TMI Blog2023 (7) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of assessment proceedings and the assessee had filed similar reply as it was filed for the impugned Assessment Year. No disallowance of the expenditure was made u/s 40(a)(ia) - For Assessment Year 2018-19, the Final AO was passed subsequent to the impugned order passed u/s 263 of the Act, for the relevant Assessment Year. We quash the impugned revisionary order since the AO has taken a plausible view and had not made disallowance of impugned expenditure u/s 40(a)(ia). Decided in favour of assessee. - IT(TP)A No. 738/Bang/2022 - - - Dated:- 14-6-2023 - Shri George George K, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri. Sriram Seshadri, CA For the Revenue : Shri. Sunil Kumar Singh, CIT (DR)(ITAT), Bengaluru. ORDER PER GEORGE GEORGE K, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the Order of Principal Commissioner of Income Tax (PCIT), dated 30.03.2022, passed under section 263 of the Income Tax Act, 1961 (hereinafter called the Act ). The relevant Assessment Year is 2015-16. 2. The grounds raised reads as follows: 1. On the facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.03.2022, seeking to revise the Final Assessment Order dated 25.10.2019, passed under section 143(3) r.w.s. 144C(13) of the Act. The PCIT was of the view that the AO has not disallowed the commission payments to the agents, since the said payments were made without deducting tax at source. Further, PCIT was of the view that AO ought to have taken note of similar disallowance made in Assessment Years 2013-14 and 2014-15. The assessee filed objections to the show cause notice issued under section 263 of the Act, on 23.03.2022. However, the objections of the assessee were rejected and the impugned revisionary order was passed under section 263 of the Act. The relevant finding of the PCIT reads as follows: 8. As discussed above, TDS was required to be done on Rs. 36,34,10,000/- debited by the assessee to the P L account towards commission on sales. As the assessee did not do TDS on this amount, the AO should have disallowed this amount u/s 40(a)(ia). The AO has not made this disallowance even though a similar disallowance has been made in AY 13-14 and AY 14-15. The AO has erroneously not made the disallowance in the asstt. order. Not making this disallowance is untenable in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 263 of the Act, is not justified since the AO has conducted elaborate enquiry during the course of assessment proceedings. In this context, the learned AR referred to the show cause notices dated 22.11.2018 and 12.12.2018 issued by the AO. Further, the learned AR also took us through the replies submitted by the assessee to the above show cause notices and contended that the AO, after having gone through the submissions of the assessee, had taken a plausible view. Hence, it was contended that the PCIT was not justified in passing the impugned revisionary order. In this context, the learned AR primarily relied on the judgment of the Hon ble Apex Court in the case of CIT Vs. Max India Ltd., reported in 295 ITR 282. 5. The learned DR, on the other hand, has placed on record a report of the AO dated 08.06.2023. The learned DR contended that the AO, for Assessment Years 2013-14 and 2014-15, had disallowed the commission payments since there was no deduction of tax at source and the AO, for the relevant Assessment Year 2015-16, ought to have followed the disallowance that was made in Assessment Years 2013-14 and 2014-15. It was further contended by the learned DR that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s inventory and reflected accordingly in its accounts as sales. The recovery against the Company's sales is not contingent upon the sales made by the distributors. The Company only gives a discount to the distributors on the goods purchased by them. The distributors invoice the retailers/ consumers in their own names and earn upfront margin on each individual transaction. (Sample copies of debit note raised by the distributors to the Company are enclosed for your reference. The sales made by the distributors are on their own account and hence the distributors hear the risk of bad-debts in the case of non-recovery. The distributor having purchased the goods from the Company and having paid for it, makes no difference to the Company if the distributor keeps on holding the goods instead of selling them. There is no monetary loss to the Company. The loss is to the distributor till he does not sell the goods. Any legal claims by the retailers / customers will be on the distributor and the distributor will then subsequently have a claim against the Company. In other words, the retailers / customers cannot bring any legal suit against the Company directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer, and not of principal and agent. If we are to look at the connotations of expression 'commission or brokerage' in its cognate sense, as ill the light of the principle of noscitur a sociis we are obliged to, a view indeed seems possible that the scope of expression 'commission', for this purpose, will be confined to 'an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions' and shall not extend to 'trade discounts' which is at best the assessee's commission claim in the present case Additionally, attention may be drawn to the judgement of the Delhi Tribunal, in the case of National Panasonic (I) (P) Ltd vs DCIT (2005) [94 TTJ 899], which has held that incentives paid by the Company to dealers are nothing more than motivators, which may drive the dealer to achieve certain targets. but certainly they cannot be called commission . The quantum of incentives earned by a dealer may be dependent on the quantum of certain sales, but the normal buying and selling goes on irrespective of the schemes and hence, these incentives cannot be termed as commission in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y non-deduction of tax at source on the above said commission payments. The relevant part of the AO s show cause notice dated 12.12.2018 reads as follows: Special Discount: 6. The assessee vide submission dated 11.12.2018 has provided a note on the special discounts given to its national and regional distributors amounting to Rs. 36,34,10,000/-provided during the year under scrutiny. It is noticed that these payments are not subjected to with-holding taxes. Further submission are reproduced below for perusal: The discounts are decided based on the volume of goods purchased in particular period by the distributors. The discount is provided in form of debit notes. Further sale price discount is not offered on the face of invoice. It is clear that the relationship between assessee and distributor is in nature of Principal-Agent. When debit note is issued it means that expenditure is 100% debited to books. Hence it is evident that the distributors are getting discounts in lieu of commission, and it should be subjected to TDS under section 194H. Reliance is placed on the case laws: Delhi tribunal in case of Idea Cellular Calcutta High Court in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butor till he does not sell the goods. Any legal claims by the retailers / customers will be on the distributor and the distributor will then subsequently have a claim against the Company. In other words, the retailers / customers cannot bring any legal suit against the Company directly. The transaction between the Company and the distributors is on a principal-to-principal basis. From the above, your goodself would appreciate that all constituents necessary for a sale transaction are present in the Company's case and the same cannot be labelled as an agency arrangement. Further, we wish to submit that once a party agrees to act as a Regional Distributor ('RD') of the company and signs the agreement, RD shall abide by the conditions of the agreement and shall he eligible receive special discount on the distributor price. The discount given to distributors on the sale price is sales discount in normal business parlance and not commission on sales. Every agreement entered by the Company with the distributors clearly define the relationship between both the parties as principal to principal. These discounts are made known to the dealers even befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction from sale price and applicable sales tax are levied after such trade discount and not upon realisation of sale receipts. The relationship between the distributor and TECIL is that off a supplier and purchaser which is principal to principal. Agreement does not state about applicability of withholding tax. Further, we wish to bring to kind attention the decision of Hon'ble Supreme Court in the case of Prasar Bharti Doordarshan Kendra v/s CIT (TS-156- SC-2016) wherein it was held that the nature of relationship is important for determining the applicability of section 194H of the Income tax Act, 1961 and held that payment to various accredited advertising agencies to secure more business was in nature of commission paid to agencies liable to TDS. Further in the given case, the agreement between the parties stated that the following: Payment as in nature of 'commission'; Commission of 15% is paid their agents/distributors upon realisation of sale receipts; Terms and conditions are in the nature principal and agent and not as principal to principal basis; and Applicable taxes shall he withheld We wish to submit that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w in allowing the claim of the assessee. The relevant finding of the Hon ble High Court reads as follows: 8. In the backdrop of aforesaid well settled legal principles, we may examine the facts of the case in hand. In CIT v. Sunbeam Auto Ltd. [20101 189 Taxman 436/12011] 332 ITR 167 (Delhi) it has been held by Delhi High Court that Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry/inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner of Income-tax under section 263 of the Act. In the instant case, the Commissioner of Income-tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt in ..... 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