nexus with the purpose of the business, reasonable expenditure is to be allowed but not to disallow the entire expenditure and, therefore, to meet both the ends of justice, AO was directed to disallow 10% of the expenses; and III. Addition u/s 40(a) (ia): There is a practice to pay men of straw for certain payments which are in the nature of selling expenses without any contractual obligations. In fact it is not a service but customary with certain traders being dominantly connected with agricultural families being the sale of tractors. It is stated that AO has merely stated that they are of nature of commission but not supported by any specific incident or evidence. Relying on the finding of the Hon'ble Kerala High Court in the case of CIT v. Popular Automobiles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction upon the assessee for any purpose and even for filing an appeal against the order of the CIT(A); Relies on the finding of the Delhi High Court in Valvoline Cummins Ltd. v. DCIT (2008) 171 Taxman 241 (ii) s.40A(3) gets attracted if payments exceed ₹ 20000/- only and if such payments are in the nature of expenditure; - the AO had not disputed the fact that the payments were in relation to cash discounts allowed to the customers of the appellant; - the cash discounts paid were to its customers when the customer approaches the assessee and eventually purchases tractors and pays the purchase price across the counter, the assessee allows the discount as 'cash discount' and that the cash discount was only the net purchase priced paid by the customers; - the cash discounts allowed cannot be regarded as 'expenditure', but, forms part of the trading account which gets reduced from the total sales value; - relies on the case laws: (a) United Exports v. CIT (b) Mapra Laboratories Pvt. Ltd. v. State of Bihar (2004) 135 STC 157 (Patna) (c) CIT v. Aloo Supply co. (1980) 121 ITR 680 (Ori) (d) 143 ITR (St) (SC); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2009) 180 Taxman 128 (Delhi HC) (b) ACIT v. Idea Cellular Ltd. (Hyd - ITAT) (2009) 120 ITD (BN - iv) Part 4 (c) Idea Cellular Ltd v. DCIT (ITAT- New Delhi) 177 Taxman 9BN)i(Part 1) (d) National Panasonic India (P) Ltd v. DCIT TDS (2005)94 TTJ 889 (Del-ITAT) (v) thus as the sums paid by the assessee cannot be regarded as 'commission', the assessee was not liable to deduct tax at source u/s 194H and the question of disallowance u/s 40(a)(ia) does not arise. 6. We have duly considered the rival submissions, perused the relevant records and also evidence produced by either party in the form of paper books etc. 6.1. Before looking into the issues raised by the Revenue, we shall deal with an issue which has been raised by the assessee during the course of hearing that the assessment order was concluded by the Addl. CIT on the basis of concurrent jurisdiction which was challenged by the assessee before the CIT (A) who had passed an order which is under dispute. If the CIT, objects to the order of the CIT (A), can direct the AO to challenge the order of the CIT(A) before the Hon'ble Tribunal. In the present case, the CIT had authorized the DCIT t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the Ld. A.R, we find that there is force in the contentions of the assessee for the following reasons namely: (i) no doubt, the provisions of s.40A(3) of the Act are applicable, if the cash payments exceed ₹ 20000/- only, that too, if such payments are in the nature of expenditure. As could be seen from the impugned assessment order, the AO had not disputed the very fact that the payments were in relation to cash discounts allowed to the customers of the assessee; (ii) the sequence of events goes like this- when a prospective customer approaches the assessee with an intention to purchase a tractor and subsequently purchased the same and he was to make the payment of the purchase price at the counter. At that time, the assessee allows discount called 'cash discount'. In other sense: Actual sale price - discount (cash discount allowed by the assessee) = purchase price paid by the customers. Ultimately, the buyer will have to make the payment of only the purchase price of the tractor after deducting the cash discount allowed by the assessee from the actual sale price; (iii) To have a better control and track over such disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bona fide of the MD of the assessee who attended the conferences at Singapore, Bangkok and Bombay. 7.3.3. The Ld. CIT(A) was very pragmatic in his approach that the normal expenditure has to be judged from the point of view of a prudent businessman who had duly established the nexus with the purpose of the business. 7.3.4. In view of the facts and circumstances of the issue, we are of the considered view that the finding of the Ld. CIT(A) is quite reasonable and very realistic in a given circumstance which requires no interference at this stage. It is ordered accordingly. III. Marketing expenses - u/s 194H: 7.4. The assessee had claimed ₹ 6.28 lakhs towards 'marketing expenses - tractor'. The AO's cryptic stand was that such payments were nothing but commission paid without deducting tax at source and, thus, the assessee had contravened the provisions of S.194H of the Act. 7.4.1. However, the Ld. CIT (A) diametrically took an opposite view that the AO had not established any evidence that such payments fall under the head commission where the provisions of s.194H of the Act have role into play. 7.4.2. We shall have a glimpse of Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . When no evidence is forth-coming that such persons are agents/representatives of the assessee, they cannot be classified as the agents of the seller and that the amounts so paid can be termed as 'commission'. Unless it is proved with discreet documentary evidence, it cannot, at any stretch of imagination, be termed as 'commission' and in the absence of any such proof, in our considered view, the applicability of the provisions of s.194H of the Act are rather arbitrary. 7.4.5. in the case of CIT v. Popular Automobiles Ltd. reported in 212 ITR 611, the Hon'ble High Court of Kerala, in its wisdom, has held thus- No doubt, it is intended to enhance and improve the business and sales of the assessee ; but it is not a sales promotion activity. Clause (i) of sub-section (3B) speaks of advertisement, publicity and sales promotion. Read in that context, sales promotion is an activity which will promote the sales of the assessee by reason of the advertisement and publicity that will be attendant on it or by reason of the incentives or other attractions offered to attract customers for the assessee's products. 7.5.6. With due respects, we would like to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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