TMI Blog2020 (10) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... coming either within the purview of section 194C or section 194H therefore, would not require deduction of tax at source. At this point, it is relevant to observe, the AO while invoking the provisions of section 40(a)(ia) has stated that it attracts section 194C / 194H - The aforesaid statement of the AO makes it clear that he himself is not sure whether it is a payment for carrying out any work or is in the nature of commission / brokerage for any service rendered by another party in the course of buying and selling a product. That being the case, no disallowance under section 40(a)(ia) can be made. Accordingly, we delete the disallowance. Disallowance u/s 40(a)(ia) being 30% of the volume discount - HELD THAT:- Revenue has failed to establish any principle agent relationship between the assessee and the dealers/distributors to whom volume discount was given. Therefore, following our detailed reasoning given in respect of ground no.2, we delete the disallowance made by the AO. Disallowance u/s 40(a)(ia) - reimbursement of octroi and insurance to dealers/distributors - HELD THAT:- neither there is any contract for work between the assessee and the dealers/distributors as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cited by the learned Departmental Representative being factually distinguishable would not apply to the facts of the present case. The ground raised by the assessee is allowed. - ITA No. 942/Mum./2020 ITA No. 943/Mum./2020 - - - Dated:- 5-10-2020 - SHRI SAKTIJIT DEY, JUDICIAL MEMBERAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER Assessee by : Shri Vijay Mehta Revenue by : Shri Rajeev Harit ORDER PER SAKTIJIT DEY, J.M. Aforesaid appeals by the assessee arise out of two separate orders, both dated 30th January 2020, passed by the learned Commissioner of Income Tax (Appeals) 16, Mumbai, for the assessment years 2016 17 and 2017 18. ITA no.943/Mum./2020 A.Y. 2016 17 2. The issues involved in the present appeal is basically related to disallowances made under section 40(a)(ia) of the Income Tax Act, 1961 (for short the Act ) on account of expenditure claimed by way of sales rebate / discount given to the dealers / distributors. 3. Brief facts are, the assessee, a resident company, is engaged in the business of importing and trading in electronic goods, such as, notebooks, tablets, pad phones, mobile phones and accessories. For the impugned ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general ground does not require specific adjudication. 7. In ground no.2, the assessee has challenged the disallowance made under section 40(a)(ia) of the Act out of the expenditure on account of discount given to the dealers/distributors under the conditional discount scheme. As discussed earlier, during the assessment proceedings, on being called upon by the Assessing Officer to justify the discount/rebate given amounting to ₹ 42,13,01,780. It was submitted by the assessee that period wise and product wise scheme are floated to push sales for already launched models/slow moving items. He submitted, such benefit/rebate is based on dealers/distributors who ultimately sell the products in the market to the end users. Further explaining, it was submitted by the assessee that as per the discount scheme, the dealers/distributors sell the products at a special price which is below the maximum retail price (MRP). Therefore, the assessee gets a lesser margin on such sale. It was submitted, such special sales under project/tender, etc., the price quoted by the dealers/distributors are guided by special price set ups. Therefore, to compensate the dealers/distributors for low margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete. Therefore, there is no principal agent relationship, but it is a principal to principal sale. That being the case, the provisions of section 194H of the Act would not be applicable. Drawing our attention to the tax invoice and credit note, the learned Authorised Representative submitted, these are simple sale transactions between two principals without involvement of any agency. Further, drawing our attention to the items sold, he submitted, these are slow moving goods and have to be sold with discount, otherwise, they cannot be sold at all. Thus, he submitted, the provisions of section 194H of the Act is not applicable. As regards applicability of section 194C of the Act, the learned Authorised Representative submitted, the transaction between the assessee being sale transaction of specific goods/items, it cannot be brought within the purview of section 194C of the Act, which is applicable only in respect of carrying out any work. Finally he submitted, though, similar rebate/discount was given in earlier years, no disallowances were made under section 40(a)(ia) of the Act. Thus, he submitted, disallowance made under section 40(a)(ia) of the Act for alleged violation of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other ancillary and incidental facts have to be seen. In support of this contention, the learned D.R. relied upon the decision of the Hon ble P H High Court in PMS Diesels Ors v/s CIT, [2015] 374 ITR 562 (P H). 10. In rejoinder, the learned Authorised Representative submitted, the learned Counsel for the Revenue has misconceived the facts as the assessee has not sold any product directly to the end user. As regards the invoice placed at Page 27 of the paper book referred to by the learned Departmental Representative, the learned Authorised Representative submitted, the invoice is raised in the name of another dealer/distributor namely Rashi Enterprises which is in no way connected to the sales effected to the Flipkart. In this context, he drew our attention to the invoice as well as the list of dealers/distributors to whom goods have been sold. 11. We have considered the rival submissions and perused the material on record. Admittedly, the assessee imports certain electronic goods such as notebooks, tablets, pad phones, mobile phones and accessories and sells them in India through dealers/distributors who, in turn, sell them to end users. It is common knowledge that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the supplier in a timely manner as provided in the agreement. Para (v) of the agreement sets out the obligation of the assessee towards Flipkart. Para (vi) of the agreement provides for pricing and discount. Whereas, Para (vii) provides for invoicing and payment. As per the aforesaid clause, the assessee is required to issue invoice to Flipkart from time to time with regard to supply of products. It further stipulates that invoice shall contain various details including the reference to relevant purchase order and item number, price, VAT details, etc. Para (ix) provides that the assessee shall deliver the products to Flipkart in due time and in accordance with the delivery dates as mentioned in the purchase order. 13. So, from the aforesaid broad terms of the agreement, it is very much clear that it is a principal to principal sale contract and the contract of sale concludes once the goods/products are delivered to Flipkart at which point the ownership to the product passes on to Flipkart. Though, learned Departmental Representative drawing our attention to certain clauses of the contract, such as, requirement of the assessee to do the packaging of the goods products as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage to include any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered or for any service in the course of buying or selling of goods. Thus, the primary conditions for qualifying as commission or brokerage are, the person receiving such payment must be acting on behalf of the payer and must be rendering some services in the course of buying or selling of goods. Undisputedly, in the facts of the present case, the dealers/distributors are not providing any service to the assessee in the course of buying or selling of goods. The assessee is simply selling its products to dealers/distributors who in turn sell them to end users. There is no contract of sale between the assessee and end users so as to conclude that the dealers/distributors act as intermediary between the assessee and the end users to facilitate sale of products. At least, the Department has not brought on record any material to establish the fact that the dealers/distributors are simply acting as intermediaries to facilitate sale of products to end users so as to infer a principal agent relationship. In view of the aforesaid factual position, we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of a sale made to another distributor/dealer, Rashi Peripherals Pvt. Ltd. and such sale is co related with the credit note issued in the name of the said party. In view of the aforesaid, we hold that the rebate/discount given by the assessee to the dealers will not coming either within the purview of section 194C or section 194H of the Act, therefore, would not require deduction of tax at source. At this point, it is relevant to observe, the Assessing Officer while invoking the provisions of section 40(a)(ia) of the Act has stated that it attracts section 194C / 194H of the Act. The aforesaid statement of the Assessing Officer makes it clear that he himself is not sure whether it is a payment for carrying out any work or is in the nature of commission / brokerage for any service rendered by another party in the course of buying and selling a product. That being the case, no disallowance under section 40(a)(ia) of the Act can be made. Accordingly, we delete the disallowance. 17. In ground no.3, the assessee has challenged the disallowance under section 40(a)(ia) of the Act amounting to ₹ 3,99,46,787, being 30% of the volume discount given of ₹ 13,31,55,945. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i and insurance is in the nature of commission and will be covered under section 194C/194H of the Act. Accordingly, he disallowed an amount of ₹ 1,24,18,434, out of the expenditure claimed by invoking the provisions of section 40(a)(ia) of the Act. 24. The learned Commissioner (Appeals) also sustained the disallowance. 25. The leaned Counsel for the assessee reiterating the submissions made in respect of other disallowances made by the Assessing Officer, as contested in the earlier grounds, submitted that though the payment of octroi and insurance claimed are the liabilities of the dealers/distributors, however, the reimbursement of such payments on actual basis cannot be termed as commission or contract for work as provided under section 194C and 194H of the Act. He submitted, such payments were made purely keeping in view the business expediency. Thus, he submitted, no disallowance should be made. 26. The learned Departmental Representative submitted, the liability to pay octroi and insurance claimed is completely the burden of the dealers/distributors. Therefore, the reimbursement of such expenditure even on actual basis would be in the nature of commission. 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting the products back from the dealers/distributors getting them repaired and again re selling them, the assessee asks the dealers/distributors to repair the products at their end and makes good the cost of such repair by reimbursing at fixed rate of 30%. The Assessing Officer was of the view that had the dealers/distributors would not have repaired the products, the assessee would have hired the services of a professional to undertake repairs. Therefore, the assessee would have been liable to deduct tax at source while making payment for such repairs to the professional as it would be covered under section 194C/194J of the Act. The assessee having failed to deduct tax at source, the Assessing Officer disallowed 30% amounting to ₹ 2,02,80,226, under section 40(a)(ia) of the Act. The disallowance was also sustained by learned Commissioner (Appeals). 30. The leaned Counsel for the assessee reiterated the submissions made before the Departmental Authorities. While doing so, he brought to the notice of the Bench the invoices raised and Credit Notes issued for reimbursement. 31. The learned Departmental Representative relied upon the observations of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast years. Justifying such claim, the assessee has submitted before the Assessing Officer that the quantum of provision is computed after reversing the preceding years provision. The Assessing Officer, however, was not convinced with these submissions. He observed, the provision is nothing but a commission to incentivize the dealers/distributors. He observed, such working of provision does not consider any aspect of sales promotion done by the dealers/distributors during the current year. Thus, treating the provision made as commission under 194H of the Act, the Assessing Officer made the disputed disallowance under section 40(a)(ia) of the Act for the alleged failure on the part of the assessee to deduct tax at source. The learned Commissioner (Appeals) also upheld the disallowance. 36. The leaned Counsel for the assessee submitted, there being no principal agent relationship between the assessee and the dealer/distributor, the provision for sales rebate cannot be treated as commission under section 194H of the Act. 37. The learned Departmental Representative submitted, firstly the expenditure claimed by the assessee is merely a provision. Therefore, it cannot be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be seen from the facts on record, the Assessing Officer has not raised any doubt with regard to the genuineness or allowability of expenditure. He has disallowed part of such expenditure simply for the reason that tax has not been deducted at source in terms of section 194H of the Act. Learned Commissioner (Appeals) has also approved the aforesaid decision of the Assessing Officer. Therefore, the limited issue before us is the validity of disallowance under section 40(a)(ia) of the Act. In view of the aforesaid, we decline to entertain the fresh plea of learned Departmental Representative. The decisions cited by the learned Departmental Representative being factually distinguishable would not apply to the facts of the present case. The ground raised by the assessee is allowed. 40. Ground no.7, being general in nature does not require adjudication. 41. In the result, appeal is partly allowed. ITA no.942/Mum./2020 Assessment Year 2017 18 42. Grounds no.1 and 7, being general in nature do not require adjudication. 43. Grounds no.2 to 6 are corresponding to ground no.2 to 6, raised by the assessee in its appeal being ITA no.943/Mum./2020, decided by us in the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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