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EPCOS India Pvt. Ltd. Versus ITO, Ward-11 (1) , DCIT And Circle-11, Kolkata

2018 (2) TMI 504 - ITAT KOLKATA

Non-deduction of TDS u/s 194H r.w.s. 40(a)(ia) - nature of discount - amount of commission offered by the assessee - Held that:- Some services should be provided by the person or any other services in the course of buying and selling of goods. In the instant case, the assessee has been supplying goods to its dealers on principal to principal basis as evident from the agreement as discussed above. Therefore, we find that there was no relationship between the assessee and its customers as of princ .....

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the details filed by the assessee and draw a conclusion that the expenses are not incurred in connection with the business of the assessee. We note that sufficient details were duly filed by the assessee at the time of assessment proceedings in support of the cost incurred on the damages and no defect of whatever has been pointed out by the AO. The Ld. DR has also not brought anything on record contrary to the finding of Ld. CIT(A). Thus, we hold that the cost incurred for the damage of goods is .....

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ot supplied by the assessee to the AO at the time of assessment proceedings. The issue of provisions for doubtful debts written back by the assessee for ₹ 1,16,27,000/- needs to be examined by the AO. In respect of issue it was agreed by both the parties that the issue must be restored back to the file of AO for fresh examination. Accordingly, we remit back the issue to the file of AO to examine afresh and to decide the issue in accordance with law. AO must give reasonable opportunity to t .....

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sioner of Income Tax (Appeals)-XII, Kolkata vide different dated 14.03.2014, 18.07.2014 & 12.09.2013. Assessments were framed by ITO/DCIT Ward-11(1)/Circle-11, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide their differ orders dated 29.12.2011, 26.03.2014 and 06.03.2013 for assessment years 2008-09 to 2010-11 respectively. Shri G. Hangshing & Shri Sallong Yaden, Ld. Departmental Representative appeared on behalf of Revenue and Shri Anup Sinha, L .....

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se and as per law Ld. CIT(A) erred in allowing the commission expenses amounting to ₹ 100,66,944/- as trade discount. 2. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in by deleting addition u/s 40(a)(ia) amounting to ₹ 100,66,944/- which was added back by AO as non-deduction of TDS on the commission payment u/s 194H. 3. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in restricting the disallowances on expenses of dam .....

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ing. The Ld. CIT(A) also erred in allowing fresh evidence during appellate proceedings in violation of Rule 46A of I.T. Act. 4. The first issue raised by Revenue in grounds no. 1 and 2 are interrelated and therefore being taken up together that the Ld. CIT(A) erred in deleting the addition made by the AO for ₹ 1,00,66,944/- on account of nondeduction of TDS u/s 194H read with section 40(a)(ia) of the Act. 5. Briefly stated facts are that the assessee in the present case is a private limite .....

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ssessee and its customers which was based on principal to principal basis. As such, there was no agreement of principal and agency between the assessee and its customers therefore the discount offered to the customers cannot partake the character of commission as envisaged u/s 194H of the Act. 6. However, the AO during the assessment proceedings observed certain facts as detailed under: i) The amount of discount offered to the customers was subject to various terms and conditions therefore it pa .....

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t the discount is related to providing some services like prompt payment. iv) The amount of commission offered by the assessee is directly linked/related to its liquidity which proves that these are not normal discount offered by the assessee but represents the amount of commission. v) The terms and condition between the assessee and its customers is of principal and agent. In view of the above, the AO was of the view that an amount of discount offered by the assessee is nothing but commission e .....

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l-to-principal basis. Therefore, the transaction between the assessee and its customers represents the sale purchase activities. Thus, the discount offered cannot be terms as commission u/s 194H of the Act. The assessee in support of his claim has also relied on the judgment of Hon ble Supreme Court in the case of CIT vs. Ahmadabad Stamp Future Association reported in 348 ITR 378 (SC). The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observin .....

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AO in his order passed u/s 143(3) of the Act has disallowed the deduction claimed on the alleged ground that similar disallowance was made in the immediately preceding year and the appeal for that year is still pending for disposal. From the perusal of the details filed by the appellant, it is observed that in the immediately preceding assessment year the disallowance of cash and trade discount was made on the alleged ground that the same being in nature of commission paid to different parties a .....

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TR 378 (S C) wherein the Hon ble Court has held that offering of discount for purchase in bulk would partake the character of discount on transaction of sale and as such the provision of Section 194H of the Act has no application. My attention was further invited to the fact that both the cash/trade discounts were claimed as allowable deduction and the same was also allowed in all the previous years up to assessment year 2007-08. In the light of the above discussion and findings, perusing the fa .....

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0/- and INR 45,71,944/- respectively while computing the total taxable income and this ground of appeal is accordingly allowed. Being aggrieved by the Ld. CIT(A) the Revenue is in second appeal before us. 8. The Ld. DR before us vehemently supported the order of AO. Ld. DR prayed before the Bench to confirm the order of AO. On the other hand, the Ld. AR before us filed the paper book which is running from pages 1 to 56 and submitted that the assessee company has offered the aforesaid cash/trade .....

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of commission and as there was no deduction of tax at source from such commission, the entire amount was disallowed u/s 40(a)(ia) of the act. In this connection, it may be stated that though there are favorable decisions of various High Courts of the country that the discounts offered on sales would not partake the character of commission, there was no decision of the Hon'ble Supreme Court on this point. Now the issue has been set at rest by the decision of the Hon'ble Supreme Court in t .....

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self to allow the expenditure incurred by the assessee company under the head cash/trade discount u/s 37(1) of the Act. Ld. AR further submitted that up to assessment year 2007-08 no disallowance was made on account of discount offered to the customers though the assessments were framed u/s 143(3) of the Act. It was also brought to our notice that from the assessment years 2013-14 and 2014-15 again no disallowance on account of commission expenses was made by the Revenue. Thus, keeping the princ .....

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he judgment of Hon ble Supreme Court in the case of CIT vs. Dalmia Promoters and Developers Pvt. Ltd. in Civil Appeal No. 74/2007wherein it was held as under: Tax(Appeals) by its order dated 4th September, 1996 taking into account inter alia the fact that for the previous three assessment years the assessee for similar interest from such fixed deposits had been held to come within the head business income and, therefore, following the principle of consistency, it was held that this would have to .....

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anner or fashion as EPCOS Agent and shall have no right or authority to make any commitments of EPCOS s behalf or bind EPCOS in any respect and for any purpose whatsoever and to assign any benefits, rights or obligation herein to any other person(unless otherwise specified). 18.1. EPCOS shall sell the said Products to the Dealer at List Price ruling at the time of delivery less normal Trade Discount on such List Price which will be notified to the Dealer, from time to time. The List Prices are t .....

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ed and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The issue, in the instant case, relates to whether the amount of commission offered by the assessee is in the nature of commission as envisaged u/s 194H of the Act. At this juncture, we find important to refer to the meaning of commission or brokerage as provided in explanation to section 194H of the Act which reads as under: Explanation.-For the purposes of this section,- (i .....

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ing and selling of goods. In the instant case, the assessee has been supplying goods to its dealers on principal to principal basis as evident from the agreement as discussed above. Therefore, we find that there was no relationship between the assessee and its customers as of principal and agents. Therefore, the amount of discount offered by the assessee cannot be termed as commission u/s 194H of the Act. Moreover, the issue of discount offered by the assessee has been duly settled by the Hon bl .....

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ed by the assessee to its dealers in relation to the sales made by it to them. Thus the provisions of section 194H does not apply to the impugned discount offered by the assessee. Thus, we do not find any reason to interfere in the order of ld. CIT(A). Hence the ground of appeal filed by the Revenue is dismissed. 9. Next issue raised by Revenue in Ground no. 3 is that the Ld. CIT(A) erred in restricting the disallowance of the expenses of damage to 10% i.e. from ₹ 87,35,561/- to ₹ 8, .....

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e goods sold to the customers were rejected on account of low quality. These goods were either brought back to the factory for repairing or these goods were scrapped at the customers end. The goods which were brought back for the purpose of repairing and the cost incurred thereon in the form of freight custom duty, octroi, excise duty and sales tax as well as cost of scrapping work was categorized under the head damages. The cost of damages was directly related to the business activities of the .....

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e contention of the AO in the assessment order. It is seen that the appellant has claimed deduction while calculating total taxable income in respect of damages pertaining to rejected goods which were sold by the appellant to the customers previously. The AO in his order passed u/s 143(3) of the Act has disallowed the deduction claimed on the ground that no details were produced before the AO to prove that the expenditure was incurred for business purpose and further similar disallowance was mad .....

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at the expenses on damages have actually been incurred by the appellant. The copy of the letter enclosing the details was also filed before me. On perusal of the same, I find that when the goods are rejected by the customers due to quality problems, the said goods are brought back to the factory for repair/scrapping or scrapping might have been done at customer s end, depending upon the problem, condition of the goods and the costs of bringing back the goods to the factory. It is also noted that .....

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xpenses of ₹ 87,35,567/- under this head. In the light of the above, discussion/findings, perusing the entire facts of the case and nature of expenses, I am of the considered view that 10% of expenses claimed under this head can reasonably be treated as disallowable expenses not incurred for the purpose of the business of the appellant. Therefore, I restrict the disallowance to ₹ 8,72,556/- being 10% of the total claim as against ₹ 87,35,567/- made by the AO. Thus, this ground .....

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That on the facts and the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld. CIT(A) ] erred in restricting the expenditure incurred by the appellant under the head damages during the year under consideration to ninety percent of the actual expenditure incurred by the appellant and thereby not allowing the expenditure incurred to the extent of ten percent without assigning any reasons and even after accepting the fact that the r .....

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rejected by the customers due to quality problems, the said goods are brought back to the factory for repair/scrapping or it may be done at customer s end, depending upon the problem condition of the goods and the costs of bringing back the goods to the factory. The expenses debited to damages account in relation to rejected goods are freight, customers duty, octroi, excise duty and sales tax paid on returned goods and cost of scrapping. Thus, your kind-self may appreciate that the above expens .....

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ssee company is having in its possession all the details relating to expenses for damages which are placed on pages 40 to 60 of the paper book. On the other hand, the Ld. DR submitted that the explanation was filed by the assessee at the time of assessment without filing the documentary evidences. The assessee failed to file the details of the sales made to the parties which were returned back. The Ld. DR vehemently supported the order of the AO. 15. We have heard the rival contentions and perus .....

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The Ld. AR also drew our attention on the sample documents in support of expenses incurred on damages which are placed on pages 46 to 60 of the paper book. After perusal of the papers filed by the assessee we note that these documents have not been doubted by the lower authorities. 16. Indeed the assessee has not produced details of the sales which were returned back by the parties but in our considered view this cannot be the sole basis for making disallowance of damage expenses claimed by the .....

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atever has been pointed out by the AO. The Ld. DR has also not brought anything on record contrary to the finding of Ld. CIT(A). Thus, we hold that the cost incurred for the damage of goods is directly connected with the business activities of the assessee and accordingly eligible for deduction u/s 37(1) of the Act. Thus, the ground of appeal raised by the Revenue is dismissed and the ground of appeal raised by the assessee is allowed. 17. The next issue raised by the Revenue in this appeal is t .....

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lanation 1 to section 115JB of the Act. However, the deduction claimed by the assessee was disallowed by the AO while determining the profit u/s 115JB of the Act on the ground that no detail was provided by the assessee in support of his claim. Thus, the AO disallowed the claim of the assessee and added a sum of ₹ 1,16,27,000/- while determining the book profit under the provisions of MAT. 18. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) subm .....

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4,86,000 TOTAL 93,46,000 In view of the above, the assessee submitted that the amount of provision return back during the year should be allowed as deduction as per clause (i) of explanation 1 to section 115JB of the Act. The Ld. CIT(A) after considering the submission of the assessee deleted the addition in part made by the AO by observing as under:- DECISIONS: I have carefully considered the submission put forth on behalf of the appellant along with supporting documents/details furnished and p .....

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unt an further contended that no details of bad debt written off and added back while determining the computation of total income in all the pat years were made available to him during the assessment. In support of this issue of appeal, my attention was drawn to the accounting treatment followed by the appellant while writing off the bad debt through the provision for bad debt account created earlier. From the said treatment, it is apparent that at the time of writing off actual bad debt through .....

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bad debt has been added back while computing the book profit in earlier years. A list of the amounts added back under the head provision for doubtful debt in all the past year were made available before me. On account of perusal of the same, I find that the appellant in the past years has added back an amount of INR 93,46,000/- while computing the book profit. In the instant case of the appellant, it is observed that the appellant has added back an amount of INR 93,46,000/- in the past years und .....

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ove discussion & findings and taking into account the factual and legal position, I direct the AO to allow the appellant an amount of IINR 93,46,000/- while computing the book profit under the provisions of section115eJB of the Act. Thus, this ground of appeal is partly allowed. Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 19. The Ld. DR before us submitted that no details whatsoever were furnished by the assessee during the assessment proceedings. The d .....

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, we note that the Ld. CIT(A) has admitted the fresh evidences in contravention to the provision of Rule 46A of Income tax Rules. We note that the necessary details of the provision created by the assessee in earlier years were not supplied by the assessee to the AO at the time of assessment proceedings. In view of the above, we are of the view that the issue of provisions for doubtful debts written back by the assessee for ₹ 1,16,27,000/- needs to be examined by the AO. In respect of issu .....

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ssessee s appeal ITA No.2553Kol/2013 is allowed. Coming to Revenue s appeal in ITA No.1895/Kol/2014 for A.Y. 10-11. 22. Ground No. 1 and 2 are inter-related and therefore being taken up together. It is relevant to observe here that the facts in Ground No. 1 & 2 of this appeal are similar to the facts in ITA No.2758/Kol/2013 and the findings given in ITA No.2758/Kol/2013 shall apply to this case also with equal force. Consequently, Revenue s grounds is dismissed. 23. Next ground No. 3 in this .....

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red in restricting the provision of doubtful debts for computing income u/s. 115JBB of the Act to ₹ 70,39,025/-. 26. We have already dealt this issue elaborately in Revenue s appeal in ITA No.2758/Kol/2013 while adjudicating the ground of appeal of Revenue in ITA No.2758/Kol/2013 and since we have allowed this ground for statistical purpose hence, this ground of Revenue, following the same analogy. Consequently, Revenue s appeal is allowed for statistical purpose. 27. In the result, Revenu .....

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