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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
ORDER Per Shri A.T.Varkey, JM
This appeal preferred by the assessee is against the order of Ld. CIT(A), Siliguri dated 23.11.2015 for AY 2012-13.
At the outset itself, the assessee has not pressed ground nos. 2 and 5, therefore, the same stand dismissed.
Coming to ground no.1 of the appeal of assessee is against the action of the Ld. CIT(A) in confirming the disallowance of Rs.36,66,441/- made by AO by invoking provision of sec. 40(a)(ia) read with section 194H of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
Brief facts of the case as noted by the AO are that the assessee was the sole distributor of M/s. Unitech Wireless (P) Ltd. (Tamilnadu) (in short “ M/s. UWPL”) wherein
2 Shri Sadhan Paul, AY. 2012-13 he was the sole distributor of selling of cellular re-charge vouchers etc. in and around Siliguri. According to AO, in the process of selling distributorship of re-charge vouchers, the company had allowed the assessee certain commission and throughout the year the assessee had earned commission amounting to Rs.69,50,644/- and the company had deducted tax at source on the said commission payment. Thereafter, the AO noted that the assessee had debited two sums of Rs.34,40,341/- and Rs.2,26,100/- respectively as expenses and termed those as incentive allowed to the retail sellers of the re-charge vouchers. However, according to AO, the assessee had failed to deduct any tax at source on those commission payments (though the assessee had termed it as incentive) nature of payment cannot be determined by the nomenclature adopted by the assessee and, therefore, AO was of the opinion that assessee failed to deduct tax at source on the said payment against section 194H of the Act and, therefore, he invoked section 40(a)(ia) of the Act and disallowed the expenditure of Rs.36,66,441/-. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to uphold the action of the AO. Aggrieved, the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the issue raised in this ground of appeal of the assessee is regarding disallowance made by AO u/s. 40(a)(ia) of the Act for want of deduction of tax at source in respect of commission/incentive/discount to the retailers of re-charge vouchers/coupon. The assessee is a sole proprietor in the business of distribution of M/s. UWPL recharges cards during the year under consideration. The assessee had debited the expenses of Rs.36,66,441/- on account of incentive disbursed to the retailers. The AO disallowed the claim of deduction as the assessee has not deducted tax for the amount in question and nomenclature adopted by assessee (incentive) was not acceptable to the AO, since, according to him, it partakes the character of commission, the assessee had failed to deduct tax at source as per sec. 194H of the Act, therefore, he disallowed Rs.36,66,441/- on account of commission expenses u/s. 40(a)(ia) of the Act. Though it was brought to the 3 Shri Sadhan Paul, AY. 2012-13 notice of the Ld. CIT(A) that Rs.34,40,341/- were not payment of commission but were the direct stock transfer of Lafu (electronic recharge) from the principal company, M/s. UWPL to the retailers and since there was no payment, deduction of TDS from payment did not arise. This contention of the assessee was not accepted by the Ld. CIT(A) and he confirmed the order of the AO. Before us it has been urged by the assessee that M/s. UWPL provides the services and is the service provider and the assessee is only a distributor and an intermediary between the service provider and the retailer. In that scenario, the tax liability for paying the commission, if any, is attracted u/s. 194H of the Act is only against the person responsible for paying the commission and not on assessee. In other words, in the case on hand, the assessee is not paying any commission to the retailers but it is incentive or so-called discount is paid by the service provider M/s. UWPL and the assessee being an intermediary only possess on the incentive/commission/discount given by M/s. UWPL. Since the role of the assessee is an intermediary only and it records this transaction in the books of account for the purpose of completeness, the assessee is not responsible for paying any commission to the retailer on sale of re-charge coupons, then the obligation to deduct tax u/s. 194H is not attracted and at best can only be on M/s. UWPL and not against the assessee who is only a distributor and receiving his share of commission/margin provided by the service provider. We note that the determination of sale price of re-charge coupons is in the sole domain of the service provider and the assessee has no role in determining the retail price at which the retailer is selling the re- charge coupon to the customer or the end user of the service. And as such, we note that assessee’s role is only that of an intermediary and passing the service from one hand to other hand and the assessee has shown the amount of commission/incentive/discount in the books of account for completeness of accounts and the said transaction will not depict any liability for deducting tax at source. For the aforesaid view, we rely on the decision of coordinate bench of ITAT Jaipur in the case of M/s. Chocopoack Enterprises Vs. ITO, ITA No. 821/JP/2016 for AY 2011-12, dated 13.10.2017. In a similar case decided by the ITAT, Cuttack Bench in the case of pareek Electricals Vs. ACIT, 27 taxmann.com 219
4 Shri Sadhan Paul, AY. 2012-13 wherein the facts of that case was that the assessee was a Franchise of BSNL and it received commission on gross value of purchase and on such commission, BSNL had deducted tax at source u/s. 194H of the Act. The assessee in turn had also appointed sub- franchisees for selling product of BSNL. From its own commission it received from BSNL, the assessee allowed trade discount to sub-franchisees. The AO treated the trade discount as commission and disallowed the same by applying sec. 40(a)(ia) of the Act on the plea that assessee has not deducted tax at source u/s. 194H. The question before the Bench was whether trade discount made available to sub-franchisees was a compensation by foregoing part of the commission already subjected to tax at source by BSNL and it could not have suffered taxation u/s. 194H. And whether, therefore, disallowance u/s. 40(a)(ia) of the Act was unjustified. For both the questions the Tribunal answered in the affirmative in favour of assessee, therefore, relying on the ratio decidendi of both these decisions and the Delhi Tribunal’s order in Rakesh Kumar Vs. CIT, ITA No. 3386/Del/2014 dated 13.08.2018, we allow this ground of appeal of the assessee.
6. The next ground i.e. ground no. 3 of appeal of assessee is against the action of Ld. CIT(A) in confirming the disallowance of Rs.4,52,170/- made by the AO on account of contractual payment made to M/s. Adeeco Flexion by invoking sec. 40(a)(ia) of the Act.
Brief facts of the case as noted by the AO are that the assessee has paid a sum of Rs.4,52,170/- to M/s. Adeeco Flexion and termed the same as salary. According to AO, from the name itself M/s. Adeeco Flexion cannot be an employee since it is a Private Limited Company. According to AO, M/s. Adeeco Flexion is a service provider which looked after the cell phone connectivity after sales services, fixes snag in connections and other complaints relating to performances of M/s. UWPL. Thus, according to AO, the assessee has made payment to the said concern and that payment was nothing but a contractual payment, which attracted sec. 194C of the Act so, without deduction of TDS
5 Shri Sadhan Paul, AY. 2012-13 this amount cannot be allowed. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of the AO. Aggrieved, assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that M/s. Adeeco Flexion has been paid Rs.4,52,170/- for supply of manpower as directed by M/s. UWPL. According to assessee, since M/s. UWPL had informed the assessee that the payee M/s. Adeeco Flexion Work Force Solution possessed certificate for non-deduction of TDS u/s. 197 of the Act, the assessee had not made any endeavour to deduct tax at source (TDS). However, as an alternative ground, without prejudice to the aforesaid submission submitted that in the light of the recent amendment of the TDS provisions in the light of the Finance Act, 2012 wherein amendment in sec. 201 and sec. 40(a)(ia) of the Act has been made, it can be verified by the AO whether the payees have disclosed this payment in their return of income and has paid the due tax in their returned income. We find force in the alternative submission of the assessee and taking note of the amendment in Finance Act, 2012 made in section 201 and sec. 40(a)(ia) of the Act the payer assessee would not be deemed to be in default if the recipient of income has taken into account the amount received from the payer in computing income and declared it in their return and has paid taxes on the returned income. We note that the Tribunal has held in a plethora of decisions that insertion of 2nd proviso to sec. 40(a)(ia) of the Act is curative.
We note that the Finance Act 2012 made an amendment of section 201 & 40(a)(ia) of the Act. In accordance with this amendment, the payer assessee would not be deemed to be in default if the recipient of income, has taken into account the amount received from the payer in computing income as declared in the return and has paid due tax on the returned income. We note that the Tribunal has held that the insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) of the Act was inserted by the Finance (No. 2) Act, 2004. In 6 Shri Sadhan Paul, AY. 2012-13 view of this, we are of the view that matter needs fresh adjudication in the light of the fact that the AO will carry out necessary verification. In CIT v. Ansal Land Mark Township Pvt. Limited [ITA 160/2015 & 161/2015, dated 26/08/2015], High the Hon'ble Delhi High Court held that the 2nd proviso to section 40(a)(ia) has retrospective effect from 01/04/2005:
“14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.
In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in Rajiv Kumar Agarwal v. ACIT." The assessee made payment to that M/s. Adeeco Flexion. Considering the judicial decisions as cited above, we set aside the impugned order of Ld CIT(A) and remand the issue back to AO and the AO is directed to verify the fact regarding the payment of the tax by the recipient and if the AO finds that the recipient has included the amount in the total income in its return of income and paid taxes thereon, then the disallowance made by the AO by invoking the provisions of section 40(a)(ia) of the Act be deleted. We confirm the order of Ld. CIT(A) and dismiss this ground of appeal of revenue. For the aforesaid decision of ourselves, we rely on the decision of the Hon’ble Calcutta High Court in the case of Pr. CIT Vs. M/s. Tirupati Construction in GA 2146 of 2016 in ITAT No.287 of 2016 passed on 23.08.2016.
10. Ground no. 4 of the assessee is against the action of Ld. CIT(A) in confirming the addition of Rs.2,78,825/- made by AO on account of alleged unexplained cash credit.
Brief facts of the case are that the AO noted that while examining the assessee’s books of account i.e. ledger account he found that the assessee has shown to have received a sum of Rs.2,78,825/- as loan from one M/s. Tishita Cellular out of the said amount of Rs.2,78,825/-, the assessee has shown to have received total sum of Rs.1,52,000/- in cash. According to AO, since the assessee failed to prove the identity, genuineness and 7 Shri Sadhan Paul, AY. 2012-13 creditworthiness of the person who has lent the money, he made the addition. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the same.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that before the Ld. CIT(A) it was brought to his notice that M/s. Trishita Cellular has paid the money for purchase of goods and ultimately the said dealer has not purchased the goods within the financial year 2011-12 and finally the dealer purchased goods in the next year and the entire amount was adjusted with the goods purchased within the financial year 2012-13. So, it was pleaded before the Ld. CIT(A) that the said amount cannot be treated as income of the assessee because the entire amount is adjusted with the sale made by the assessee within the next AY 2013-14. However, the Ld. CIT(A) did not give any heed to the plea of the assessee. From the facts narrated above, we note that there is a difference between credit representing trade advances and liability to give goods by the assessee in assessee’s normal business activity; and a credit representing monies received from another person. It is because of this distinction, a liability which arises as a result of any purchase relating to any corresponding credit to the account of the supplier cannot be added u/s. 68 of the Act. More so, when the purchase has been carried out in the next assessment years and has not been found to be false even though the fact of squaring up the same was brought to the notice of the Ld. CIT(A) by bringing to his notice that the assessee had infact sold the goods in the next assessment year for the amount advanced to it as a trade advance.
Thus, we note that assessee has brought to the notice of the AO the source from which it has received the amount in question. The address of the entity which has given money to the assessee has also been given as M/s. Trishita Cellular, i.e. Shivmandir, P.O. Kadamtala, Dist. Darjeeling. Thus, the assessee has given the address and identity of the payee of the amount in question. It was also brought to the notice of the Ld. CIT(A) the nature of the amount by stating that M/s. Trishita Cellular has paid money for purchase of goods from assessee which is nothing but a trade advance; and this fact of trade advance
8 Shri Sadhan Paul, AY. 2012-13 made by the payer in this relevant assessment year as well as the fact that the goods for the amount in question has been sold by the assessee and the entire amount was adjusted in the next assessment year has not been found to be false even though brought to the notice of the department the assessee has discharged the onus casted upon it u/s. 68 of the Act. The facts narrated above has been corroborated by the assessee by placing these documents before us in the paper book by producing the ledger account of M/s. Trisita Cellular which has been found placed at page 59 of the paper book and ledger account of M/s. Trisita Cellular for AY 2013-14 along with copies of invoice raised by the assessee found placed at pages 60 to 84 which goes on to show that the assessee has squared up by adjusting the sales of the goods for the amount which it has received as advance, therefore, no addition u/s. 68 of the Act is warranted and the same is directed to be deleted.
In the result, appeal of assessee is allowed.