DCIT 14(3)(2), MUMBAI V. SANDU PHARMACEUTICALS LTD, MUMBAI

ITA 6701/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7380 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Keywords: Relationship of principal and agent

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 6701 /MUM/2016 ASSESSMENT Y EAR: 2011 - 12 THE DCIT (HQ) JUDICIAL TO PR. CIT - 14, 461, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI - 400020 VS. M/S SANDU PHARMACEUTICALS LIMITED, SANDU NAGAR, D.K. SANDU MARG, CHEMBUR, MUMBAI - 400071 PAN: AAACS6291G (APPELLANT) (RESPONDENT) REVENUE BY : MS. ARJU GARODIA (DR) ASSESSEE BY : SHRI HIRO RAI (AR) DATE OF HEARING: 19 /04 /201 8 DATE OF PRONOUNCEMENT: 27 / 04 /201 8 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 01.08.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL S) (FOR SHORT THE CIT (A) - 22 , MUMBAI , FOR THE A S S ESSMENT YEAR 2010 - 11 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. BRIEF FAC TS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACT URING OF AYURVEDIC MEDICINES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 76,28,900/ - . THE RETURN WAS PROCESSED U/S 143 (1) OF THE ACT. SINCE, THE CASE WAS SELECTED FOR SCRUTINY NOTICE S U/S 143 (2) AND 142 (1) WERE ISSUED TO THE ASSESSEE AND IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE APPEARED BEFORE THE AO AND SUBMITTED THE DETAILS CALLED FO R. IT WAS SEEN THAT THE APPELLANT/ASSESSEE HAD ALLOWED A DISCOUNT/COMMISSION OF RS. 11,05,33,754/ - TO M/S SANDU BROTHERS PVT. LTD. ON WHICH THE ASSESSEE HAD NOT 2 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 DEDUCTED THE TAX AT SOURCE . SINCE, THE AMOUNT PAID BY THE ASSESSEE WAS VERY HIGH, THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENTS MADE TOWARDS DISCOUNT/COMMISSION . THE ASSESSEE CONTENDED THAT DISCOUNT WAS GIVEN TO THE SISTER CONCERN WHICH HAD MARKETING NETWORK FOR SELLING AND DISTRIBUTION OF MEDICINES. THE SAID COMPANY USED TO PURCHASE THE ENTIRE PRO DUCT OF THE ASSESSEE FOR SALE THEREFORE THE ASSESSEE COMPANY OFFER ED HEAVY DISCOUNT WHICH ALSO INCLUDES COST OF DISTRIBUTION, MARKETING AND SELLING OF THE PRODUCT, EXPENSES OF FIELD STAFF AND TRAVELLING EXPENSES ETC . HOWEVER, T HE AO REJECTING THE CONTENTIO N OF THE ASSESSEE INTER ALIA MADE DISALLOWANCE OF RS. 8,88,58,525/ - U/S 40(A)(IA) OF THE ACT HOLDING THAT DISCOUNT OFFERED BY THE ASSESSEE IS ACTUALLY A COMMISSION U/S 194H OF THE ACT AND COMPUTED THE TOTAL INCOME AT RS 7,02,36,390/ - 3. IN THE FIRST APPEA L, THE LD. CIT(A) RELYING ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL RENDERED IN ASSESSEES OWN APPEAL ITA NO 2087/MUM/2012 PERTAINING TO THE ASSESSMENT YEAR 2009 - 10 DELETED THE ADDITION MADE U/S 40(A)(IA) OF THE ACT. 4 . AGGRIEVED BY THE IMPUGNED ORDER PASSED BY THE LD. CIT (APPEAL S ), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUND : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE COMPANY OF RS. 8,88,58,525/ - TREATING THE SAME AS THE DISCOUNT ON THE SALES OFFERED BY THE ASSESSEE COMPANY TO ITS ASSOCIATE CONCERN VIZ. M/S SANDU BROTHERS PRIVATE LIMITED, WITHOUT APPRECIATING THAT THE DISCOUNT OFFERED BY THE ASSESSEE IS ACTUALL Y A COMMISSION PAYMENT PAID BY THE ASSESSEE TO M/S SANDU BROTHER PRIVATE LIMITED AND THE AO HAS RIGHTLY MADE THE DISALLOWANCE U/S 40(A)(IA) OF THE IT ACT FOR FAILURE TO DEDUCT TDS THEREUPON U/S 194H OF THE IT ACT WHILE MAKING COMMISSION PAYMENT. 3 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 6.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANTS SUBMISSIONS. I FIND THAT THE HONBLE TRIBUNAL IN THE APPELLANTS OWN CASE ON IDENTICAL FACTS FOR A.Y. 2009 - 10 HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN ITA NO. 2087/MUM/2012 VIDE ORDER DATED 23.03.2016 BY HOLDING AS UNDER: - 5 . BEFORE US , THE LD. DEPARTMENTAL REPRESENTATIVE RELYING ON THE FINDINGS OF THE AO SUBMITTED THAT SINCE THE LD. CIT(A) HAS DELETED THE ADDITION WITHOUT APPRECIATING THE FACT THAT M/S SANDU BROTHERS PRIVATE LTD IS AN ASSOCIATE COMPANY OF THE ASSESSEE COMPANY AND THE DISCOUNT OFFERED IS IN FACT A COMMISSION AND SINCE THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE UNDER THE PROVISI ONS OF SECTION 194H OF THE ACT AND THE AO HAS RIGHTLY MADE THE DISALLOWANCE. THEREFORE THE FINDINGS OF THE LD. CIT(A) IS ERRONEOUS AND LIABLE TO BE SET ASIDE. 6 . ON THE OTHER HAND, THE LD. COUNSEL SUBMITTED THAT THE FINDINGS OF THE LD. CIT(A) IS BASED ON THE ORDER OF THE TRIBUNAL DATED 23.03.2016 PASSED IN ASSESSEES OWN CASE ITA NO 2087/MUM/20 12 FOR THE ASSESSMENT YEAR 2009 - 10, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE, THEREFORE THE SAME IS LIABLE TO BE SET ASIDE. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITION AFORESAID MADE BY THE AO. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE LD. CIT(A) HAS DELETED THE ADDITION IN QUESTION BY FOLLOWING THE DECISION OF THE COORDINATE BENCH THE RENDERED IN THE ASSESS EES OWN CASE AFORESAID. THE OPERATIVE PART OF THE ORDER OF THE LD. CIT(A) READS AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANTS SUBMISSIONS. I FIND THAT THE HONBLE TRIBUNAL IN THE APPELLANTS OWN CASE ON IDENTICAL FACTS FOR A.Y. 20 09 - 10 HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN ITA NO 2087/MUM/2012 VIDE ORDER DATED 23.03.2016 BY HOLDING AS UNDER: 4 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIN D TO THE DECISIONS RELIED UPON. THE CORE ISSUE TO BE DECIDED IS WHETHER THE DISCOUNT ALLOWED BY THE ASSESSEE ON THE MRP TO SBPL IS THE PRICE FOR SELLING OF GOODS OR IN THE NATURE OF COMMISSION. BEFORE DECIDING THE ISSUE, IT NEEDS REITERATION THAT THE ASSES SEE SELLS ITS ENTIRE PRODUCTS TO SBPL AND ALLOWS A DISCOUNT OF 51% ON THE MRP. THIS FACT IS EVIDENT FROM THE INVOICES RAISED BY THE ASSESSEE COPY OF WHICH HAS BEEN SUBMITTED THE PAPER BOOK. IT IS A FACT ON RECORD THAT ASSESSEE ENTERED INTO AN AGREEMENT WI TH SBPL ON 1 ST APRIL 1997, FOR SALE OF ITS PRODUCTS. AS PER CLAUSE 1 IF THE AGREEMENT, ASSESSEE IS TO MANUFACTURE AND PROCESS CERTAIN AYURVEDIC DRUGS AND FORMULATION BY UTILIZING THE SECRET FORMULATION GIVEN BY SBPL AND PACK THEM IN BULK OR IN SUCH OTHER P ACK AS MAY BE STIPULATED OR SPECIFIED BY THE SBPL TO ENABLE THEM MARKET THE SAME BY BUYING THE SAID PRODUCTS ON ITS ACCOUNT. CLAUSE - 11 OF THE AGREEMENT STIPULATES THAT THE SALE OF GOODS TO SBPL ARE ON PRINCIPAL - TO - PRINCIPAL BASIS AND NONE OF THE PARTIES TO THE AGREEMENT SHALL HOLD ONESELF AS AGENT OF OTHER UNDER ANY CIRCUMSTANCES. IT FURTHER STIPULATES THAT SBPL SHALL SELL THE PRODUCTS ON ITS OWN ACCOUNT ONLY AND NOT AS AN AGENT OR ON BEHALF OF THE ASSESSEE. CLAUSE - 10(A) OF THE AGREEMENT PROVIDES THAT A SSESSEE SHALL MANUFACTURE THE GOODS AS PER THE SPECIFICATION OF SBPL AND IF THE PRODUCTS ARE NOT IN ACCORDANCE WITH THE STANDARD, SBPL SHALL HAVE THE RIGHT TO REJECT THE PRODUCTS. HOWEVER, CLAUSE 10(B) PROVIDES THAT ONCE SBPL ACCEPTS CERTAIN PRODUCTS MANUF ACTURED BY THE ASSESSEE, ANY LOSS SUFFERED BY SBPL, SUBSEQUENTLY, DUE TO HANDLING, TRANSPORTATION OR STORAGE SHALL BE BORNE BY SBPL. THUS, ON OVER ALL CONSIDERATION OF THE AGREEMENT BETWEEN THE PARTIES, IT BECOMES CLEAR THAT ONCE CERTAIN GOODS ARE SOLD TO SBPL AFTER CERTIFICATION BY THEM, OWNERSHIP OF SUCH GOODS IN TRANSFERRED FROM THE ASSESSEE AND VESTS WITH SBPL. THUS, ONCE THE GOODS ARE CERTIFIED BY SBPL AND SOLD TO THEM THE CONTRACT OF SALE CONCLUDES AS FAR AS ASSESSEE IS CONCERNED, AS GOODS CANNOT BE R ETURNED BACK TO THE 5 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 ASSESSEE. THEREFORE, EXAMINED IN THE AFORESAID PERSPECTIVE, IT HAS TO BE CONCLUDED THAT IT IS A TRANSACTION OF SALE BETWEEN THE ASSESSEE AND SBPL ON PRINCIPAL - TO PRINCIPAL BASS AND THERE IS NO AGENCY BETWEEN THEM. FURTHER, ON A PERUSAL OF THE INVOICES RAISED, IT IS CLEAR THAT THE ASSESSEE HAS GIVEN A DISCOUNT OF 51% ON MRP OF THE GOODS SOLD. THESE EVIDENCES CLEARLY DEMONSTRATE THAT THERE IS NO RELATIONSHIP OF PRINCIPAL AND AGENT BETWEEN THE ASSESSEE AND SBPL. THE DEPARTMENTAL AUTHORITIE S HAVE FAILED TO DEMONSTRATE THAT SBPL WAS ACTING AS AGENT ON BEHALF OF THE ASSESSEE TO SATISFY THE CONDITION OF SECTION 194H. IT IS ALSO RELEFVANT TO NOTE, THOUGH, THE AGREEMENT WITH THE SBPL ON SALE EFFECTED O V ER THE YEARS, THE DEPARTMENT HAS NOT MADE AN Y DISALLOWANCE EITHER IN THE PRECEDING ASSESSMENT YEARS OR IN THE SUBSEQUENT YEAR 2005 - 06 AND 2006 - 07 UNDER SECTION 143 (3) OF THE ACT, COPY OF WHICH HAVE BEEN PLACED ON RECORD. THAT BEING THE CASE, WHEN THE DEPARTMENT IS FOLLOWING A CONSISTENT VIEW BY NOT TREATING THE DISCOUNT GIVEN TO BE IN THE NATURE OF COMMISSION OVER THE YEARS UNDER IDENTICAL FACTS AND CIRCUMSTANCES, A DIFFERENT APPROACH CANNOT BE TAKEN IN THE IMPUGNED ASSESSMENT YEAR. FURTHER, ON A PERUSAL OF THE PROVISIONS CONTAINED IN SECTION 40(A)( IA) OF THE ACT, AS WAS EXISTING AT THE RELEVANT PERIOD, IT IS SEEN, IT REFERS TO ANY SOME PAYABLE TO A RESIDENT. IT IS THE CONTENTION OF ASSESSEE THAT DURING THE YEAR ASSESSEE HAS NOT PAID ANY AMOUNT TOWARDS COMMISSION TO SBPL NOR ANY AMOUNT IS CREDITED. W E FIND MERIT IN THE AFORESAID SUBMISSIONS OF THE ASSESSEE. AS COULD BE SEEN, THE ASSESSEE HAS BEEN SELLING ITS PRODUCT TO SBPL AND ON THE MRP, IT HAS GIVEN TRADE DISCOUNT OF 51%. IN OTHER WORDS, SBPL PAYS THE SALE CONSIDERATION TO THE ASSESSEE AT A DISCOUN TED PRICE. THE ASSESSEE NEITHER HAS MADE ANY PAYMENT TO SBPL NOR CREDITED ANY AMOUNT TOWARDS COMMISSION TO ITS ACCOUNT. THEREFORE, THERE BEING NO SUM PAID OR CREDITED IN TERMS OF SECTION 40(A)(IA), NO DISALLOWANCE COULD BE MADE. THE DECISIONS RELIED UPON B Y THE ASSESSEE ALSO SUPPORTS THE AFORESAID CONCLUSION. ACCORDINGLY, AS THERE IS NO ELEMENT OF COMMISSION FOUND EMBEDDED IN THE DISCOUNT OF 51%, IN OUR VIEW, NO DISALLOWANCE 6 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 UNDER SECTION 40(A)(IA) CAN BE MADE AS THE DEPARTMENT HAS FAILED TO ESTABLISH PRINC IPAL - AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND SBPL. MOREOVER, THE DEPARTMENT ACCEPTING A PART OF THE DISCOUNT, THOUGH AT 10%, IN A WAY HAS ACCEPTED THAT THERE IS A SALE TRANSACTION BETWEEN THE ASSESSEE AND SBPL. THEREFORE, ON OVER ALL CONSIDERATION OF F ACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT TRANSACTION BETWEEN THE ASSESSEE AND SBPL BEING A DIRECT SALE TRANSACTION ON PRINCIPAL - TO - PRINCIPAL BASIS, PROVISIONS OF SECTION 194H ARE NOT APPLICABLE, HENCE, NO DISALLOWANCE UNDER SECTION 40(A) (IA) OF THE ACT CAN BE MADE. ACCORDINGLY, GROUND NO. 1, IS ALLOWED RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT, MUMBAI IN THE APPELLANTS OWN C ASE ON IDENTICAL FACTS AS ABOVE, THE DISALLOWANCE OF RS. 8,88,58,525/ - UNDER SECTION 40(A)(IA) OF TH E ACT BY THE ASSESSING OFFICER IS DELETED. THE APPELLANTS GROUND S OF APPEAL ARE ALLOWED. 8 . T HE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10, AFORESAID. SINCE THE LD. CIT(A) HAS DECIDED THIS ISSUE AGAINST THE REVENUE BY FOLLOWING THE ORDER OF THE COORDINATE BENCH, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). WE THEREFORE, UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE SO LE GROUND OF THE REVENUES APPEAL AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 8,88,58,525/ - MADE U/S 40(A)(IA) OF THE ACT. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 2011 - 20 12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 27 TH APRIL , 2018 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 27 / 04 / 201 8 ALINDRA, PS 7 ITA NO. 670 1 / MUM/2016 ASSESSMENT YEAR: 2011 - 12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI