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2016 (5) TMI 954 - ITAT HYDERABAD

2016 (5) TMI 954 - ITAT HYDERABAD - TMI - Addition u/s 43B - Held that:- The assessee had paid ESIC payment of ₹ 10158/- before filing the return of income. The Hon’ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT ] held that the amendments 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 .....

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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 Industries Ltd. Vs. DCIT, [2013 (9) .....

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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 was made accordingly. In this connection, the Hon’ble P&H High Court in the case of CIT Vs. Markfed Khanna Branch [2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT], held that where assessee purchased printed pac .....

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that:- As clarified in Circular No. 1 of CBDT, the TDS provision will not be charged on service tax as the same was collected on behalf of central govt. Coming to the other issue of re-imbursement of expenditure to the C&F agents, it is pure reimbursement of expenses, without any profit elements, the C&F agents are acting as agents for the principal. Hence, TDS will not be applied on such reimbursements

Services of recruitment agencies - TDS liability - Held that:- We are of the view .....

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lyzing the case laws submitted by the AR, we observe that all the cases were relating to reimbursement of expenses relating to payments to sister concerns or to agents. Whereas in the present case, the reimbursement was paid to professionals, who had met some expenditures. We understand that the professional charges are claimed along with the reimbursement of expenditure in the same invoice. The TDS provision will apply in this case on the gross amount as per Circular No. 714, dt. 03/08/1995. We .....

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imilar 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 liabi .....

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- V, Hyderabad, dated 31.07.2013, for the AY 2006-07. 2. The assessee has raised the following grounds of appeal: 1. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeals)-V Hyderabad has erred in upholding the disallowance of ₹ 2,21,675 made by Id. Assessing Officer in respect of delayed payment of ESI contribution by applying the provisions of section 43B and 36(1)(va). 2. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeal .....

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printed material of ₹ 3,36,077 /- for the reason that print ing was done as per the specification given by the assessee. The Id. AO had also disallowed cur tained reimbursement of expenditure to C&F agents of ₹ 3,30,512 by observing that TDS is deductible on reimbursement of expenditure. Ld. AO also disallowed certain other payments in form of reimbursement/ fee of ₹ 3,29,808/- to recruitment agency and various other parties wrongly considering them as covered u/s 194C or .....

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91/- made by Id. Assessing Officer by applying provisions of section 40(a)( ia) in respect of Commission incentive to stockiest made under other Schemes-Super Distributors ₹ 8,73,083, Stockiest Incentive of ₹ 3,54,808/- and other Commission of ₹ 1,94,000/-. 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 an .....

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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 out of total ex-gratia payable of ₹ 15,73,128/-, the assessee had paid a sum of ₹ 13,61,855/- before due date for filing return of income and furnished the details thereof. Accordingly, the AO disallowed the balance amount of ₹ .....

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ion as per 43B is same as due date for employer s contribution as per section 43B i.e. before filing of return of income. The CIT(A) after considering the submissions of the assessee, confirmed the action of the AO. 6. Before us, the ld. AR of the assessee submitted that amounts of ₹ 10,158/- were paid before the due date of filing of return of income. He submitted that the ITAT is taking a consistent view that payment of ESIC made after statutory due date but prior to due date of filing o .....

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mitted that the provisions of section 43B or section 36(1)(va) does not apply on ex-gratia as held by ITAT, Hyderabad in case of Novopan Industries Ltd., Vs. DCIT, 1661/H/2008 and others dated 04/09/13. 7. The ld. DR on the other hand relied upon the orders of revenue authorities. 8. We have heard the arguments of both the parties and perused the orders of revenue authorities as well as material on record. We are of the view that the assessee had paid ESIC payment of ₹ 10158/- before filin .....

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ied 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 .....

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7 are fully satisfied. Hence, respectfully following the said decision, we delete the addition made invoking section 43B on exgratia. 9. As regards ground No. 2 pertaining to disallowance of ₹ 37,500/- made u/s 40(a)(ia) in respect of fee payable to the advocate, the AO noticed from the account extract of M/s Bajaj Hindustan Ltd. that it has raised a debit note against the assessee for payment of retainership to Shri Arun Jaitely for the year ending 31/03/06 for ₹ 1,87,500/- as again .....

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y the assessee company. He, therefore, disallowed the said amount of ₹ 37,500/- u/s 40(a)(ia) rejecting the assessee s plea vide its letter dated 17/12/08 that M/s Bajaj Hindustan Ltd. had raised a debit note on 30/04/06 for the period from September 2005 to April, 2006 for ₹ 2,62,500/-. 10. Before the CIT(A), it was submitted that Bajaj Hindustan Ltd. wrongly debited assessee by ₹ 1,87,500 instead of ₹ 2,25,000/- and the balance amount of ₹ 37,500/- was debited on .....

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t neither the assessee nor M/s Bajaj Hindustan Ltd. has deducted tax on such provision. 11. Before us, the ld. AR submitted that Debit note of ₹ 37,500/- for the month of Jan 06 was omitted to be raised by Bajaj Hindustan 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 .....

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ult 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 accordingly. In the case of M/s Mahyco Monsanto Biotech (India) Ltd. Vs. Additi .....

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ench in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd.(supra) , it has to be held that the disallowance cannot be made as it has not been shown or established that aforementioned payments were made by the assessee to the aforementioned group concerns against any contract work carried out by them for the assessee. In the case of reimbursement of expenses, the expenditure incurred is related to the person who has not made the original payment. The payment of expenditure is made by X party on be .....

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und No.1 of the assessee is allowed. By following the above decision, we are of the view 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. 14. Ground No.3 pertaining to disallowance of ₹ 9,96,397/- made u/s 40(a)(ia) towards i) payment for purchase of printing material of ₹ 3,36,077/-, ii) reimbursement of ₹ 3,30,512/- to C&am .....

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d 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 .....

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the AO observed that the assessee s plea that reimbursement expenses included in the payments made to professionals do not require TDS is not correct. The assessee was required to deduct TDS on the gross payments made to the payees and not only in respect of income component of the payee. He, therefore, held that the assessee was required to deduct TDS on gross payments including reimbursement expenses and service tax. In this connection, AO referred the Board Circular No. 715, dated 08/08/15. 1 .....

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everage Pvt. Ltd., 306 ITR 23. 3. CIT Vs. Glenmark Pharmaceuticals Ltd., 324 ITR 199 4. ITO Vs. Dr. Willmar Schwabe India (P) Ltd., (5 SOT 71) 5. DCIT Vs. Choice Sanitaryware Industries, 9 taxmann.com 120 16. The ld. DR relied on the orders of revenue authorities. 17. Considering the submissions of both the counsels and relying on the material, we are of the view that there is no doubt that the assessee has procured printing labels to its specification. The payment was made accordingly. In this .....

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acts of the above judgment. By following the above ratio, we delete the addition made on this count. 18. With regard to reimbursement of ₹ 3,30,512/- to C&F agents, the ld. AR submitted that TDS has to be deducted on amounts payable without including the service tax component. Thus, out of total disallowance of ₹ 3,30,512/-, ₹ 2,37,961/- pertains to service 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 .....

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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, .....

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xpenses were incurred by the agent on behalf of the assessee for transportation and other charges, which has been spelt out in the bill itself including the commission to the agent. The relation between the assessee and the agent was principal and an agent. The obligation to deduct tax at source from the payment of transport charges and other charges was complied with by the agent, who had made payment on it's behalf. Considering the aforesaid facts and circumstances of the case, when the le .....

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d. 21. As regards payment of ₹ 56,321/- to M/s Acreaty Management Services, the ld. AR submitted that the said payment was for providing help to the assessee in hiring various employees and is not covered u/s 194C or 194J. Referring to the provisions of sections 194C and 194J, the ld. AR submitted that TDS u/s 194C or 194J was not required to be deducted on services provided by Acreaty Management Services and thus no disallowance u/s 40(a)(ia) should be made in this regards. 22. The ld. DR .....

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; 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 .....

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ord. As contended by the assessee that out of ₹ 2,46,487/- disallowed by the AO, ₹ 74,900/- is mere reimbursement of expenses. On analyzing the case laws submitted by the AR, we observe that all the cases were relating to reimbursement of expenses relating to payments to sister concerns or to agents. Whereas in the present case, the reimbursement was paid to professionals, who had met some expenditures. We understand that the professional charges are claimed along with the reimbursem .....

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ale transactions and it was allowed subsequent to the sales and on fulfillment of certain targets and also in view of rendering of additional services and discharge of duties by the stockiest on behalf of the assessee company. The AO was of the view that in view of the facts of the case the decisions relied upon by the assessee were not applicable in the case of assessee. 28. The AO further observed that the additional services rendered by the stockiest are being remunerated in the form of targe .....

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t stockiest has in fact rendered additional services on behalf of the assessee company for a consideration, which is in the nature of commission though it is paid in different names. As the stockiest has acted and rendered additional services and incurred expenses on behalf of the assessee company and for which he has been duly compensated by way of target discount, thus, the element of agency is also present in the conduct between the company and the stockiest. 29. The AO observed that the paym .....

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as 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/ .....

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sks and rewards related to goods on further sale are passed to the stockiests/dealers only and not to the assessee company. He relied on the following cases: 1. CIT Vs. Intervert India Pvt. Ltd., ITA No. 1616 of 2011, dated 01/04/14. 2. CIT Vs. Hyderabad Industries Ltd., ITA Nos. 917, 918 & 919/Hyd/09, order dated 02/07/12. 3. SD Pharmacy (P) Ltd. Vs. DCIT, 31 SOT 386 4. CIT Vs. Mother Dairy India Ltd., 18 taxmann.com 49 5. Nat. Panasonic (P) Ltd. Vs. DCIT, 5 SOT 16 6. Bhopal Sugar Industrie .....

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Services (P) Ltd., 38 taxmann.com 2013) 6. ACIT Vs. CK Motors, ITA No. 122/JU/14, order dated 25/09/14 7. Merilyn Shipping & Transports Vs. Addl. CIT, 144 TTJ 1 32. We have heard the arguments of both the sides and perused the record as well as the orders of revenue authorities and also the decisions cited. It is observed that brokerage or commission envisaged under section 194H is for the payment received by the person acting on behalf of another for services rendered in the course of buyin .....

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to market the company products. He also contended that the additional services rendered by stockiests are 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 t .....

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ors 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 product distribution scheme or product campaign scheme to buy the assessee's product. Distributors / stockists were not acting on behalf of assessee and that most of credit was by way of goods on meeting of sa .....

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he facts of the present case that as regards sales promotional expenditure in question, provisions of Explanation (i) below Section 194H were rightly held to be not applicable as benefit which was availed of by dealers / stockists of Assessee was appropriately held to be not payment of any commission in concurrent findings as recorded by CIT (A) and Tribunal. No substantial question of law had arisen. Revenue s appeal dismissed. 2. CIT Vs. Hyderabad Industries Ltd., ITA Nos. 917, 918 & 919/H .....

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the stockists giving discount on the sales price, on the basis of various scheme, in respect of quality, target, turnover etc., on the basis of the performance of the stockists. As found by the CIT(A), what is offered by the assessee to the stockists are nothing but discount because the assessee sells the goods to the stockists, who is turn sells the goods to the consumer. In the sale transaction between the assessee and the stockists there cannot be payment of commission to the purchaser himsel .....

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kists 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 d .....

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s sister concerns and associates. The relationship of the assessee company with its associates and sister concerns does not change the character of the transactions carried out by the assessee in its usual course of business. The assessee is selling goods to various dealers on the basis of invoices raised against those parties. The products are billed at its gross price and thereafter trade discount is debited therefrom and the balance is shown as the net price. Sales-tax is collected on that ne .....

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the parties for the services rendered by them. The assessee is selling its products to its dealers and the dealers are not selling them in the market on assessee s behalf for which the assessee is supposed to pay commission or brokerage. In fact, trade discount granted by the assessee to the parties in the invoice itself is the margin that the dealers may enjoy in carrying on the retail trade. Once the invoice is raised and the goods are delivered, sale is complete. The only transaction which r .....

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, there is no occasion to deduct the tax as contemplated under s. 194H of the Act. 4. CIT Vs. Mother Dairy India Ltd., 18 taxmann.com 49 The Hon ble High Court of Delhi held as follows: It is a well-settled proposition that if the property in the goods is transerred 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 agreemen .....

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. 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 and check the records maintained by the c .....

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se are only terms included in the agreement to ensure that the system operates safely and smoothly. From the mere existence of these clauses it cannot be said that the relationship between the assessee and the concessionaire is that of a principal and an agent. That question must be decided, on the basis of the fact as to when and at what point of time the property in the goods passed to the concessionaire. In the instant cases, the concessionaire became the owner of the milk and the products on .....

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e concessionaires. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missing. 5. National Panasonic (P) Ltd. Vs. DCIT, 3 SOT 16 (Delhi) The coordinate bench held as follows: "Rent" for the purposes of s. 194-I is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of .....

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amp;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 .....

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nt is not converted into an arrangement as may be obtaining between a landlord or tenant, or between a tenant and a sub-tenant. In case of an arrangement which is a part of the distribution network, the payment made by the manufacturer to the C&F agent is for the services rendered by the latter to the former, the services being those of distribution of goods. This also explains as to why service tax is levied on the C&F agents. Merely because the C&F agent stores the goods in the int .....

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s Circular No. 720, dt. 30th Aug., 1995, that each section under Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in the Chapter. Therefore, a payment is liable for tax deduction only under one section. Again, obviously the total payment received by the agent will also include rent as a part of the total cost, but that does not mean that the arrangement between the assessee and the agent is for the use of land or building. It is merely a component of to .....

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ons of section 194H will apply. Accordingly, the additions made on this count are deleted. 33. As regards the ground No. 5 pertaining to disallowance of ₹ 14,21,891/- made by AO u/s 40(a)(ia) for payments made to stockiests, the AO observed that the assessee s contention that the payments made by way of commission, incentive and target discount cannot be considered as trade discount. The said payments are in the nature of commission within the meaning of section 194H. Further, the AO obser .....

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