Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 01.08.2016 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’-22, Mumbai, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company engaged in the business of manufacturing of Ayurvedic Medicines, filed its return of income for the assessment year under consideration declaring the total income of Rs. 76,28,900/-. The return was processed u/s 143 (1) of the Act. Since, the case was selected for scrutiny notices u/s 143 (2) and 142 (1) were issued to the assessee and in response thereof the authorized representative (AR) of the assessee appeared before the AO and submitted the details called for. It was seen that the appellant/assessee had allowed a discount/commission of Rs. 11,05,33,754/- to M/s Sandu Brothers Pvt. Ltd. on which the assessee had not 2 Assessment Year: 2011-12 deducted the tax at source. Since, the amount paid by the assessee was very high, the assessee was asked to justify the payments made towards discount/commission. The assessee contended that discount was given to the sister concern which had marketing network for selling and distribution of medicines. The said company used to purchase the entire product of the assessee for sale therefore the assessee company offered heavy discount which also includes cost of distribution, marketing and selling of the product, expenses of field staff and travelling expenses etc. However, the AO rejecting the contention of the assessee inter alia made disallowance of Rs. 8,88,58,525/- u/s 40(a)(ia) of the Act holding that discount offered by the assessee is actually a commission u/s 194H of the Act and computed the total income at Rs 7,02,36,390/- 3. In the first appeal, the Ld. CIT(A) relying on the decision of the Mumbai Bench of the Tribunal rendered in assessee’s own appeal pertaining to the assessment year 2009-10 deleted the addition made u/s 40(a)(ia) of the Act. 4. Aggrieved by the impugned order passed by the Ld. CIT (Appeals), the revenue has preferred the present appeal before the Tribunal on the following effective ground:- 1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the claim of the assessee company of Rs. 8,88,58,525/- treating the same as the discount on the sales offered by the assessee company to its associate concern viz. M/s Sandu Brothers Private Limited, without appreciating that the discount offered by the assessee is actually a commission payment paid by the assessee to M/s Sandu Brother Private Limited and the AO has rightly made the disallowance u/s 40(a)(ia) of the IT Act for failure to deduct TDS thereupon u/s 194H of the IT Act while making commission payment.”
3 Assessment Year: 2011-12 “6.4 I have considered the facts of the case and the appellant’s submissions. I find that the Hon’ble Tribunal in the appellant’s own case on identical facts for A.Y. 2009-10 had decided the issue in favour of the appellant in vide order dated 23.03.2016 by holding as under:- 5. Before us, the Ld. departmental representative relying on the findings of the AO submitted that since the Ld. CIT(A) has deleted the addition without appreciating the fact that M/s Sandu Brothers Private Ltd is an associate company of the assessee company and the discount offered is in fact a commission and since the assessee has failed to deduct tax at source under the provisions of section 194H of the Act and the AO has rightly made the disallowance. Therefore the findings of the Ld. CIT(A) is erroneous and liable to be set aside.
On the other hand, the Ld. counsel submitted that the findings of the Ld. CIT(A) is based on the order of the Tribunal dated 23.03.2016 passed in assessee’s own case ITA No 2087/Mum/2012 for the assessment year 2009- 10, there is no merit in the appeal of the revenue, therefore the same is liable to be set aside.
We have heard the rival submissions and carefully perused the material on record. The only grievance of the revenue is that the Ld. CIT(A) has wrongly deleted the addition aforesaid made by the AO. As pointed out by the Ld. counsel for the assessee, the Ld. CIT(A) has deleted the addition in question by following the decision of the coordinate Bench the rendered in the assessee’s own case aforesaid. The operative part of the order of the Ld. CIT(A) reads as under: “I have considered the facts of the case and the appellant’s submissions. I find that the Hon’ble Tribunal in the appellant’s own case on identical facts for A.Y. 2009-10 has decided the issue in favour of the appellant in ITA No 2087/Mum/2012 vide order dated 23.03.2016 by holding as under:
4 Assessment Year: 2011-12 “7. We have considered the submissions of the parties and perused the material available on record. We have also applied our mind to the decisions relied upon. The core issue to be decided is whether the discount allowed by the assessee on the MRP to SBPL is the price for selling of goods or in the nature of commission. Before deciding the issue, it needs reiteration that the assessee sells its entire products to SBPL and allows a discount of 51% on the MRP. This fact is evident from the invoices raised by the assessee copy of which has been submitted the paper book. It is a fact on record that assessee entered into an agreement with SBPL on 1st April 1997, for sale of its products. As per clause 1 if the agreement, assessee is to manufacture and process certain Ayurvedic drugs and formulation by utilizing the secret formulation given by SBPL and pack them in bulk or in such other pack as may be stipulated or specified by the SBPL to enable them market the same by buying the said products on its account. Clause-11 of the agreement stipulates that the sale of goods to SBPL are on principal-to- principal basis and none of the parties to the agreement shall hold oneself as agent of other under any circumstances. It further stipulates that SBPL shall sell the products on its own account only and not as an agent or on behalf of the assessee. Clause-10(a) of the agreement provides that assessee shall manufacture the goods as per the specification of SBPL and if the products are not in accordance with the standard, SBPL shall have the right to reject the products. However, clause 10(b) provides that once SBPL accepts certain products manufactured by the assessee, any loss suffered by SBPL, subsequently, due to handling, transportation or storage shall be borne by SBPL. Thus, on over all consideration of the agreement between the parties, it becomes clear that once certain goods are sold to SBPL after certification by them, ownership of such goods in transferred from the assessee and vests with SBPL. Thus, once the goods are certified by SBPL and sold to them the contract of sale concludes as far as assessee is concerned, as goods cannot be returned back to the 5 Assessment Year: 2011-12 assessee. Therefore, examined in the aforesaid perspective, it has to be concluded that it is a transaction of sale between the assessee and SBPL on principal-to principal bass and there is no agency between them. Further, on a perusal of the invoices raised, it is clear that the assessee has given a discount of 51% on MRP of the goods sold. These evidences clearly demonstrate that there is no relationship of principal and agent between the assessee and SBPL. The Departmental Authorities have failed to demonstrate that SBPL was acting as agent on behalf of the assessee to satisfy the condition of section 194H. It is also relefvant to note, though, the agreement with the SBPL on sale effected over the years, the Department has not made any disallowance either in the preceding assessment years or in the subsequent year 2005-06 and 2006-07 under section 143 (3) of the Act, copy of which have been placed on record. That being the case, when the Department is following a consistent view by not treating the discount given to be in the nature of commission over the years under identical facts and circumstances, a different approach cannot be taken in the impugned assessment year. Further, on a perusal of the provisions contained in section 40(a)(ia) of the Act, as was existing at the relevant period, it is seen, it refers to any some payable to a resident. It is the contention of assessee that during the year assessee has not paid any amount towards commission to SBPL nor any amount is credited. We find merit in the aforesaid submissions of the assessee. As could be seen, the assessee has been selling its product to SBPL and on the MRP, it has given trade discount of 51%. In other words, SBPL pays the sale consideration to the assessee at a discounted price. The assessee neither has made any payment to SBPL nor credited any amount towards commission to its account. Therefore, there being no sum paid or credited in terms of section 40(a)(ia), no disallowance could be made. The decisions relied upon by the assessee also supports the aforesaid conclusion. Accordingly, as there is no element of commission found embedded in the discount of 51%, in our view, no disallowance 6 Assessment Year: 2011-12 under section 40(a)(ia) can be made as the Department has failed to establish principal-agent relationship between the assessee and SBPL. Moreover, the Department accepting a part of the discount, though at 10%, in a way has accepted that there is a sale transaction between the assessee and SBPL. Therefore, on over all consideration of facts and circumstances of the case, we are of the view that transaction between the assessee and SBPL being a direct sale transaction on principal-to-principal basis, provisions of section 194H are not applicable, hence, no disallowance under section 40(a)(ia) of the Act can be made. Accordingly, ground no. 1, is allowed” Respectfully following the decision of the Hon’ble ITAT, Mumbai in the appellant’s own case on identical facts as above, the disallowance of rs. 8,88,58,525/- under section 40(a)(ia) of the Act by the Assessing Officer is deleted. The appellant’s grounds of appeal are allowed.”