TMI Blog2020 (1) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... and no disallowance is warranted u/s 40(a)(ia) for the payment of salaries. Thus the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Therefore, we set aside the order of the Ld.Pr.CIT and restore the assessment order. - Decided in favour of assessee. - I.T.A.No.151/Viz/2019 - - - Dated:- 31-12-2019 - Shri V. Durga Rao, Judicial Member And Shri D.S. Sunder Singh, Accountant Member For the Appellant : Shri G.V.N.Hari, AR For the Respondent : Shri D.K.Sonowal, CIT DR ORDER PER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax, [Pr.CIT], Vijayawada dated 15.03.2019 for the Assessment Year (A.Y.) 2014-15. 2. All the grounds of appeal are related to the order passed by the Ld.Pr.CIT, Vijayawada u/s 263 of the Income Tax Act, 1961 (in short Act ). The assessee is in wholesale distribution of mobile handsets. For the assessment year 2014-15, the assessee filed the return of income on 22.09.2014 admitting total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination made by the AO in the assessment proceedings. The Ld.AR further submitted that during the assessment proceedings, the AO had issued the notice u/s 142(1) dt.12.12.2016 calling for the details which was placed in page No.31 of the paper book. In question No.3, the AO had called for the details of trade schemes / buy backs paid to customers and the TDS details. The assessee filed it s reply vide letter dated 19.12.2016 which was also placed in page No.18 of the paper book which reads as under : 3. Trade schemes are operated by the manufacturer. NOKIA operated these schemes to dealers to achieve better sales. Under this, the Trade Scheme will be given only on achieving the target given by the company. If the dealers fail to achieve the target even by one handset they are not entitled to get any target based scheme incentives. NOKIA passes on this trade scheme incentive by way of credit note to us. As this is not a tax deductable transaction, NOKIA did not deduct tax while passing the credit note to us. We, in turn pass on the same to the dealer. As this is also not a tax deductable transaction as per the provisions of the I.T.Act we did not deduct tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , hence the incentives passed on to the retailers cannot be held to be commission or brokerage within the meaning of section 194H of the Act. Similar issue was considered by the coordinate bench of Kolkata A Bench in the case of DCIT Circle-7 Kolkata Vs. M/s. BCH Electric Ltd. (supra) and held that there is no principal and agent relationship and the payments made to the distributors/dealers by way of incentives would not come under the purview of section 194H of the Act and invocation there on u/s 40(a)(ia) of the Act is bad in law. For the sake of clarity and convenience, we extract relevant paragraph of the order of the coordinate bench which reads as under: 9. The facts involved to decide the ground no.2 are that the assessee is manufacturing electricity pumps as equipment and accessories which includes control gears, motor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for selling the same within specified area. The products were to be purchased by the distributor against 100 per cent advance payment or may be sometimes on credit at the discretion of the assessee. Both the assessee and the distributor have been collecting and paying their sales-tax separately. Both the parties have 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 C'IT('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 infirmity in the findings of the CIT(A) and also Tribunal. 10. Keeping in view the above-mentioned facts and circumstances of the case, the present appeal has no merits and is hereby dismissed. 11. Recently, Hon'ble Bombay High Court in the case of CIT-vs- Intervet India Pvt. Ltd. in 364 ITR 238 dealt with the same issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 applicable as the benefit which is availed of by the dealers / stockists of the Assessee is appropriately held to be not a payment of any commission in the concurrent findings as recorded by the CIT (Appeals) and the Tribunal. 7. Having considered the findings recorded by the CiT (Appeals) and the Tribunal and taking into consideration the provisions of Explanation (i) to Section 194H of the Act, we do not find that the appeal gives rise to any substantial question of law. It is accordingly dismissed. 12. As discussed above, the facts of the present case, falls within facts of the cases dealt by the Hon'ble Delhi and Hon'ble Bombay High Court. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various retail dealers; in effect there was no direct relationship between the assessee and the retail dealers; however, since the turnover of the assessee would depend upon the sales effected with the retail dealers, the assessee had promoted a sales promotion scheme under which incentives were given to retail dealers upon achievement of certain targets in sales; by this scheme retail dealers were motivated to purchase more quantity of beer manufactured by the assessee, which in turn would increase the turnover of the assessee; in order to market the trade discount scheme, and also in order to promote sales of its products, the assessee had appointed del-credere agents; there was no dispute that payment made to del-credere agents, for the services provided by them to the assessee, was treated as commission by the assessee; TDS had been deducted, under Section 194H of the Act, from them; the incentives payable under the trade discount scheme was disbursed by the assessee to the retail dealers through del - credere agents who had opened separate bank accounts for the said purpose; and the del- credere agents had only acted as a conduit for transferring incentives to the retail de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscount to the retail dealers through its del - credere agents; payment was actually made to the retail dealers; and, as such, the payment constituted sales promotion expenses and did not fall within the category of commission attracting Section 194H of the Act. 8. Before us Sri K. Raji Reddy, learned Senior Standing Counsel for Income Tax, would reiterate the very same submissions as were urged by the Revenue before the Tribunal. As has been noted by the Tribunal, in the order under appeal, the Explanation to Section 194H of the Act defines commission or brokerage to include any payment received directly or indirectly by a person acting on behalf of another person for services rendered, or for any services in the course of buying or selling of goods, or in relation to any transaction relating to any asset, valuable articles or thing, not being securities. Payment received by a person from another, for services rendered, constitutes commission under the Explanation to Section 194H of the Act. 9. From the facts noted by the Tribunal, in the order under appeal, it is evident that beer was sold by the respondent-assessee to APBCL, and APBCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT s order, the A.O. has called for the details of the ledger accounts of the incentives and the details of salaries paid to its employees. In respect of salaries paid to employees, the A.O. did not make any addition in the consequential order passed u/s 143(3) r.w.s. 263 of the Act dated 29.12.2017. In respect of the incentives passed on to the retailers, the A.O. has obtained the details of ledger accounts and examined the same. Therefore, it is established beyond doubt that the A.O. has examined the issue and taken one of the possible views. Not examining the entire transaction and sales by the assessee company to its retail dealers and sales by its dealers till to the end users and verification of principal agent relationship etc. at best can be treated as inadequate enquiry but not lack of enquiry. Once the A.O. has conducted the enquiry and completed the assessment and the enquiry conducted was inadequate, there is no case for revision u/s 263 of the Act for inadequate enquiry. Lack of enquiry is a reason for taking up the case for revision u/s 263 of the Act but the inadequate enquiry cannot be a reason for taking up the case for revision u/s 263 of the Act. This view is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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