TMI Blog2016 (5) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 13.62 lakhs before filing of the return. AO has treated the above provision of expenses as statutory due to the employees u/s 43B of the Act, whereas, this is not statutory obligation on the part of the assessee, but, it is a contractual and voluntary expenditure for which assessee has created the provision. Respectfully following the decision of this Tribunal in the case of Novopan Industries Ltd. Vs. DCIT, [2013 (9) TMI 377 - ITAT HYDERABAD ] and others wherein it was held that the exgratia cannot be regarded as bonus and requirement of the provisions of section 37 are fully satisfied. Hence, respectfully following the said decision, we delete the addition made invoking section 43B on exgratia. Disallowance made u/s 40(a)(ia) in respect of fee payable to the advocate - Held that:- M/s Bajaj Hindustan Ltd., who deducted the TDS and remitted the same properly. Therefore, we do not find any default on the part of the assessee and hence, we delete the addition made on this count. Disallowance made u/s 40(a)(ia) towards payment for purchase of printing material - Held that:- There is no doubt that the assessee has procured printing labels to its specification. The payment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e discounts and not commission on which provisions of section 194H will apply. Accordingly, the additions made on this count are deleted. Disallowance made u/s 40(a)(ia) for payments made to stockiests - Held that:- The Assessee has already made TDS payments on the similar payments and termed these as commission. It cannot contest that these are incentives to dealers and could not substantiate its claim. We conclude that these are in the nature of commission only. Also, the provision made for ₹ 1,94,000/- will attract TDS as per the provisions of TDS, and TDS has to be remitted as soon as payment is made or credited, whichever is earlier. In the present case, the assessee cannot identify the parties to whom commission payment was to be made. The liability cannot be created without identifying the actual liability as well as identifying the creditor. In our view, the assessee has no option but to reverse it. - ITA No. 1368/Hyd/2013 - - - Dated:- 7-4-2016 - Shri D. Manmohan, Vice President And Shri S. Rifaur Rahman, Accountant Member For the Assessee : Shri Sandeep Jhawar For the Revenue : Shri M. Sitaram ORDER Per S. Rifaur Rahman, A. M. This appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/-. 6. The assessee craves to add, alter, amend or modify any of the ground of appeal. 3. Briefly the facts of the case are that the assessee company engaged in the business of manufacturing and trading of ayurvedic medicines and cosmetic products, filed its return of income for AY 2006-07 on 27/12/2007 declaring income of ₹ 3,37,34,498. AO completed the assessment u/s 143(3) determining the total income at ₹ 5,52,52,406 by making the following additions: 1. Disallowance u/s 43B ₹ 2,21,675 2. Disallowance of provision for legal fees: ₹ 37,500 3. Disallowance u/s 40(a)(ia) : ₹ 9,69,397 4. Aggregate amount of annual quarterly Target discount disallowed being in the Nature of commission u/s 40(a)(ia) : ₹ 1,88,67,445 5. Aggregate amount of provision made towards commission and incentive disallowed u/s 40(a)(ia) : ₹ 14,21,891 4. As regards ground No. 1 pertaining to disallowance of ₹ 2,21,675 u/s 43B, the AO noticed that ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Various benches of ITAT and coordinate benches of this Tribunal have followed the above decision and held that the amendment to section 43B brought out by the Finance Act, 2003 is retrospective in nature and justified in deleting the additions made on account of delayed payment of Provident Fund of employees contribution. Since, PF ESI are same, we respectfully follow the decisions of coordinate benches of this Tribunal and direct the AO to delete the addition made on account of ESI Payment of ₹ 10,158/-. 8.1 With regard to other issue, the assessee has created a provision for exgratia to the extent of ₹ 15.73 lakhs and paid ₹ 13.62 lakhs before filing of the return. AO has treated the above provision of expenses as statutory due to the employees u/s 43B of the Act, whereas, this is not statutory obligation on the part of the assessee, but, it is a contractual and voluntary expenditure for which assessee has created the provision. Respectfully following the decision of this Tribunal in the case of Novopan Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ltd. and the same was raised later on 18/05/06 vide Debit Note No. 06-07/1001, dt. 30/04/2006 (refer page 3 of the paper book) by Bajaj Hindustan Ltd. He submitted that the same can be verified from the copies of general ledger of Bajaj Consumer Care Ltd. and in the books of Bajaj Hindustan Ltd. The ld. AR further submitted that Form 16A clearly shows that TDS u/s 194J had been deducted on all payments made to Shri Arun Kumar Jaitely from time to time, even on the payments made for the month of January. Thus, it was only an accounting omission in the books of Bajaj Hindustan Ltd., which was later on rectified on 18/05/06. He, therefore submitted that disallowance should not have been made by the revenue authorities as it was just an accounting error with no default with regard to TDS provisions. 12. Ld. DR, on the other hand, relied upon the orders of revenue authorities. 13. We have heard the arguments of both the parties and perused the orders of revenue authorities as well as material on record. On perusal of documents submitted before us, (Refer pages 3-5 of the paper book) we find that the Bajaj Hindusthan Ltd. has remitted the TDS and raised debit note to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The payment was made mainly for printing job work to its required specifications and not for purchase of labels ready for sale. The materials were exclusively meant for the use of the assessee and cannot be sold to any other person in open market. Thus, the supplier has undertaken to supply the materials to the specifications of the assessee and not undertaken to sell the labels to the specifications prescribed by the assessee and not to purchase the materials kept ready for sale. The AO observed that the payment is made mainly for performance or rendering services (to print on the materials as per the specifications) and the payment towards procurement of printed labels amounts to sum payable for carrying out the work in pursuance of the contract. He, therefore, held that the said payments attract the provisions of section 194C and the assessee was required to deduct tax u/s 194C of the Act. AO also relies on the Circular No. 715 dated 08/08/1995. Accordingly, he disallowed the said amount. 14.2 Disallowance of C F payments and professionals: As regards disallowance of ₹ 3,30,512/- and ₹ 3,29,808/- towards the amounts paid to C F agents and other parties, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and hence no TDS is required to be deducted on the same. This is as per Circular No. 1 of 2014 issued by CBDT. It is submitted that the balance disallowance of ₹ 92,551/- is reimbursement of expenditure made to C F agents. Since, it is mere reimbursement of expenditure with no profit element included and claimed separately, no disallowance should be made in this regard. The ld. AR relied on the following judgments: 1. Aurobindo Pharma Ltd. Vs. ACIT, ITA No. 1096/Hyd/2011 and others, dated 31/01/14. 2. CIT Vs. Gujarat Narmada Valley Fertilizer Co. Ltd., 361 ITR 192 3. ITO Vs. Yash Enterprises, ITA No. 3291/Ahd/08, dated 11/11/09. 4. Mahyco Monsanto Biotech (India) Ltd. Vs. Addl. CIT, ITA No. 5842/Mum/12, dated 30/11/12. 5. M/s JB Boda Surveyors Pvt. Ltd., ITA No. 4252/Mum/09, dated 21/05/10. 19. The ld. DR relied on the orders of revenue authorities. 20. We have considered the rival submissions and perused the material on record as well as the decisions cited. We observe that ₹ 2,37,961/- was towards service tax charges to the C F agents. As clarified in Circular No. 1 of CBDT, the TDS provision will not be charged on service tax as the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards payment to professionals of ₹ 2,46,487/-, the ld. AR submitted that it is an undisputed fact that out of ₹ 2,46,487/-, disallowed by the AO ₹ 74,900/- is mere reimbursement of expenses. In this connection, he invited our attention to paras 1 2 on page 14 of CIT(A). He submitted that the assessee had suo moto accepted addition of ₹ 1,37,537/-. However, for the balance of ₹ 1,08,950/- the amount of professional fees paid to each individual party is less than ₹ 20,000/- without considering the reimbursement of expense as no TDS is required to be deducted on reimbursement of expenses in view of the case laws cited supra. Thus, expense of ₹ 1,08,950/- is not covered under the provisions of section 194J hence no disallowance u/s 40(a)(ia) should be made for ₹ 1,08,950/-. 25. The ld. DR on the other hand relied upon the orders of revenue authorities. 26. We have heard the arguments of both the parties and perused the orders of revenue authorities as well as material on record. As contended by the assessee that out of ₹ 2,46,487/- disallowed by the AO, ₹ 74,900/- is mere reimbursement of expenses. On analyzing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om a dealer is also acting on behalf of the company in hiring manpower and other infrastructure like transportation and incurring expenses on behalf of the assessee and getting reimbursement of such expenses from the assessee, for service rendered in the course of buying and selling of goods of the assessee company, is in the nature of commission within the meaning of Explanation (i) to section 194H of the IT Act. He, therefore, held that the assessee was required to deduct tax u/s 194H on such payments made to the stockiest under the head quarterly and annual target discount during the year under consideration. As per the details furnished by assessee vide its letter dated 29/12/08, the aggregate amount of such commission debited under the head Annual and Quarterly Discount works out to ₹ 1,88,67,445/- (including the amount of provision made at ₹ 1,36,829/-). Accordingly, the AO disallowed the said payments of ₹ 1,88,67,445/- being in the nature of commission payment applying section 40(a)(ia) of the IT Act. The CIT(A) confirmed the action of the AO. 30. Before us, the ld. AR submitted that the AO has claimed that there is an element of agency involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being remunerated in the form of target discount and incentives. In our view, the AO is missing the bigger picture. The additional services rendered on marketing are nothing but the sales promotion done to improve the sales and in fact the direct beneficiaries are the stockiests as they are the direct point of sale to the customers. What is important is the nature of transactions. Here the transaction is the sales to dealers on principal to principal basis. Once it is established that there is no principal to agent relationship exists, there is no scope for the section 194H. It is supported by the following judicial pronouncements. 1. CIT Vs. Intervert India Pvt. Ltd., 364 ITR 238 (Bom.) (ITA No. 1616 of 2011, dated 01/04/14.). The Hon ble Bombay High Court held as under: Relationship between Assessee and distributor / stockists was that of principal to principal. In fact distributors were customers of assessee to whom sales were effected either directly or through 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 distributor was a discount under the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of goods. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods which will render any payment to them as commission. In the circumstances, we concur with the conclusion and f indings of the CIT(A) that what was offered to the stockists is nothing but discount under provisions to sec.194H will not apply. In the circumstances, the CIT(A) has rightly deleted the disallowance of discount paid by the assessee to the stockists to the extent of ₹ 113068338/-. We dismiss the departmental appeal on this issue. 3. SD Pharmacy (P) Ltd. Vs. DCIT, 31 SOT 386 The coordinate bench held as follows: 9. We heard both the sides in detail and considered the issue. Apart from the various business relations and associations of various dealers in the business of the company, there is nothing on record to show that the dealers and buyers are not acting on their own behalf. The AO has not produced any material on record to show that the assessee company is selling its products through the agents and the invoices are issued to these agents. But, on the other hand, on verification of the copies of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred and gets vested in the concessionaire at the time of the delivery, then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent of the Dairy. The clauses of the agreements show that there is an actual sale, and not mere delivery of the milk and the other products to the concessionaire. The concessionaire purchases the milk from the Dairy. The Dairy raises a bill on the concessionaire and the amount is paid for. The Dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement the concessionaire cannot return the milk under any circumstance, which is another clear indication that the relationship was that of principal-to-principal. Even if the milk gets spoiled for any reason after delivery is taken, that is to the account of the concessionaire and the Dairy is not responsible/or the same. These clauses have all been noticed by the Tribunal. The fact that the booth and the equipment installed therein were owned by the Dairy is of no relevance in deciding the nature of relationship between the assessee and the concessionaire. Further, the fact that the Dairy can inspect the booths an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental to the predominant objective of the agreement. The assessee has appointed several C F agents. The appointment of C F agents is necessitated for a smooth and proper distribution of its goods over a particular area. In other words, C F agents are a link between the manufacturer and the consumers. It is a part of sales and distribution network of the manufacturer. The manufacturer despatches goods to the C F agent, who in turn forwards the same to various destinations either to wholesalers or stockists for onward movement to retailers and consumers. In short, the essence of this arrangement is that the goods reach their ultimate destination smoothly without any interruption. It is just one of the modes of making available the goods in the market. However, there is a time-gap between the receipt of goods by the C F agent and their onward despatch. Obviously, the C F agent has to store these goods during the intervening period. But then, simply because the C F agent has to hold the goods in the interregnum, the distribution arrangement between the manufacturer and the C F agent is not converted into an arrangement as may be obtaining between a landlord or tenant, or between a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has in fact deducted tax u/s 194H on such commission and incentive payments except the above said provisions. He, therefore, held that the assessee was required to deduct tax u/s 194H and disallowed the amount of ₹ 14,21,891/- u/s 40(a)(ia) of the Act. The CIT(A) confirmed the action of the AO. 34. Before us, the ld. AR submitted that the amount paid to stockiests/dealer is actually in the nature of discounts only but named as commission and therefore provisions of TDS shall not apply. 35. Ld. DR on the other hand relied upon the orders of revenue authorities. 36. We have heard the submissions of both the parties and perused the material on record as well as the orders of revenue authorities. The Assessee has already made TDS payments on the similar payments and termed these as commission. It cannot contest that these are incentives to dealers and could not substantiate its claim. We conclude that these are in the nature of commission only. Also, the provision made for ₹ 1,94,000/- will attract TDS as per the provisions of TDS, and TDS has to be remitted as soon as payment is made or credited, whichever is earlier. In the present case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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