Ramesh Hitechk Pumps Pvt Ltd., CHENNAI V. DCIT, Coimbatore

ITA 1096/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5864 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN JCIT
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1096/MDS/2017 / ASSESSMENT YEAR : 2012-13 M/S. RAMESH HITECHK PUMPS PVT. LTD., 1040, BHARATHIYAR ROAD, PAPPANAICKENPALAYAM, COIMBATORE 641 037. [PAN: AACCR 9447B] VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1, COIMBATORE ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. TN. SEETHARAMAN, ADVOCATE )*%& / RESPONDENT BY : SHRI. ARV. SREENIVASAN, JCIT & /DATE OF HEARING : 16.11.2017 & /DATE OF PRONOUNCEMENT : 22.11.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IN ITA NO. 135/1 5-16 DATED 31.03.2017 FOR THE ASSESSMENT YEAR 2012-13. :-2-: ITA NO. 1096/MDS/2017 2. M/S. RAMESH HITECHK PUMPS PVT. LTD., THE ASSESSE E, IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SALE OF PUMPS. IN THE A SSESSMENT MADE FOR THE ASSESSMENT YEAR 2012-13, THE ASSESSEE CLAIMED RS. 1 8,30,223/- AS TURNOVER DISCOUNT . IT EXPLAINED TO THE AO THAT DUE TO HECTI C COMPETITION FOR PUMPS IN ANDHRA PRADESH AND IN ORDER TO ENCOURAGE SALES, DEALERS WERE GIVEN TURNOVER DISCOUNT. IN THIS REGARD,BEFORE THE FINAN CIAL YEAR, LETTERS WERE SENT TO THE DEALERS SPECIFIED WITH THE DISCOUNT PATTERN AND AT THE END OF THE YEAR ON THE BASIS OF TURNOVER ACHIEVED BY THEM, DISCOUN T IS GIVEN AS PER THE DISCOUNT PATTERN. THE ASSESSEE HAS FURNISHED THE D ISCOUNT DETAILS ALSO. THE AO AFTER CONSIDERING THE ASSESSEES EXPLANATION HELD THAT TURNOVER DISCOUNT IS PAID IN THE FORM OF THE COMMISSION, WHE N A PARTICULAR TURNOVER IS ACHIEVED WHICH IS TO AVOID TDS. THE SALES COMMISSI ON IS CAMOUFLAGED UNDER THE NOMENCLATURE OF TURNOVER DISCOUNT. SINCE, TH E ASSESSEE HAS NOT DEDUCTED TAX ON THESE PAYMENTS AS REQUIRED U/S. 194 H, HE DID NOT ALLOW THE EXPENDITURE CLAIMED AT RS. 18,30,223/-. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 3. THE CIT(A) HELD THAT SINCE THE IMPUGNED DISCOUNT S WERE NOT DEDUCTED FROM THE SALES BUT WERE PAID AS COMMISSION WHEN A PARTICULAR TURNOVER IS ACHIEVED, THE IMPUGNED SUM REPRESENTS SALES COMMISS ION. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX ON THESE PAYMENTS AS REQUIRED U/S. 194H , HE HAS UPHELD THE DISALLOWANCE. AGGRIEVED, THE ASSESSEE F ILED THIS APPEAL PLEADING :-3-: ITA NO. 1096/MDS/2017 THAT THE CIT(A) ERRED IN NOT PROPERLY CONSIDERING T HE OBJECTIONS RAISED IN THE GROUNDS OF APPEAL BEFORE HIM TO THE DISALLOWANCE VI Z., RS. 18,30,223/- WAS TURNOVER DISCOUNT AND NOT COMMISSION AND THE REQU IREMENT OF DEDUCTION OF TAX AT SOURCE UNDER SECTION 194H DOES NOT APPLY AND CONSEQUENTLY, SECTION 40(A)(IA) IS NOT ATTRACTED ETC. 4. THE AR SUBMITTED THAT THE TURNOVER DISCOUNT IS A LLOWED AS AN INCENTIVE IN THE NORMAL COURSE OF BUYING AND SELLING BETWEEN THE DEALER AND THE ASSESSEE ON A PRINCIPLE TO PRINCIPLE BASIS. THE AU THORITIES ERRED IN NOT SEEING THAT THE TURNOVER DISCOUNT IS ALLOWED TO DEALERS ON ACHIEVING A CERTAIN TURNOVER AND BY WAY OF ABATEMENT AGAINST THE CATALO GUE PRICE AND HENCE THE TRADE DISCOUNT IS DISTINCT FROM THE COMMISSION AS E NVISAGED UNDER THE ACT. BOTH THE AO AND THE CIT(A) FAILED TO SEE THAT EVEN ON A PLAIN READING OF THE DEFINITION OF COMMISSION IN EXPLANATION (I) BELOW SECTION 194H, IT WILL BE EVIDENT THAT THE RECIPIENT OF PAYMENT CONTEMPLATED IS THE THIRD PARTY INTERMEDIARY WHO RENDERS SERVICE IN THE COURSE OF B UYING AND SELLING OF GOODS. IN THE ASSESSEES CASE, THE ASSESSEE IS SELLING THE SE PUMPS AS A PRINCIPLE AND THE DEALERS ARE ALSO SELLING THEM AS A PRINCIPLE. HE INVITED OUR ATTENTION TO THE PAGE NO 7 OF THE PAPER BOOK AND SUBMITTED THAT, THE ASSESSEE WAS OFFERING TURNOVER DISCOUNT EVERY YEAR TO THE DEALER S BASED ON THE TURNOVER ACHIEVED BY THEM IN THE FOLLOWING DISCOUNT STRUCTUR E: 1 LAKH TO 6 LAKHS 1% 6 LAKHS TO 10 LAKHS 2% :-4-: ITA NO. 1096/MDS/2017 10 LAKHS TO 15 LAKHS 3% 15 LAKHS TO 25 LAKHS 4% 25 LAKHS TO 30 LAKHS 4.5% ABOVE 30 LAKHS 5% INVITING OUR ATTENTION TO THE PAPER BOOK PANE NOS. 1 TO 6 , HE POINTED OUT THE LIST PRICES ON VARIOUS PRODUCTS DEALT BY THE ASSES SEE AND SUBMITTED THAT THE DEALERS WHO ACHIEVED THE TURNOVER IS GIVEN A TURNOV ER DISCOUNT AS PER THE TURNOVER STRUCTURE AT THE YEAR END, WHICH IS CREDIT ED TO THE RESPECTIVE LEDGER ACCOUNT. SINCE, THE DISCOUNT IS BASED UPON THE TUR NOVER ACHIEVED, THE TURNOVER ACHIEVED BY THEM IS KNOWN ONLY AT THE YEAR END AND ACCORDINGLY, THE TURNOVER DISCOUNT IS CREDITED IN THE YEAR END IN TH EIR RESPECTIVE ACCOUNTS. THUS, THE COMPANY IS PROVIDING TURNOVER DISCOUNT TO MAJOR DEALERS ON PRINCIPLE TO PRINCIPLE BASIS. THE AO AS WELL AS TH E CIT(A) HAVE WRONGLY CONSIDERED IT AS COMMISSION FALLING U/S. 194H. T HE AR SUBMITTED THAT LIABILITY U/S. 194H CAN ARISE ONLY WHEN ANY PAYME NT; IS RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY BY A PERSON ACTI NG ON BEHALF OF ANOTHER PERSON; A) FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVI CES), OR B) FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR C) IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSE T, VALUABLE OR ARTICLE OR THING, NOT BEING SECURITIES. :-5-: ITA NO. 1096/MDS/2017 THEREFORE, THE ELEMENT OF AGENCY MUST BE PRESENT IN ALL SERVICES OR TRANSACTIONS IN ORDER TO FALL WITHIN THE EXPRESSION COMMISSION OR BROKERAGE AND SUBMITTED THAT THE TURNOVER DISCOUNT IS A DISCO UNT GIVEN BY THE WHOLESALER OR MANUFACTURER FOR ENCOURAGING BULK PUR CHASE OF THEIR PRODUCTS AND IT HAS BEEN EXTENDED TO DEALERS/ DISTRIBUTORS O N PRINCIPLE TO PRINCIPLE BASIS AND THERE IS NO PRE-DETERMINED AGREEMENT AS A GENT BETWEEN THE DEALERS AND THE ASSESSEE. THE PAYMENT OF DISCOUNT MADE TO DEALER/DISTRIBUTOR IS ON ACHIEVING CERTAIN TURNOVE R, NOT ON THE BASIS OF SERVICES. SINCE, THERE IS NO SERVICE OR AGENCY AGR EEMENT, THE PROVISIONS OF SECTION 194H WILL NOT ATTRACT FOR THE PAYMENT TOWAR DS TURNOVER DISCOUNT EXTENDED TO DEALERS.IN THIS REGARD, THE AR RELIED O N THE FOLLOWING DECISIONS: 1) CIT VS AHMEDABAD STAMP VENDORS ASSOCIATION [(201 2) 348 ITR 378 (SC)] 2) CIT VSINTERVET INDIA P. LTD [(2014) 364 ITR 238 (BOM)] 3) CIT VS JAI DRINKS P. LTD [(2011) 336 ITR 383 (D ELHI)] 4) CIT VS UNITED BREWERIES LTD [(2016) 387 ITR 150 (T&AP)]. PER CONTRA, THE DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 5. WE HEARD THE RIVAL CONTENTIONS. THE UNDISPUTED FACT IS THAT THE ASSESSEE AS A MANUFACTURER HAS GIVEN THE TURNOVER DISCOUNT FOR ENCOURAGING BULK PURCHASES AND IT HAS BEEN MAD E TO THE DEALERS/ DISTRIBUTORS ON PRINCIPLE TO PRINCIPLE BASIS AND T HERE IS NO PRE-DETERMINED :-6-: ITA NO. 1096/MDS/2017 AGREEMENT AS AGENT BETWEEN THE ASSESSEE AND THE DEA LERS/ DISTRIBUTORS. THE PAYMENT OF DISCOUNT MADE TO THE DEALER/ DISTRIBUTOR ON ACHIEVING CERTAIN TURNOVER AND NOT ON THE BASIS OF SERVICES. WE HAVE GONE THROUGH THE RATIOS OF THE DECISIONS RELIED ON BY THE AR. THE HEAD NOT ES OF THE DECISIONS IN CIT VSINTERVET INDIA P. LTD., [(2014) 364 ITR 238 (BOM) ] IS EXTRACTED AS UNDER: BUSINESS EXPENDITURE DISALLOWANCE-PAYMENTS ON WHICH TAX DEDUCTIBLE AT SOURCE COMMISSION-SALES PROMOTION S CHEME-INCENTIVE OFFERED ON CASE TO CASE BASIS TO STOCKISTS/DEALERS/AGENTS RE LATIONSHIP BETWEEN ASSESSEE AND DISTRIBUTORS/STOCKISTS WAS THAT OF PRINCIPAL TO PRINCIPAL DISTRIBUTORS/STOCKISTS NOT ACTING ON BEHALF OF ASSE SSEE-NOT A COMMISSION PAYMENT WITHIN MEANING OF CLAUSE (I) OR EXPLANATION BELOW SECTION 194H NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA) INCOME TAX ACT, 1961, SS. 40(A)(IA), 194H. THE HEAD NOTES OF THE DECISION IN CIT VS JAI DRINKS P. LTD [(2011) 336 ITR 383 (DELHI)] IS EXTRACTED AS UNDER: DEDUCTION OF TAX AT SOURCE-COMMISSION-AGREEMENT FOR DISTRIBUTION OF PRODUCTS MANUFACTURED BY ASSESSEE DISTRIBUTOR PUR CHASING PRODUCTS AT PRE- DETERMINED PRICE FOR SALE WITHIN SPECIFIED AREA- AS SESSEE AND DISTRIBUTOR COLLECTING AND PAYING SALES TAX SEPARATELY PAYMEN T OF INCENTIVE TO DISTRIBUTOR- NOT COMMISSION TAX NOT DEDUCTIBLE AT SOURCE ON SU CH PAYMENT- INCOME TAX ACT, 1961, S. 194H. 6. IT IS CLEAR FROM THEM THAT THE RELATION BETWEEN THE ASSESSEE AND THE DISTRIBUTORS/DEALERS IS THAT OF PRINCIPAL TO PRINCI PAL BASIS. SINCE, THERE IS NO SERVICE OR AGENCY AGREEMENT, THE PROVISIONS OF SECT ION 194H WILL NOT ATTRACT, AS PER THE ABOVE RATIOS, ON THE PAYMENT MADE TOWAR DS TURNOVER DISCOUNT :-7-: ITA NO. 1096/MDS/2017 EXTENDED TO THE DEALERS/ DISTRIBUTORS. HENCE, THE I MPUGNED ADDITION IS UNTENABLE, IT IS DELETED AND THE ASSESSEES AP PEAL IS ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED ON WEDNESDAY, THE 22 ND DAY OF NOVEMBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 22 ND NOVEMBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF