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Income Tax Appellate Tribunal, DELHI BENCH: “D” NEW DELHI
Before: SH.G.D.AGARWAL & SMT DIVA SINGH
PER DIVA SINGH, JUDICIAL MEMBER
The present appeal has been filed by the Revenue assailing the correctness of the order dated 05.12.2013 of CIT(A), Rohtak pertaining to 2010-11 AY on following grounds:-
1. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the additions made by the AO on account of disallowance of expenses under heads discount (Rs.76,46,656/-) and activation charges( Rs.39,52,845/-) as the assessee in course of assessment proceedings had also failed to provide any sustainable evidence in support of its claim that he actually has parted with this money to this extent to various customers/retailers.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs.76,46,656/- and Rs.39,52,845/- (totaling Rs.1,15,99,501/-) made by the AO on account of disallowance of discount and activation charges u/s 40(a) (ia ) of the Act, as it is clear from the profit and loss account that this discount/activation charges have not been given on sales but have been disbursed out of receipts received on account commission and activation charges, received from BSNL clearly covered under section 194H of the IT Act. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs.76,46,656/- and Rs.39,52,845/- (totaling Rs.1,15,99,501/-) made by the AO on account of I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos disallowance of discount and activation charges u/s 40(a) (ia ) of the Act, as it is a case of collection of money from the customers for various services to be provided/already provided by the telecom operator and therefore, it is a clear cut case of payment of commission to an agent/ subagent for collection of money on behalf of/for telecom operator and therefore covered under the provisions of section 194H of the Act.
4. That the appellant craves for permission to add, delete or amend the ground of appeal before or at the time of hearing of appeal.”
The Ld.AR at the outset submitted that the point at issue is covered in favour of the assessee by virtue of the order dated 22.02.2013 passed by the ITAT in the case of assessee & Others in pertaining to 2008-09 AY. Copy of the said order was filed in the Court. Attention was invited to para 5 of the impugned order where cognizance of this fact has been taken note of and the conclusion of the CIT(A) in the last page of her order it was submitted also makes a reference to the very same facts as considered by the ITAT.
Ld.Sr.DR who already had been provided a copy of the said order by the Ld.AR prior to the date of hearing fairly submitted that there is no change in the facts and circumstances of the case and the point at issue is covered. No contrary decision or argument was relied upon by the Ld.Sr.DR in order to canvass a contrary view.
The facts of the case are that the assessee in the year under consideration as in the earlier years continued to be engaged in the business of sim cards and rechargeable coupons besides being engaged in wholesale trading of medicines.
The AO accepted the results of wholesale trading in medicines after issuing a show cause notice to the assessee and considering the reply of the assessee made an addition by way of a disallowance only in respect of the business of the sim cards and rechargeable coupons. The reliance placed upon the order of the ITAT by the assessee was not accepted by the AO holding as under:- I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos
“The replies filed by the assessee in the course of assessment proceedings have been considered. In the course of assessment proceedings it has been observed that the assessee is not issuing any invoice of cash memo to the customer/retailers to whom he has sold coupons and Sim cards purchased from BSNL. In fact, the assessee has produced the daily collection report of the staff which is not supported by any invoices/cash memos issued to various customer/retailers. Assessee is agent of BSNL and carrying out various activities which include sale of prepaid coupons/ Sim Cards on behalf of BSNL. The assessee has taken the assistance of various retailers in performing these activities. The assessee also part with a part of consumer/service charges received from BSNL to the retailers. The assessee has reflected such payments under the head "activation scheme and discount" amounting to Rs.39,52,845/- and Rs.76,46,656/- in the profit and loss account respectively. In the course of assessment proceedings the assessee was time and again asked to furnish the details of name/ addresses/PANs of the retails to whom the assessee has paid activation scheme and discount amounting to Rs.39,52,845/- and Rs.76,46,656/- respectively. But assessee furnished the daily collection report in support of its contention. The daily collection report has been prepared by his own staff and its genuineness, as such, cannot be ascertained. Since the assessee has failed to give any reliable and sustainable evidence in support of his contention that he has actually parted with this money to this extent to various customers/retailers, the entire amount of Rs.39,52,845/- and Rs.76,46,656/-, totaling Rs.1,15,99,501/- shown under the head "activation scheme and discount" respectively is added to the returned income of the assessee on account of non-production of any reliable ,a)id sustainable evidence in support of his contention.”
5. The issue was carried by the assessee in appeal before the CIT(A) again placing reliance upon the aforesaid order of the ITAT. Convinced with the explanation offered on facts and position of law thereon the CIT(A) deleted the addition holding as under:-
“I have considered both the view of AO and the appellant submitted before me. As per the Scope of marketing and distribution of the assessee in the agreement with BSNL, It shall provide services to walk -in Customers and also establish direct contact through its sales force, with prospective customers and register as many new BSNL Customers as possible subject to a minimum number. No dealer/sub -dealer has been appointed either by BSNL or by the appellant for marketing the products/services of BSNL. Therefore, the entire sales are to the customers may be direct customers or shop keeper who in turn render the services to the customer's .Further, the entire sales are in cash as evident from the daily collection reports (indicating the discount offered) furnished by the appellant.
I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos
Regarding the disallowance made by the AO on the ground of non furnishing of evidence regarding the genuineness of expenses, it is seen that all the book of account and other vouchers and daily collection reports have been submitted before the AO. In the case of new Sim card, the list of customers; bearing their Mobile no, Name, Father Name etc along with daily collection report was submitted to the AO. and in the case of scratch card and C-top up card, the mobile no. of the customer along with daily collection report has been provided to the AO and also no new phone no can be issued without the ID proof of the customer. The AO neither pointed any discrepancy/deficiency nor conducted any enquiries, if he had doubt regarding the genuineness of the Claim. "The Bombay High Court in the case of R.B.Jessram Fatehchand (Sugar Department) vs CIT in 75 ITR 33 observed that The ITO had scrutinised closely the account books of the assessee and had found no fault with them excepting that the addresses of the customers for the cash sales of sugar had not been entered. It was not found by him that there were any other reasons for not accepting the said cash sales, such as, for instance, the sales being at lower rates than what were prevailing in the market or that they were not comparable with the other verified sales, which the assessee had made during the material time. In these circumstances, the reason given by the ITO for rejecting the book results shown by the assessee's accounts or for not accepting the cash transactions as genuine could not be accepted as good and sufficient unless there was an obligation on the part of the assessee to keep a record of the addresses of the cash customers. It could not, therefore, be said that the failure on his part to maintain the addresses was a suspicious circumstance giving rise to a doubt about the genuineness of the transactions entered into by the assessee. Since, having regard to the nature of the transactions and the manner in which they had been effected, there was no necessity whatsoever for the assessee to have maintained the addresses of cash customers, the failure to maintain the same or to supply them as and when called for could not be regarded as a circumstance giving rise to a suspicion with regard to the genuineness of the transactions. The Tribunal, therefore, was not right, in setting aside the order of the AAC and restoring that of the ITO. There were no circumstances disclosed in the case nor was there any evidence or material on record which would justify the rejection of the book results. Further, it is settled law that no addition can be made on the basis of surmises, suspicious and conjectures. Reliance for this proposition is placed on 37 ITR 271(SC) Uma Charan Shaw &Bros. Co. v.CIT and other decision 37 ITR 151(SC) Omar Salay Mohammad Sait v CIT 26 ITR 736 (SC) Dhirajlal Girdharilal v CIT, Bombay, 26 ITR 775 (SC) Dhakeshwari Cotton Mills ltd. V CIT, 37 ITR 288 (SC) Lal Chand Bhagat Ambica Ram v CIT, 91 ITR 8 (SC) CIT v Calcutta Discount Company Ltd." Further, this issue is covered by the this office order for A.Y. 2008-09. In view of the above, the addition is deleted and this ground of appeal is allowed. Regarding the disallowance made by the AO also on the ground of non deduction of TDS u/s 194H and disallowance U/S 40(a)(ia) of the I T Act I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos
1961. This issue has already decided by the ITAT vide order dated 22-02- 2013, in assessee's own case in assessee's favour. In view of the above, the disallowance made by the AO under activation scheme and discount amounting to Rs. 39,52,845/- and Rs.76,46,656/-totaling Rs.1,15,99,501/- is hereby deleted and the grounds of appeals are' allowed.”
6. The said finding is challenged by the Revenue.
We have heard the rival submissions and perused the material available on record. In the absence of any arguments on either change of facts, circumstances or position of law and having considered the reasoning and the conclusion of the ITAT in paras 15 to 25 of its order wherein it is noticed that the facts and circumstances remain the same and we also note that facts and circumstances being mutatis mutandis is not disputed by the Revenue also. In view of the above finding, in the absence of any argument we respectfully following the order of the ITAT dismiss the departmental appeal. The relevant extract of the order of the Co- ordinate Bench is extracted hereunder:-
“We have heard the parties and have perused the material on record. The assessee paid discount of Rs.66,57,565/- and activation scheme of Rs.6,25,600/-. Both these amounts, total amounting to Rs.77,31,395/- were claimed in the Profit & Loss Account. The stand of the assessee has been that discount/activation charges were not paid in cash to any retailer. Rather, they were in the nature of trade discount given at the time of sale. The sales were recorded at the maximum retail price and the discount regarded as discount was the retailer’s margin. There was no agreement in existence between the assessee and the customers. The assessee, during the year, was an authorized franchisee of Bharat Sanchar Nigal Ltd. (i.e. BSNL) vide agreement dated 12.01.2007 (copy at pages 17-36 of the assessee’s paper book-“APB for short)”. Under the agreement, the assessee was to provide services to walk-in customers. It was to distribute all types of authorized telecom services. No dealer or sub-dealer was appointed. The discount/commission was allowed as per the agreement. This position remains undisputed. The retailers simply bought SIM cards/recharge coupons from the assessee at a discounted price. These were sold in the market with no specific obligation towards the distributor.
The Assessing Officer, however, concluded that the assessee was having the same relationship with the dealers/retailers, as the one of BSNL with the dealers/retailers; that it was a case of collection of money I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos from the customers for various services to be provided/already provided by BSNL and, as such, it was in the nature of payment to an agent for collection of money on behalf of BSNL; that the assessee had shown the expense as ‘commission’ in its Profit & Loss Account; that therefore, even though the payments were covered u/s 194H of the IT Act, no TDS had been deducted thereon. It was on this basis that the Assessing Officer made the disallowance. The Ld.CIT(A) deleted the same.
The question is as to whether the Ld.CIT(A) correctly deleted the disallowance, holding that there was no principal to agent relationship between assessee and the customers. Now, undoubtedly, the ‘commission’ in question was, in fact, ‘Discount’. It was only that there being no head of ‘discount’ in ITR-4, the depiction was of ‘commission’ in column No.23 of the Profits & Loss Account. Thus, however, by itself does not lead to the conclusion that it was ‘commission’ rather than ‘discount’. As per the agreement between the BSNL and the assessee:- “The Franchisee shall provide BSNL services to walk-in-customers. It shall also establish, through its sale-force, direct contact with prospective customers and register as many new BSNL customers as possible subject to a minimum number fixed by BSNL. Franchisee shall also distribute all types of authorized telecom services for marketing to its Franchisees and cash card (prepaid) to its retailers. No dealer/sub-dealer was either appointed by BSNL on the assessee. The assessee is allowed commission/discount as per Annexure-B and section-III of the said agreement.”
Since no dealer or sub-dealer was appointed either by Bharat Sanchar Nigam Ltd. (BSNL) or by the assessee, for the purpose of marketing the products and/or service of the Bharat Sanchar Nigam Ltd., the entire sales were to customers, either directly or through shopkeepers, who rendered services to the customers. Moreover, the entire sales were in cash. No commission was paid by the assessee to the customers. Then, Section 194H of the Act does not cover such discounts as under consideration herein and that being so, obviously the provisions of Section 40(a)(ia) of the Act was wrongly applied. Accounting-wise, the face value of the recharge coupon was debited to the purchase account, whereas the commission given by BSNL was credited to the commission account. At the time of sale, on the other hand, the face value of the recharge coupon was credited to the sales account and the cash receipts was debited to the cash account. The discount offered was debited to the discount account. When purchasing the SIM cards and recharge coupons from BSNL, the assessee had to deposit the money in advance. Undisputed, it is to customers directly and to petty shopkeepers, that the SIM cards and recharge coupons were sold in cash. The customers and shopkeepers were offered discount on the face value of the SIM cards. Apropos the recharge coupons, on the other hand, a small margin was kept by the assessee out of the commission/discount offered by BSNL. Then, activation charges were given by BSNL to the assessee on new connections, and a major portion thereof was given to the customers as discount.
As discussed, it was on the basis of the mistaken presumption of existence of relationship of principal and agent, that the discount offered I.T.A .No.-968/Del/2014 ITO vs Veekay Medicos by the assessee to its customers was considered by the Assessing Officer as commission. This, however, is not so, to reiterate it was only discounts offered to the customers, on a principal to principal basis, on which, no TDS was either required to be made or was actually made.
In ‘ITL Tours & Travels’ (supra), where the assessee was taking airlines tickets, the discount given to intermediaries was held not to be commission, since it was deal on a principal to principal basis and there was no element of agency involved. No TDS was held to be done u/s 194H of the Act.
In ‘Surndra Buildtech (supra), the assessee was in the real estate business. It received commission from builders for booking flats. Portion of such commission was paid to buyers of flats. It was held that this was like giving a discount to buyers and was not commission and so section 194H of the Act did not apply.
In ‘Ahmedabad Stamp Vendors Association’ (supra) it was held by the Hon’ble Gujarat High Court that where licensed stamp vendors take delivery of stamp papers on payment of full price less discount and they sell such stamp papers to retail customers, neither of the two activities, i.e, buying from the Government and selling to the customers, can be termed as service in course of buying and selling of goods; and that so the discount made available to the license stamp vendors was outside the expression ‘commission’ or brokerage u/s 194H of the It Act and as such, no TDS is required to be made from the discount.
The SLP filed by the Department was dismissed by the Hon’ble Supreme Court vide Order dated 06.09.2012 (copy at page 48 of the case laws paper book filed by the assessee), holding that the discount given to the stamp vendors was for purchasing the stamps in bulk quantity and the discount was in the nature of cash discount, due to which the transaction was a sale and consequently, Section 194H of the IT Act had no application.
No decision to the contrary has been brought to our notice.
In view of the above, finding no merit therein, the grievance sought to be raised by the Department is rejected.”
In the result, the departmental appeal is dismissed. The order is pronounced in the open court on 07th November, 2016.