M/s. Cantabil Retail India Ltd., New Delhi V. ITO, New Delhi

CO 88/DEL/2013

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4264 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-09-2016
• Assessment Year: misc
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Reasonable cause; TDS
• Section: 133A; 201(1); 201; 191

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE : JUDICIAL MEMBER ITA NO. 821/DEL/2012 ASSTT. YR: 2009-10 INCOME-TAX OFFICER, VS. CATABIL RETAIL INDIA LTD. , WARD 49(3), NEW DELHI. B-47, IST FLOOR, LAWRENCE ROAD INDUSTRIAL AREA, NEW DELHI. PAN: AAACK 3901 B C.O. NO. 88/DEL/2013 ( IN ITA NO. 821/DEL/2012) ASSTT. YR: 2009-10 CATABIL RETAIL INDIA LTD., VS. INCOME-TAX OFFICER, B-47, IST FLOOR, LAWRENCE ROAD WARD 49(3), NEW DEL HI. INDUSTRIAL AREA, NEW DELHI. (APPELLANT) ( RESPONDENT) DEPARTMENT BY : SHRI ANIL KUMAR SHARMA SR. DR ASSESSEE BY : SHRI SALIL KAPOOR ADV. DATE OF HEARING : 15/09/2016. DATE OF ORDER : 20/09/2016. O R D E R PER S.V. MEHROTRA, A.M: THE CAPTIONED APPEAL, BY THE REVENUE, AND THE CROSS -OBJECTION BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 15. 12.2011 PASSED BY THE LD. CIT(APPEALS)-XXX, NEW DELHI IN APPEAL NO. 1830/11-1 2 RELATING TO AY 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF RET AIL SALES OF READYMADE 2 GARMENTS. A SURVEY WAS CONDUCTED U/S 133A OF THE AC T ON THE BUSINESS PREMISES OF THE ASSESSEE ON 21.12.2010 BY THE TDS W ING OF THE DEPARTMENT. THE BUSINESS MODEL OF THE ASSESSEE COMPANY WAS TO S ELL THE READYMADE GARMENTS AND RELATED GOODS THROUGH NETWORK OF DISTR IBUTORS AND DEALERS WHO WERE PROVIDING HORIZONTAL EXPANSION TO THE PRODUCT S OF THE ASSESSEE COMPANY. THE AO OBSERVED THAT ASSESSEE COMPANY HAD DEBITED AN AMOUNT OF RS. 16,97,65,870/- UNDER THE HEAD REBATE AND DISCOU NT. ON FURTHER VERIFICATION IT WAS FOUND THAT THIS EXPENSE INCLUDED AN AMOUNT O F RS. 11,80,80,824/- ON ACCOUNT OF MONTHLY GUARANTEED MARGIN AND FIXED PERC ENTAGE MARGIN PAID TO THE DEALER DURING THE YEAR CONSIDERATION. THE AO CA LLED FOR PARAWISE DETAILS OF THIS EXPENSE AND NOTED THAT NO TDS WAS DEDUCTED ON THE AMOUNT OF MONTHLY GUARANTEED MARGIN AND FIXED PERCENTAGE MARG IN BEING PAID TO THE DEALERS. THE ASSESSEES MAIN CONTENTION WAS THAT TH E DEALERS PURCHASED THE MATERIALS ON OUTRIGHT SALES BASIS AND ALL ACTIVITIE S WERE DONE BY THE DEALERS AS OWNER OF THE GOODS AFTER THE GOOD WERE PURCHASED F ROM THE COMPANY SUBJECT TO CERTAIN SECONDARY CONDITIONS. THUS, THE MAIN CON TENTION WAS THAT THE PURCHASES BY DEALERS WAS ON PRINCIPAL TO PRINCIPAL BASIS. THE AO EXAMINED THE TERMS AND CONDITIONS AS CONTAINED IN THE AGREEM ENT ENTERED INTO WITH THE DEALERS AND AFTER CONSIDERING THEM CONCLUDED THAT S INCE AS PER THE AGREEMENT THE ASSESSEE COMPANY HAD RIGHTS TO TAKE BACK THE ST OCK FROM THE DEALER ON ITS OWN DESIRE/ DISCRETION, THE GOODS WERE NEVER SOLD T O THE DEALERS ON OUTRIGHT BASIS AND THE OWNERSHIP OF THE GOODS ALL TIMES REMA INED VESTED WITH THE COMPANY. HE CONCLUDED THAT THE DEALER MERELY ACTED AS AN AGENT AND A LINK BETWEEN THE COMPANY AND THE ULTIMATE CUSTOMER AND T HE RELATIONSHIP BETWEEN THE COMPANY AND THE DEALER WAS THAT OF AGENCY. THER EFORE, THE INCENTIVES IN THE SHAPE OF MINIMUM/ MAXIMUM PERCENTAGE OF SALES A S WELL AS MONTHLY MINIMUM GUARANTEE AMOUNT PROVIDED TO THE DEALER FEL L IN THE CATEGORY OF 3 COMMISSION, ON WHICH THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS LIABLE TO DEDUCT TDS U/S 194H OF THE I.T. ACT ON PAYMENT TO THE DEALERS. HE, ACCORDINGLY. TREATED THE SUM OF RS. 11,80,80,824/- AS COMMISSION AND COMPUTED THE SHORT DEDUCTION OF TDS AT RS. 1,33,78,557/- AND INTEREST U/S 201(1A) THEREON OF RS. 40,13,580/ -. FINALLY, ON RECONCILIATION OF THE AMOUNTS, THE TOTAL SHORT DEDU CTION WAS COMPUTED AT RS. 1,33,81,671/- U/S 194H AND CONSEQUENT INTEREST U/S 201(1A) AT RS. 40,49,714/- AGGREGATING TO RS. 1,74,31,385/-. 3. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL, INTER ALIA, OBSERVING THAT ACTION OF AO IN INVOKING PROVISIONS OF SECTION 194H OF THE ACT WAS NOT JUSTIFIED, AS THERE WAS NO PAYMENT FOR ANY SERVICES TO A PERSON ACTING ON BEHALF OF OTHER OR FOR ANY SERVICES IN THE COURSE O F BUYING OR SELLING OR IN RELATION TO ANY ASSET, VALUABLE ARTICLE OR THING. 4. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL AND THE ASSESSEE HAS FIL ED CROSS OBJECTIONS. 5. THE DEPARTMENT HAS TAKEN FOLLOWING GROUNDS OF AP PEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED- 1. IN HOLDING THAT THE TRANSACTION BETWEEN THE ASSE SSES AND THE DEALERS IS A PRINCIPAL TO PRINCIPAL TRANSACTION AND NOT PRINCIPAL TO AGENT TRANSACTION. 2. IN HOLDING THAT THE PAYMENTS MADE BY THE ASSESSE S TO ITS DEALERS FOR SELLING READYMADE GARMENTS IS NOT COMMI SSION AS DEFINED UNDER SECTION 194H OF THE LT. ACT 1961. 3. IN NOT CORRECTLY APPRECIATING THE TERMS OF THE A GREEMENT AND CONDUCT OF THE PARTIES IN HOLDING THAT THE RELA TIONSHIP BETWEEN THE ASSESSES AND THE DEALERS IS THAT OF PRI NCIPAL TO PRINCIPAL. 4 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 6. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN F OLLOWING GROUNDS OF CROSS OBJECTIONS: 1. THAT THE AO/TDS OFFICER HAS IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, ERRED IN LAW AND ON FACT S IN TREATING THE ASSESSEE AS 'ASSESSEE IN DEFAULT' IN VIEW OF THE PR OVISIONS OF SECTION 201 (1) R.W.S. 191 OF THE IT ACT AS THERE IS NO FIN DING BY THE AO 1 TDS OFFICER AS TO FAILURE OF DEDUCTEES ASESSEES TO PAY THE TAX LIABILITY. 2. THAT WITHOUT PREJUDICE. THE AO HAS IN VIEW OF TH E FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN LAW AND ON FACT S IN TREATING THE ASSESSEE AS 'ASSESSEE IN DEFAULT' ON ACCOUNT OF THE ALLEGED NON DEDUCTION OF TD WITHOUT CONSIDERING THE FACT THAT T HE TAXES HAVE ALREADY BEEN PAID BY THE RECIPIENTS IN RESPECT OF S UCH AMOUNTS. 3. THAT WITHOUT PREJUDICE, THE INTEREST CHARGED BY THE AO IS ILLEGAL, BAD IN LAW AND HIGHLY EXCESSIVE AND THE IN TEREST CAN B CHARGED TILL THE DATE TAXES PAID BY THE DEDUCTEES - ASSESSE ES. 4. THAT THE AO HAS IN VIEW OF THE FACTS AND CIRCUMS TANCES OF THE CASE, ERRED ON FACTS AND IN LAW IN NOT FOLLOWING TH E CIRCULAR NO. 275/201/95-IT(B) DT 29 JANUARY , 1997 ISSUED BY THE CBDT AND VARIOUS OTHER JUDICIAL PRONOUNCEMENTS. 7. AS PER THE NOTING OF THE REGISTRY THE CROSS OBJE CTION IS TIME BARRED BY 390 DAYS. THE ASSESSEE HAS FILED A PETITION FOR CON DONATION OF DELAY IN WHICH IT IS, INTER ALIA, SUBMITTED THAT ON THE CORRECT AD VICE OF ADVOCATE APPOINTED SUBSEQUENT TO CA, WHO WAS EARLIER HANDLING THE CASE , THE ASSESSEE FILED THE CROSS-OBJECTION. AFFIDAVIT HAS ALSO BEEN FILED IN S UPPORT OF THE CONDONATION PETITION. LD. COUNSEL RELIED ON THE ORDER OF ITAT M UMBAI (SPECIAL BENCH) IN THE CASES OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DC IT 137 ITD 26 (SPL. 5 BENCH), WHEREIN IN PARA 7.4.1 OF ITS ORDER THE TR IBUNAL HAS OBSERVED AS UNDER: 7.4.1 THE LD. COUNSEL HAS SUBMITTED THAT THIS GROUN D COULD NOT BE RAISED EARLIER AS THE ASSESSEE WAS NOT PROPERLY ADVISED IN THE PROCEEDINGS BEFORE THE LOWER AUTHORITIES, AND I T DID NOT HAVE THE SERVICES OF AN ADVOCATE AT HIS COMMAND. ON PERUSAL OF RECORD, THIS SUBMISSION IS FOUND TO BE CORRECT. THE QUESTION IS ONE OF LAW AND NOT ONE OF FACT. THEREFORE, IT COULD BE THAT A PROPER GROUND COULD NOT BE RAISED IN ABSENCE OF SER VICES OF AN ADVOCATE ALTHOUGH THE DENIAL OF THE DEDUCTION HAD BEEN DISPUTED. THIS CONSTITUTES A REASONABLE CAUSE IN TH E LIGHT OF THE DECISION IN THE CASE OF SHAIK IBRAHIM (SUPRA). THUS , WE FIND THAT THERE ARE REASONS TO HOLD THAT THE ASSESSEE COULD N OT TAKE UP THIS GROUND BEFORE LOWER AUTHORITIES FOR BONA-FIDE REASONS . 7.1. LD. COUNSEL ALSO RELIED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. MST. K ATIJI & OTHERS 167 ITR 471 (SC), WHEREIN IT HAS BEEN HELD THAT WHEN SUBSTA NTIAL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE C AUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED. 8. WE HAVE HEARD BOTH THE PARTIES. WE CONDONE THE D ELAY IN FILING THE CROSS-OBJECTION, BECAUSE THE MAIN CONTENTION IN THE CONDONATION PETITION IS THAT ON THE CORRECT ADVICE OF ADVOCATE, THE ASSESSE E FILED CROSS OBJECTION AND ALL GROUNDS RAISED IN CROSS OBJECTION ARE LEGAL IN NATURE AND ARE DULY SUPPORTED BY DECISIONS OF VARIOUS HIGH COURTS AND H ONBLE SUPREME COURT. THUS, THE ASSESSEE WAS PREVENTED BY REASONABLE CAUS E FROM FILING THE CROSS OBJECTION ON ACCOUNT OF PROPER LEGAL ADVICE BEING N OT GIVEN TO IT. 9. WE FIRST PROCEED TO DECIDE THE CROSS-OBJECTION F ILED BY ASSESSEE. 10. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PROVIS O TO SECTION 201 INSERTED BY THE FINANCE ACT, 2012 W.E.F. 1.7.2012, WHICH RE ADS AS UNDER: 6 201. [(1) WHERE ANY PERSON, INCLUDING THE PRINCIPA L OFFICER OF A COMPANY, - (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB-SECTION (LA) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT, OR DOES NOT PAY, OR AFTER SO DEDUC TING FAILS TO PAY, THE WHOLE OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, WITHOUT PREJUDI CE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX: [PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY FAILS TO DEDUCT THE WHOLE OR ANY PART OF TH E TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT- (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTIO N 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFE CT FROM AN ACCOUNTANT IN SUCH MAY BE PRESCRIBED'] PROVIDED FURTHER THAT NO PENALTY SHALL BE CHARGED U NDER SECTION 221 FROM SUCH PERSON, UNLESS THE ASSESSING OFFICER IS SATISFIED THAT SUCH PERSON, WITHOUT GOOD SUFFICIENT REASONS, HAS FAILED TO DEDUCT AND PAY SUCH TAX.] 11. LD. COUNSEL SUBMITTED THAT THIS PROVISO HAS BEE N HELD TO BE RETROSPECTIVE IN OPERATION IN THE FOLLOWING CASES: - JAGRAN PRAKASHAN LTD. VS. DCIT (TDS) 345 ITR 288 (A LLD.) FROM THE ABOVE, IT IS CLEAR THAT DEDUCTOR CANNOT B E TREATED AN ASSESSEE IN DEFAULT TILL IT IS FOUND THAT ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. IN THE PRESENT CASE, THE INC OME TAX 7 AUTHORITIES HAD NOT ADVERTED TO THE EXPLANATION TO SECTION 191 NOR HAD APPLIED THEIR MIND AS TO WHETHER THE ASSESS EE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. THUS, TO DECLARE A DEDUCTOR, WHO FAILED TO DEDUCT THE TAX AT SOURCE AS. AN ASSESSEE IN DEFAULT, CONDITION PRECEDENT IS THAT ASSESSEE HAS ALSO FAILE D TO PAY TAX DIRECTLY. THE FACT THAT ASSESSEE HAS FAILED TO PAY TAX DIRECTLY IS THUS, FOUNDATIONAL AND JURISDICTIONAL FACT AND ONLY AFTER FINDING THAT ASSESSEE HAS FAILED TO PAY TAX DIRECTLY, DEDUC TOR CAN BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF S UCH TAX. IT IS RELEVANT TO NOTICE HERE THAT EXPLANATION TO SECTION 191 IS CONFINED ONLY TO THE AMOUNT OF TAX WHICH WAS REQUIR ED TO BE DEDUCTED. - ACIT VS. BHARTI AIRTEL LTD. 42 ITR (T) 469 (HYDERAB AD-TRIB.) AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESS EE BEFORE US, ALTHOUGH THE FIRST PROVISO TO S. 201(1) HAS BEEN IN SERTED IN THE STATUTE WITH EFFECT FROM 1.7.2012, THE SAME BEING CLARIFICA TORY IN NATURE IS APPLICABLE WITH RETROSPECTIVE EFFECT, THEREBY COVE RING THE YEAR UNDER CONSIDERATION, AS RIGHTLY HELD BY THE LEARNED CIT(A ), AND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT RAISED ANY CONT ENTION TO DISPUTE OR CONTROVERT THE POSITION. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A), GIVING LIMIT ED RELIEF TO THE ASSESSEE BY RELYING ON THE FIRST PROVISO TO S.201(1 ), WHICH IS APPLICABLE TO THE YEAR UNDER CONSIDERATION AND UPHO LDING THE SAME, WE DISMISS THE APPEAL PREFERRED BY THE REVENUE. - ALLAHABAD BANK VS. ITO (TDS & SURVEY) ITA NO. 448 TO 454/AGRA/2011 THE MATTER THUS STANDS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW AND IN THE LIGHT OF OUR OBSERVATIONS ABOVE. WHILE DOING SO, THE ASSESSING OFFICER WILL GIVE A DUE AND FAIR OPPORTUN ITY OF HEARING TO THE ASSESSEE AND DISPOSE' OF THE MATTER BY WAY OF A SPEAKING ORDER. WE DIRECT SO. AS REGARDS ALL OTHER ISSUES, ON FACTS AND IN LAW, THESE ISSUES WILL BE REQUIRED TO BE DEALT WITH ONLY IN THE EVENT OF THERE BEING A TAX DEMAND UNDE R SECTION 201 (1) AND 201(1A) AFTER IMPLEMENTING THE ABOVE DIRECT IONS. THESE ISSUES ARE LEFT OPEN FOR THE TIME BEING AS THESE IS SUES ARE IN FRUCTUOUS AT THIS STAGE. 12. LD. COUNSEL SUBMITTED THAT ISSUE ON MERITS MAY BE KEPT OPEN AND THE MATTER MAY BE RESTORED TO AO FOR EXAMINING THE FACT S IN THE LIGHT OF PROVISO, 8 BECAUSE IF THE DEALERS HAVE PAID DUE TAXES ON THE R ECEIPT FROM THE ASSESSEE COMPANY THEN THE ASSESSEE COMPANY CANNOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF LD. COUNSEL THAT BEFORE GOING INTO THE MERITS, IT W ILL BE PROPER TO RESTORE THE MATTER TO AO FOR EXAMINING WHETHER IN THE LIGHT OF THE PROVISO, THE DEALERS HAVE PAID DUE TAXES OR NOT ON THE RECEIPTS FROM AS SESSEE-COMPANY. IN THIS REGARD WHAT-EVER NECESSARY INFORMATION IS AVAILABLE WITH THE ASSESSEE HAS TO BE FURNISHED BEFORE AO SO THAT HE MAY MAKE NECESSAR Y VERIFICATIONS. TO THE EXTENT IT IS FOUND THAT DEALERS HAVE PAID DUE TAXES ON THE RECEIPTS FROM ASSESSEE, THE ASSESSEE CANNOT BE TREATED AS ASSESS EE IN DEFAULT. WE MAY CLARIFY THAT ISSUE ON MERITS IS LEFT OPEN. 14. IN THE RESULT, C.O. PREFERRED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSE AND THE DEPARTMENTS APPEAL IS DISMISSED AS BEING INFRUCTUOUS. ORDER PRONOUNCEMENT IN OPEN COURT ON 20/09/2016. SD/- SD/- (SUCHITRA KAMBLE) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20/09/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.