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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
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)-XX, Kolkata dated 09.06.2014. Assessment was framed by ACIT, Circle-36. Kolkata u/s 143/263/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 25.03.2013 for assessment year 2007-08. Shri Sallong Yaden, Ld. Departmental Representative represented on behalf of Revenue and Shri Anil Kochar, Ld. Advocate appeared on behalf of assessee.
2. Only effective issue raised by Revenue in its appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹2,94,07,590/- on account of non-deduction of Tax Deducted at Source (TDS) u/s. 194H of the Act vis-à-vis 40(a)(ia) of the Act.
Briefly stated facts are that assessee is an individual and engaged in the business of trading in Electrical goods. The original assessment was framed u/s. ACIT Cir-36 Kol. Vs. Sri Vinamra Daga Page 2 143(3) of the Act vide order dated 25.03.2013 thereafter a notice No. CIT- XII/263/2011-12/1507 dated 30.01./02/02/2012 u/s 263 of the Act u/s 263 of the Act was issued. The contents of the notice are produced as under:- “(i) As per the sales account, the assessee had shown cash discount of Rs.3,23,98,930/- to the debtors. As per the tax Audit Report, only Rs.1,49,567/- was paid on account of TDS on commission of Rs.29,91,340/-. Hence, commission of Rs.2,94,07,590/- [Rs.3,23,98,930 – Rs.29,91,340] was supposed to have been paid without deduction of tax us. 194H which attracts the provisions of sec. 40(a)(ia) of the IT Act, 1961 and accordingly, payment of Rs.2,94,07,590/- as commission in the grab of cash discount should have been disallowed and added back.”
Thereafter order was passed u/s 263 of the Act by Ld. CIT vide order dated 12.03.2012 holding the order passed by the Assessing Officer as erroneous and prejudicial to the interest of Revenue. The Ld. CIT in his order u/s. 263 of the Act held that AO has not examined the veracity of the commission expenses for ₹2,94,07,590/- in his assessment order and accordingly directed the AO to verify the facts of the commission expenses which have been incurred/ claimed without the deduction of TDS. The Ld. CIT directed the AO to make fresh assessment as per provision of law. In terms of above direction issued by ld. CIT u/s 263 of the Act, the AO after giving opportunity to the assessee has held that assessee failed to deduct TDS on the amount of cash discount for ₹2,94,07,590/- and accordingly added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has distributorship of orient fan for the State of Rajasthan. The assessee has appointed stockiest for the sale of fans at the prescribed rate. The assessee used to give incentive and cash discount out of the prescribed rate depending upon the sale, quantity and the payment pattern of the stockiest. In case stockiest are buying the prescribed quantity of the goods then they were given incentive discount. Similarly, if the stockiest are making the payment on or before due date then they were provided the cash discount by the assessee. The incentive and the discounts were given in the invoice itself and the same were not accounted for in separate bill. The assessee in support of its claim also submitted the copy of the said ledger. The assessee also furnished the necessary details of the gross sales along with the cash discount and incentive which are debited below depicted below:-
ACIT Cir-36 Kol. Vs. Sri Vinamra Daga Page 3 Gross sales Rs.22,06,06,70,151/- Less: Sales return Rs. 4,07,675/- Rs.22,02,62,476/- Less: Cash discount (net) Rs. 6,07,330/- Rs.21,96,55,146/- Less: Incentive paid Rs. 2,83,66,934/- Less: Sales conference Rs. 19,40,347/- Less: Commission paid to sub –distributors Rs. 26,98,979/- Rs.18,66,48,886/- The Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- “4. In this case, there is only one issue involved in all the grounds of appeal which relates to addition of Rs.2,94,07,590/- made by the AO u/s 40(a)(ia) of the IT Act, 1961. The fact of the case is that the AO found from the details of sale bills that the appellant failed to deduct tax on cash discount given on sales as provided U/s. 198h OF THE it Act. Therefore, he made addition us/s 40(a)(ia) of the Act. however, from the perusal of details / sale bills / furnished by the appellant it is noticed that the cash discounts were given on sale which were of the nature of trade discount and not of the nature of commission as held by the AO. For application of provision of section 194H, there should be relationship of principal and agent in order to bring discount in ambit of commission and brokerage in which the agent renders certain services to the principal and in lieu of services rendered, he gets commission accordingly but in the cash discount it is simply in the nature of trade discount which were given in the normal course of business. The trade discounts were provided to determine the increase of sale volume. After going through the facts and circumstances of the case, I find merit in the argument of the appellant that cash discounts are nothing to do with the commission as these discounts were given in the normal course of business which were in the nature of trade discount. Therefore, section 194H is of the Act applicable on the same, therefore, the AO is directed to delete the addition.”
The Revenue, being aggrieved, is in appeal before us on the following grounds:-
“1. On the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,94,07,590/- made by the AO u/s 40(a)(9a) of the IT Act 1961.
On the acts & circumstances of the case and in law, the Ld. CIT(A) erred by holding that Sec. 194H of the Act is not applicable income the assessee whereas, the cash discount allowed by the assessee comes under the ambit of commission and attracts the application of provisions of Sec. 194H of the IT Act, 1961 which the assessee failed to comply.
3. The appellant craves the leave to make any addition, alteration, modification of grounds at the appellate stage.”
ACIT Cir-36 Kol. Vs. Sri Vinamra Daga Page 4 5. The ld. DR supported the order of AO whereas the ld. AR filed a paper book consisting of pages from 1 to 22 and he relied in the order of ld. CIT(A).
We have heard the rival contentions of both the parties and perused the material on record and duly considered factual matrix of the case. The AO, in the instant case has treated the cash discount and incentive expenditure claimed by the assessee as commission expenses and accordingly invoked the provisions of Section 194H of the Act. The provisions of Section 194H of the Act imposes tax withholding obligations on a person from payments on account of commission. The assessee, in the instant case, is an authorized distributor of Orient Fans (hereinafter known as company). The assessee purchases the products from the company and sells these products to various parties in the State of Rajasthan. These parties have been identified and appointed by the company. The assessee issues invoices in the name of the parties for the sale of goods. The assessee out of the sale price gives cash discount and incentive to these parties depending upon the transactions with the parties. If the party purchases the products and makes timely payment then the party is entitled for the cash discount. Similarly, if the party buys the goods for a specific quantity then that party is entitled for incentive. Both these cash discount and incentives are adjusted the books of accounts of the assessee. Now, the issue arises for our adjudication whether the aforesaid amount of cash discount/ incentive represents the commission expenses and therefore it attracts the provisions of Section 194H of the Act in the aforesaid facts and circumstances.
6.1 To establish whether cash discount is in the nature of commission, it is necessary to appreciate the nature of relationship between the assessee and its parties. This is for the reason that, as held by the Hon’ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 (Guj) unless this relationship is relationship of a principal and agent, the cash discount claimed by the assessee cannot partake the character of commission. In the case on hand, we find that there exists relationship between the assessee and the party as of principal to principal and there is no relationship of principal to agent. Therefore, the ACIT Cir-36 Kol. Vs. Sri Vinamra Daga Page 5 case of the Revenue primarily hinges on whether or not the cash discount and incentive provided by the assessee is in the nature of the commission.
When we look at each component of the cash discount and incentive, we find that none of these cash discounts and incentives is in the nature of commission. The assessee is giving cash discount and incentive depending on payment pattern of the parties and quantity purchased by these parties which is nothing but a sale incentive by way of trade discount. As far as the early payment discount is concernd, it is nothing but a cash discount for timely payment of bills by the parties to the assessee. The ld. AR in support of his claim has produced the copy of the bill where the cash discount and incentive has been depicted separately which is placed on record. By no stretch of logic, this would constitute commission. In view of this, we find no reason to interfere in the order of ld. CIT(A). Accordingly, we uphold the same. Hence, this ground of appeal of the Revenue is dismissed.
In the result, Revenue’s appeal stands dismissed. 7.
Order pronounced in open court on 03/05/2017