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

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 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.

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.

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.

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 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.

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 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.

Ld. DR before us heavily relied on the order of AO and left the issue to the discretion of the Bench.

We have heard the Ld. DR and perused the materials available on record. In the instant case, the AO disallowed the commission paid by the assessee to its sub-dealers on the ground of non-deduction of TDS u/s. 40(a)(ia) of the Act. However, Ld. CIT(A) observed that there was no payment of commission paid by assessee to its sub-dealers. In-fact the assessee has sold the products at the MRP to the sub-dealers on profit sharing basis. Therefore, the addition was deleted by Ld. CIT(A). Now the issue before us arises for our adjudication whether assessee has defaulted for not deducting the TDS on the amount of commission expenses in the given facts & circumstances. In this regard, we find that no payment of commission was made by the assessee to its sub-dealers as evident from the order of AO which reads as under:- “… … Issue of credit note is just a modus operandi for settlement of payment. Hence the argument placed by the A.R explaining that the Commission is actually sharing of profit margin with sub-dealers, cannot accepted.” From the above findings of AO we note that the assessee has not paid any amount of Commission to its sub-dealers rather the credit note was issued to sub-dealers against sales made by the assessee. In view of the above, we opine that the transactions recorded by assessee in its books with its sub-dealers are in the nature of sales and purchase. Therefore in our considered view the provision of TDS cannot be applied in the instance facts of case. The assessee simply has recorded the margin given to the 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.

Second issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹1,58,671/- on account of excise duty.

The AO during the course of assessment proceedings observed that the assessee has shown excise duty receivable for ₹1,58,671/- only in its books of account but no credit entry for the same was shown in the profit and loss account. Therefore, the amount of excise duty receivable for ₹1,58,671/- was treated as undisclosed income and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). who deleted the addition made by the AO by observing as under:- “5. Ground No. 10 of the appeal relates to addition of Rs.l,58,6711- as undisclosed income, representing receivable amount from Hero Honda Motors Ltd. (HHML). The relevant portion of the assessment order is extracted below: "In the asset side of the balance sheet an amount of Rs.7,26,237.94 has been shown under the head 'Receivable Account'. From details of such account it is noticed that a sum of Rs.l,58,671/- under the head 'Hero Honda Motors Ltd. (Exempt of Excise Duty). On verification statement of HHML A/c. placed in record it is found that price is inclusive of Excise Duty. Hence, if the manufacturer gets the benefit of exemption of Excise Duty, the benefit is also received by the dealers. If the assessee has shown the amount of Rs.1,58,671.48 in the Receivable A/c, the assessee also requires to account for the amount in the corresponding credit side of the P&L A/c. as per mercantile system of accounting, which has not been done. Hence, the amount of Rs.158,6711- is treated as undisclosed income and added to the total income." 5.1. The AR of the appellant in his written submission stated that the said amount of Rs.l,58,6711- represented the amount receivable from HHML (exempt of excise duty), was brought forward balance as would be evident from the copy of the balance sheet as on 31103/2004.' Having considered the submission of the appellant, I find that the AO made the addition without even verifying that the amount was a brought forward balance from earlier years. Though the finding of the AO in the matter appears to be correct, but no addition could be made in respect of brought forward accounts. The addition of Rs.l,58,6711- is therefore, deleted.” A.Y. 2005-06 DCIT, Cir-MSD Vs. M/s Golden Motors Page 6 The Revenue, being aggrieved, is in appeal before us.

Ld. DR before us heavily relied on the order of AO.