SPICE MOBILITY LTD.,NOIDA vs. ACIT, MEERUT

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals], Meerut dated 26.03.2015 pertaining to assessment year 2011-12.

The substantive grievance raised by the assessee is that the CIT(A) erred in holding that the assessee was required to withhold tax u/s 194C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act’] from the amount reimbursed towards advertisement expenditure incurred by the distributors and that the disallowance made u/s 40(a)(ia) of the Act was sustainable.

Other grievances have not been pressed before us.

Briefly stated, the facts of the case are that assessee company is engaged in trading of mobile hand-sets and manufacturing, trading, servicing and maintenance of computer hardware. The return of income was filed by the assessee on 29.09.2011 declaring total income of Rs. 71.28 crores. Thereafter, the return was revised on 27.09.2012 and revised income was 71.28 crores.

During the course of assessment proceedings, the Assessing Officer observed that the assessee has made payment of Rs. 15,93,23,093/- on which no tax was deducted at source. The payments were as under:

The assessee was asked to explain as to why this payment should not be disallowed u/s 40(a)(ia) of the Act. The assessee explained that these are nothing but reimbursements of expenditure incurred by the regional distributors for brand promotion of the company’s products by advertisement in various forms.

The contention of the assessee did not find any favour with the Assessing Officer who was of the firm belief that the assessee was liable to deduct tax at source, failing which the provisions of section 40(a)(ia) of the Act would clearly apply and, accordingly, made the addition of Rs. 15,93,23,093/-.

The assessee carried the matter before the CIT(A) and reiterated its contentions.

After considering the facts and detailed submissions, the ld. CIT(A) found that in A.Y 2009-10, his predecessor had the occasion to consider a similar grievance and has allowed the appeal of the assessee. The CIT(A) further found that the matter travelled upto the Tribunal and found that the Tribunal has directed for verification of reimbursement and whether the tax has been deducted by the distributor. Taking a leaf out of the decision of the Tribunal in A.Y 2009- 10, the CIT(A) held as under:

Before us, the ld. AR strongly submitted that once it has been accepted that the impugned payment was reimbursement of expenses, no further verification is required. The ld. AR strongly placed reliance on the decision of the Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd Vs. DCIT 345 ITR 288. It is the say of the ld. AR that it is a well settled proposition of law that no TDS is required on reimbursements as held by the Hon'ble Jurisdictional High Court of Delhi in the case of Fortis Healthcare Ltd 181 Taxmann 257 and DLF Commercial Project Corporation of 2013.

The ld. AR further drew our attention to the relevant clauses of the agreement with one of the distributors namely, Delta Prime Marketing Pvt Ltd. and pointed out that under the heading “Relation of Buyer and Seller”, it has been specifically mentioned that this agreement does not create any agency, joint venture or partnership between Spice and the distributor. The ld. AR reiterated that the payment of Rs. 15.93 crores is nothing but reimbursement to regional distributor and therefore, the provisions of section 194C do not apply and, accordingly, section 40(a)(ia) of the Act is not at all applicable.

Per contra, the ld. DR strongly supported the findings of the Assessing Officer and vehemently submitted that to prevent revenue leakage, provisions of TDS have been enacted so that at least one person should be liable to deduct and pay tax. If the payer claims that the payment is reimbursement, then it needs to be verified whether the payee has paid the tax or not.

We have given thoughtful consideration to the orders of the authorities below. We have also gone through the relevant documentary evidence brought on record u/r 18(6) of the ITAT Rules. Exhibit 1 is the invoice raised by Delta Prime marketing Pvt Ltd, one of the regional distributor of the assessee which shows that it has raised certain claims in respect of advertisement and marketing. Exhibit 2 is the bill of Shubh Advertising and marketing Pvt Ltd which is raised in the name of Delta Prime marketing Pvt Ltd. Similarly, Exhibit 19 is the invoice of Tenet Agencies for Spice carry bag of Rs. 60,000/- and Exhibit 20 is the invoice raised by Colors Media and Advertising raised in the name of Tenet Agencies which is the regional distributor of Radiant Distributors for advertising and marketing and Exhibit 27 is the invoice raised by Street Smart in the name of Radiant Distributors which is the regional distributor.

After considering these sample invoices, we are of the considered opinion that the payments made by the appellants to its regional distributors are nothing but reimbursement of expenses. However, in the interest of justice and fair play, we deem it fit to restore this issue to the file of the Assessing Officer. The assessee is directed to furnish all the invoices raised by its regional distributor on the basis of which it has made payment of Rs. 15.93 crores as reimbursement. The Assessing Officer is directed to verify the invoice and decide the issue whether the impugned payments are reimbursements or not. We would like to make it clear that after verification, the Assessing Officer is free to make any enquiry he deems it fit to be made in the hands of the regional distributor as per the provisions of law.

In the result, the appeal filed by the assessee is allowed for statistical purposes.