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2016 (4) TMI 1128 - ITAT KOLKATA

2016 (4) TMI 1128 - ITAT KOLKATA - TMI - TDS u/s 194H - non deduction of tds - payment of incentive to the dealers for the purpose of promotion in selling its goods beyond a targeted quantum - Held that:- In the present case, the ld. CIT(A) examined the copies of agreements of dealers and he found that dealers are the receipts of the amount given by the assessee as incentive. The dealers are buying the goods from the assessee on their own risk. The assessee paid the incentive to the dealers for .....

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is neither contractual transaction nor payment commission or brokerage under the relation of principal and agent and which are a strict requirement of section 194H of the Act to deduct the TDS. Therefore we hold that the payments paid to the distributors/ dealers by way of incentives would not come under the purview of section 194H and invocation thereon under section 40(a)(ia) is bad and hence no interference is required with the order of the CIT(A), therefore, it is confirmed. - Decided again .....

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peals)-VIII, Kolkata in Appeal No.187/CIT(A)- VIII/Kol/10-11 for the assessment year 2008-09 framed under section 143(3) of the I.T.Act. 2. At the time of hearing, the assessee submitted that he is not advancing any arguments in Cross Objection and prayed to treat the same as not pressed. Accordingly, the C.O. 98/Kol/2012 is dismissed as not pressed. 3. Challenging the impugned order, the appellant Revenue raised the following grounds: (1) That under the facts and circumstances of the case the L .....

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mend, alter or delete any of the grounds mentioned above or to add a new ground if required. 4. Brief facts of the case are that the assessee is a domestic company and engaged in manufacturing of electrical, pumps, other equipments and accessories. The assessee filed its return of income on 30.9.2008 and the income declared thereon was ₹ 7,89,62,081/- and it was accepted. Under scrutiny, the AO found that the assessee debited an expenditure of ₹ 1,26,73,270/- as warranty expenses in .....

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e assessee preferred the appeal before the CIT(A). The CIT(A) observed that, if any, excess provision can be taxed in subsequent year. 6. Before us, the ld. DR contended that the assessee cannot have provision for warranty expenses for future expenses and relied on AO s order. The ld. A/R submitted that this Tribunal decided assessee s own case in ITA No.1537/Kol/11 by an order dated 18.12.2015. 7. Heard both sides and perused the material on record and considered the submission. It is observed .....

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ced hereinbelow: 6. In view of the facts and circumstances of the case, now we will go through the case of Hon ble Supreme Court, as referred by Ld. Senior Advocate Sh. Bajoria, in the case of Retork Controls India P. Ltd. Vs. CIT (2009) 314 ITR 62 (SC) wherein Hon ble Supreme court held that such estimated provision for warranty as an allowable expenses. Hon ble Supreme court finally held as under:- 18. At this stage, we once again reiterate that a liability is a present obligation arising from .....

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cted to an individual retiree. On the other hand, the case of Metal Box Company of India [1969] 73 ITR 53(SC) pertained to an army of employees who were due to retire in future. In that case, the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of y .....

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, following the judgment in Metal Box Company of India [1969] 73 ITR 53(SC), that the provision made by the assessee for meeting the liability incurred under the leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that a large number of sophisticated .....

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pt in the case of Civil Appeal Nos. of 2009- Arising out of S. L. P. (C) Nos. 14178-14182 of 2007- Rotork Controls India (P) Ltd. v. CIT, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under section 37 of the 1961 Act. However, the High Court has failed to notice the "reversal" which constituted part of the data systematically maintained by the assessee over last decade. 19. For the above reasons, we set aside the impugned judgment of the M .....

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expenses which have been incurred or are likely to be incurred within the period for which warranty has been assured to the customers against the sale of products and as such, such expenses are deductible as business expenditure. Such expenditure having been incurred wholly for the purpose of business is fully allowable as business expenditure. Accordingly, we uphold the order of CIT(A). Hence, we dismiss both the appeals of revenue. 7.1 AO also found that out of ₹ 3,68,42,016/- which was .....

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s not form of commission to consignee or agent and in the scope of section 194H of the Act. Accordingly, ld. CIT(A) deleted the addition made by the AO. 8. The submission of the ld. DR in respect of ground no.2 is that all cash transactions are contractual in nature , thereby, AO attracted section 194H of the Act for not deducting tax at source and relied on the AO s order. The ld. AR submitted that the relation between the assessee and dealer/distributor is like principal to principal and there .....

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otor control centres, control panels and enclosures etc. The dealers/ distributors, under an agreement with the assessee would purchase goods from assessee against cash payment or on credit depending upon the agreement under scheme of promotion in selling the assessee s goods beyond targetted quantum for which the incentive is being given to the said dealers/ distributors for achieving certain sales target as fined by the assessee. 10. A similar case came up before the Hon ble Delhi High Court i .....

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ibutor therein are not of principal and agent and it is a relationship of principal to principal, the relevant portion of which is reproduced hereinbelow: 8. A perusal of the agreement shows that the assessee had permitted the distributor to sell its products in a specified area. The distributor was to exclusively deal in the products of assessee in a specified territory. The products were to be purchased by the distributor from the assessee against 100 per cent advance payment, though decision .....

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thing in this agreement shall be construed to confer the authority of an agent to bind the assessee. In cl. 17 it was specifically mentioned that the distributor was to purchase the products of the assessee and was to be allowed discount per case on the printed MRP. In case of any breakage, leakage, etc., it was the distributor who was liable and not the assessee. Not only this, even all the approvals, consents, registrations, licenses, etc. whatever may be required from departments or authoriti .....

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e clearly understood and accepted the agreement between them. That being the arrangement between the assessee and the distributor, it could not be said that the relation between them was that of principal-agent. On the other hand it was clearly stipulated to be an agreement between them on principal-to-principal basis. Both the CIT(A) and also the Tribunal rightly held that the payments being made by the assessee to the distributor were incentives and discounts and not commission. We find no inf .....

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n sales promotional scheme under which assessee therein had offered an incentive on case to case basis to its stockists/dealer/agents. The distributors were the customers of assessee therein to whom the sales were effected. The Hon ble high Court held that the distributors/ stockists were the persons to whom the product was sold, no services were offered to the assessee. The distributors/ stockists were not acting on behalf of the assessee and hence, it could not be said to be a commission payme .....

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/- was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the Assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the di .....

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ction 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Explanation (i) below Section 194H would amount to reading the said provision in abstract. The application of the provision is required to be considered to the relevant facts of every case. We are satisfied that in the facts of the present case that as regards sales promotional expenditure in question, the provisions of Explanation (i) below Section 194H of the Act are rightly held to be not ap .....

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