Optimal Media Solutions Ltd. (Now merged with Times Business Solution Ltd.), New Delhi V. Addl. CIT, Special Range- 9, New Delhi

CO 1/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2613 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 20-09-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 02-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RANU MUKHERJEE
• Keywords: Earning of tax free income; TDS; Set aside
• Section: 14A; 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPLLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI BEFORE SH. C. M GARG, JUDICIAL MEMBER AND SH. PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.6473/Del/2018 Assessment Year: 2009-10 Addl. CIT, Special Range-9 New Delhi Vs Optimal Media Solutions Ltd. ( Now merged with Time Business Solution Ltd.) 10, Darya Ganj, New Delhi-110002 PAN No.AAACF7441B (APPELLANT) (RESPONDENT) Cross Objection No.1/Del/19 (In ITA No.6473/Del/2018) Assessment Year: 2009-10 Optimal Media Solutions Ltd. ( Now merged with Time Business Solution Ltd.) 10, Darya Ganj, New Delhi-110002 PAN No.AAACF7441B Vs Addl. CIT, Special Range-9 New Delhi (APPELLANT) (RESPONDENT) Appellant by Ms. Ranu Mukherjee, CIT (DR) Respondent by Sh. Gautam Jain, Advocate Date of hearing: 21/09/2022 Date of Pronouncement: 30/09/2022 2 ORDER PER C.M.GARG JM: The appeal of the revenue and cross objections of the assesse have been directed against the order of the CIT(A)-31, New Delhi order dated 31.07.2018 pertaining to A.Y. 2009-10. 2. The grounds raised by the revenue reads as follows :- 3 3. The cross objection of the assessee read as follows :- 1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not holding that even on merits addition of Rs. 11,20,43,563/- representing discount offered by the appellant company on sale of advertorial space in metro supplements of The Times of India Group of publications to advertising agencies as well as direct advertisers on the card value was not in the nature of commission and there was no agency relation between appellant and advertising agencies, accordingly, invoking section 40(a)(ia) of the Act was also not in accordance with law. 1.1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not holding that on the given facts, that advertorial space, was finally and exclusively sold by appellant company in metro supplements, published by its holding company wherein under an arrangement, no consideration was to be paid by the appellant company to the holding company for such sale of advertorial space, as such appellant was acting in the capacity of a media house, though not a publisher, accordingly the relevant judgments and 4 board circular are applicable to the appellant. 1.2 That the learned Commissioner of Income Tax (Appeals) has also erred in not holding that figure adopted by the learned Assessing Officer for making as erroneous disallowance included discount of Rs. 5,83,93,313/-given to direct advertiser/ client was included in the total amount in which case the discount offered by appellant company to its customer is direct between the seller and buyer and by no stretch of imagination under the law the same can be held to be in the nature of commission. 1.3 That without prejudice to the above and in the alternative the disallowance made by the learned Assessing Officer was erroneous and had to be restricted to 30% of the amount of expenditure claimed in view of the amendment made in Finance No. (2) Act, 2014 reported in 366 ITR 21 (St.) 2. That the learned prejudice to the above and in the alternative the disallowance made by the learned Assessing Officer was erroneous and had to be restricted to 30% of the amount of expenditure claimed in view of the amendment made in Finance No. (2) Act, 2014 reported in 366 ITR 21 (St.) 2.1 That the learned Additional Commissioner of Income Tax has failed to appreciate that in absence of satisfaction of statutory precondition provided in 5 section 14A (1) of the Act, no disallowance could be validly made by mechanically applying Rule 8 D of the Income Tax Rules, 1962. 4 That the appellant craves, leaves or reserving the right to amend modify, alter, add or forego any ground(s) of cross objection at any time before or during the hearing of this appeal. 5. That the learned Additional Commissioner of Income Tax has failed to appreciate that in absence of satisfaction of statutory precondition provided 4. Ground No.5 and 6 of revenue are general in nature which requires no adjudication. 5. Ground No.1 and 2 of Revenue - Ground No.1 and 2 Ld. CIT(DR) submitted that the Ld. CIT(A) has erred in deleting the disallowance made by the AO u/s. 40 (a) (ia) of the IT Act 1961 (for short Act) for alleged failure of assessee to deduct tax at source u/s. 194 H of the Act on the commission of 15% paid to the advertisement agencies without appreciating the detailed reasons given in assessment order. The Ld. CIT (DR) vehemently pointed out that on the facts and circumstances of the case the ld. CIT(A) has also erred in deleting the disallowance for alleged failure of assessee to deduct tax at source u/s. 194H of the Act by relying on the CBDT Circular No.05/2016 and judgment of Hon’ble Delhi High Court in the case of CIT Vs. Living Media India 6 Pvt. Ltd. in ITA No. 1264/2007 without appreciating the fact that the assessee company is neither newspaper house nor a publishing house and thus neither above circular nor the said judgment of Hon’ble Delhi High Court was applicable. The Ld. DR drawing our attention towards relevant paragraphs of the assessment order submitted that the assessee adopted a colourable device to avoid rigour of section 40 (a) (ia) of the Act at the time of preparing invoices wherein agency commission has been deducted from the total amount and the net of agency commission amount has been shown in the P & L account, therefore, impugned first appellate order may kindly be set aside by restoring that of the AO. 6. Replying to the above the Ld. Counsel for the assessee submitted that right from A.Y. 2006-07 to A.Y.2018-19. The AO never ever made disallowances u/s. 40 (a) (ia) of the Act on the 15% discount given by the assessee to its advertising agencies except present A.Y.2009-10 by wrongly appreciating the factual circumstances of the case and by ignoring CBDT Circular No.5/2016 and various pronouncement of Hon’ble Jurisdictional High Court of Delhi including judgment in the case of CIT Vs. Living Media Private Limited (supra). 7. The Ld. Counsel also contended that the facts and circumstances of 15% discount are identical and similar to all assessment years from A.Y.2006-07 to 2018-19 and the 7 department has been consistently allowing the same without any disallowance but only for A.Y.2009-10 the AO made disallowance without any positive or adverse material against the assessee, only on the basis of his own surmises and conjectures, which was rightly deleted by the Ld. CIT(A) by properly appreciating the facts and circumstances and by considering rule of consistency as respect by the tax authorities under the well accepted principals of tax jurisprudence. 8. The Ld. Counsel also submitted that the order of the Hon’ble High Court of Delhi in the case of CIT Vs. Living Media India Pvt. Ltd. (supra) has been confirmed by Hon’ble Supreme Court India by dismissing SLP of department by order dated 11.12.2009 and the same was rightly applied by the CBDT Circular No.5/2016 while granting relief to the assessee, therefore, grounds of revenue may kindly be dismissed. 9. On careful consideration of our rival submissions first of all we observed that the AO made impugned disallowance u/s. 40 (a) (ia) of the Act with the following observations and findings :- 8 9 10 11 10. Further from the first appellate order we observed that the Ld. CIT(A) has granted relief to the assessee by relying on the judgment of Hon’ble High Court of Delhi in the case CIT Vs. Living Media India Pvt. Ltd. (supra) and clarifactory CBDT circular No.05/2016 dated 29.02.2016. The Ld. CIT(A) held that the issue relating to disallowance u/s. 40 (a) (ia) of the Act has to be decided in favour of the assessee by noting that the AO chose not to disallow any amount in this regard either in the earlier year or in the subsequent year. 12 11. We are also find it necessary to reproduce relevant part of the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of CIT Vs. Living Media India Ltd (supra) wherein it has been held :- 6. It is contended by learned Counsel for the Revenue that the CIT(A) had determined the payment of 15 % to the advertising agency by the Assessee as commission and this was not challenged by the Assessee. Consequently, the provisions of Section 194H of the Act come into play. While this is factually so, we are of the opinion that the conclusion arrived by the CIT (A) really turns the argument upside down. 7. What is first required to be seen is the nature of the contract between the parties and after that determination, it is necessary to find out what is the nature of the payment. What the Ld. CIT(A) has done is to determine the nature of the payment and then to determine the nature of the contract. This we think is incorrect. 8 On a reading of the contract as well as the order passed by the CIT(A) and the Tribunal, we find that the two authorities below have held it to be a principal to principal contract. That being so, by is very definition, the payment made by the Assessee to the advertising agency cannot be classified as commission. The payment may be called a trade discount or may be described as a concession but since Rule 32 of the INS Rules describes it as a trade discount, we have to proceed on that basis and by merely describing the trade discount as commission, the Revenue cannot seek to 13 invoke the provisions of Section 194 H of the Act. 9. There is a concurrent finding of the CIT(A) as well as the Tribunal that the contract was a principal to principal contract and in terms of that contract what was given by the Assessee to the advertising agency was a trade discount as per Rule 32 of the INS Rules. 10. Under the circumstances we are of the view that the Tribunal was not in error in coming to the conclusion that commission was not paid by the Assessee to the advertising agency and, therefore, the provisions of Section 194H of the Act could not be invoked by the Revenue. 12. Reliance also been placed by the assessee on the judgment of Hon’ble Jagran Prakashan Vs. DCIT (TDS) reported in 345 ITR 288 (SC) wherein by considering the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs Living Media India Ltd. (supra) and board circular which has been held thus ; 14 15 16 17 13. From the grounds as well as contents of the Ld. CIT (DR) we note that it is not the case of the department that the judgment of the Jurisdictional High Court in the case of Living Media India and CBDT Circular No.05/2016 (supra) do not support the claim of assessee but the bone of main contention of the revenue is that since the assessee is not a newspaper publisher or publishing house, therefore, said judgment of jurisdictional High Court (supra) and CBDT circular (supra) cannot be applied to the case of assessee for granting relief from rigour of section 40 (a) (ia) of the Act at 15% discount / commission paid to the advertising agencies by the assessee. 14. In our considered opinion what is to be seen at the time of evaluation of applicability of section 194H of the Act is the 18 relation of payer and payee and the character or nature business of assessee does not create any distinction in this regard. 15. First of all we note that their lordship speaking for Hon’ble Apex Court in the case of Hon’ble Jagran Prakashan Vs. DCIT (supra) categorically held that when there is no agreement between the payer and payee advertising agencies and the advertising agency has never been appointed as an agent of payer assessee then the commission paid to the advertising agencies cannot be characterize as an payment from principal to principal basis and in such a situation the provisions of section 194H of the Act are not applicable to the such discount / commission and the assessee is not under obligation deduct TDS thereon. In our considered view, based at factual matrix of the case, the Ld. CIT (A) was right in relying judgment of jurisdictional High Court of Delhi Living Media India Ltd. Vs. CIT (supra) and CBDT Circular No.06.2016 (supra). Undisputedly the AO never made any disallowance or addition on this issue of payment commissioner/ discount to the advertising agencies neither from earlier other nor from subsequent assessment year and only made disallowance in A.Y.2009-10. 16. We also observe that the AO has not brought on record any adverse or positive material to show that there was agreement between payer assessee with payee advertising agencies establishing relation of principal to agent. Thus, ratio of the 19 judgment of Hon’ble Supreme Court in the case of Jagran Prakashan (supra) is squarely applicable in favour o the assessee. We also note that the impugned payment may be called a trade discount or may be described as concession but since rule 32 INS rules describes the same as trade discount, then we have to proceed on that basis and by merely describing the trade discount as commission, as attempted by the AO, the AO cannot press into service provision of section 194 H of the Act and to make disallowance u/s 40(a)(ia) of the Act. Under above facts and circumstances we are of the view that the AO was not correct in coming to the conclusion that the impugned amount of trade discount attracts the provision of 194H of the Act. 17. Per contra the CIT(A) was right in drawing the conclusion that issue is covered in favour of the assessee by the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of CIT Vs. Living Medial India Pvt. Ltd. (supra) and CBDT circular No.5/2016 (supra). 18. Further, in our considered opinion the principal of consistency always followed by the tax authorities, in the identical and similar facts and circumstances. The AO has not mentioned any reason as to why he proceeded to take a deviated view from preceding assessment years contrary to rule of consistency, in this particular A.Y.2009-10 under identical facts and circumstances. Therefore, in view of foregoing, we are unable 20 to see any ambiguity perversity or any other valid reason to interfere with the findings arrived by the Ld. CIT(A) and, therefore, we uphold the same. Accordingly ground No.1 and 2 of revenue are dismissed. 19. Ground No.3 and 4 of revenue – The Ld. CIT (DR) submitted that the Ld. CIT(A) has erred in restricting the disallowance u/s. 14A of the r.w.r 8D on the basis of calculation submitted by the assessee and without confirming the same to the AO in violation of rule 46 A of IT Rule. Therefore, the impugned order on this count may kindly be set aside by restoring that of the AO. 20. The Ld. Counsel for the assessee supporting the first appellate order submitted that the Ld. CIT(A) has granted part relief to the assessee in accordance with judgment of Hon’ble Special Bench of ITAT Delhi Bench in the case of ACIT Vs. Vireet Investment (P) Ltd. reported has (2017) 165 ITD 27 (Delhi Tribunal) (SB) wherein it has been held that only those investments are to be considered for computing average value of investment which yielded exempt income during year for making disallowance u/s. 14A r.w.r. 8D (iii) of the Rules. 21. On careful consideration of our rival submission from the AO we observed that the AO has invoked provisions of section 21 14A of the Act r.w.r 8D (iii) of the Rules by taking 0.5% of average of investments of assessee in the opening and closing of the year which has been reduced by the CIT(A) to the extent of average of investment out of which the assessee has earned exempt income during the relevant financial period. This conclusion of Ld. First appellate authority is in accordance with the order of Special Bench of ITAT Delhi in the case of ACIT Vs. Vireet Investment (P) Ltd. (supra). 22. We are unable to see any valid reason or any other factual dissimilarity or legal position, which may lead us to take a different view. Therefore, findings of Ld. CIT(A) on this issue are also confirmed. Accordingly ground No.3 and 4 of department are also dismissed. Cross Objection No. 1/ Del / 2019 of assessee 23. On being asked by the Bench the Ld. Counsel for the assessee submitted that the cross objections of the assessee are only supportive to the findings of the CIT(A). Since by the earlier part of this order we have dismissed appeal of revenue thus, cross objection of the assessee do not require any adjudication. 24. In view of above cross objection of assessee are disposed of and appeal of the revenue is dismissed. 22 Order pronounced in the open court on 30.09.2022,. Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER *NEHA* Date:-03.09.2022 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI