M/S RAIGANJ COMMUNICATION,UTTAR DINAJPUR vs. ITO,WARD-1, RAIGANJ, UTTAR DINAJPUR

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals), Jalpaiguri dated 05.03.2012. Assessment was framed by ITO Ward-45(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 10.12.2010 for assessment year 2008-09. Assessee has taken the following modified grounds of its appeal:- “1. FOR THAT on a true and proper interpretation of the scope and ambit of the provisions of s. 40(a)(ia) of the Income Tax Act, 1961, the Ld. Commissioner of Income Tax (Appeals) Jalpaiguri was absolutely in error in upholding the action of the Ld. Income Tax Officer, Ward 1, Raingaj in resorting to the impugned addition of Rs.52,63,871/- on account of alleged infringement of s. 194H of the Act and the purported finding on that issue is wholly arbitrary, unwarranted and perverse.

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 2

Shri Somnath Ghosh, Ld. Authorized Representative appeared on behalf of assessee and Shri Niloy Baran Som, Ld. Departmental Representative appeared on behalf of Revenue.

The facts of the case are that assessee is a partnership firm and engaged in the distribution business of AIRCEL products of Dishnet Wireless Limited (for short DWL). The assessee for the year has filed income tax return declaring profit under the business head for Rs.1,00,730/- only. The case was selected for scrutiny under section 143(3) of the Act through CASS system. During the

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 3 year assessee has received a sum of ₹61,93,897/- from DWL towards incentive and service tax after the deduction of tax at source under section 194H of the Act. Against the above receipt the assessee claimed expenditure under the head “incentive paid to retailer” for an amount of ₹ 54,80,381/-. The Assessing Officer during the assessment proceedings observed that a sum of ₹ 52,63,871/- out of Rs.54,80,381/- has been incurred without deducting the Tax at Source (TDS for short) as contemplated u/s.194H of the Act. Accordingly, AO sought clarification from assessee regarding the infringement of provision of Sec. 194H r.w.s. 40(a)(ia) of the Act with regard to the aforesaid expenses. In compliance to the notice, assessee submitted that payment of incentive to retailers was in the nature of trade discount but wrongly shown as incentive paid to retailers in the profit & loss account. However, AO disregarded the contention of assessee on the ground that discount is deducted from the gross sale amount or given by way of credit note. In the instant case, incentive has been paid in terms of cash without deducting from the sale price. Therefore, incentive, in the present case is exactly similar to commission within the meaning of section 194H of the Act. The Assessing Officer further observed that the company, DWL has paid said commission to the assessee after deducting TDS and therefore, assessee was also liable to deduct TDS from such payment of incentive paid to retailers. Accordingly, AO disallowed an amount of ₹52,63,871/- u/s 40(a)(ia) of the Act and added to the total income of assessee.

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 4 attracted. However, Ld. CIT(A) disregarded the claim of assessee on account of following:- (i) Out of incentive receipt by assessee part of it was given to the retailers as depicted in its profit and loss account, so the submission of the assessee was contradictory as it was the trade discount; (ii) DWL has deducted TDS from the payment of incentive paid to assessee, which was duly accounted for in its books of account, so the assessee was liable to deduct the TDS. (iii) The claim of the assessee that he was acting just as a medium for disbursement of incentive among the retailers was incorrect as the assessee was also retaining some part of it. (iv) The assessee has claimed the benefit of TDS in the books of accounts and in income tax returns, so it proves that the assessee is enjoying the incentive income. (v) The assessee failed to produce the copy of the agreements or prospectus or other documents about the scheme of the incentives.

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 5 retailers was placed on pages 49 to 51 and no cash payment was made in the ledger but it was adjusted with the sales amount by making the journal entries.

On the other hand, Ld DR vehemently relied on the orders of Authorities Below.

4.1 From the aforesaid discussion, we find that assessee, in the instant case, has claimed an expenditure for Rs.54,80,381/- as incentive paid to the retailers and out of said sum incentive worth of ₹52,63,871/- was disallowed u/s 40(a)(ia) due to non deduction of TDS. The same was confirmed by Ld. CIT(A). We find from the sales ledger submitted before us that assessee has shown the sales amount at the gross value without adjusting the same with the trade discount given to the retailers. Accordingly the trade discount was shown as an independent expenditure in the profit and loss account under the head of Incentive paid to retailers but factually no such incentive expenses was required to be incurred. The assessee in the instant case has just shown the incentive paid as an expense without adjusting the same from the sales account. We further find that in none of the case, incentive has been paid to the retailers in cash which was just the method of accounting and presentation that assessee has shown incentives paid to the retailers as an expense in its profit and loss account. We have also found the ledger of the incentive paid to retailers which is placed on pages 49 to 51 of the paper book and find that the incentive is nothing but a trade discount. Now the question before us arises as to whether the trade discount given by assessee to the retailers amount to commission and therefore liable to TDS as contemplated u/s 194H of the Act. In this connection, we find on the similar facts and circumstances the Co- ordinate Bench of Cuttack Bench has decided this issue in favour of assessee and against the Revenue and we are putting our reliance in the order of Pareek Electricals v. ACIT (2012) 27 taxmann.com 219 (Cut), wherein the Sec. 194H, read with Sect. 40(a)(ia), of the Income-tax Act, 1961 – Deduction of tax at source – Commission Trade discount – Assessment year 2008-09 –

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 6 Assessee was a franchise of BSNL It received commission on gross value of purchase and on said commission BSNL had deducted tax at source under section 194H – It has also appointed sub-franchises for selling products of BSNL – It out of its own commission allowed trade discount to sub-franchisees – Assessing Officer treated trade discount s commission and disallowed same by applying section 40(a)(ia) on plea that assessee had not deducted tax at source under section 194H on trade discount – Whether trade discount made available to sub-franchisees was a compensation by foregoing part of commission already subjected to tax at source by BSNL and it could not have suffered taxation under section 194H – Held, yes – Whether, therefore, disallowance under section 40(a)(ia) was unjustified – Held, yes [para 4] Section 40(a)(ia), read with sections 194-I and 197A of the Income-tax Act, 1961 – Business disallowance – Interest, commission etc, paid to resident from which no tax was deducted at source – rent – Assessment year 2008-09 – Assessee paid rent to land lady, which was below taxable limit, without deduction of tax at source under section 194-I – It filed form No. 15G being given by land lady – Assessing Officer having found that there were infirmity in Form No. 15G disallowed rent paid by applying section 40A(a)(ia) – Whether since assessee had reasons for non-deduction of tax at source, disallowance under section 40(a)(ia) of rent paid was unjustified Held, yes [para 4.1]

4.2 Similar issue has also been decided by the Co-ordinate Bench of Cuttack in the case of DCIT v. Sri Santibrata Saha in ITA No. 651/Kol/2013 dated 27.11.2013 for the AY 2007-08, for the sake of clarity, the relevant extract of para 4.3 which is reproduced below:- “4.3 We have heard the rival submissions and perused the materials available on record. We find from the statement of facts and grounds of appeal of the Revenue, the observations made by the Learned AO in his remand report on this impugned issue is also attached along with the appeal memo. Hence it is incorrect on the part of the Learned DR to state that there is violation of Rule 46A of IT Rules. Even otherwise we find that there is no specific ground raise by the Revenue with regard to violation of Rule 46A in their grounds of appeal. With regard to the merits of the case, we are in total agreement with the finding given by the Learned CIT(A) that the subject mentioned payments

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 7 made by the assessee are only discount paid to the purchasers of recharge coupons through wrongly categorized as commission on sales in the books of account. We also agree that the nomenclature in books of account would not be the determinative factor for understanding the real nature of the transactions and it is well settled that substance would always prevail over its form. We hold that in these facts and circumstances, the payments made by the assessee is in the category of principal to principal and the provisions of section 194H of the Act would come into play only when the payment is from principal to agent. Hence we find no infirmity in the order of the Learned CIT(A) in this regard. Accordingly, the ground no 2 raised by the revenue is dismissed.”

Taking a consistent view of the co-ordinate Benches of Cuttack and this Tribunal in the case of Pareek Electricals (supra) and in the case of Sri Santibrata Saha (supra) we allow assessee’s ground accordingly.

ITA No.847/Kol/2012 A.Y.2008-09 M/s Raiganj Communication v. ITO Ward-I, RNJ Page 8 that the AO has rightly disallowed the same. Both the disallowances made by the AO are, thus, confirmed.”

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. The AR