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TMI Blog2018 (8) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... officer found that the assessee had failed to establish the genuineness of the transactions on the basis of which deduction was claimed for selling expenses and sales promotional expenses. It was also the view of the assessing officer that in any event, since there was no tax deduction at source in respect of these expenses, the entire sum was to be added to income of the assessee and taxed as such. On the question of deduction claimed for purchase of packaging materials, the assessing officer declined to accept the assessee's contention that there was outright sale of such materials. The assessing officer proceeded on the basis that the packaging materials were obtained through an arrangement which constituted works contracts and payment thereof required tax deduction at source under Section 194C of the Income Tax Act, 1961. On that provision not being adhered to, again the entire expenditure was disallowed under Section 40(a)(ia) of the Act. 3. The assessing officer had referred to certain features of the arrangement through which the packaging materials were being supplied and came to the conclusion that it was not a principal to principal transaction simpliciter but there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and they manufactured the material as per the appellant's specification which was purchased by the appellant company. Hence, it was contract for sale and not contract for work. The appellant company has not given any job work to the suppliers of the packing material and the right of ownership of the packing material was only transferred to the appellant company, once, it was purchased by him from the suppliers. Under the circumstances, there was no obligation under the law to deduct the tax u/s.194C of the Act and consequently there is no application of provisions of section 40(a)(ia)." (quoted verbatim) 4. The Tribunal confirmed this finding of the First Appellate Authority, holding, inter alia:- "After careful consideration and examination of the submissions made by both the parties. The Ld.AR of the assessee has submitted two paper books running into pages from 1 to 415 and 1 to 355 respectively. We find that as per the AO, the assessee has violated the provisions of section 40(a)(ia) viz a viz section 194C of the Act as there exist a works contract for the Job work. However the assessee claims that there is contract for sale hence the question of TDS does not arise. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed towards sales promotional expenses of Rs. 88,85,919/- and selling expenses of Rs. 4,19,23,214/-The assessee's contention was that these expenses were in the nature of incentives to promote sale by the distributors. The assessing officer questioned genuineness or existence of the recipients of the said sums. It was also the view of the Assessing Officer that even if the recipients were there, the entire sum in respect of which deduction was claimed ought to have been added back to the income of the assessee for failure to deduct tax at source in terms of Section 194H of the Act. The assessing officer wanted to treat such expenses as commission or brokerage in the alternative. The First Appellate Authority rejected the finding of the assessing officer that the recipients were not genuine, holding that there was no record or material before the assessing officer to come to such a finding. One of the reasons for which the assessing officer had concluded that the recipients were not genuine was that the addresses of the distributors who were beneficiaries of the incentives were not given and particulars of the incentive scheme was also not disclosed In course of hearing before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on records to treat the transactions as collusive, manufactured, manipulative and fictitious in nature as held by the A.O. I am also of the opinion that there is no material on record to hold that the money have been fraudulently withdrawn by the appellant company. Though, the A.O. has quoted a number of judicial pronouncements but none of them supports the view the A.O. on the facts and circumstances of the case." (quoted verbatim) 8. Turning to the second limb of Revenue's stand in respect of the same heads that the payments made ought to have been subjected to tax deduction at source as per the provisions of Section 194(H) of the Act, the Commissioner found :- "As mentioned above, in the assessment order the A.O. has taken an alternate plea that aforesaid expenses aggregating to Rs. 5,08,09,133/- are disallowable u/s.40(a) (ia) of the Act because the assessee has failed to deduct the tax u/s.194H of the Act. On perusal of details of selling expenses amounting to Rs. 4,19,23,214/- it is observed that it consists of target incentives of Rs. 2,81,21,535/- and handling and distribution chares of Rs. 1,38,01,679/-. The sales promotion expenses of Rs. 88,85,919/- consists of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Delhi High Court that the concessionaries, were only agents and TDS is to be deducted on payment made to them u/s. 194H in the light of the fact that milk booth belonged to the assessee who did not charge any rent from the concessionaries, unsold milk was taken back and the concessionaries were prohibited from selling any other produce, or any other brand. Sales collections were made by clerk of the assessee on daily basis with the concessionaries being paid a reward as commission for their services. Thus, in the case of Delhi Milk Scheme (Supra), the payees of the reward were only facilitating the assessee to sell the milk on its behalf and the ownership of milk was not transferred to the concessionaries and the unsold milk was taken back by the assessee. Under these circumstances, it was held by the Hon'ble court that the concessionaries were rendering services to the assessee and payment of reward to them was in the nature of commission which was liable for deduction of tax u/s.194H of the Act. However, as mentioned above, the facts in the case of appellant company are totally different because it has made sales of its products to the dealers and distributors and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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