M/s.Bajaj Consumer Care Ltd., Hyderabad V. Dy. Commissioner of Income Tax, Hyderabad

ITA 1368/HYD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6645 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 17-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: SANDEEP JHAWAR
• Keywords: Question of law
• Section: 43B; 143(3); 194C; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1368/HYD/2013 ASSESSMENT YEAR: 2006-07 M/S BAJAJ CONSUMER CARE LTD., (NOW KNOWN AS BAJAJ RESOURCES LTD., HYDERABAD. PAN AAACD 8001D VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANDEEP JHAWAR REVENUE BY : SHRI M. SITARAM DATE OF HEARING 08-02-2016 DATE OF PRONOUNCEMENT 07-04-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) V , HYDERABAD, DATED 31.07.2013, FOR THE AY 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE ID. COMMISSIONER OF INCOME TAX (APPEALS)-V HYDERABAD HAS ERRED IN UPHO LDING THE DISALLOWANCE OF RS. 2,21,675 MADE BY ID. ASSESSING OFFICER IN RESPECT OF DELAYED PAYMENT OF ESI CONTRIBUTION BY APPLYING TH E PROVISIONS OF SECTION 43B AND 36(1)(VA). 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE I D. COMMISSIONER OF INCOME TAX (APPEALS)-V HYDERABAD HAS ERRED IN UPHO LDING THE DISALLOWANCE OF RS. 37,500/- MADE BY ID. ASSESSING OFFICER IN RESPECT OF FEE PAYABLE TO THE ADVOCATE BY APPLYING THE PROVIS IONS OF SECTION 40(A)(IA). 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE I D. COMMISSIONER OF INCOME TAX (APPEALS)-V HYDERABAD HAS ERRED IN UPHO LDING THE DISALLOWANCE OF RS. 9,96,397 MADE BY ID. ASSESSING OFFICER BY APPLYING 2 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., THE PROVISIONS OF SECTION 40(A)(IA). THE ID. AO HA S MADE DISALLOWANCE OF PAYMENT FOR PURCHASE OF PRINTED MATERIAL OF RS.3,3 6,077 /- FOR THE REASON THAT PRINTING WAS DONE AS PER THE SPECIFICATION GI VEN BY THE ASSESSEE. THE ID. AO HAD ALSO DISALLOWED CURTAINED REIMBURSEMENT OF EXPENDITURE TO C&F AGENTS OF RS.3,30,512 BY OBSERVING THAT TDS IS DED UCTIBLE ON REIMBURSEMENT OF EXPENDITURE. LD. AO ALSO DISALLOW ED CERTAIN OTHER PAYMENTS IN FORM OF REIMBURSEMENT/FEE OF RS.3,29,8 08/- TO RECRUITMENT AGENCY AND VARIOUS OTHER PARTIES WRONGLY CONSIDERI NG THEM AS COVERED U/S 194C OR U/S 194J. 4. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE I D. COMMISSIONER OF INCOME TAX (APPEALS)-V HYDERABAD HAS ERRED IN UPHO LDING THE DISALLOWANCE OF RS. 1,88,67,445/- MADE BY ID. ASSE SSING OFFICER IN RESPECT OF ANNUAL AND QUARTERLY TARGET DISCOUNTS PAID/PAYA BLE TO THE STOCKIEST BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA). 5. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE I D. COMMISSIONER OF INCOME TAX (APPEALS)-V HYDERABAD HAS ERRED IN UPHO LDING THE DISALLOWANCE OF RS. 14,21,891/- MADE BY ID. ASSESS ING OFFICER BY APPLYING PROVISIONS OF SECTION 40(A)(IA) IN RESPECT OF COMM ISSION INCENTIVE TO STOCKIEST MADE UNDER OTHER SCHEMES-SUPER DISTRIBUT ORS RS.8,73,083, STOCKIEST INCENTIVE OF RS.3,54,808/- AND OTHER COM MISSION OF RS. 1,94,000/-. 6. THE ASSESSEE CRAVES TO ADD, ALTER, AMEND OR MOD IFY ANY OF THE GROUND OF APPEAL. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF AYURVEDIC MEDICINES AND COSMETIC PRODUCTS, FILED ITS RETURN O F INCOME FOR AY 2006-07 ON 27/12/2007 DECLARING INCOME OF RS. 3,37, 34,498. AO COMPLETED THE ASSESSMENT U/S 143(3) DETERMINING THE TOTAL INCOME AT RS. 5,52,52,406 BY MAKING THE FOLLOWING ADDITIONS: 1. DISALLOWANCE U/S 43B RS. 2,21,675 2. DISALLOWANCE OF PROVISION FOR LEGAL FEES: RS. 3 7,500 3. DISALLOWANCE U/S 40(A)(IA) : RS. 9,69,397 4. AGGREGATE AMOUNT OF ANNUAL & QUARTERLY TARGET DISCOUNT DISALLOWED BEING IN THE NATURE OF COMMISSION U/S 40(A)(IA) : RS. 1,88,6 7,445 5. AGGREGATE AMOUNT OF PROVISION MADE TOWARDS COMMISSION AND INCENTIVE DISALLOWED U/S 40(A)(IA) : RS. 14,21,891 3 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 4. AS REGARDS GROUND NO. 1 PERTAINING TO DISALLOWAN CE OF RS. 2,21,675 U/S 43B, THE AO NOTICED THAT OUT OF TOTAL EX-GRATIA PAYABLE OF RS. 15,73,128/-, THE ASSESSEE HAD PAID A SUM OF RS. 13,61,855/- BEFORE DUE DATE FOR FILING RETURN OF INCOME AND FUR NISHED THE DETAILS THEREOF. ACCORDINGLY, THE AO DISALLOWED THE BALANCE AMOUNT OF RS. 2,11,273/-. AO ALSO NOTED THAT THE ASSESSEE HAD PAI D THE ESI AMOUNT AGGREGATING TO RS. 10,158/- BEFORE THE DUE DATE OF RETURN OF INCOME. HE, THEREFORE, DISALLOWED ASSESSEES CLAIM BY INVOK ING SECTION 43B R.W.S. SECTION 36(1)(VA). 5. ON AN APPEAL BEFORE THE CIT(A), THE ASSESSEE SUB MITTED THAT PAYMENT OF EX-GRATIA OF RS. 2,11,273/- IS A CONTRAC TUAL LIABILITY AND NOT A STATUTORY LIABILITY. REGARDING ESI CONTRIBUTION, THE ASSESSEE SUBMITTED THAT DUE DATE FOR PAYMENT OF EMPLOYEES C ONTRIBUTION AS PER 43B IS SAME AS DUE DATE FOR EMPLOYERS CONTRIBUTION AS PER SECTION 43B I.E. BEFORE FILING OF RETURN OF INCOME. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTI ON OF THE AO. 6. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT AMOUNTS OF RS. 10,158/- WERE PAID BEFORE THE DUE DATE OF FILIN G OF RETURN OF INCOME. HE SUBMITTED THAT THE ITAT IS TAKING A CONS ISTENT VIEW THAT PAYMENT OF ESIC MADE AFTER STATUTORY DUE DATE BUT P RIOR TO DUE DATE OF FILING OF RETURN OF INCOME IS ALLOWABLE AS DEDUC TION. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS: 1. ITO VS. PRIMA ACCESS TECHNOLOGIES LTD., ITA NO. 1677/HYD/14, ORDER DATED 22/07/2015. 2. VBC INDUSTRIES VS. DCIT, ITA NO. 143/H/13 AND O THERS DATED 08/05/15 6.1 THE AR SUBMITTED THAT THE CIT(A) HAS WRONGLY CO NSIDERED THE ENTIRE AMOUNT OF RS. 2,21,675/- AS ESIC. HOWEVER, O UT OF RS. 2,21,675/- ONLY RS. 10,158/- IS ESIC AND BALANCE AM OUNT OF RS. 2,11,273/- IS EX-GRATIA. HE SUBMITTED THAT THE PROV ISIONS OF SECTION 4 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 43B OR SECTION 36(1)(VA) DOES NOT APPLY ON EX-GRATI A AS HELD BY ITAT, HYDERABAD IN CASE OF NOVOPAN INDUSTRIES LTD., VS. D CIT, 1661/H/2008 AND OTHERS DATED 04/09/13. 7. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORD ERS OF REVENUE AUTHORITIES. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS MATERI AL ON RECORD. WE ARE OF THE VIEW THAT THE ASSESSEE HAD PAID ESIC PAY MENT OF RS. 10158/- BEFORE FILING THE RETURN OF INCOME. THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 (SC) HELD THAT THE AMENDMENTS TO SECTION 43B BROUGHT OUT BY THE FINANCE ACT, 2003 WITH EFFECT FROM 01/04/2004 ARE RETROSPEC TIVE IN NATURE AND WOULD OPERATE FROM 01/04/1988. VARIOUS BENCHES OF I TAT AND COORDINATE BENCHES OF THIS TRIBUNAL HAVE FOLLOWED T HE ABOVE DECISION AND HELD THAT THE AMENDMENT TO SECTION 43B BROUGHT OUT BY THE FINANCE ACT, 2003 IS RETROSPECTIVE IN NATURE AND JU STIFIED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DELAYED PAYMENT OF PROVIDENT FUND OF EMPLOYEES CONTRIBUTION. SINCE, PF & ESI ARE SAME , WE RESPECTFULLY FOLLOW THE DECISIONS OF COORDINATE BENCHES OF THIS TRIBUNAL AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF E SI PAYMENT OF RS. 10,158/-. 8.1 WITH REGARD TO OTHER ISSUE, THE ASSESSEE HAS C REATED A PROVISION FOR EXGRATIA TO THE EXTENT OF RS. 15.73 L AKHS AND PAID RS. 13.62 LAKHS BEFORE FILING OF THE RETURN. AO HAS TRE ATED THE ABOVE PROVISION OF EXPENSES AS STATUTORY DUE TO THE EMPLO YEES U/S 43B OF THE ACT, WHEREAS, THIS IS NOT STATUTORY OBLIGATION ON THE PART OF THE ASSESSEE, BUT, IT IS A CONTRACTUAL AND VOLUNTARY EX PENDITURE FOR WHICH ASSESSEE HAS CREATED THE PROVISION. RESPECTFULLY FO LLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF NOVOPAN IN DUSTRIES LTD. VS. DCIT, ITA NO. 1661/H/2008 AND OTHERS WHEREIN IT WAS HELD THAT THE EXGRATIA CANNOT BE REGARDED AS BONUS AND REQUIREMEN T OF THE PROVISIONS OF SECTION 37 ARE FULLY SATISFIED. HENCE , RESPECTFULLY 5 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., FOLLOWING THE SAID DECISION, WE DELETE THE ADDITION MADE INVOKING SECTION 43B ON EXGRATIA. 9. AS REGARDS GROUND NO. 2 PERTAINING TO DISALLOWAN CE OF RS. 37,500/- MADE U/S 40(A)(IA) IN RESPECT OF FEE PAYAB LE TO THE ADVOCATE, THE AO NOTICED FROM THE ACCOUNT EXTRACT OF M/S BAJA J HINDUSTAN LTD. THAT IT HAS RAISED A DEBIT NOTE AGAINST THE ASSESSE E FOR PAYMENT OF RETAINERSHIP TO SHRI ARUN JAITELY FOR THE YEAR END ING 31/03/06 FOR RS. 1,87,500/- AS AGAINST THE ASSESSEES CLAIM OF RS. 2 ,25,000. THE AO OBSERVED THAT AS THE ASSESSEE HAD NOT INCURRED THE EXPENDITURE DIRECTLY AND M/S BAJAJ HINDUSTAN LTD. HAD RAISED A DEBIT NOTE ONLY TO THE EXTENT OF RS. 1,87,500/-, FOR WHICH TDS WAS DED UCTED BY ITS SISTER CONCERN WHILE MAKING PAYMENT TO SHRI ARUN JAITELY, THE BALANCE AMOUNT BEING A PROVISION OF RS. 37,500/- CANNOT BE ALLOWED AS DEDUCTION SINCE NEITHER THE ASSESSEE COMPANY NOR BA JAJ HINDUSTAN LTD. HAD DEDUCTED TAX ON SUCH PROVISION MADE BY THE ASSESSEE COMPANY. HE, THEREFORE, DISALLOWED THE SAID AMOUNT OF RS. 37,500/- U/S 40(A)(IA) REJECTING THE ASSESSEES PLEA VIDE I TS LETTER DATED 17/12/08 THAT M/S BAJAJ HINDUSTAN LTD. HAD RAISED A DEBIT NOTE ON 30/04/06 FOR THE PERIOD FROM SEPTEMBER 2005 TO APRI L, 2006 FOR RS. 2,62,500/-. 10. BEFORE THE CIT(A), IT WAS SUBMITTED THAT BAJAJ HINDUSTAN LTD. WRONGLY DEBITED ASSESSEE BY RS. 1,87,500 INSTEAD OF RS. 2,25,000/- AND THE BALANCE AMOUNT OF RS. 37,500/- WAS DEBITED ON 18/05/06 IN THE SUBSEQUENT AY. FURTHER, IT WAS SUBMITTED THAT S INCE BAJAJ HINDUSTAN IS MAKING PAYMENT TO ADVOCATE, IT IS LIAB LE TO DEDUCT TDS AND NOT THE ASSESSEE COMPANY AS ASSESSEE COMPANY IS MERELY REIMBURSING EXPENSE TO M/S BAJAJ HINDUSTAN LTD. HE SUBMITTED THAT BAJAJ HINDUSTAN LTD. HAD PROPERLY DEDUCTED TDS WHIL E MAKING PAYMENT TO THE ADVOCATE. 10.1 THE ABOVE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND FAVOUR WITH CIT(A) AND HE, THEREFORE, CONFIRMED THE DISALL OWANCE MADE BY 6 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., AO BY HOLDING THAT NEITHER THE ASSESSEE NOR M/S BAJ AJ HINDUSTAN LTD. HAS DEDUCTED TAX ON SUCH PROVISION. 11. BEFORE US, THE LD. AR SUBMITTED THAT DEBIT NOTE OF RS. 37,500/- FOR THE MONTH OF JAN06 WAS OMITTED TO BE RAISED BY BAJAJ HINDUSTAN LTD. AND THE SAME WAS RAISED LATER ON 18/05/06 VIDE DEBIT NOTE NO. 06-07/1001, DT. 30/04/2006 (REFER PAGE 3 OF THE PAP ER BOOK) BY BAJAJ HINDUSTAN LTD. HE SUBMITTED THAT THE SAME CAN BE VE RIFIED FROM THE COPIES OF GENERAL LEDGER OF BAJAJ CONSUMER CARE LTD . AND IN THE BOOKS OF BAJAJ HINDUSTAN LTD. THE LD. AR FURTHER SU BMITTED THAT FORM 16A CLEARLY SHOWS THAT TDS U/S 194J HAD BEEN DEDUCT ED ON ALL PAYMENTS MADE TO SHRI ARUN KUMAR JAITELY FROM TIME TO TIME, EVEN ON THE PAYMENTS MADE FOR THE MONTH OF JANUARY. THUS, I T WAS ONLY AN ACCOUNTING OMISSION IN THE BOOKS OF BAJAJ HINDUSTAN LTD., WHICH WAS LATER ON RECTIFIED ON 18/05/06. HE, THEREFORE SUBMI TTED THAT DISALLOWANCE SHOULD NOT HAVE BEEN MADE BY THE REVEN UE AUTHORITIES AS IT WAS JUST AN ACCOUNTING ERROR WITH NO DEFAULT WITH REGARD TO TDS PROVISIONS. 12. LD. DR, ON THE OTHER HAND, RELIED UPON THE ORD ERS OF REVENUE AUTHORITIES. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS MATERI AL ON RECORD. ON PERUSAL OF DOCUMENTS SUBMITTED BEFORE US, (REFER PA GES 3-5 OF THE PAPER BOOK) WE FIND THAT THE BAJAJ HINDUSTHAN LTD. HAS REMITTED THE TDS AND RAISED DEBIT NOTE TO THE ASSESSEE ACCORDING LY. IN THE CASE OF M/S MAHYCO MONSANTO BIOTECH (INDIA) LTD. VS. ADDITI ONAL CIT (ITA NO. 5842/MUM/2012, ORDER DATED 30/11/2012), SIMILAR ISS UE WAS ADJUDICATED BY THE COORDINATE BENCH. THE COORDINATE BENCH HELD AS BELOW: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GONE THROUGH THE ASSE SSMENT ORDER. THE AO DID NOT DISPUTE THE FACT THAT THE IMPUGNED AMOUNT WAS IN T HE NATURE OF REIMBURSEMENT EXPENSES ON COST TO COST BASIS. IF IT IS SO, ACCOR DING TO THE RATIO OF THE DECISION RENDERED BY CO-ORDINATE BENCH IN THE CASE OF ACIT VS. J.B.BODA SURVEYORS PVT. 7 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., LTD.(SUPRA) , IT HAS TO BE HELD THAT THE DISALLOWA NCE CANNOT BE MADE AS IT HAS NOT BEEN SHOWN OR ESTABLISHED THAT AFOREMENTIONED PAYMENTS WERE MADE BY THE ASSESSEE TO THE AFOREMENTIONED GROUP CONCERNS AGAINST ANY CONT RACT WORK CARRIED OUT BY THEM FOR THE ASSESSEE. IN THE CASE OF REIMBURSEMENT OF EXPE NSES, THE EXPENDITURE INCURRED IS RELATED TO THE PERSON WHO HAS NOT MADE THE ORIGINA L PAYMENT. THE PAYMENT OF EXPENDITURE IS MADE BY X PARTY ON BEHALF OF Y PARTY AND LATER ON THE SAME IS REIMBURSED TO X PARTY BY Y PARTY, THE EXPENDIT URE IS PERTAINING TO Y PARTY AND NOT PERTAINING TO X PARTY. THEREFORE, APPLYING T HE RATIO LAID DOWN IN THE CASE OF ACIT VS. CROWE BODA & CO. PVT. LTD. IN ITA NO.4251/M/20 09 VIDE ORDER DATED 30/3/2010, RELIED UPON IN THE CASE OF ACIT VS. J.B.BODA SURVE YORS PVT. LTD., THE ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. THE RELEVANT OBSERVATIONS HAVE ALREADY BEEN REPRODUCED ABOVE. IN VIEW OF THE ABOVE DISCUSSION, GROUND NO.1 OF THE A SSESSEE IS ALLOWED. BY FOLLOWING THE ABOVE DECISION, WE ARE OF THE VIEW THAT M/S BAJAJ HINDUSTAN LTD., WHO DEDUCTED THE TDS AND REMITTED T HE SAME PROPERLY. THEREFORE, WE DO NOT FIND ANY DEFAULT ON THE PART OF THE ASSESSEE AND HENCE, WE DELETE THE ADDITION MADE ON THIS COUNT. 14. GROUND NO.3 PERTAINING TO DISALLOWANCE OF RS. 9 ,96,397/- MADE U/S 40(A)(IA) TOWARDS I) PAYMENT FOR PURCHASE OF PR INTING MATERIAL OF RS. 3,36,077/-, II) REIMBURSEMENT OF RS. 3,30,512/- TO C&F AGENTS, III) PAYMENT OF RS. 56,321/- TO M/S ACREATY MANAGEM ENT SERVICES AND IV) PAYMENT TO PROFESSIONALS OF RS. 2,46,487/-. 14.1 PURCHASE OF PRINTING MATERIALS : WITH REGARD TO DISALLOWANCE OF RS. 3,36,077/-, THE AO NOTED THAT THE ASSESSEE HAD PROCURED PRINTED LABELS TO ITS SPECIFICATION. THE PAYMENT WAS MADE M AINLY FOR PRINTING JOB WORK TO ITS REQUIRED SPECIFICATIONS AND NOT FOR PURCHASE OF LABELS READY FOR SALE. THE MATERIALS WERE EXCLUSIVELY MEAN T FOR THE USE OF THE ASSESSEE AND CANNOT BE SOLD TO ANY OTHER PERSON IN OPEN MARKET. THUS, THE SUPPLIER HAS UNDERTAKEN TO SUPPLY THE MAT ERIALS TO THE SPECIFICATIONS OF THE ASSESSEE AND NOT UNDERTAKEN T O SELL THE LABELS TO THE SPECIFICATIONS PRESCRIBED BY THE ASSESSEE AND NOT TO PURCHASE THE MATERIALS KEPT READY FOR SALE. THE AO OBSERVED THAT THE PAYMENT IS MADE MAINLY FOR PERFORMANCE OR RENDERING SERVICE S (TO PRINT ON THE MATERIALS AS PER THE SPECIFICATIONS) AND THE PAYMEN T TOWARDS PROCUREMENT OF PRINTED LABELS AMOUNTS TO SUM PAYABL E FOR CARRYING OUT THE WORK IN PURSUANCE OF THE CONTRACT. HE, THER EFORE, HELD THAT THE SAID PAYMENTS ATTRACT THE PROVISIONS OF SECTION 194 C AND THE 8 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., ASSESSEE WAS REQUIRED TO DEDUCT TAX U/S 194C OF THE ACT. AO ALSO RELIES ON THE CIRCULAR NO. 715 DATED 08/08/1995. A CCORDINGLY, HE DISALLOWED THE SAID AMOUNT. 14.2 DISALLOWANCE OF C&F PAYMENTS AND PROFESSIONALS : AS REGARDS DISALLOWANCE OF RS. 3,30,512/- AND RS. 3,29,808/- T OWARDS THE AMOUNTS PAID TO C&F AGENTS AND OTHER PARTIES, THE A O OBSERVED THAT THE ASSESSEES PLEA THAT REIMBURSEMENT EXPENSES INC LUDED IN THE PAYMENTS MADE TO PROFESSIONALS DO NOT REQUIRE TDS I S NOT CORRECT. THE ASSESSEE WAS REQUIRED TO DEDUCT TDS ON THE GROS S PAYMENTS MADE TO THE PAYEES AND NOT ONLY IN RESPECT OF INCOM E COMPONENT OF THE PAYEE. HE, THEREFORE, HELD THAT THE ASSESSEE WA S REQUIRED TO DEDUCT TDS ON GROSS PAYMENTS INCLUDING REIMBURSEMEN T EXPENSES AND SERVICE TAX. IN THIS CONNECTION, AO REFERRED TH E BOARD CIRCULAR NO. 715, DATED 08/08/15. 14.3 THE CIT(A) UPHELD THE SAID ADDITIONS MADE BY T HE AO. 15. AS REGARDS DISALLOWANCE OF RS. 3,36,077, THE LD . AR SUBMITTED THAT PROCUREMENT OF PRINTING MATERIAL IN SPECIFIED DESIGNS CANNOT BE CONSIDERED AS JOB WORK AS ASSESSEE IS PAYING FOR TH E ENTIRE MATERIAL AND NOT ONLY FOR THE VALUE OF PRINTING. FURTHER, TH E RAW MATERIAL FOR PRINTING HAS NOT BEEN SOLD/SUPPLIED BY ASSESSEE. T HE LD. AR RELIED ON THE FOLLOWING CASES: 1. CIT VS. MARKFED KHANNA BRANCH, 304 ITR 17. 2. CIT VS. GIRNAR FOOD AND BEVERAGE PVT. LTD., 306 ITR 23. 3. CIT VS. GLENMARK PHARMACEUTICALS LTD., 324 ITR 199 4. ITO VS. DR. WILLMAR SCHWABE INDIA (P) LTD., (5 SOT 71) 5. DCIT VS. CHOICE SANITARYWARE INDUSTRIES, 9 TAXM ANN.COM 120 16. THE LD. DR RELIED ON THE ORDERS OF REVENUE AUTH ORITIES. 17. CONSIDERING THE SUBMISSIONS OF BOTH THE COUNSEL S AND RELYING ON THE MATERIAL, WE ARE OF THE VIEW THAT THERE IS N O DOUBT THAT THE ASSESSEE HAS PROCURED PRINTING LABELS TO ITS SPECIF ICATION. THE 9 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., PAYMENT WAS MADE ACCORDINGLY. IN THIS CONNECTION, T HE HONBLE P&H HIGH COURT IN THE CASE OF CIT VS. MARKFED KHANNA BR ANCH, 304 ITR 17 HELD THAT WHERE ASSESSEE PURCHASED PRINTED PACKI NG MATERIAL FROM MANUFACTURER FOR THE PURPOSE OF PACKING TO ITS FINI SHED PRODUCTS AND NO RAW MATERIAL WAS SUPPLIED BY IT TO MANUFACTURER, FOR MANUFACTURING OF SUCH PACKING MATERIAL, TRANSACTION WAS A CONTRAC T OF SALE AND NOT AS WORKS CONTRACT. HELD, IT WAS OUTSIDE THE PURVIEW OF SECTION 194C. IN THE PRESENT CASE BEFORE US ALSO SQUARELY FALSE O N THE FACTS OF THE ABOVE JUDGMENT. BY FOLLOWING THE ABOVE RATIO, WE D ELETE THE ADDITION MADE ON THIS COUNT. 18. WITH REGARD TO REIMBURSEMENT OF RS. 3,30,512/- TO C&F AGENTS, THE LD. AR SUBMITTED THAT TDS HAS TO BE DEDUCTED ON AMOUNTS PAYABLE WITHOUT INCLUDING THE SERVICE TAX COMPONENT . THUS, OUT OF TOTAL DISALLOWANCE OF RS. 3,30,512/-, RS. 2,37,961/ - PERTAINS TO SERVICE TAX AND HENCE NO TDS IS REQUIRED TO BE DEDUCTED ON THE SAME. THIS IS AS PER CIRCULAR NO. 1 OF 2014 ISSUED BY CBDT. IT I S SUBMITTED THAT THE BALANCE DISALLOWANCE OF RS. 92,551/- IS REIMBURSEME NT OF EXPENDITURE MADE TO C&F AGENTS. SINCE, IT IS MERE REIMBURSEMENT OF EXPENDITURE WITH NO PROFIT ELEMENT INCLUDED AND CLAIMED SEPARAT ELY, NO DISALLOWANCE SHOULD BE MADE IN THIS REGARD. THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS: 1. AUROBINDO PHARMA LTD. VS. ACIT, ITA NO. 1096/HY D/2011 AND OTHERS, DATED 31/01/14. 2. CIT VS. GUJARAT NARMADA VALLEY FERTILIZER CO. L TD., 361 ITR 192 3. ITO VS. YASH ENTERPRISES, ITA NO. 3291/AHD/08, DATED 11/11/09. 4. MAHYCO MONSANTO BIOTECH (INDIA) LTD. VS. ADDL. CIT, ITA NO. 5842/MUM/12, DATED 30/11/12. 5. M/S JB BODA SURVEYORS PVT. LTD., ITA NO. 4252/M UM/09, DATED 21/05/10. 19. THE LD. DR RELIED ON THE ORDERS OF REVENUE AUTH ORITIES. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AS WELL AS THE DECISIONS CITED. WE OBSERVE THAT RS. 10 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 2,37,961/- WAS TOWARDS SERVICE TAX CHARGES TO THE C &F AGENTS. AS CLARIFIED IN CIRCULAR NO. 1 OF CBDT, THE TDS PROVIS ION WILL NOT BE CHARGED ON SERVICE TAX AS THE SAME WAS COLLECTED ON BEHALF OF CENTRAL GOVT. COMING TO THE OTHER ISSUE OF RE-IMBURSEMENT OF EXPENDITURE TO THE C&F AGENTS, IT IS PURE REIMBURSEMENT OF EXPENSE S, WITHOUT ANY PROFIT ELEMENTS, THE C&F AGENTS ARE ACTING AS AGENT S FOR THE PRINCIPAL. HENCE, TDS WILL NOT BE APPLIED ON SUCH REIMBURSEMEN TS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT N ARMADA VALLEY FERTILIZER CO. LTD., 361 ITR 192, HELD AS BELOW: THE EXPENSES WERE INCURRED BY THE AGENT ON BEHALF OF THE ASSESSEE FOR TRANSPORTATION AND OTHER CHARGES, WHICH HAS BEEN S PELT OUT IN THE BILL ITSELF INCLUDING THE COMMISSION TO THE AGENT. THE RELATIO N BETWEEN THE ASSESSEE AND THE AGENT WAS PRINCIPAL AND AN AGENT. THE OBLI GATION TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF TRANSPORT CHARGES AND O THER CHARGES WAS COMPLIED WITH BY THE AGENT, WHO HAD MADE PAYMENT O N IT'S BEHALF. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE LEARNED TRIBUNAL HAS CONFIRMED THE ORDER PASSED BY THE CIT(A) QUASHING AND SETTING ASIDE THE ORDER PASSED BY THE AO IN DELETI NG THE DISALLOWANCE OF RS.6,93,372/- AND RS.76,00,509/- CLAIMED BY THE AS SESSEE U/S 40(A)(IA) OF THE INCOME TAX ACT, NO REASON FOUND TO INTERFERE W ITH THE SAME. NO ERROR COMMITTED BY THE LEARNED TRIBUNAL IN CONFIRMING TH E ORDER PASSED BY THE CIT(A). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON BLE GUJARAT HIGH COURT, WE DELETE THE ADDITION MADE IN THIS REGARD. 21. AS REGARDS PAYMENT OF RS. 56,321/- TO M/S ACREA TY MANAGEMENT SERVICES, THE LD. AR SUBMITTED THAT THE SAID PAYMEN T WAS FOR PROVIDING HELP TO THE ASSESSEE IN HIRING VARIOUS EM PLOYEES AND IS NOT COVERED U/S 194C OR 194J. REFERRING TO THE PROVISIO NS OF SECTIONS 194C AND 194J, THE LD. AR SUBMITTED THAT TDS U/S 19 4C OR 194J WAS NOT REQUIRED TO BE DEDUCTED ON SERVICES PROVIDED BY ACREATY MANAGEMENT SERVICES AND THUS NO DISALLOWANCE U/S 40 (A)(IA) SHOULD BE MADE IN THIS REGARDS. 22. THE LD. DR RELIED UPON THE ORDERS OF REVENUE AU THORITIES. 23. CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT AS PER CIRCULAR NO. 714, DATED 11 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 03/08/1995, THE SERVICES OF RECRUITMENT AGENCIES AR E IN THE NATURE OF PROFESSIONAL SERVICES RENDERED AND HENCE, IT WILL B E CHARGED TO TDS U/S 194J. HENCE, THE ASSESSEE IS LIABLE TO PAY TDS ON SUCH PAYMENTS U/S 194J. ACCORDINGLY, WE SUSTAIN THE DISALLOWANCE MADE BY THE AO. 24. AS REGARDS PAYMENT TO PROFESSIONALS OF RS. 2,46 ,487/-, THE LD. AR SUBMITTED THAT IT IS AN UNDISPUTED FACT THAT OUT OF RS. 2,46,487/-, DISALLOWED BY THE AO RS. 74,900/- IS MERE REIMBURSE MENT OF EXPENSES. IN THIS CONNECTION, HE INVITED OUR ATTENT ION TO PARAS 1 & 2 ON PAGE 14 OF CIT(A). HE SUBMITTED THAT THE ASSESS EE HAD SUO MOTO ACCEPTED ADDITION OF RS. 1,37,537/-. HOWEVER, FOR T HE BALANCE OF RS. 1,08,950/- THE AMOUNT OF PROFESSIONAL FEES PAID TO EACH INDIVIDUAL PARTY IS LESS THAN RS. 20,000/- WITHOUT CONSIDERING THE REIMBURSEMENT OF EXPENSE AS NO TDS IS REQUIRED TO BE DEDUCTED ON REIMBURSEMENT OF EXPENSES IN VIEW OF THE CASE LAWS CITED SUPRA. T HUS, EXPENSE OF RS. 1,08,950/- IS NOT COVERED UNDER THE PROVISIONS OF SECTION 194J HENCE NO DISALLOWANCE U/S 40(A)(IA) SHOULD BE MADE FOR RS. 1,08,950/-. 25. THE LD. DR ON THE OTHER HAND RELIED UPON THE O RDERS OF REVENUE AUTHORITIES. 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS MATERI AL ON RECORD. AS CONTENDED BY THE ASSESSEE THAT OUT OF RS. 2,46,487/ - DISALLOWED BY THE AO, RS. 74,900/- IS MERE REIMBURSEMENT OF EXPEN SES. ON ANALYZING THE CASE LAWS SUBMITTED BY THE AR, WE OBS ERVE THAT ALL THE CASES WERE RELATING TO REIMBURSEMENT OF EXPENSES RE LATING TO PAYMENTS TO SISTER CONCERNS OR TO AGENTS. WHEREAS I N THE PRESENT CASE, THE REIMBURSEMENT WAS PAID TO PROFESSIONALS, WHO HAD MET SOME EXPENDITURES. WE UNDERSTAND THAT THE PROFESSIO NAL CHARGES ARE CLAIMED ALONG WITH THE REIMBURSEMENT OF EXPENDITURE IN THE SAME INVOICE. THE TDS PROVISION WILL APPLY IN THIS CASE ON THE GROSS AMOUNT 12 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., AS PER CIRCULAR NO. 714, DT. 03/08/1995 (QUESTION N O. 30). WE, THEREFORE, SUSTAIN THE ADDITION MADE BY THE AO. 27. AS REGARDS GROUND NO. 4 PERTAINING TO DISALLOWA NCE OF RS. 1,88,67,445/- MADE IN RESPECT OF ANNUAL AND QUARTER LY DISCOUNTS PAID/PAYABLE TO STOCKIEST U/S 40(A)(IA), THE AO OBS ERVED THAT ASSESSEE DOES NOT HAVE ANY CONTROL OVER SALES MADE BY THE STOCKIEST/DEALERS TO INDEPENDENT OF SALE TRANSACTIO NS AND IT WAS ALLOWED SUBSEQUENT TO THE SALES AND ON FULFILLMENT OF CERTAIN TARGETS AND ALSO IN VIEW OF RENDERING OF ADDITIONAL SERVICE S AND DISCHARGE OF DUTIES BY THE STOCKIEST ON BEHALF OF THE ASSESSEE C OMPANY. THE AO WAS OF THE VIEW THAT IN VIEW OF THE FACTS OF THE CA SE THE DECISIONS RELIED UPON BY THE ASSESSEE WERE NOT APPLICABLE IN THE CASE OF ASSESSEE. 28. THE AO FURTHER OBSERVED THAT THE ADDITIONAL SER VICES RENDERED BY THE STOCKIEST ARE BEING REMUNERATED IN THE FORM OF TARGET DISCOUNT, INCENTIVE AND SUPER DISTRIBUTORS COMMISSION. SUCH ADDITIONAL REMUNERATION, THOUGH DETERMINED ON THE BASIS OF SAL ES, IT HAS NO BEARING ON THE ORIGINAL SALES TRANSACTIONS OF THE S TOCKIEST AS A DEALER. THE AO OBSERVED THAT THE ADDITIONAL SERVICES AND DU TIES DISCHARGED BY THE STOCKIEST ARE NOT IN THE NATURE OF RESTRICTI ONS IMPOSED FOR BUYING AND SELLING THE GOODS, AS OBSERVED BY THE SU PREME COURT IN THE CASE OF BHOPAL SUGAR INDUSTRIES LTD. VS. STO, 3 SCC 147. THE AO FURTHER OBSERVED THAT STOCKIEST HAS IN FACT REND ERED ADDITIONAL SERVICES ON BEHALF OF THE ASSESSEE COMPANY FOR A CO NSIDERATION, WHICH IS IN THE NATURE OF COMMISSION THOUGH IT IS P AID IN DIFFERENT NAMES. AS THE STOCKIEST HAS ACTED AND RENDERED ADDI TIONAL SERVICES AND INCURRED EXPENSES ON BEHALF OF THE ASSESSEE COM PANY AND FOR WHICH HE HAS BEEN DULY COMPENSATED BY WAY OF TARGET DISCOUNT, THUS, THE ELEMENT OF AGENCY IS ALSO PRESENT IN THE CONDUC T BETWEEN THE COMPANY AND THE STOCKIEST. 13 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 29. THE AO OBSERVED THAT THE PAYMENT RECEIVED BY TH E STOCKIEST, WHO APART FROM A DEALER IS ALSO ACTING ON BEHALF OF THE COMPANY IN HIRING MANPOWER AND OTHER INFRASTRUCTURE LIKE TRANS PORTATION AND INCURRING EXPENSES ON BEHALF OF THE ASSESSEE AND GE TTING REIMBURSEMENT OF SUCH EXPENSES FROM THE ASSESSEE, F OR SERVICE RENDERED IN THE COURSE OF BUYING AND SELLING OF GOO DS OF THE ASSESSEE COMPANY, IS IN THE NATURE OF COMMISSION WITHIN THE MEANING OF EXPLANATION (I) TO SECTION 194H OF THE IT ACT. HE, THEREFORE, HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX U/S 194H ON SUCH PAYMENTS MADE TO THE STOCKIEST UNDER THE HEAD QUARTERLY AND ANNUAL TARGET DISCOUNT DURING THE YEAR UNDER CONSIDERATION. AS PE R THE DETAILS FURNISHED BY ASSESSEE VIDE ITS LETTER DATED 29/12/0 8, THE AGGREGATE AMOUNT OF SUCH COMMISSION DEBITED UNDER THE HEAD AN NUAL AND QUARTERLY DISCOUNT WORKS OUT TO RS. 1,88,67,445/- ( INCLUDING THE AMOUNT OF PROVISION MADE AT RS. 1,36,829/-). ACCORD INGLY, THE AO DISALLOWED THE SAID PAYMENTS OF RS. 1,88,67,445/- B EING IN THE NATURE OF COMMISSION PAYMENT APPLYING SECTION 40(A)(IA) OF THE IT ACT. THE CIT(A) CONFIRMED THE ACTION OF THE AO. 30. BEFORE US, THE LD. AR SUBMITTED THAT THE AO HAS CLAIMED THAT THERE IS AN ELEMENT OF AGENCY INVOLVED IN THE DEALI NGS BETWEEN ASSESSEE AND THE STOCKIEST/DEALERS. HOWEVER, IT IS SUBMITTED THAT STOCKIEST /DEALERS ARE BUYING GOODS ON PRINCIPAL TO PRINCIPAL BASIS FROM THE ASSESSEE COMPANY AND SELLING IN THEIR OWN MARKETS AT THEIR OWN TERMS AND CONDITIONS. FURTHER, THE RISKS AND RE WARDS RELATED TO GOODS ON FURTHER SALE ARE PASSED TO THE STOCKIESTS /DEALERS ONLY AND NOT TO THE ASSESSEE COMPANY. HE RELIED ON THE FOLLO WING CASES: 1. CIT VS. INTERVERT INDIA PVT. LTD., ITA NO. 1616 OF 2011, DATED 01/04/14. 2. CIT VS. HYDERABAD INDUSTRIES LTD., ITA NOS. 917 , 918 & 919/HYD/09, ORDER DATED 02/07/12. 3. SD PHARMACY (P) LTD. VS. DCIT, 31 SOT 386 4. CIT VS. MOTHER DAIRY INDIA LTD., 18 TAXMANN.COM 49 5. NAT. PANASONIC (P) LTD. VS. DCIT, 5 SOT 16 6. BHOPAL SUGAR INDUSTRIES VS. STO, BHOPAL, 1977 A IR 1275 14 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., 31 WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, THE A R ALSO SUBMITTED THAT TDS HAS TO BE DEDUCTED ONLY ON THE A MOUNTS PAYABLE AT THE YEAR END AND NOT ON THE AMOUNTS PAID DURING THE YEAR. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CASES: 1. USHODAYA ENTERPRISES VS. DCIT, 60 TAXMANN.COM 8 5 2. SS NETWORKS VS. ITO, 53 TAXMANN.COM 534 3. N. PALANIVELU VS. ITO, 62 TAXMANN.COM 269 4. SRI NARAYAN MOORTHY TRAVELS VS. ITO, 61 TAXMANN .COM 341 5. CIT VS. VECTOR SHIPPING SERVICES (P) LTD., 38 T AXMANN.COM 2013) 6. ACIT VS. CK MOTORS, ITA NO. 122/JU/14, ORDER DA TED 25/09/14 7. MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, 14 4 TTJ 1 32. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND PERUSED THE RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORI TIES AND ALSO THE DECISIONS CITED. IT IS OBSERVED THAT BROKERAGE OR C OMMISSION ENVISAGED UNDER SECTION 194H IS FOR THE PAYMENT REC EIVED BY THE PERSON ACTING ON BEHALF OF ANOTHER FOR SERVICES REN DERED IN THE COURSE OF BUYING AND SELLING OF GOODS. HERE STOCKISTS THEM SELVES ARE BUYING GOODS AND IT CANNOT BE SAID THAT THEY ARE RENDERING ANY SERVICE IN THE COURSE OF SUCH BUYING OF GOODS WHICH WILL RENDER AN Y PAYMENT TO THEM AS COMMISSION. AO AFTER REVIEWING THE DOCUMENT S FILED BEFORE HIM THAT THE STOCKIESTS ARE NOT MERELY ACTING AS A DEALER IN PURCHASE AND SALE OF COMPANYS PRODUCTS BUT THEY ARE ALSO RE NDERING SERVICES AND DISCHARGING ADDITIONAL DUTIES TO EXPAND THE ASS ESSEES MARKETABILITY AS WELL AS REACH INTERIORS TO MARKET THE COMPANY PRODUCTS. HE ALSO CONTENDED THAT THE ADDITIONAL SER VICES RENDERED BY STOCKIESTS ARE BEING REMUNERATED IN THE FORM OF TAR GET DISCOUNT AND INCENTIVES. IN OUR VIEW, THE AO IS MISSING THE BIGG ER PICTURE. THE ADDITIONAL SERVICES RENDERED ON MARKETING ARE NOTHI NG BUT THE SALES PROMOTION DONE TO IMPROVE THE SALES AND IN FACT THE DIRECT BENEFICIARIES ARE THE STOCKIESTS AS THEY ARE THE DI RECT POINT OF SALE TO THE CUSTOMERS. WHAT IS IMPORTANT IS THE NATURE OF T RANSACTIONS. HERE 15 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., THE TRANSACTION IS THE SALES TO DEALERS ON PRINCIPA L TO PRINCIPAL BASIS. ONCE IT IS ESTABLISHED THAT THERE IS NO PRINCIPAL T O AGENT RELATIONSHIP EXISTS, THERE IS NO SCOPE FOR THE SECTION 194H. IT IS SUPPORTED BY THE FOLLOWING JUDICIAL PRONOUNCEMENTS. 1. CIT VS. INTERVERT INDIA PVT. LTD., 364 ITR 238 (BOM.) (ITA NO. 1616 OF 2011, DATED 01/04/14.). THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: RELATIONSHIP BETWEEN ASSESSEE AND DISTRIBUTOR / STO CKISTS WAS THAT OF PRINCIPAL TO PRINCIPAL. IN FACT DISTRIBUTORS WERE CUSTOMERS OF ASSESSEE TO WHOM SALES WERE EFFECTED EITHER DIRECTLY OR THROUG H CONSIGNMENT AGENT. AS THE DISTRIBUTOR/STOCKISTS WERE THE PERSONS TO WHOM THE PRODUCT WAS SOLD, NO SERVICES WERE OFFERED BY THE ASSESSEE AND WHAT WAS OFFERED BY THE DISTRIBUTOR WAS A DISCOUNT UNDER THE PRODUCT DISTR IBUTION SCHEME OR PRODUCT CAMPAIGN SCHEME TO BUY THE ASSESSEE'S PRODUCT. DIS TRIBUTORS / STOCKISTS WERE NOT ACTING ON BEHALF OF ASSESSEE AND THAT MOS T OF CREDIT WAS BY WAY OF GOODS ON MEETING OF SALES TARGET. HENCE, IT COULD NOT BE SAID TO BE COMMISSION PAYMENT WITHIN MEANING OF EXPLANATION ( I) TO SECTION 194H. THE CONTENTION OF THE REVENUE IN REGARD TO THE APPLICA TION OF EXPLANATION (I) BELOW SECTION 194H BEING APPLICABLE TO ALL CATEGOR IES OF SALES EXPENDITURE CANNOT BE ACCEPTED. SUCH READING OF EXPLANATION (I ) BELOW SECTION 194H WOULD AMOUNT TO READING THE SAID PROVISION IN ABST RACT. THE APPLICATION OF THE PROVISION WAS REQUIRED TO BE CONSIDERED TO THE RELEVANT FACTS OF EVERY CASE. IN THE FACTS OF THE PRESENT CASE THAT AS REG ARDS SALES PROMOTIONAL EXPENDITURE IN QUESTION, PROVISIONS OF EXPLANATION (I) BELOW SECTION 194H WERE RIGHTLY HELD TO BE NOT APPLICABLE AS BENEFIT WHICH WAS AVAILED OF BY DEALERS / STOCKISTS OF ASSESSEE WAS APPROPRIATELY HELD TO BE NOT PAYMENT OF ANY COMMISSION IN CONCURRENT FINDINGS AS RECORDED BY CIT (A) AND TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW HAD ARISEN. REVENUE S APPEAL DISMISSED. 2. CIT VS. HYDERABAD INDUSTRIES LTD., ITA NOS. 917 , 918 & 919/HYD/09, ORDER DATED 02/07/12. THE COORDINATE BENCH HELD AS FOLLOWS: 15. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, IT IS OBSERVED THAT AS FOUND FROM THE ORDER OF THE CIT(A) AS A MATTER O F FACT WHAT WAS OFFERED BY THE ASSESSEE TO THE STOCKISTS IS NOT HING BUT DISCOUNT. THE ASSESSEE SOLD STOCK TO THE STOCKISTS WHO IN TURN SOLD IT TO THE CUSTOMERS. STOCKISTS ARE ALLOWED DI SCOUNT AND COMMISSION SEPARATELY. THE ASSESSEE ISSUED CREDIT NOTES TO THE STOCKISTS GIVING DISCOUNT ON THE SALES PRICE, ON TH E BASIS OF VARIOUS SCHEME, IN RESPECT OF QUALITY, TARGET, TURN OVER ETC., ON THE BASIS OF THE PERFORMANCE OF THE STOCKISTS. AS FOUND BY THE CIT(A), WHAT IS OFFERED BY THE ASSESSEE TO THE STOC KISTS ARE NOTHING BUT DISCOUNT BECAUSE THE ASSESSEE SELLS THE GOODS TO THE STOCKISTS, WHO IS TURN SELLS THE GOODS TO THE CONSU MER. IN THE SALE TRANSACTION BETWEEN THE ASSESSEE AND THE STOCK ISTS THERE CANNOT BE PAYMENT OF COMMISSION TO THE PURCHASER HI MSELF. 16 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., BROKERAGE OR COMMISSION ENVISAGED UNDER SECTION 194 H IS FOR THE PAYMENT RECEIVED BY THE PERSON ACTION ON BEHALF OF ANOTHER FOR SERVICES RENDERED IN THE COURSE OF BUYING AND S ELLING OF GOODS. HERE STOCKISTS THEMSELVES ARE BUYING GOODS A ND IT CANNOT BE SAID THAT THEY ARE RENDERING ANY SERVICE IN THE COURSE OF SUCH BUYING OF GOODS WHICH WILL RENDER ANY PAYME NT TO THEM AS COMMISSION. IN THE CIRCUMSTANCES, WE CONCUR WIT H THE CONCLUSION AND FINDINGS OF THE CIT(A) THAT WHAT WAS OFFERED TO THE STOCKISTS IS NOTHING BUT DISCOUNT UNDER PROVISI ONS TO SEC.194H WILL NOT APPLY. IN THE CIRCUMSTANCES, THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF DISCOUNT PAID B Y THE ASSESSEE TO THE STOCKISTS TO THE EXTENT OF RS.11306 8338/-. WE DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 3. SD PHARMACY (P) LTD. VS. DCIT, 31 SOT 386 THE COORDINATE BENCH HELD AS FOLLOWS: 9. WE HEARD BOTH THE SIDES IN DETAIL AND CONSIDERED T HE ISSUE. APART FROM THE VARIOUS BUSINESS RELATIONS AND ASSOCIATIONS OF VARIOUS DEALERS IN THE BUSINESS OF THE COMPANY, THERE IS NOTHING ON RECORD TO SHOW THAT THE DEALERS AND BUYERS ARE NOT ACTING ON THEIR OWN BEHA LF. THE AO HAS NOT PRODUCED ANY MATERIAL ON RECORD TO SHOW THAT THE AS SESSEE COMPANY IS SELLING ITS PRODUCTS THROUGH THE AGENTS AND THE INV OICES ARE ISSUED TO THESE AGENTS. BUT, ON THE OTHER HAND, ON VERIFICATION OF THE COPIES OF THE INVOICES PRODUCED BEFORE US, IT IS CLEAR THAT IT IS A CASE O F OUTRIGHT SALES TO VARIOUS BUYERS AND DEALERS WHO MAY INCLUDE ASSESSEES SISTE R CONCERNS AND ASSOCIATES. THE RELATIONSHIP OF THE ASSESSEE COMPAN Y WITH ITS ASSOCIATES AND SISTER CONCERNS DOES NOT CHANGE THE CHARACTER OF TH E TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN ITS USUAL COURSE OF BUSINESS. TH E ASSESSEE IS SELLING GOODS TO VARIOUS DEALERS ON THE BASIS OF INVOICES R AISED AGAINST THOSE PARTIES. THE PRODUCTS ARE BILLED AT ITS GROSS PRICE AND THEREAFTER TRADE DISCOUNT IS DEBITED THEREFROM AND THE BALANCE IS SH OWN AS THE NET PRICE. SALES-TAX IS COLLECTED ON THAT NET AMOUNT AND GOODS ARE DELIVERED. SALE IS COMPLETE. THE ASSESSEE IS DEALING IN MERCHANDISE AN D GOODS IN THE FORM OF AYURVEDIC PRODUCTS AND ONCE THEY ARE DELIVERED AGAI NST INVOICES, THE SALE IS COMPLETE AND THE PROPERTY IN THE GOODS PASSES FROM THE ASSESSEE COMPANY TO THE DEALERS. THEREFORE, IT IS CLEAR THAT THE SAL ES MADE BY THE ASSESSEE TO VARIOUS DEALERS ARE ON PRINCIPAL TO PRINCIPAL BASIS . THEREFORE, THERE IS NO QUESTION OF THE ASSESSEE PAYING ANY COMMISSION OR B ROKERAGE OR SIMILAR AMOUNTS TO THE PARTIES FOR THE SERVICES RENDERED BY THEM. THE ASSESSEE IS SELLING ITS PRODUCTS TO ITS DEALERS AND THE DEALERS ARE NOT SELLING THEM IN THE MARKET ON ASSESSEES BEHALF FOR WHICH THE ASSESSEE IS SUPPOSED TO PAY COMMISSION OR BROKERAGE. IN FACT, TRADE DISCOUNT GR ANTED BY THE ASSESSEE TO THE PARTIES IN THE INVOICE ITSELF IS THE MARGIN THA T THE DEALERS MAY ENJOY IN CARRYING ON THE RETAIL TRADE. ONCE THE INVOICE IS R AISED AND THE GOODS ARE DELIVERED, SALE IS COMPLETE. THE ONLY TRANSACTION W HICH REMAINS IS THE PAYMENT OF THE INVOICE AMOUNT BY THE PARTIES TO THE ASSESSEE COMPANY WHICH IS IN THE NATURE OF TRADE DEBTS. AT THE TIME OF THE SALE ALSO, THE ASSESSEE IS NOT CREDITING THE PERSONAL ACCOUNTS OF THE DEALERS WITH THE AMOUNT OF TRADE DISCOUNT. THE TRADE DISCOUNT IS DIR ECTLY DEBITED IN THE TRADE DISCOUNT ACCOUNT ITSELF. THERE IS NO QUESTION OF TH E ASSESSEE MAKING ANY PAYMENT OF COMMISSION OR BROKERAGE TO THE PARTIES O R CREDITING THE ACCOUNTS 17 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., OF THE PARTIES FOR SIMILAR AMOUNTS. THEREFORE, THER E IS NO OCCASION TO DEDUCT THE TAX AS CONTEMPLATED UNDER S. 194H OF THE ACT. 4. CIT VS. MOTHER DAIRY INDIA LTD., 18 TAXMANN.COM 49 THE HONBLE HIGH COURT OF DELHI HELD AS FOLLOWS: IT IS A WELL-SETTLED PROPOSITION THAT IF THE PROPE RTY IN THE GOODS IS TRANSERRED AND GETS VESTED IN THE CONCESSIONAIRE AT THE TIME OF THE DELIVERY, THEN HE IS THEREAFTER LIABLE FOR THE SAME AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIP AL AND NOT AS AN AGENT OF THE DAIRY. THE CLAUSES OF THE AGREEMENT S SHOW THAT THERE IS AN ACTUAL SALE, AND NOT MERE DELIVERY OF T HE MILK AND THE OTHER PRODUCTS TO THE CONCESSIONAIRE. THE CONCE SSIONAIRE PURCHASES THE MILK FROM THE DAIRY. THE DAIRY RAISES A BILL ON THE CONCESSIONAIRE AND THE AMOUNT IS PAID FOR. THE DAIR Y MERELY FIXED THE MRP AT WHICH THE CONCESSIONAIRE CAN SELL THE MILK. UNDER THE AGREEMENT THE CONCESSIONAIRE CANNOT RETUR N THE MILK UNDER ANY CIRCUMSTANCE, WHICH IS ANOTHER CLEAR INDI CATION THAT THE RELATIONSHIP WAS THAT OF PRINCIPAL-TO-PRINCIPAL . EVEN IF THE MILK GETS SPOILED FOR ANY REASON AFTER DELIVERY IS TAKEN, THAT IS TO THE ACCOUNT OF THE CONCESSIONAIRE AND THE DAIRY IS NOT RESPONSIBLE/OR THE SAME. THESE CLAUSES HAVE ALL BEE N NOTICED BY THE TRIBUNAL. THE FACT THAT THE BOOTH AND THE EQ UIPMENT INSTALLED THEREIN WERE OWNED BY THE DAIRY IS OF NO RELEVANCE IN DECIDING THE NATURE OF RELATIONSHIP BETWEEN THE ASS ESSEE AND THE CONCESSIONAIRE. FURTHER, THE FACT THAT THE DAIR Y CAN INSPECT THE BOOTHS AND CHECK THE RECORDS MAINTAINED BY THE CONCESSIONAIRE IS ALSO NOT DECISIVE. AS RIGHTLY POI NTED OUT BY THE TRIBUNAL, THE DAIRY HAVING GIVEN SPACE, MACHINERY A ND EQUIPMENTS TO THE CONCESSIONAIRE WOULD NATURALLY LI KE TO INCORPORATE CLAUSES IN THE AGREEMENT TO ENSURE THAT ITS PROPERTY IS PROPERLY MAINTAINED BY THE CONCESSIONAIRE, PARTI CULARLY BECAUSE MILK AND THE OTHER PRODUCTS ARE CONSUMED IN 100'GE QUANTITIES BY THE GENERAL PUBLIC AND ANY DEFECT IN THE STORAGE FACILITIES WHICH REMAINS UNATTENDED CAN CAUSE SERIO US HEALTH HAZARDS. THESE ARE ONLY TERMS INCLUDED IN THE AGREE MENT TO ENSURE THAT THE SYSTEM OPERATES SAFELY AND SMOOTHLY . FROM THE MERE EXISTENCE OF THESE CLAUSES IT CANNOT BE SAID T HAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONCESSIO NAIRE IS THAT OF A PRINCIPAL AND AN AGENT. THAT QUESTION MUS T BE DECIDED, ON THE BASIS OF THE FACT AS TO WHEN AND AT WHAT POI NT OF TIME THE PROPERTY IN THE GOODS PASSED TO THE CONCESSIONAIRE. IN THE INSTANT CASES, THE CONCESSIONAIRE BECAME THE OWNER OF THE MILK AND THE PRODUCTS ON TAKING DELIVERY OF THE SAME FRO M THE DAIRY. HE, THUS PURCHASED THE MILK AND THE PRODUCTS FROM T HE DAIRY AND SOLD THEM AT THE MRP. THE DIFFERENCE BETWEEN TH E MRP AND THE PRICE WHICH CONCESSIONAIRE/JAYS TO THE DAIR Y IS HIS INCOME FROM BUSINESS. IT CANNOT BE CATEGORIZED AS C OMMISSION. THE LOSS AND GAIN IS OF THE CONCESSIONAIRE. THE DAI RY MAY HAVE 18 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., FIXED THE MRP AND THE PRICE AT WHICH THEY SELL THE PRODUCTS 10 THE -CONCESSIONAIRE BUT THE PRODUCTS ARE SOLD AND O WNERSHIP VESTS AND IS TRANSFERRED TO THE CONCESSIONAIRES. TH E SALE IS SUBJECT TO CONDITIONS, AND STIPULATIONS. THIS BY IT SELF DOES NOT SHOW AND ESTABLISH PRINCIPAL AND AGENT RELATIONSHIP . THE SUPERVISION AND CONTROL REQUIRED IN CASE OF AGENCY IS MISSING. 5. NATIONAL PANASONIC (P) LTD. VS. DCIT, 3 SOT 16 (DELHI) THE COORDINATE BENCH HELD AS FOLLOWS: 'RENT' FOR THE PURPOSES OF S. 194-I IS ESSENTIALLY A PAYMENT FOR THE USE OF ANY LAND OR BUILDING. IN OTHER WORDS, THE AGREEMENT OR ARRANGEMENT WHICH GIVES RISE TO THE PAYMENT OF RENT, MUST NECESSARILY BE AN AGREEMENT OR ARRANGEMENT PREDOMINANTLY FOR THE USE OF LAND OR BU ILDING. HOWEVER, WHERE THE AGREEMENT IS NOT PREDOMINANTLY FOR THE USE OF L AND OR BUILDING, BUT FOR SOMETHING ELSE, THEN PAYMENT UNDER THAT AGREEMENT W ILL NOT CONSTITUTE RENT EVEN IF THAT 'SOMETHING ELSE' INVOLVES THE USE OF L AND OR BUILDING AS AN INTEGRAL PART OF OR INCIDENTAL TO THE PREDOMINANT O BJECTIVE OF THE AGREEMENT. THE ASSESSEE HAS APPOINTED SEVERAL C&F AGENTS. THE APPOINTMENT OF C&F AGENTS IS NECESSITATED FOR A SMOOTH AND PROPER DIST RIBUTION OF ITS GOODS OVER A PARTICULAR AREA. IN OTHER WORDS, C&F AGENTS ARE A LINK BETWEEN THE MANUFACTURER AND THE CONSUMERS. IT IS A PART OF SAL ES AND DISTRIBUTION NETWORK OF THE MANUFACTURER. THE MANUFACTURER DESPA TCHES GOODS TO THE C&F AGENT, WHO IN TURN FORWARDS THE SAME TO VARIOUS DESTINATIONS EITHER TO WHOLESALERS OR STOCKISTS FOR ONWARD MOVEMENT TO RET AILERS AND CONSUMERS. IN SHORT, THE ESSENCE OF THIS ARRANGEMENT IS THAT T HE GOODS REACH THEIR ULTIMATE DESTINATION SMOOTHLY WITHOUT ANY INTERRUPT ION. IT IS JUST ONE OF THE MODES OF MAKING AVAILABLE THE GOODS IN THE MARKET. HOWEVER, THERE IS A TIME-GAP BETWEEN THE RECEIPT OF GOODS BY THE C&F AG ENT AND THEIR ONWARD DESPATCH. OBVIOUSLY, THE C&F AGENT HAS TO STORE THE SE GOODS DURING THE INTERVENING PERIOD. BUT THEN, SIMPLY BECAUSE THE C& F AGENT HAS TO HOLD THE GOODS IN THE INTERREGNUM, THE DISTRIBUTION ARRANGEM ENT BETWEEN THE MANUFACTURER AND THE C&F AGENT IS NOT CONVERTED INT O AN ARRANGEMENT AS MAY BE OBTAINING BETWEEN A LANDLORD OR TENANT, OR B ETWEEN A TENANT AND A SUB-TENANT. IN CASE OF AN ARRANGEMENT WHICH IS A PA RT OF THE DISTRIBUTION NETWORK, THE PAYMENT MADE BY THE MANUFACTURER TO TH E C&F AGENT IS FOR THE SERVICES RENDERED BY THE LATTER TO THE FORMER, THE SERVICES BEING THOSE OF DISTRIBUTION OF GOODS. THIS ALSO EXPLAINS AS TO WHY SERVICE TAX IS LEVIED ON THE C&F AGENTS. MERELY BECAUSE THE C&F AGENT STORES THE GOODS IN THE INTERVENING PERIOD, THE CHARACTER OF THE PAYMENT MA DE BY THE MANUFACTURER TO THE AGENT DOES NOT UNDERGO ANY CHANGE SO AS TO C ALL IT RENT EITHER UNDER GENERAL LAW OR FOR THE PURPOSES OF S. 194-I. FURTHE R, THIS BEING A CONTRACT FOR CARRYING OUT A WORK BETWEEN THE ASSESSEE AND THE AG ENT, THE ASSESSEE HAS DEDUCTED TAX AT SOURCE UNDER S. 194C. THE FACT THAT S. 194C WILL APPLY TO THE IMPUGNED PAYMENT IS CLARIFIED BY THE BOARD IN ITS C IRCULAR NO. 715, DT. 8TH AUG., 1995. THE BOARD HAS ALSO CLARIFIED BY ITS CIR CULAR NO. 720, DT. 30TH AUG., 1995, THAT EACH SECTION UNDER CHAPTER XVII DE ALS WITH A PARTICULAR KIND OF PAYMENT TO THE EXCLUSION OF ALL OTHER SECTI ONS IN THE CHAPTER. THEREFORE, A PAYMENT IS LIABLE FOR TAX DEDUCTION ON LY UNDER ONE SECTION. AGAIN, OBVIOUSLY THE TOTAL PAYMENT RECEIVED BY THE AGENT WILL ALSO INCLUDE RENT AS A PART OF THE TOTAL COST, BUT THAT DOES NOT MEAN THAT THE ARRANGEMENT BETWEEN THE ASSESSEE AND THE AGENT IS F OR THE USE OF LAND OR BUILDING. IT IS MERELY A COMPONENT OF TOTAL COST, T HE BREAK UP OF WHICH WAS GIVEN BY THE ASSESSEE TO THE AUTHORITIES. BUT, IT D OES NOT ATTRACT THE 19 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., PROVISIONS OF S. 194-I AND, HENCE, THE CIT(A) WAS N OT JUSTIFIED IN HOLDING IT OTHERWISE. IN THE FINAL ANALYSIS, S. 194-I DOES NOT APPLY AT ALL TO THE PAYMENTS MADE BY THE ASSESSEE TO ITS C&F AGENTS. RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE ABOVE JUDICIAL PRONOUNCEMENTS, WE CONCLUDE THAT THE ABOVE PAYMENTS ARE IN THE NATURE OF TRADE DISCOUNTS AND NOT COMMISSION ON WHI CH PROVISIONS OF SECTION 194H WILL APPLY. ACCORDINGLY, THE ADDITIONS MADE ON THIS COUNT ARE DELETED. 33. AS REGARDS THE GROUND NO. 5 PERTAINING TO DISAL LOWANCE OF RS. 14,21,891/- MADE BY AO U/S 40(A)(IA) FOR PAYMENTS M ADE TO STOCKIESTS, THE AO OBSERVED THAT THE ASSESSEES CON TENTION THAT THE PAYMENTS MADE BY WAY OF COMMISSION, INCENTIVE AND T ARGET DISCOUNT CANNOT BE CONSIDERED AS TRADE DISCOUNT. THE SAID PA YMENTS ARE IN THE NATURE OF COMMISSION WITHIN THE MEANING OF SECTION 194H. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAS IN FACT DEDUC TED TAX U/S 194H ON SUCH COMMISSION AND INCENTIVE PAYMENTS EXCEPT TH E ABOVE SAID PROVISIONS. HE, THEREFORE, HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX U/S 194H AND DISALLOWED THE AMOUNT OF RS . 14,21,891/- U/S 40(A)(IA) OF THE ACT. THE CIT(A) CONFIRMED THE ACTI ON OF THE AO. 34. BEFORE US, THE LD. AR SUBMITTED THAT THE AMOUNT PAID TO STOCKIESTS/DEALER IS ACTUALLY IN THE NATURE OF DISC OUNTS ONLY BUT NAMED AS COMMISSION AND THEREFORE PROVISIONS OF TDS SHALL NOT APPLY. 35. LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 36. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REV ENUE AUTHORITIES. THE ASSESSEE HAS ALREADY MADE TDS PAYMENTS ON THE S IMILAR PAYMENTS AND TERMED THESE AS COMMISSION. IT CANNOT CONTEST THAT THESE ARE INCENTIVES TO DEALERS AND COULD NOT SUBST ANTIATE ITS CLAIM. 20 ITA NO. 1368 /HYD/2013 M/S BAJAJ CONSUMER CARE LTD., WE CONCLUDE THAT THESE ARE IN THE NATURE OF COMMISS ION ONLY. ALSO, THE PROVISION MADE FOR RS. 1,94,000/- WILL ATTRACT TDS AS PER THE PROVISIONS OF TDS, AND TDS HAS TO BE REMITTED AS SO ON AS PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER. IN THE PRES ENT CASE, THE ASSESSEE CANNOT IDENTIFY THE PARTIES TO WHOM COMMIS SION PAYMENT WAS TO BE MADE. THE LIABILITY CANNOT BE CREATED WIT HOUT IDENTIFYING THE ACTUAL LIABILITY AS WELL AS IDENTIFYING THE CREDITO R. IN OUR VIEW, THE ASSESSEE HAS NO OPTION BUT TO REVERSE IT. 37. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 7 TH APRIL, 2016. SD/- SD/- (D. MANMOHAN) (S. RIFAUR R AHMAN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 7 TH APRIL, 2016 KV COPY TO:- 1) M/S BAJAJ CONSUMER CARE LTD., C/O M/S O.P. BANG & CO., CAS., 102, 1 ST FLOOR, LAXMI ARCADE, VITTALWADI X ROAD, NARAYANAGU DA, HYDERABAD 500 029. 2) DCIT, CIRCLE 1(3), HYDERABAD. 3 CIT(A) - V, HYDERABAD 4) CIT I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.