J.D. MARKETING,,KOLKATA vs. ITO, WARD 37(1), KOLKATA,, KOLKATA

ITA 1492/KOL/2026Status: DisposedITAT Kolkata15 October 2026AY 2013-20147 pages
AI SummaryAllowed

What were the facts?

The assessee, a partnership firm engaged in the distributorship of mobile SIM cards, filed its return for Assessment Year 2013-14 and 2015-16. During assessment under Section 143(3), the Assessing Officer (AO) noted that commission/incentive of ₹53,85,555.79 included ₹40,71,093/- for incentives payable to retailers. The AO invoked Section 194H for non-deduction of TDS on ₹36,63,971/- paid to retailers and disallowed the entire amount under Section 40(a)(ia). The CIT(A) partly allowed the appeal, holding a principal-agent relationship existed and Section 194H was applicable. However, the disallowance under Section 40(a)(ia) was restricted to 30% (₹10,99,191/-) due to an amendment by the Finance (No. 2) Act, 2014.

What did the Tribunal hold?

The Tribunal held that the primary issue was whether Section 194H applied to trade incentives/discounts or payments directly disbursed by the principal (AIRCEL) to retailers, and if the assessee was obligated to deduct TDS. The Tribunal found that AIRCEL directly credited retailers' bank accounts and deducted TDS on the full amount under the assessee's PAN. The assessee only accounted for this on a gross basis for reconciliation with Form 26AS. No real income accrued to the assessee on the retailer's share, nor did the assessee disburse any separate commission payment to establish a principal-agent relationship under Section 194H. Following the principle laid down by the Hon'ble High Courts in Shalimar Chemical Works Ltd. and United Breweries Ltd., where transactions are on a principal-to-principal basis or discounts are given without an agency relationship, Section 194H is not attracted. Since the primary condition for Section 194H (payment of commission/brokerage under a principal-agent relationship by the assessee) was absent, the assessee could not be held in default for non-deduction of TDS. Consequently, the disallowance under Section 40(a)(ia) could not survive, neither at 100% nor at the restricted 30% level. The CIT(A) erred in retaining the disallowance of ₹10,99,191/-. The disallowance was deleted. The appeals were allowed.

What were the issues?

1. Whether the Tribunal had to decide if the assessment order passed by the AO and partly sustained by the CIT(A) was bad in law, arbitrary, and liable to be quashed for not properly appreciating facts and legal position. 2. Whether the AO and CIT(A) erred in invoking Section 194H and consequently Section 40(a)(ia) by wrongly assuming a principal-agent relationship, when the arrangement was on a principal-to-principal basis and incentives were not commission. 3. Whether the AO and CIT(A) failed to appreciate that no real income was received or actual payment made by the assessee to retailers, rendering TDS provisions inapplicable. 4. Whether the AO and CIT(A) erred in making and sustaining disallowance under Section 40(a)(ia) in the absence of actual expenditure or payment by the assessee. 5. Whether the AO and CIT(A) erred in relying on third-party information without independent inquiry or cross-examination, violating natural justice. 6. Whether the CIT(A) erred in sustaining a 30% disallowance when the primary conditions for Section 194H and Section 40(a)(ia) failed. 7. Whether the AO and CIT(A) failed to distinguish trade incentives/discounts from commission. Assessee's Contentions: The transaction was principal-to-principal. AIRCEL directly paid retailers, deducted TDS under the assessee's PAN, and the assessee merely routed entries for reconciliation. No actual payment or expenditure was incurred by the assessee as commission. Relied on PCIT vs. Shalimar Chemical Works Ltd. and CIT vs. United Breweries Ltd. Revenue's Contentions: The agreement clauses established a principal-agent relationship, making TDS under Section 194H mandatory. Supported lower authorities' orders.

Which sections of the Income-tax Act were involved?

Section 194H,Section 40(a)(ia),Section 143(3),Section 263

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, KOLKATA

Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey

Per Pradip Kumar Choubey, Judicial Member:

This are the appeals filed by the assessee is directed against the order dated 25.02.2026 of the Office of the Commissioner of Income Tax passed under Section 143(3)r.w.s263 of the Assessment Year 2013-14 and 2015-16 of the Income-Tax Act, 1961 (hereinafter referred to as “the Act”). In both

The order continues below.

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