DCIT,Circle-7, Kolkata, Kolkata V. M/s. BCH Elcetric Ltd, Kolkata

ITA 1336/KOL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4876 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: S JHAJHARIA
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA (BEFORE SHRI P. M. JAGTAP, A.M. & SHRI S.S.VISWANET HRA RAVI, J.M.) ITA NO. 1336/KOL/2012 : ASSTT . YEAR : 2008-2009 DCIT, CIRCLE-7, KOLKATA VS M/S. B.C.H. ELECTRIC LTD. (PAN: AABCB 2076M) (APPELLANT) (RESPONDENT) C.O. NO. 98/KOL/2012 : ASSTT. YEAR : 200 8-2009 (ARISING OUT OF ITA NO.1336/KOL/2012) M/S. B.C.H. ELECTRIC LTD. VS DCIT, CIRCLE-7, KOLKATA (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SAURABH KUMAR , JCIT, SR.DR ASSESSEE BY : SHRI S. JHAJHARIA, FCA & S HRI SUJOY SEN, ADV. DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 18-03-2016 ORDER PER SHRI S.S.VISWANETHRA RAVI, J.M . THE APPEAL IN ITA NO.1336/KOL/2012 AND CROSS OBJECT ION IN C.O. 98/KOL/12 ARE PREFERRED BY THE REVENUE AND THE ASSESSEE RESPECTIVELY AGAINST THE COMMON ORDER DATED 06.06.2 012 PASSED BY THE CIT(APPEALS)-VIII, KOLKATA IN APPEAL NO.187/CIT (A)- VIII/KOL/10-11 FOR THE ASSESSMENT YEAR 2008-09 FRAM ED UNDER SECTION 143(3) OF THE I.T.ACT. 2. AT THE TIME OF HEARING, THE ASSESSEE SUBMITTED T HAT HE IS NOT ADVANCING ANY ARGUMENTS IN CROSS OBJECTION AND PRAY ED TO TREAT THE SAME AS NOT PRESSED. ACCORDINGLY, THE C.O. 98/KOL/2 012 IS DISMISSED AS NOT PRESSED. 3. CHALLENGING THE IMPUGNED ORDER, THE APPELLANT RE VENUE RAISED THE FOLLOWING GROUNDS: ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 2 (1) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS IN FACTS IN HOLDING THAT THE PROVISION OF WARRANTY EXPENSES AMOUNTING TO RS.3,62,820 AS AN ALLOWABLE EXPENSES A ND DELETING THE ENTIRE ADDITION. (2) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS IN FACTS IN ALLOWING RS.1,20,88,591 AS COMMISSION PAYMENTS TO T HE DISTRIBUTOR/DEALERS BY INVOKING THE PROVISIONS OF S ECTION 40(A)(IA) READ WITH SECTION 194H OF THE ACT. (3) THAT THE DEPARTMENT CRAVES LEAVE TO AMEND, AL TER OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE OR TO ADD A NEW GROUND IF REQUIRED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A DOMESTIC COMPANY AND ENGAGED IN MANUFACTURING OF ELECTRICAL, PUMPS, OTHE R EQUIPMENTS AND ACCESSORIES. THE ASSESSEE FILED ITS RETURN OF INCOM E ON 30.9.2008 AND THE INCOME DECLARED THEREON WAS RS.7,89,62,081/- AND IT WAS AC CEPTED. UNDER SCRUTINY, THE AO FOUND THAT THE ASSESSEE DEBITED AN EXPENDITURE O F RS.1,26,73,270/- AS WARRANTY EXPENSES IN ITS BOOKS OF ACCOUNT. ON BEING ASKED ABOUT THE DETAILS OF SUCH EXPENSES, THE ASSESSEE SUBMITTED THE COMPUTATI ON AS UNDER: FINANCIAL YEAR 2004-05 ACTUAL PAY OUT TOWARDS WARRANTY EXPENSES RS.1,23,10 ,450/- PROVISION RS. 3,62,820/- TOTAL RS.1,26,73,270/- ON VERIFICATION OF THE ABOVE, THE AO ALLOWED THE AC TUAL EXPENSES INCURRED AND DISALLOWED AN AMOUNT OF RS.3,62,820/- TREATING THE SAME AS A MERE PROVISION AS IT WAS NOT INCURRED AS EXPENSES. ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 3 5. AGAINST SUCH ADDITION BY WAY OF DISALLOWANCE THE ASSESSEE PREFERRED THE APPEAL BEFORE THE CIT(A). THE CIT(A) OBSERVED THAT, IF ANY, EXCESS PROVISION CAN BE TAXED IN SUBSEQUENT YEAR. 6. BEFORE US, THE LD. DR CONTENDED THAT THE ASSESSE E CANNOT HAVE PROVISION FOR WARRANTY EXPENSES FOR FUTURE EXPENSES AND RELIE D ON AOS ORDER. THE LD. A/R SUBMITTED THAT THIS TRIBUNAL DECIDED ASSESSEES OWN CASE IN ITA NO.1537/KOL/11 BY AN ORDER DATED 18.12.2015. 7. HEARD BOTH SIDES AND PERUSED THE MATERIAL ON REC ORD AND CONSIDERED THE SUBMISSION. IT IS OBSERVED FROM THE ARGUMENTS OF LD . AR THAT THE PROVISION HAS BEEN MADE ON ESTIMATION TO MEET OBLIGATION ARISING FROM PAST EVENTS IN ORDER TO MEET LIABILITY ON ACCOUNT OF CLAIMS BY THE CUSTOMER S. C BENCH OF ITAT, KOLKATA BENCHES, WHILE FOLLOWING THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RETORK CONTROLS INDIA (P) LTD. VS- CIT DECIDED THE SAME ISSUE IN ASSESSEES OWN CASE IN ITA NO.153 7 & 1538/KOL/2011 FOR ASSESSMENT YEARS 2006 TO 2008, THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREINBELOW: 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, NOW WE WILL GO THROUGH THE CASE OF HONBLE SUPREME COURT, AS REFER RED BY LD. SENIOR ADVOCATE SH. BAJORIA, IN THE CASE OF RETORK CONTROL S INDIA P. LTD. VS. CIT (2009) 314 ITR 62 (SC) WHEREIN HONBLE SUPREME COUR T HELD THAT SUCH ESTIMATED PROVISION FOR WARRANTY AS AN ALLOWABLE EX PENSES. HONBLE SUPREME COURT FINALLY HELD AS UNDER:- 18. AT THIS STAGE, WE ONCE AGAIN REITERATE THAT A LIABILITY IS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SE TTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW OF RESOURCES AN D IN RESPECT OF WHICH A RELIABLE ESTIMATE IS POSSIBLE OF THE AMOUNT OF OBLIGATION. AS STATED ABOVE, THE CASE OF INDIAN MOLASSES CO. [1959 ] 37 ITR 66(SC) IS DIFFERENT FROM THE PRESENT CASE. AS STATED ABOVE , IN THE PRESENT ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 4 CASE WE ARE CONCERNED WITH AN ARMY OF ITEMS OF SOPH ISTICATED (SPECIALISED) GOODS MANUFACTURED AND SOLD BY THE AS SESSEE WHEREAS THE CASE OF INDIAN MOLASSES CO. [1959] 37 ITR 66(SC ) WAS RESTRICTED TO AN INDIVIDUAL RETIREE. ON THE OTHER H AND, THE CASE OF METAL BOX COMPANY OF INDIA [1969] 73 ITR 53(SC) PER TAINED TO AN ARMY OF EMPLOYEES WHO WERE DUE TO RETIRE IN FUTURE. IN THAT CASE, THE COMPANY HAD ESTIMATED ITS LIABILITY UNDER TWO GRATU ITY SCHEMES AND THE AMOUNT OF LIABILITY WAS DEDUCTED FROM THE GROSS RECEIPTS IN THE PROFIT AND LOSS ACCOUNT. THE COMPANY HAD WORKED OUT ITS ESTIMATED LIABILITY ON ACTUARIAL VALUATION. IT HAD MADE PROVI SION FOR SUCH LIABILITY SPREAD OVER TO A NUMBER OF YEARS. IN SUCH A CASE IT WAS HELD BY THIS COURT THAT THE PROVISION MADE BY THE ASSESS EE-COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE GRAT UITY SCHEME WOULD BE ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIA BILITY. THE SAME PRINCIPLE IS LAID DOWN IN THE JUDGMENT OF THIS COUR T IN THE CASE OF BHARAT EARTH MOVERS [2000] 245 ITR 428. IN THAT CAS E, THE ASSESSEE-COMPANY HAD FORMULATED LEAVE ENCASHMENT SC HEME. IT WAS HELD, FOLLOWING THE JUDGMENT IN METAL BOX COMPANY O F INDIA [1969] 73 ITR 53(SC), THAT THE PROVISION MADE BY THE ASSES SEE FOR MEETING THE LIABILITY INCURRED UNDER THE LEAVE ENCASHMENT S CHEME PROPORTIONATE WITH THE ENTITLEMENT EARNED BY THE EM PLOYEES, WAS ENTITLED TO DEDUCTION OUT OF GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THAT LIABILI TY. THE PRINCIPLE WHICH EMERGES FROM THESE DECISIONS IS THAT IF THE H ISTORICAL TREND INDICATES THAT A LARGE NUMBER OF SOPHISTICATED GOOD S WERE BEING MANUFACTURED IN THE PAST AND IN THE PAST IF THE FAC TS ESTABLISHED SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS MANU FACTURED AND SOLD THEN THE PROVISION MADE FOR WARRANTY IN RESPEC T OF THE ARMY OF SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUC TION FROM THE GROSS RECEIPTS UNDER SECTION 37 OF THE 1961 ACT. IT WOULD ALL DEPEND ON THE DATA SYSTEMATICALLY MAINTAINED BY THE ASSESS EE. IT MAY BE NOTED THAT IN ALL THE IMPUGNED JUDGMENTS BEFORE US THE ASSESSEE(S) HAS SUCCEEDED EXCEPT IN THE CASE OF CIVIL APPEAL NO S. OF 2009 ARISING OUT OF S. L. P. (C) NOS. 14178-14182 OF 200 7 ROTORK CONTROLS INDIA (P) LTD. V. CIT, IN WHICH THE MADRAS HIGH COURT HAS OVERRULED THE DECISION OF THE TRIBUNAL ALLOWING DED UCTION UNDER SECTION 37 OF THE 1961 ACT. HOWEVER, THE HIGH COURT HAS FAILED TO NOTICE THE 'REVERSAL' WHICH CONSTITUTED PART OF THE DATA SYSTEMATICALLY MAINTAINED BY THE ASSESSEE OVER LAST DECADE. ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 5 19. FOR THE ABOVE REASONS, WE SET ASIDE THE IMPUGNE D JUDGMENT OF THE MADRAS HIGH COURT DATED FEBRUARY 5, 2007, AND A CCORDINGLY THE CIVIL APPEALS STAND ALLOWED IN FAVOUR OF THE AS SESSEE WITH NO ORDER AS TO COSTS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND TH E PRECEDENT OF HONBLE SUPREME COURT, SINCE IN THE PRESENT CASE BEFORE US THE PROVISION FOR SUCH WARRANTY IS BEING MADE ON THE BASIS OF PAST EXPERIE NCE AND HAS BEEN COMPUTED IN A SYSTEMATIC AND SCIENTIFIC MANNER, AS IN THE PRESENT CASE, SURELY WE HAVE TO APPRECIATE THAT THESE WARRANTY EX PENSES ARE TOWARDS EXPENSES WHICH HAVE BEEN INCURRED OR ARE LIKELY TO BE INCURRED WITHIN THE PERIOD FOR WHICH WARRANTY HAS BEEN ASSURED TO THE C USTOMERS AGAINST THE SALE OF PRODUCTS AND AS SUCH, SUCH EXPENSES ARE DED UCTIBLE AS BUSINESS EXPENDITURE. SUCH EXPENDITURE HAVING BEEN INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS IS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A). HENCE, WE DISMISS BOTH THE APPEALS OF REVENUE. 7.1 AO ALSO FOUND THAT OUT OF RS.3,68,42,016/- WHIC H WAS DEBITED TOWARDS DISCOUNTS AND REBATES, THE ASSESSEE PAID RS.1,20,88 ,591/- TO THEIR DEALER AND DISTRIBUTORS BY WAY OF A SPECIAL INCENTIVES RECOGNI SING THEM ON THE BASIS OF THEIR ACHIEVED SALES TARGETS. THE AO OPINED THAT PAYMENT OF SPECIAL INCENTIVE IS IN THE FORM OF COMMISSION, THEREBY ATTRACTING SECTION 194H OF THE ACT DISALLOWED AS PER THE SECTION 40(A)(IA) OF THE ACT FOR NOT DEDUCT ING TAX. LD. CIT(A) FOUND THAT THE AMOUNT INVOLVED IN SPECIAL INCENTIVE IS ONLY TU RNOVER DISCOUNT AND IT DOES NOT FORM OF COMMISSION TO CONSIGNEE OR AGENT AND IN THE SCOPE OF SECTION 194H OF THE ACT. ACCORDINGLY, LD. CIT(A) DELETED THE ADD ITION MADE BY THE AO. 8. THE SUBMISSION OF THE LD. DR IN RESPECT OF GROUN D NO.2 IS THAT ALL CASH TRANSACTIONS ARE CONTRACTUAL IN NATURE , THEREBY, A O ATTRACTED SECTION 194H OF THE ACT FOR NOT DEDUCTING TAX AT SOURCE AND RELIED ON THE AOS ORDER. THE LD. AR SUBMITTED THAT THE RELATION BETWEEN THE ASSESSEE AN D DEALER/DISTRIBUTOR IS LIKE ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 6 PRINCIPAL TO PRINCIPAL AND THERE EXISTS NO DIRECTLY OR INDIRECTLY SERVICES RENDERED FOR THE ASSESSEE. IT IS NOT A COMMISSION OR BROKERA GE, THEREFORE, APPLICATION OF SECTION 194H OF THE ACT IS BAD AND CONSEQUENTLY VIO LATION OF SECTION 40(A)(IA) OF THE ACT IS NOT JUSTIFIED. THE LD. DR RELIED ON CASE LAWS OF THE HONBLE BOMBAY HIGH COURT AND HONBLE DELHI HIGH COURT. 9. THE FACTS INVOLVED TO DECIDE THE GROUND NO.2 AR E THAT THE ASSESSEE IS MANUFACTURING ELECTRICITY PUMPS AS EQUIPMENT AND AC CESSORIES WHICH INCLUDES CONTROL GEARS, MOTOR CONTROL CENTRES, CONTROL PANEL S AND ENCLOSURES ETC. THE DEALERS/ DISTRIBUTORS, UNDER AN AGREEMENT WITH THE ASSESSEE WOULD PURCHASE GOODS FROM ASSESSEE AGAINST CASH PAYMENT OR ON CRED IT DEPENDING UPON THE AGREEMENT UNDER SCHEME OF PROMOTION IN SELLING THE ASSESSEES GOODS BEYOND TARGETTED QUANTUM FOR WHICH THE INCENTIVE IS BEING GIVEN TO THE SAID DEALERS/ DISTRIBUTORS FOR ACHIEVING CERTAIN SALES TARGET AS FINED BY THE ASSESSEE. 10. A SIMILAR CASE CAME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT-VS- JAI DRINKS (P) LTD. REPORTED IN 336 ITR 383 , WHEREIN THE FACTS OF THE CASE ARE THAT THE ASSESSEE THEREIN PERMITTED THE DI STRIBUTOR TO SELL ITS PRODUCTS IN A SPECIFIED AREA. THE PRODUCTS WERE TO BE PURCHASED B Y THE DISTRIBUTOR FROM THE ASSESSEE AND WAS ALLOWED DISCOUNT PER CASE ON THE P RINTED MRP. THEREAFTER, IT IS THE RESPONSIBILITY OF THE DISTRIBUTOR TO SELL THOSE GOODS FURTHER TO THE CONSUMERS. THE HONBLE DELHI HIGH COURT HELD THAT THE RELATION BETWEEN ASSESSEE AND DISTRIBUTOR THEREIN ARE NOT OF PRINCIPAL AND AGENT AND IT IS A RELATIONSHIP OF PRINCIPAL TO PRINCIPAL, THE RELEVANT PORTION OF WHI CH IS REPRODUCED HEREINBELOW: 8. A PERUSAL OF THE AGREEMENT SHOWS THAT THE ASSES SEE HAD PERMITTED THE DISTRIBUTOR TO SELL ITS PRODUCTS IN A SPECIFIED AREA. THE DISTRIBUTOR WAS TO EXCLUSIVELY DEAL IN THE PRODUCTS OF ASSESSEE IN A SPECIFIED TERRITORY. THE PRODUCTS WERE TO BE PURCHA SED BY THE ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 7 DISTRIBUTOR FROM THE ASSESSEE AGAINST 100 PER CENT ADVANCE PAYMENT, THOUGH DECISION RESTED WITH THE ASSESSEE TO GIVE TH E PRODUCTS ON CREDIT TO THE DISTRIBUTOR. THE DISTRIBUTOR WAS TO M AINTAIN AT ALL TIMES THE MINIMUM STOCK AND WAS TO DEAL ONLY IN THE PRODU CTS OF THE ASSESSEE. THE DISTRIBUTOR WAS TO MAINTAIN ITS OPERA TIONAL INFRASTRUCTURE INCLUDING REQUISITE STAFF UNDER ITS EMPLOYMENT WITH LIABILITY OF PF CONTRIBUTION, ESI CONTRIBUTION, ETC . AS PER THE LAWS. IT WAS SPECIFICALLY STATED IN CL. 16 THAT THE ARRANGEM ENTS UNDER THIS AGREEMENT ARE ON PRINCIPAL-TO-PRINCIPAL BASIS AND N OTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO CONFER THE AUTHORIT Y OF AN AGENT TO BIND THE ASSESSEE. IN CL. 17 IT WAS SPECIFICALLY ME NTIONED THAT THE DISTRIBUTOR WAS TO PURCHASE THE PRODUCTS OF THE ASS ESSEE AND WAS TO BE ALLOWED DISCOUNT PER CASE ON THE PRINTED MRP. IN CASE OF ANY BREAKAGE, LEAKAGE, ETC., IT WAS THE DISTRIBUTOR WHO WAS LIABLE AND NOT THE ASSESSEE. NOT ONLY THIS, EVEN ALL THE APPRO VALS, CONSENTS, REGISTRATIONS, LICENSES, ETC. WHATEVER MAY BE REQUI RED FROM DEPARTMENTS OR AUTHORITIES WERE TO BE OBTAINED BY T HE DISTRIBUTOR. 9. FROM ALL THAT HAS BEEN NOTED ABOVE, IT IS EVIDEN T THAT THE DISTRIBUTOR WAS TO PURCHASE PRODUCTS AT PREDETERMIN ED PRICE FROM THE ASSESSEE FOR SELLING THE SAME WITHIN SPECIFIED AREA. THE PRODUCTS WERE TO BE PURCHASED BY THE DISTRIBUTOR AGAINST 100 PER CENT ADVANCE PAYMENT OR MAY BE SOMETIMES ON CREDIT AT TH E DISCRETION OF THE ASSESSEE. BOTH THE ASSESSEE AND THE DISTRIBUTOR HAVE BEEN COLLECTING AND PAYING THEIR SALES-TAX SEPARATELY. B OTH THE PARTIES HAVE CLEARLY UNDERSTOOD AND ACCEPTED THE AGREEMENT BETWEEN THEM. THAT BEING THE ARRANGEMENT BETWEEN THE ASSESSEE AND THE DISTRIBUTOR, IT COULD NOT BE SAID THAT THE RELATION BETWEEN THEM WAS THAT OF PRINCIPAL-AGENT. ON THE OTHER HAND IT WAS C LEARLY STIPULATED TO BE AN AGREEMENT BETWEEN THEM ON PRINCIPAL-TO-PRI NCIPAL BASIS. BOTH THE CIT(A) AND ALSO THE TRIBUNAL RIGHTLY HELD THAT THE PAYMENTS BEING MADE BY THE ASSESSEE TO THE DISTRIBU TOR WERE INCENTIVES AND DISCOUNTS AND NOT COMMISSION. WE FIN D NO INFIRMITY IN THE FINDINGS OF THE CIT(A) AND ALSO TRIBUNAL. 10. KEEPING IN VIEW THE ABOVE-MENTIONED FACTS AND CIRCUMSTANCES OF THE CASE, THE PRESENT APPEAL HAS N O MERITS AND IS HEREBY DISMISSED. ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 8 11. RECENTLY, HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT-VS- INTERVET INDIA PVT. LTD. IN 364 ITR 238 DEALT WITH THE SAME ISSUE AS THAT OF THE ASSESSEE HEREIN IN CLAIMING DEDUCTION TOWARDS EXPENDITURE IN CURRED UNDER THE SALES PROMOTION SCHEME. THE FACTS INVOLVED THEREIN, WAS, THAT THE ASSESSEE HAD UNDERTAKEN SALES PROMOTIONAL SCHEME UNDER WHICH ASS ESSEE THEREIN HAD OFFERED AN INCENTIVE ON CASE TO CASE BASIS TO ITS STOCKISTS /DEALER/AGENTS. THE DISTRIBUTORS WERE THE CUSTOMERS OF ASSESSEE THEREIN TO WHOM THE SALES WERE EFFECTED. THE HONBLE HIGH COURT HELD THAT THE DISTRIBUTORS/ STOC KISTS WERE THE PERSONS TO WHOM THE PRODUCT WAS SOLD, NO SERVICES WERE OFFERED TO T HE ASSESSEE. THE DISTRIBUTORS/ STOCKISTS WERE NOT ACTING ON BEHALF OF THE ASSESSEE AND HENCE, IT COULD NOT BE SAID TO BE A COMMISSION PAYMENT WITHIN THE MEANING OF EX PLANATION (I) TO SECTION 194H OF THE ACT. THE RELEVANT PORTION OF WHICH IS R EPRODUCED HEREIN AS BELOW: 7. WE HAVE PERUSED THE CONCURRENT ORDERS WITH THE ASSISTANCE OF THE LEARNED COUNSEL FOR BOTH THE PARTIES. THE ASSES SEE HAD UNDERTAKEN SALES PROMOTIONAL SCHEME VIZ. PRODUCT DI SCOUNT SCHEME AND PRODUCT CAMPAIGN AS DISCUSSED HEREINABOVE UNDER WHICH THE ASSESSEE HAD OFFERED AN INCENTIVE ON CASE TO CASE B ASIS TO ITS STOCKISTS /DEALERS/AGENTS. AN AMOUNT OF RS.70,67,08 9/- WAS CLAIMED AS A DEDUCTION TOWARDS EXPENDITURE INCURRED UNDER T HE SAID SALES PROMOTIONAL SCHEME. THE RELATIONSHIP BETWEEN THE AS SESSEE AND THE DISTRIBUTOR / STOCKISTS WAS THAT OF PRINCIPAL TO PR INCIPAL AND IN FACT THE DISTRIBUTORS WERE THE CUSTOMERS OF THE ASSESSEE TO WHOM THE SALES WERE EFFECTED EITHER DIRECTLY OR THROUGH THE CONSIGNMENT AGENT. AS THE DISTRIBUTOR / STOCKISTS WERE THE PERS ONS TO WHOM THE PRODUCT WAS SOLD, NO SERVICES WERE OFFERED BY THE A SSESSEE AND WHAT WAS OFFERED BY THE DISTRIBUTOR WAS A DISCOUNT UNDER THE PRODUCT DISTRIBUTION SCHEME OR PRODUCT CAMPAIGN SCH EME TO BUY THE ASSESSEE'S PRODUCT. THE DISTRIBUTORS / STOCKISTS WE RE NOT ACTING ON BEHALF OF THE ASSESSEE AND THAT MOST OF THE CREDIT WAS BY WAY OF GOODS ON MEETING OF SALES TARGET, AND HENCE, IT COU LD NOT BE SAID TO BE A COMMISSION PAYMENT WITHIN THE MEANING OF EXPLA NATION (I) TO SECTION 194H OF THE INCOME TAX ACT, 1961. THE CONTE NTION OF THE REVENUE IN REGARD TO THE APPLICATION OF EXPLANATION (I) BELOW SECTION 194H BEING APPLICABLE TO ALL CATEGORIES OF SALES EXPENDITURE ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 9 CANNOT BE ACCEPTED. SUCH READING OF EXPLANATION (I) BELOW SECTION 194H WOULD AMOUNT TO READING THE SAID PROVISION IN ABSTRACT. THE APPLICATION OF THE PROVISION IS REQUIRED TO BE CONS IDERED TO THE RELEVANT FACTS OF EVERY CASE. WE ARE SATISFIED THAT IN THE FACTS OF THE PRESENT CASE THAT AS REGARDS SALES PROMOTIONAL EXPE NDITURE IN QUESTION, THE PROVISIONS OF EXPLANATION (I) BELOW S ECTION 194H OF THE ACT ARE RIGHTLY HELD TO BE NOT APPLICABLE AS TH E BENEFIT WHICH IS AVAILED OF BY THE DEALERS / STOCKISTS OF THE ASSESS EE IS APPROPRIATELY HELD TO BE NOT A PAYMENT OF ANY COMMISSION IN THE C ONCURRENT FINDINGS AS RECORDED BY THE CIT (APPEALS) AND THE T RIBUNAL. 7. HAVING CONSIDERED THE FINDINGS RECORDED BY THE C IT (APPEALS) AND THE TRIBUNAL AND TAKING INTO CONSIDERATION THE PROVISIONS OF EXPLANATION (I) TO SECTION 194H OF THE ACT, WE DO N OT FIND THAT THE APPEAL GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LA W. IT IS ACCORDINGLY DISMISSED. 12. AS DISCUSSED ABOVE, THE FACTS OF THE PRESENT CA SE, FALLS WITHIN FACTS OF THE CASES DEALT BY THE HONBLE DELHI AND HONBLE BOMBAY HIGH COURT. IN THE PRESENT CASE, THE LD. CIT(A) EXAMINED THE COPIES OF AGREEMENTS OF DEALERS AND HE FOUND THAT DEALERS ARE THE RECEIPTS OF THE AMOUNT G IVEN BY THE ASSESSEE AS INCENTIVE. THE DEALERS ARE BUYING THE GOODS FROM TH E ASSESSEE ON THEIR OWN RISK. THE ASSESSEE PAID THE INCENTIVE TO THE DEALERS FOR THE PURPOSE OF PROMOTION IN SELLING ITS GOODS BEYOND A TARGETED QUANTUM. THEREF ORE, WE SEE NO RELATION OF PRINCIPAL AND AGENT AS AGITATED BY THE LD. DR. IF T HAT BE THE CASE, THE APPLICABILITY OF SECTION 194H AND INVOCATION OF SECTION 40(A)(IA) OF THE ACT FOR VIOLATION OF SECTION 194H IS BAD UNDER LAW. THUS, IT IS CLEAR TH AT THE LIABILITY TO DEDUCT TDS UNDER SECTION 194H OF THE ACT ARISES ONLY WHEN A PE RSON ACTS ON BEHALF OF ANOTHER. THE INCENTIVES RECEIVED BY THE DISTRIBUTOR S/DEALERS IS NEITHER CONTRACTUAL TRANSACTION NOR PAYMENT COMMISSION OR BROKERAGE UND ER THE RELATION OF PRINCIPAL AND AGENT AND WHICH ARE A STRICT REQUIREMENT OF SEC TION 194H OF THE ACT TO DEDUCT THE TDS. THEREFORE, WE ARE OF THE VIEW, THAT THE PRINCIPLE LAID DOWN BY ITA NO. 1336 /KOL/2012 M/S. B.C.H. E LECTRIC LTD. 10 THE HONBLE HIGH COURTS AT DELHI AND BOMBAY IN THE DECISIONS ( SUPRA ) APPLICABLE TO THE CASE ON HAND. RESPECTFULLY FOLLOW ING THE SAME, WE HOLD THAT THE PAYMENTS PAID TO THE DISTRIBUTORS/ DEALERS BY WAY O F INCENTIVES WOULD NOT COME UNDER THE PURVIEW OF SECTION 194H AND INVOCATION TH EREON UNDER SECTION 40(A)(IA) IS BAD AND HENCE NO INTERFERENCE IS REQUI RED WITH THE ORDER OF THE CIT(A), THEREFORE, IT IS CONFIRMED. THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 13. IN THE RESULT THE APPEAL FILED BY THE REVENUE A ND THE C.O. FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH, 2016. SD/- SD/- ( P.M.JAGTAP) (S.S.VIS WANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18/03/2016 TALUKDAR/SR.PS COPY OF ORDER FORWARDED TO: 1 M/S. B.C.H. ELECTRIC LTD., 216, A.J.C. BOSE ROAD, KOLKATA 700 017. 2 DCIT, CIRCLE-7, KOLKATA 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA