DCIT, CIRCLE-MURSHIDABAD, MURSHIDABAD vs. M/S GOLDEN MOTORS, MURSHIDABAD

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 02.11.2011. Assessment was framed by DCIT, Circle-Murshidabad u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2010 for assessment year 2005-06. The grounds raised by the assessee per its appeal are as under:- 2. At the outset, it was noticed that this appeal filed by Revenue is delayed by 38 days. Revenue has filed condonation petition supported by affidavit stating the

ITA No.409/Kol/2012 A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 2 reasons. In view of above reasons we condone the delay and admit the appeal for hearing. 3. None appeared for the assessee. However, after going through the records we find that the case is very old and on earlier occasions also the assessee failed to appear despite the fact that various notices were issue to the assessee. Hence, after hearing the submissions of the Ld. DR we are of the view that the appeal can be disposed off without the appearance of assessee or by Ld. AR. Therefore we decided to dispose off the appeal after hearing the ld. DR. 4. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹31,96,986/- on account of non- deduction of Tax Deducted at Source (TDS) u/s. 194-H of the Act. 5. Briefly stated facts are that assessee is a partnership firm and engaged in trading business of motor cycle and tractor. The assessee is maintaining two divisions namely Motor Cycle and other Tractor Division. The assessee under both the division has claimed Commission expense as detailed under:- Motor Cycle Division:- The assessee had appointed sub-dealers for sale of motor cycle as well as spare parts and these sub-dealers were paid the Commission by the assessee as detailed below:- i) Commission to the sub-dealers for motor cycle 17,64,650/- ii) Commission to F.S.C/sub-dealers ₹5,16,517/- Tractor division: The assessee similarly has appointed sub-dealers for its tractor division. The sub-dealers were paid commission for ₹7,15,895/- only out of sale of tractors. The assessee in respect of above expenses submitted that in none of the case any payment of Commission has been made to the sub-dealers. The amount of Commission to the sub-dealers represents the margin given to them. The assessee used to supply the motor cycle as well as tractors to the sub-dealers at a Maximum Retail Price (MRP) and these sub-dealers used to deduct margin out of the MRP amount and used to remit the balance amount to the assessee. In turn, the assessee used to provide credit note to these sub-dealers. As such, the amount of Commission represents the

ITA No.409/Kol/2012 A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 3 margin of the sub-dealers. As the transactions between the assessee and the sub- dealers represents the sale and purchase and therefore there is no question of making any payment as commission. Thus, the question for deducting the TDS u/s. 194-H of the Act does not arise. However, the Assessing Officer disregarded the contention of the assessee by observing that the incentive was given to the sub-dealers in the form of commission / brokerage. The AO also observed that the adjustment of the commission amount does not entitle the assessee to make the payment without TDS. Thus, the AO made the disallowance of the commission amount for ₹31,96,986/- and added to the total income of assessee. 6. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the payment made to the sub-dealers of Hero Honda Motor Cycle and Mahindra Tractor were nothing but share of profit to them. There was no cheque or cash payment for the impugned Commission. The amount of Commission was adjusted by way of credit note to the sub-dealers. There was no relationship between assessee and sub-dealers as of principal and agent. As such, the transactions were recorded by both the parties for the sale of products and purchase of the products. Ld. CIT(A) after considering the submissions made by assessee deleted the addition mad by the AO by observing as under:- “4.2. I have duly considered the submission of the AR of the appellant and seen the details filed. As per the Profit & Loss A/c, the appellant had paid sales commission of Rs.19,64,650 - and commission for Free Service Coupon (FSC) of Rs.5, 16,5171- for its Motor Cycle Division and commission of Rs.7,15,895/- for its Tractor Division. As it appears that during the assessment proceedings, the appellant had explained that actually no commission was paid to anybody either for Motor Cycle Division or for Tractor Division but amount due to the sub- dealers for Motor Cycle division against share of profit [since goods were sold at M.R.P. rate] was adjusted through credit notes as 'trade discount'. For the Tractor division, discount was given to the actual purchasers. The AO has not disputed the facts that the payments were made to the sub-dealers by way of credit notes [for the motor cycle division and discount was given to the purchasers for the tractor division, but opined that the appellant had paid incentive to the sub-dealers for boosting turnover and therefore, the payments made were in the nature of commission and the appellant had violated the provisions of section 194 H of the Act for non-deduction of tax at source on such payments. 4.3. For the purpose of section 194 H of the Act, commission or brokerage includes any payment received or receivable, directly or indirectly, by-a person acting on behalf of another person for services rendered or for any services in the course of

ITA No.409/Kol/2012 A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 4 buying or selling of goods .... Going by this explanation, there has to be a 3rd party who should provide service either to the purchaser or to the seller or both to earn commission. In this case, there is no dispute that the entire amount in question, whether commission or trade discount, were paid to the actual purchasers. There was no 3rd party involvement and the payments were made through credit notes to those sub-dealers who directly and regularly purchased motor cycles. Similarly actual purchasers were allowed discount for purchases of tractors by the appellant. Since no payment was made to the 3rd party but credit notes issued to the actual purchasers against trade discount, such payments could not be constituted as 'commission or brokerage' as per provisions of section 194 H of the Act. Under the facts and circumstances, the disallowances made by the AO u/s. 40(a)(ia) of the Act is not maintainable. Thus, the additions of Rs.19,64,650/- and Rs.5,16,517/- and Rs.7,15,895/- are deleted. The Revenue, being aggrieved, is in appeal before us. 7. Ld. DR before us heavily relied on the order of AO and left the issue to the discretion of the Bench.

ITA No.409/Kol/2012 A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 5 sub-dealers as Commission does not change the character of transactions. Ld. DR has not brought any infirmity in the order of Ld. CIT(A). Hence, we do not find any reasons to interfere in the order of Ld. CIT(A). Consequently, Revenue’s ground is dismissed.

ITA No.409/Kol/2012 A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 6 The Revenue, being aggrieved, is in appeal before us. 12. Ld. DR before us heavily relied on the order of AO.