M/s. Hatsun Agro Products Ltd., CHENNAI V. ACIT, CHENNAI

CO 188/CHNY/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1390 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 03-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-11-2012
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR
• Assessee Lawyers: V VIVEKANANDAN
• Keywords: Depreciation; Wholly owned subsidiary

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NOS. 1433/MDS/2012, 795/MDS/2014 & 1096/MDS/20 15 AND C.O.NO.188/MDS/2012 (IN ITA NO.1433/MDS/2012) / ASSESSMENT YEARS : 2008-09, 2009-10 & 2010-11, THE ASSISTANT COMMISSIONER OF INCOME-TAX/ THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(2)/ CENTRAL CIRCLE-3(2), CHENNAI 34. ( /APPELLANT) V. M/S. HATSUN AGRO PRODUCT LTD., NO. 5-A, VIJAYARAGHAVA ROAD, T. NAGAR, CHENNAI 600 017. PAN AAACH0945G RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI V. VIVEKANANDAN, CIT / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE ! / DATE OF HEARING : 03.11.2015 '# ! / DATE OF PRONOUNCEMENT : 20.11.2015 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE REVENUE AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 30.3.2012 , - - ITA 1433/12, 795/14 ETC. 2 25.11.2013, AND 10.11.2014 FOR THE ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11 RESPECTIVELY. SINCE, THE ISSUE S INVOLVED IN THESE APPEALS ARE COMMON, THESE ARE CLUBBED TOGETHE R, HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON ISSUE IN REVENUES APPEAL IS WI TH REGARD TO DISALLOWANCE OF SALES PROMOTION EXPENSES FOR NON- DEDUCTION OF TDS BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 3. THE ASSESSEE COMPANY CLAIMED SALES PROMOTION EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. HOWEVE R, IT WAS NOT SUBJECTED TO TDS. THE ASSESSEE TOOK A PLEA BEFORE THE ASSESSING OFFICER THAT THE PROVISIONS OF SEC.194H A RE NOT APPLICABLE TO THESE PAYMENTS AND THIS IS ONLY A PRO VISION DETERMINED ON THE PRODUCT SOLD TO A DEALER ON THE P RINCIPAL-TO- PRINCIPAL BASIS AND THIS DEALER IS NOT AN AGENT, WH O HOLD GOODS ON BEHALF OF THE PRINCIPAL AND SELL THE GOODS ON BE HALF OF THE PRINCIPAL AND GET PAID THE COMMISSION FOR THEIR SER VICES. IT IS ONLY A PRICE DIFFERENTIAL CREDIT NOTE, WHICH CANNOT BE SUBJECT TO TDS PROVISIONS U/S.194H OF THE ACT. THE ASSESSING OFFICER DID - - ITA 1433/12, 795/14 ETC. 3 NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HE INVOKED THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT AND DISALLOW ED THIS EXPENDITURE. AGGRIEVED, THE ASSESSEE WENT IN APPEA L BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). 4. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) OBSERVED THAT THE RELATIONSHIP EXISTED BETWEEN THE ASSESSEE AND ITS DISTRIBUTORS IS PURELY PRINCIPAL-TO-PRINCI PAL RELATION AND NOT PRINCIPAL-TO-AGENT RELATION. HENCE, IT CANNO T BE REGARDED AS COMMISSION OR BROKERAGE BEFORE ATTRACTING THE P ROVISIONS OF SEC.194H OF THE ACT. IT IS NOT ACTUALLY THE DISCOU NT OFFERED TO THE DISTRIBUTOR, BUT THE DIFFERENCE IN THE VARIABLE PRI CING MECHANISM ADOPTED BY THE ASSESSEE, WHICH WAS FINALLY SETTLED AND ADOPTED AT PERIODICAL INTERVALS, AS PER THE VARIOUS SCHEMES FOR SALE OF PRODUCTS ADOPTED BY THE ASSESSEE. THEREFORE, THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT T HE PROVISIONS OF SEC.40(A)(IA) OF THE ACT, CANNOT BE A PPLIED. REGARDING SALES PROMOTION EXPENSES, THE COMMISSIONE R OF INCOME-TAX(APPEALS) OBSERVED THAT THESE ARE PRIMARI LY BUSINESS/SALES PROMOTION IN NATURE AND IT REPRESENT S ADDITIONAL PAYMENT TO DEALERS/DISTRIBUTORS OVER AND ABOVE THE AGREED - - ITA 1433/12, 795/14 ETC. 4 DISCOUNT BASED ON THE VOLUME OF SALES DONE BY THEM AND THESE EXPENDITURE ARE PURELY SALES PROMOTION EXPENSES ALL OWABLE U/S.37(1), AND THE PROVISIONS OF SEC.194H CANNOT BE APPLIED AND HE DELETED THE ADDITION MADE BY THE ASSESSING OFFIC ER U/S.40(A)(IA) OF THE ACT. AGAINST THIS, THE REVENU E IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN OUR OPINION, THE ISSUE IS TO BE DECI DED BY THE ASSESSING OFFICER IN THE LIGHT OF THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND T RANSPORTS VS. ADDL. CIT (2012) 136 ITD 23 (VISAKHAPATNAM), WHEREI N IT WAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONL Y TO THE AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DI SALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTION OF TDS. IN VIEW OF THE ABOVE, WE REMIT THIS ISSUE TO THE FI LE OF THE AO FOR FRESH CONSIDERATION. AT THIS STAGE, WE REFRAIN F ROM DECIDING THE ISSUE OF SEC. 194-H OF THE ACT, TO THESE PAYMENTS. 6. THE NEXT COMMON GROUND IS WITH REGARD TO DELETIN G THE - - ITA 1433/12, 795/14 ETC. 5 DISALLOWANCE U/S.40(A)(IA) OF THE ACT FOR NON-DEDUC TION OF TDS ON DISCOUNT/FACTORING CHARGES PAID TO M/S. CANBANK FAC TORS LTD. 7. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE DE BITED DISCOUNT CHARGES PAID TO CANBANK FACTORS LTD. IN TH ESE ASSESSMENT YEARS. SINCE, THERE IS NO TDS TOWARDS T HIS AMOUNT, THE SAME WAS DISALLOWED U/S.194A OF THE ACT. THES E PAYMENTS WERE DISALLOWED BY INVOKING THE PROVISIONS OF SEC.4 0(A)(IA) OF THE ACT. THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSER VED THAT CANBANK FACTORS LTD. IS A 100% SUBSIDIARY COMPANY O F CANARA BANK, A NATIONALIZED PUBLIC SECTOR BANK AND SCHEDUL ED AND NATIONALIZED BANKS ARE EXEMPT FROM THE PROVISIONS OF SEC.194A OF THE ACT, I.E. INTEREST PAYMENTS TO SUCH BANKS AR E NOT TO BE SUBJECTED TO TDS. FURTHER, THE COMMISSIONER OF INC OME- TAX(APPEALS) OBSERVED THAT THIS FACTORING CHARGES ARE NOTHING BUT THE BILL DISCOUNTING CHARGES. THE WORD FACTOR ING CHARGES IS A SUITABLE NOMENCLATURE USED BY THE CANBANK FACTORS LTD. IN SUBSTANCE, IT IS ONLY BILL DISCOUNTING CHARGES, WHI CH ARE SIMILAR TO THE INTEREST CHARGES FOR THE PURPOSE OF INCOME-TAX. BUT IN THIS CASE, THE ASSESSEE HAS NOT PAID FACTORING CHARGES. THE BILLS RECEIVABLE BY THE ASSESSEE ARE DISCOUNTED WITH THE CANBANK - - ITA 1433/12, 795/14 ETC. 6 FACTORS LTD. IN THE PROCESS, THE AMOUNTS, WHICH AR E GOING TO BE RECEIVED BY THE ASSESSEE ON A LATER DATE FROM ITS C LIENTS, DISCOUNTED FOR A PRICE AND THE PROCEEDS ARE REALIZE D IMMEDIATELY. THUS, THE SALE PROCEEDS ARE RECEIVED AT A LESSER AMOUNT, BUT AT AN EARLIER DATE THAN THE ACTUAL DUE DATE. THE AMOUNT SO FOREGONE IN THE PROCESS IS THE FACTORING CHARGES OR BILL DISCOUNTING CHARGES. THE AMOUNT SO FOREGONE MAY R EPRESENT THE COMPENSATION FOR RECEIVING THE AMOUNTS IN ADVAN CE. IT IS NOT AN AMOUNT ACTUALLY PAID BY THE ASSESSEE AND IT IS A LOSS SUFFERED BY THE ASSESSEE. IN OUR OPINION, THE ISSUE IS TO B E DECIDED AS DISCUSSED IN THE CASE OF N. PALANIVELU V. ITO IN IT A NO.618/MDS/2015 DATED 29.4.2015, WHEREIN IT WAS HEL D AS UNDER: 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 136 ITD 23 (VISAKHAPATNAM) AND JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICE S (P) LTD IN ITA NO.122 OF 2013 DATED 09.7.2013 HELD THAT SEC 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF THESE PAYMENT. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPEN SES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPUGNED AMOUNT IS OUTSTANDING AT THE END OF THE - - ITA 1433/12, 795/14 ETC. 7 CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR EITHER IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE INTEREST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSI NG OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. 4. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED AMOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE O F THE ASSESSMENT YEAR IN RESPECT OF THE EXPENSES EITH ER AS OUTSTANDING EXPENSES OR AS SUNDRY CREDITORS, THI S AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTE D BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATI ON. IN VIEW OF THE ABOVE, WE REMIT THIS ISSUE BACK TO T HE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 8. COMING TO THE GROUND IN CROSS OBJECTION WITH REG ARD TO APPLICABILITY OF PROVISIONS OF SEC.40(A)(IA) OF THE ACT, WE ARE OF THE OPINION THAT THIS GROUND DOES NOT NEED ADJUDICA TION IN VIEW OF OUR FINDING ON THIS ISSUE IN REVENUES APPEAL. 9. THE ASSESSEE HAS RAISED ONE MORE GROUND IN CO IS WITH REGARD TO DEPRECIATION ON ALUMINIUM CANS AND CRATES AT 50%. 10. THE ASSESSEE CLAIMED DEPRECIATION AT 50% ON ALU MINIUM CANS AND CRATES. THE ASSESSING OFFICER OBSERVED T HAT AS PER NEW APPENDIX-II APPLICABLE FOR THE ASSESSMENT YEAR 2008-09, ONLY CONTAINERS MADE OF GLASS AND PLASTIC USED AS R EFILLS IS ELIGIBLE FOR DEPRECIATION @ 50%, WHERE THE ASSESSEE CLAIMED - - ITA 1433/12, 795/14 ETC. 8 DEPRECIATION AT 50% ON ALUMINIUM CANS, WHICH IS ENT ITLED FOR DEPRECIATION AT 15% ON W.D.V. 11. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. AS PER INDEX 1 TO ITEM (4), CONTAINERS MADE OF GLASS, PLASTIC AS REFILLS ENTITLED FOR DEPRECIATION AT 50% , WHERE THE ASSESSEE CLAIMED DEPRECIATION AT 50% ON ALUMINIUM C ANS. BEING SO, IT IS NOT FIT UNDER THAT CATEGORY AS MENT IONED IN INDEX I TO ITEM NO.4 OF I.T.RULES. AS SUCH, THE LOWER AUTH ORITIES ARE JUSTIFIED IN RESTRICTING DEPRECIATION AT 15% ON W.D .V. ACCORDINGLY, THIS GROUND IS DISMISSED. 12. IN THE RESULT, THE APPEALS OF THE REVENUE ARE A LLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF NOV., 2015 AT CHENNAI. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 20 TH NOV, 2015. MPO* - - ITA 1433/12, 795/14 ETC. 9 ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.