DCIT, Shimoga V. M/s Shree Lakshmi Tractors, Shimoga

ITA 764/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8468 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-02-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: CHAITANYA
• Keywords: Business income; TDS
• Section: 40A(3); 40(a)(ia); 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.764/BANG/2009 ASSESSMENT YEAR : 2006-07 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1, SHIMOGA. : APPELLANT VS. M/S. SHREE LAKSHMI TRACTORS, OPP. KARNATAKA AGRO, O.T. ROAD, SHIMOGA. : RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI RESPONDENT BY : SHRI CHAITANYA O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A) IN ITA NO: 227/ CIT(A) HBL/08-09 DATED: 28. 5.2009 FOR THE ASSESSMENT YEAR 2006-07 IN THE CASE OF SHREE LAKSHM I TRACTORS. 2. THE REVENUE HAS RAISED EIGHT GROUNDS IN AN EXHAU STIVE AND ILLUSTRATIVE MANNER. ON A CLOSE PERUSAL OF THE GRO UNDS, WE FIND THAT THE SUBSTANCES OF THE ISSUES RAISED ARE THREE-FOLDS WHI CH ARE REFORMULATED IN A CONCISE MANNER AS UNDER: ITA NO.764/BANG/09 PAGE 2 OF 15 THE CIT(A) HAS ERRED : (I) IN DELETING THE ADDITION MADE U/S 40A(3) OF THE ACT ; (II) IN DELETING THE ADDITION MADE U/S 37 OF THE ACT; & (III) IN DELETING THE ADDITION MADE U/S 40(A) (IA) OF THE ACT. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE FIRM (THE ASSESSEE IN SHORT) WAS A RETAIL TRADER IN TRACTORS, IMPLEMEN TS AND SPARES OF MAHENDRA AND MAHENDRA (M&M). DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, ON EXAMINATION OF BOOKS OF ACCOUNTS AND OTHER DETAILS FURNISHED, THE AO FOUND THAT I. CASH PAYMENTS EXCEEDING RS.20000/- - U/S 40A(3) : UNDER THE HEAD DISCOUNT ACCOUNT TRACTOR CASH, THE ASSESSEE HAD MADE CASH PAYMENTS TO THE EXTENT OF RS.73.76 LAKHS, OUT OF WHICH, PAYMENTS TO THE TUNE OF RS.45.78 LAKHS WERE ABOVE R S.20000/-. ON FURTHER VERIFICATION, THE AO FOUND THAT THE PAYMENTS WERE M ADE TO EACH PARTY SPLITTING THE AMOUNT BELOW RS.20000/- IN A SINGLE D AY. AFTER CONSIDERING THE ASSESSEES EXPLANATION AND ALSO IN CONFORMITY WITH THE PROVISIONS OF S.40A(3), THE AO WAS OF THE VIEW THAT THE DIFFERENT PAYMENTS MADE UNDER THE HEAD DISCOUNT TO THE SAME PARTY ON THE SAME D ATE WERE BELOW RS.20000/- WHICH GIVES A CLEAR INDICATION THAT THE ASSESSEE HAD INTENTIONALLY SPLIT THE PAYMENTS MADE TO A SINGLE P ARTY EXCEEDED RS.20000/- AND THUS, 20% OF TOTAL CASH PAYMENTS MAD E TO THE EXTENT OF RS.45.78 LAKHS WHICH WORKED OUT TO RS.9.15 LAKHS WA S DISALLOWED. II. TRAVELING & CONVEYANCE: THE ASSESSEE HAD CLAIMED RS.1.21 LAKHS BEING SINGA PORE DEALERS CONFERENCE, BANGKOK AIR TICKET EXPENSES AND RS.198 15/- FOR BOMBAY CONFERENCE AS REVENUE EXPENSES. HOWEVER, THE AO TO OK A VIEW THAT SINCE ITA NO.764/BANG/09 PAGE 3 OF 15 THE ASSESSEE HAD FILED A LETTER BEFORE THE SINGAPOR E HIGH COMMISSION REQUESTING FOR ISSUANCE OF VISA STATING THAT THE TW O DAYS TRIP HAS BEEN SPONSORED BY M&M AND WITH REGARD TO BOMBAY CONFEREN CE, NO DETAILS SUCH AS CALL LETTER/INVITATION FROM THE COMPANY AND DOCUMENTARY EVIDENCE TO SUGGEST THAT THE CONFERENCE ALLEGED TO HAVE BEE N ATTENDED TO FOR THE PURPOSE OF BUSINESS, THE EXPENSES CANNOT BE CATEGOR IZED AS FOR THE PURPOSE OF BUSINESS AND, ACCORDINGLY, DISALLOWED TH E ENTIRE CLAIM. III. MARKETING EXPENSES U/S 194H : ON VERIFICATION OF THE DETAILS OF EXPENDITURE UNDER THE HEAD MARKETING EXPENSES TR ACTOR, THE ASSESSEE HAD CLAIMED RS.6.28 LAKHS BEING EXPENSES ON PRODUCT DEVELOPMENT AND SALES PROMOTIONS. WITH REGARD TO EXPENSES OF RS.5.3 7 LAKHS INCURRED UNDER PAID TO SECURE THE TRACTOR SALE ORDER, ON SCRUTIN IZING THE DETAILS FURNISHED, THE AO FOUND THAT THE PAYMENTS HAVE BEEN MADE UNDER THE COMMON HEAD PAID TO SECURE THE TRACTOR SALE ORDER WHICH IS NO THING BUT COMMISSION PAID WITHOUT DEDUCING TAX AT SOURCE TO SECURE ORDERS FOR TRACTORS SALE, BUT, WRONGLY, CLAIMED AS MARKETING EXPENSES THEREBY VIO LATING THE PROVISIONS OF S.194H OF THE ACT, HE BROUGHT THE ENTIRE AMOUNT OF RS.5.37 LAKHS TO TAX NET U/S 40(A) (IA) OF THE ACT. 4 AGGRIEVED, THE ASSESSEE TOOK UP THESE ISSUES BEFORE THE CIT(A) FOR REDRESSAL. 4.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSES SEE, THE LD. CIT (A) HAS OBSERVED THUS I. UNDER S.40A(3 ): THE AO HAD STATED IN THE ORDER THAT THE APPELLAN T HAD PURPOSELY SPLITTED THE AMOUNT INTO LESS THAN R S.20000/- BUT HE HAD NOT PROVED THE SAME AND IT IS AGREED BY THE AO THAT THEY ITA NO.764/BANG/09 PAGE 4 OF 15 ARE LESS THAN RS.20000/- ON EACH INCIDENT. THEREFOR E, RELYING UPON ALOO SUPPLYING CO. (SIC) ALOO SUPPLY CO.,121 ITR 68 0 (ORISSA) AND SLP DISMISSED BY HONBLE SUPREME COURT (143 IT R 63), HE DIRECTED THE AO TO DELETE THE ADDITION BECAUSE IT I S NOT ESTABLISHED BY ANY EVIDENCE AS TO HOW APPELLANT HAS SPLITTED TH EM INTO THEN (SIC) LESS THAN RS.20000/- AND PROVISIONS OF AGGREG ATION DURING THE DAY IS APPLICABLE FROM AY 07-08 ONWARDS; II. TOUR EXPENSES : THE APPELLANT HAS UNDERTAKEN THE TOUR TO ATTEND CONFERENCE AT SINGAPORE, BANGKOK AND BOMBAY WHICH I S NOT RULED OUT BY AO BUT WANT OF VOUCHERS HE HAS DISALLOWED TH E EXPENSES. AGREEING WITH THE AR THAT SINCE AO HAD AGREED THAT THESE EXPENSES WERE MEANT FOR BUSINESS PURPOSE THERE WAS NO SCOPE FOR DISALLOWANCE AND ALSO ON THE CASE LAWS RELIED BY TH E AR, THE CIT(A) OBSERVED THAT IN VIEW OF THE CASE LAWS RELIE D ON BY THE AR THAT A NORMAL EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF PRUDENT BUSINESSMAN AFTER ESTABLISHING THE NEXUS WITH THE PURPOSE OF THE BUSINESS, REASONABLE EXPENDITURE IS TO BE ALLOWED BUT NOT TO DISALLOW THE ENTIRE EXPENDITURE AND, THE REFORE, TO MEET BOTH THE ENDS OF JUSTICE, AO WAS DIRECTED TO DISALL OW 10% OF THE EXPENSES; & III. ADDITION U/S 40(A) (IA) : THERE IS A PRACTICE TO PAY MEN OF STRAW FOR CERTAIN PAYMENTS WHICH ARE IN THE NATURE OF SEL LING EXPENSES WITHOUT ANY CONTRACTUAL OBLIGATIONS. IN FACT IT IS NOT A SERVICE BUT CUSTOMARY WITH CERTAIN TRADERS BEING DOMINANTLY CON NECTED WITH AGRICULTURAL FAMILIES BEING THE SALE OF TRACTORS. IT IS STATED THAT AO HAS MERELY STATED THAT THEY ARE OF NATURE OF COM MISSION BUT NOT SUPPORTED BY ANY SPECIFIC INCIDENT OR EVIDENCE. RELYING ON THE FINDING OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT V. POPULAR AUTOMOBILES LTD. (212 ITR 61 1), THE CIT (A) HAS OBSERVED THAT IN THE INSTANT CASE THERE IS NO ADVER TISEMENT AND PUBLICITY AND IT IS A PART OF SELLING EXPENSES PAYMENTS ARE MADE, THEREFORE, SERVICE ELEMENT IS NOT INVOLVED AND PROVISIONS OF S.194H AR E ALSO NOT ATTRACTED. HENCE, PROVISIONS OF S. 40(A)(IA) ARE ALSO NOT ATTR ACTED. 5. AGITATED, THE REVENUE HAS COME UP WITH THE PRES ENT APPEAL. THE LD. D. RS EMPHASIS WAS REVOLVED MAINLY ON THE FOLLOWING POINTS: (I) THE CIT(A) HAD FAILED TO APPRECIATE THAT THE ADDITI ON WAS MADE BY THE AO UNDER THE OLD PROVISIONS OF S. 40A(3) OF THE ACT. THE ASSESSEE HAD PAID THE CASH DISCOUNT TO THE PURCHASE R OF THE TRACTOR ITA NO.764/BANG/09 PAGE 5 OF 15 AT ONE TIME WHICH IS CLEAR FROM THE DETAILS FILED B Y THE ASSESSEE. THE SPLITTING OF THE PAYMENT WAS INTENTIONALLY DONE AT THE TIME OF FINAL HEARING. HENCE, THE DECISION OF HONBLE SUPR EME COURT REPORTED IN 143 ITR 63 DOES NOT APPLY TO THIS CASE; (II) THE CIT(A)ERRED IN GIVING RELIEF TO THE ASSESSEE ON TOURS AND TRAVELING EXPENSES BECAUSE THE ASSESSEE HAD FAILED TO PROVE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUS INESS; (III) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE PAYME NT WAS MADE TO THIRD PARTIES TO PROCURE ORDER FOR TRACTOR SALE WHICH WAS NOTHING BUT THE COMMISSION PAYMENT; - THAT THE ASSESSEE HAD NOT DEDUCTED TAX U/S 194H OF THE ACT FROM THE COMMISSION PAYMENTS MADE TO 41 PARTIES; 5.1. DURING THE COURSE OF HEARING, THE LD. D R SUB MITTED A BUNCH OF DOCUMENTS (PAPER BOOK) CONTAINING 1 19 P AGES CONSISTING OF PHOTO-STAT COPIES OF (I) DETAILS OF CASH DISCOUNTS PAID; (II) LETTER WITH ENCLOSURES TO SINGAPORE HIGH COMMISSION; & (III) DE TAILS OF MARKETING EXPENSES PAID. 5.2. ON THE OTHER HAND, THE LD. A R CAME UP WITH A SPIRITED AND LENGTHY ARGUMENTS COUPLED WITH VARIOUS LEGAL PR ECEDENTS, THE ESSENCE OF WHICH IS SUMMARIZED AS UNDER: (I) THE ASSESSMENT ORDER IN QUESTION WAS CONCLUDED BY T HE ADDL. CIT ON THE BASIS OF CONCURRENT JURISDICTION WHICH WAS C HALLENGED BY THE ASSESSEE BEFORE THE CIT(A) WHO HAD PASSED AN OR DER WHICH IS UNDER DISPUTE. IF THE CIT, OBJECTS TO THE ORDER O F THE CIT(A), CAN DIRECT THE AO TO CHALLENGE THE ORDER OF THE CIT(A) BEFORE THE HONBLE TRIBUNAL. IN THE PRESENT CASE, THE CIT HAD AUTHORIZED THE DCIT TO FILE AN APPEAL TO THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) WHEREAS THE ASSESSING OFFICER BEING ADDL. CI T, THE DCIT DOES NOT HAVE JURISDICTION UPON THE ASSESSEE FOR AN Y PURPOSE AND EVEN FOR FILING AN APPEAL AGAINST THE ORDER OF THE CIT(A); - RELIES ON THE FINDING OF THE DELHI HIGH COURT IN VA LVOLINE CUMMINS LTD. V. DCIT (2008) 171 TAXMAN 241; ITA NO.764/BANG/09 PAGE 6 OF 15 (II) S.40A(3) GETS ATTRACTED IF PAYMENTS EXCEED RS.20000 /- ONLY AND IF SUCH PAYMENTS ARE IN THE NATURE OF EXPENDITURE; - THE AO HAD NOT DISPUTED THE FACT THAT THE PAYMENTS WERE IN RELATION TO CASH DISCOUNTS ALLOWED TO THE CUSTOMERS OF THE APPE LLANT; - THE CASH DISCOUNTS PAID WERE TO ITS CUSTOMERS WHEN THE CUSTOMER APPROACHES THE ASSESSEE AND EVENTUALLY PURCHASES TR ACTORS AND PAYS THE PURCHASE PRICE ACROSS THE COUNTER, THE ASSESSEE ALLOWS THE DISCOUNT AS CASH DISCOUNT AND THAT THE CASH DISCO UNT WAS ONLY THE NET PURCHASE PRICED PAID BY THE CUSTOMERS; - THE CASH DISCOUNTS ALLOWED CANNOT BE REGARDED AS E XPENDITURE, BUT, FORMS PART OF THE TRADING ACCOUNT WHICH GETS REDUCE D FROM THE TOTAL SALES VALUE; - RELIES ON THE CASE LAWS: (A) UNITED EXPORTS V. CIT 2009 TIOL 477 (DEL) (B) MAPRA LABORATORIES PVT. LTD. V. STATE OF BIHAR (200 4) 135 STC 157 (PATNA) (C) CIT V. ALOO SUPPLY CO. (1980) 121 ITR 680 (ORI) (D) 143 ITR 67 (ST) (SC); (E) CIT V. TRIVENIPRASAD PANNALAL (1997) 228 ITR 680 (M P) (F) SHREE MAHAVEER CORPORATION V. ITO (2002) 258 ITR (A T) 55 (ITAT, BANG) (III) TRAVEL EXPENSES : THE DEALERS CONFERENCE HELD ABROAD WAS SPONSORED BY M&M AIR TRAVEL EXPENSE TO THE EXTENT OF AIR TICKET WAS MET BY M&M AND OTHER EXPENDITURE WAS BORNE BY T HE DEALERS, THAT THE REVENUE HAD NOT DOUBTED THE PART ICIPATION OF MD IN THE SAID CONFERENCE; - RELIES ON THE CASE LAWS: (A) MADHAV PRASAD JATIA V. CIT (1979) 118 ITR 200 (SC) (B) S.A.BUILDERS LTD. V. CIT (A) (2007) 288 ITR 1 (SC) - THUS, THE TRAVELING AND CONVEYANCE INCURRED BY THE ASSESSEE WAS FOR THE PURPOSE OF ITS BUSINESS AND THE SAME IS ALLOWAB LE U/S 37 OF THE ACT; (IV) MARKETING EXPENSES : AMOUNTS WERE PAID TO SOME THIRD PARTIES WHOEVER REFERRED THE CUSTOMERS TO THE ASSESSEE. THE PAYEES WERE LOCATED IN AND AROUND THE VICINITY OF THE ASSESSEE AND THE PAYEES WHO REFERRED THE CUSTOMERS TO THE ASSESSEE DID NOT HAVE ANY RELATIONSHIP WITH THE ASSESSEE; ITA NO.764/BANG/09 PAGE 7 OF 15 - THE PAYEES WERE NEITHER THE EMPLOYEES NOR THE AUTHO RIZED AGENTS OF THE ASSESSEE; - FOR THE APPLICATION OF THE PROVISIONS OF S.194H, T HE FOLLOWING COMPONENTS SHOULD BE FOUND IN A PARTICULAR TRANSACT ION: THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT SHOUL D NOT BE AN INDIVIDUAL OR AN HUF; THE TRANSACTION IN QUESTION SHOULD BE ENTERED INTO ON OR AFTER 1 ST JUNE 2001; THE PERSON MAKING THE PAYMENT SHOULD BE RESPONSIBLE FOR PAYING COMMISSION OR BROKERAGE TO THE PAYEE; THE PAYEE SHOULD HAVE RECEIVED THE AMOUNT OF COMMIS SION OR BROKERAGE FOR ACTING ON BEHALF OF THE PERSON MAKING THE PAYMENT OF COMMISSION OR BROKERAGE; - AS PER EXPLANTION (I) TO S.194H ANY PAYMENT QUALI FIES TO BE REGARDED AS COMMISSION ONLY IF SUCH PAYMENT WAS MAD E FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOOD S AND TO A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR RENDERING OF SUCH SERVICES; - IF THE PAYEE IS ACTING ON BEHALF OF THE PAYER, THE SUMS PAID BY THE PAYER TO PAYEE CAN BE REGARDED AS COMMISSION. IN OTHER WORDS, THE ESSENTIAL ATTRIBUTE TO CONSIDER THE SUM AS COMMISSI ON, PRINCIPAL- AGENT RELATIONSHIP NEED TO EXIST BETWEEN THE PAYER AND THE PAYEE, WITHOUT WHICH SUCH SUMS CANNOT BE REGARDED AS COMM ISSION FOR THE PURPOSE OF S.194H; - RELIES ON THE CASE LAWS: (A) CIT V. SINGAPORE AIRLINES LTD. (2009) 180 TAXMAN 12 8 (DELHI HC) (B) ACIT V. IDEA CELLULAR LTD. (HYD ITAT) (2009) 120 ITD (BN IV) PART 4 (C) IDEA CELLULAR LTD. V. DCIT (ITAT- NEW DELHI) 177 TA XMAN 9BN)I(PART 1) (D) NATIONAL PANASONIC INDIA (P) LTD. V. DCIT TDS (200 5)94 TTJ 889 (DEL ITAT) (V) THUS, AS THE SUMS PAID BY THE ASSESSEE CANNOT B E REGARDED AS COMMISSION, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194H AND THE QUESTION OF DISALLOWANCE U/S 40(A)(IA) DOES NOT ARISE. ITA NO.764/BANG/09 PAGE 8 OF 15 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT RECORDS AND ALSO EVIDENCE PRODUCED BY EITH ER PARTY IN THE FORM OF PAPER BOOKS ETC. 6.1. BEFORE LOOKING INTO THE ISSUES RAISED BY THE REVENUE, WE SHALL DEAL WITH AN ISSUE WHICH HAS BEEN RAISED BY T HE ASSESSEE DURING THE COURSE OF HEARING THAT THE ASSESSMENT ORDER WAS CON CLUDED BY THE ADDL. CIT ON THE BASIS OF CONCURRENT JURISDICTION WHICH W AS CHALLENGED BY THE ASSESSEE BEFORE THE CIT (A) WHO HAD PASSED AN ORDER WHICH IS UNDER DISPUTE. IF THE CIT, OBJECTS TO THE ORDER OF THE C IT (A), CAN DIRECT THE AO TO CHALLENGE THE ORDER OF THE CIT(A) BEFORE THE HONBL E TRIBUNAL. IN THE PRESENT CASE, THE CIT HAD AUTHORIZED THE DCIT TO FI LE AN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) WHEREAS TH E ASSESSING OFFICER BEING ADDL. CIT, THE DCIT DOES NOT HAVE JURISDICTIO N UPON THE ASSESSEE FOR ANY PURPOSE AND EVEN FOR FILING AN APPEAL AGAINST T HE ORDER OF THE CIT(A). RELIANCE WAS PLACED ON THE FINDING OF THE DELHI HIG H COURT IN THE CASE OF VALVOLINE CUMMINS LTD. V. DCIT REPORTED IN (2008) 171 TAXMAN 241. 6.2. WE HAVE DULY CONSIDERED THE SUBMISSION OF THE ASSESSEE AND ALSO THE CASE LAW REFERRED TO BY THE ASSESSEE. THE JURISDICTION OVER THE ASSESSEE, NO DOUBT, LIES WITH THE DCIT, SHIMOGA AND THAT THE ADDL. CIT, SHIMOGA RANGE WHO HAD CONCURRENT JURISDICTION VESTE D WITH HIM, CONCLUDED THE ASSESSMENT WHICH IS UNDER DISPUTE. S INCE THE DCIT, SHIMOGA IS HAVING JURISDICTION OVER THE ASSESSEE, T HE CIT, DAVANGERE, PERHAPS, DIRECTED THE DCIT, SHIMOGA TO PREFER AN AP PEAL AGAINST THE ORDER OF THE CIT (A). THOUGH THERE WAS A TECHNICAL FLAW ON THE PART OF THE CITS ITA NO.764/BANG/09 PAGE 9 OF 15 DIRECTION, IN OUR CONSIDERED VIEW, IT DOES NOT ALTE R THE JURISDICTION OVER THE ASSESSEE VESTS WITH THE DCIT, SHIMOGA FOR ALL PRACT ICAL PURPOSES AND, THUS, THE APPEAL PREFERRED BY THE DCIT, SHIMOGA IS IN ORDER. LET US NOW ANALYZE THE ISSUES RAISED BY THE REVEN UE CHRONOLOGICALLY: I. CASH PAYMENTS EXCEEDING RS.20000/- - U/S 40A(3) : 7. ON A PERUSAL OF THE ASSESSMENT ORDER , WE NOTICED THAT THE AO HAD MENTIONED THAT FOR THE PERIOD FROM 1.4.2005 TO 31.3.2006, TOTAL CASH PAYMENTS MADE TO VARIOUS PARTIES AMOUNTING TO RS.73 76263/- OUT OF THAT PAYMENT ABOVE RS.20000/- WAS RS.4578769/-. AFTER CO NSIDERING THE ASSESSEES CONTENTION, THE AO HAD COMMENTED THAT THE ENTRIES SHOWN BY THE ASSESSEE IN THE DAY BOOK TO THE EFFECT THAT DIFFERENT PAYMENTS MADE UNDER THE HEAD DISCOUNT TO THE SAME PARTY ON THE SAME DATE WERE BELOW RS.20000/- GIVES A CLEAR INDICATION THAT THE ASSESSEE HAS DONE THIS WITH AN INTENTION TO ESCAPE FROM THE PROV ISIONS OF S.40A(3) EVEN THOUGH THE TOTAL PAYMENT MADE PER DAY TO A SINGLE P ARTY EXCEEDED RS.20000/- IN MANY OCCASIONS. IN VIEW OF THIS, 20% OF TOTAL CASH PAYMENTS MADE TO THE EXTENT OF RS.4578769/- WHICH WORKS OUT TO RS.915753/- IS ADDED TO THE TOTAL INCOME. 7.1. THE ADDITION MADE BY THE AO HAS BEEN DELETED BY THE CIT (A), RELYING UPON THE DECISION OF THE HONBLE ORISSA HIG H COURT REFERRED SUPRA. 7.1.1. ON A CAREFUL EXAMINATION OF THE SUBMIS SION OF THE LD. A.R, WE FIND THAT THERE IS FORCE IN THE CONTENTIONS OF THE ASSESSEE FOR THE FOLLOWING REASONS, NAMELY: (I) NO DOUBT, THE PROVISIONS OF S.40A(3) OF THE ACT ARE APPLICABLE, IF THE CASH PAYMENTS EXCEED RS.20000/- ONLY, THAT TOO , IF SUCH ITA NO.764/BANG/09 PAGE 10 OF 15 PAYMENTS ARE IN THE NATURE OF EXPENDITURE . AS COULD BE SEEN FROM THE IMPUGNED ASSESSMENT ORDER, THE AO HAD NO T DISPUTED THE VERY FACT THAT THE PAYMENTS WERE IN RELATION TO CASH DISCOUNTS ALLOWED TO THE CUSTOMERS OF THE ASSESSEE; (II) THE SEQUENCE OF EVENTS GOES LIKE THIS WHEN A PROSPECTIVE CUSTOMER APPROACHES THE ASSESS EE WITH AN INTENTION TO PURCHASE A TRACTOR AND SUBSEQUENTLY PURCHASED THE SAME AND HE WAS TO MAKE THE PAYMENT OF THE PURC HASE PRICE AT THE COUNTER. AT THAT TIME, THE ASSESSEE A LLOWS DISCOUNT CALLED CASH DISCOUNT. IN OTHER SENSE: ACTUAL SALE PRICE DISCOUNT (CASH DISCOUNT ALLOWED BY THE ASSESSEE) = PURCHASE PRICE PAID BY THE CUSTOMERS. ULTIMATELY, THE BUYER WILL HAVE TO MAKE THE PAYMENT OF ONLY THE PURCHASE PRICE OF THE TRACTOR AFTER DEDUCTING T HE CASH DISCOUNT ALLOWED BY THE ASSESSEE FROM THE ACTUAL SA LE PRICE; (III) TO HAVE A BETTER CONTROL AND TRACK OVER SUCH DISCOU NTS SO ALLOWED, THE ASSESSEE HAD MAINTAINED A SEPARATE ACCOUNT DUR ING THE YEAR UNDER DISPUTE. (IV) ON NOTICING SUCH A SEPARATE ACCOUNT, THE AO, PERHAP S, ARRIVED AT A WRONG CONCLUSION THAT THE ASSESSEE HAD RESORTED TO MAKE CASH PAYMENTS EXCEEDING RS.20000/-BY CONTRAVENING THE P ROVISIONS OF S.40A(3) OF THE ACT; (V) THE SO CALLED CASH DISCOUNTS ALLOWED BY THE ASSESSE E CANNOT BE CATEGORIZED AS EXPENDITURE, BUT, IN FACT, FORMS P ART OF THE TRADING ACCOUNT WHICH GETS REDUCED FROM THE TOTAL SALE VALU E. (VI) THE SO CALLED CASH DISCOUNT IS NOT ACTUALLY CASH DISCOUNT BUT TRADE DISCOUNT. DISCOUNT IS NOT PAID BY WAY OF CASH BUT REDUCTION ON INVOICE PRICE. IN VIEW OF THE ABOVE, WE ARE OF THE FIRM VIEW THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF S.40A(3) OF THE ACT. IN FACT, THE ASSESSEE HAD ALLOWED DISCOUNT FROM THE ACTUAL SALE PRICE TO THE CUSTOMER S WHEN THEY WERE MAKING PURCHASE OF TRACTORS AND, THUS, THERE WAS NO ACTUAL INVOLVEMENT OF CASH PAYMENT ITA NO.764/BANG/09 PAGE 11 OF 15 EXCEEDING RS.20000/- TO ATTRACT THE PROVISIONS OF S .40A(3) OF THE ACT. THUS, WE ARE IN TOTAL AGREEMENT WITH THE FINDING OF THE LD.C IT(A) ON THIS COUNT. II. TRAVELING & CONVEYANCE: 7.2. IT COULD BE SEEN FROM THE IMPUGNED O RDER OF THE AO THAT HE HAD DISALLOWED THE EXPENSES CLAIMED ON SINGAPORE DEALER S CONFERENCE ON THE STRENGTH OF A LETTER PURPORTED TO HAVE BEEN FILED B EFORE THE SINGAPORE HIGH COMMISSION FOR VISA. 7.2.1.THE REASONING OF THE LD. CIT (A) TO RESTRICT THE DISALLOWANCE TO 10% WAS ON THE GROUND THAT A NORMAL EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN AFTER ESTABL ISHING THE NEXUS WITH THE PURPOSE OF THE BUSINESS. 7.3. WE HAVE CAREFULLY CONSIDERED THE ASSESSE ES SUBMISSION AND ALSO THE REVENUES CONTENTIONS. HOWEVER, THE REVENUE HA S NOT COME OUT WITH ANY SPECIFIC REASONING TO FIND FAULT WITH THE CIT(A)S FINDING. 7.3.1.. ON THE STRENGTH OF THE LETTER FURNISHED BE FORE THE SINGAPORE HIGH COMMISSION BY THE ASSESSEE FOR THE ISSUANCE OF VISA , THE AO DREW A CONCLUSION THAT THE ENTIRE TRIP EXPENSES WERE MET BY M&M AND WITH REGARD TO BOMBAY CONFERENCE EXPENSES, IN THE ABSENCE OF ANY DETAILS, THE AO DISALLOWED THE ENTIRE EXPENSES. 7.3.2. THERE WERE NO HARD AND FAST RULES WHICH PRE SCRIBE THAT THE ENTIRE EXPENSES OF THE DELEGATES WILL BE MET BY THE ORGANI ZERS. THE AO HAD NOT DISPUTED THE BONA FIDE OF THE MD OF THE ASSESSEE WH O ATTENDED THE CONFERENCES AT SINGAPORE, BANGKOK AND BOMBAY. ITA NO.764/BANG/09 PAGE 12 OF 15 7.3.3. THE LD. CIT(A) WAS VERY PRAGMATIC IN HIS AP PROACH THAT THE NORMAL EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN WHO HAD DULY ESTABLISHED THE NEXUS WITH THE PURPOSE OF THE BUSINESS. 7.3.4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE ISSUE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDING OF THE LD. CIT(A) IS QUITE REASONABLE AND VERY REALISTIC IN A GIVEN CIRCUMSTANCE WHICH REQUIRES NO INTERFERENCE AT THIS STAGE. IT IS ORDERED ACCORDINGLY. III. MARKETING EXPENSES U/S 194H : 7.4. THE ASSESSEE HAD CLAIMED RS.6.28 LAKHS TOWAR DS MARKETING EXPENSES TRACTOR. THE AOS CRYPTIC STAND WAS THA T SUCH PAYMENTS WERE NOTHING BUT COMMISSION PAID WITHOUT DEDUCTING TAX A T SOURCE AND, THUS, THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF S.194H O F THE ACT. 7.4.1. HOWEVER, THE LD. CIT (A) DIAMETRICALLY TOOK AN OPPOSITE VIEW THAT THE AO HAD NOT ESTABLISHED ANY EVIDENCE THAT S UCH PAYMENTS FALL UNDER THE HEAD COMMISSION WHERE THE PROVISIONS O F S.194H OF THE ACT HAVE ROLE INTO PLAY. 7.4.2. WE SHALL HAVE A GLIMPSE OF EXPLANATION (I) TO S.194H OF THE ACT WHICH SAYS: EXPLN : (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYME NT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SEL LING GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES: ITA NO.764/BANG/09 PAGE 13 OF 15 7.4.3. THE ACT IS RATHER VERY CLEAR THAT COMMISSI ON OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTL Y OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES REN DERED. WHEN IT COMES TO TREAT THESE PAYMENTS AS COMMISSIO N, AS PER EXPLANATION (I) CITED SUPRA, PRINCIPAL AGENT RELA TIONSHIP NEEDS TO EXIST BETWEEN THE PAYER AND THE PAYEE WITHOUT WHICH IT CA NNOT BE CATEGORIZED AS COMMISSION. IN THE INSTANT CASE, THE AO HAD NOT BR OUGHT ON RECORD ANY CREDIBLE DOCUMENTARY EVIDENCE TO SUGGEST THAT THE P RINCIPAL AGENT RELATIONSHIP HAD, INDEED, EXISTED IN SUCH TRANSACTI ON. THE ASSUMPTION OF THE AO GOES LIKE THIS, IT IS NOTHING BUT COMMISSION PAID WITHOUT DEDUCTING TAX AT SOURCE TO SECURE ORDERS FOR TRACTOR SALE, BU T, WRONGLY CLAIMED AS MARKETING EXPENSES VIOLATING THE PROVISIONS OF S.19 4H OF THE ACT. IN THIS CONNECTION, IT MAY NOT BE OUT OF PLACE TO MENTION H ERE THAT THE REVENUE CANNOT PUT INTO THE MOUTH OF AN ASSESSEE THAT AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND TO SECURE/ELICIT HIS PROSPECTIVE B UYERS FOR HIS PRODUCTS WITHIN CERTAIN PARAMETERS. 7.4.4. IT IS NOT UNCOMMON TO FIND SUCH PERSONS IN THE VICINITY OF COMMERCIAL BUSINESS ESTABLISHMENTS, EDUCATIONAL INS TITUTIONS, REGIONAL TRANSPORT OFFICES ETC., WAITING FOR EASY PREY SUC H AS PROSPECTIVE BUYERS OF VEHICLES, HAPLESS PARENTS SEEKING ADMISSION IN AN E DUCATIONAL INSTITUTION FOR THEIR WARDS AND SO ON SO FORTH ONCE THEY FIND SUCH PERSONS, THEY WILL VOLUNTARILY APPROACH THEM WITH TALL CLAIMS THAT THE Y CAN GET ANYTHING UNDER THE SUN. ONCE THE PROSPECTIVE BUYER SHOWS HIS INCLI NATION TO BUY A TRACTOR - FOR INSTANCE, THE CASE ON HAND - THE PEOPLE TAKES T HE BUYER TO THE SELLER ITA NO.764/BANG/09 PAGE 14 OF 15 AND BRIEFS HIM THE INTENTION OF THE BUYER. ONCE TH E PROSPECTIVE BUYER STRUCK A DEAL WITH THE SELLER, THE PERSON WHO TOOK THE BUYER TO THE SELLER WILL BE COMPENSATED BY EITHER PARTY WHICH DOES NOT MEAN THAT SUCH PERSON HAS BEEN PLANTED BY THE SELLER TO BOOST HIS SALES. WHEN NO EVIDENCE IS FORTH- COMING THAT SUCH PERSONS ARE AGENTS/REPRESENTATIVES OF THE ASSESSEE, THEY CANNOT BE CLASSIFIED AS THE AGENTS OF THE SELLER AN D THAT THE AMOUNTS SO PAID CAN BE TERMED AS COMMISSION. UNLESS IT IS P ROVED WITH DISCREET DOCUMENTARY EVIDENCE, IT CANNOT, AT ANY STRETCH OF IMAGINATION, BE TERMED AS COMMISSION AND IN THE ABSENCE OF ANY SUCH PROO F, IN OUR CONSIDERED VIEW, THE APPLICABILITY OF THE PROVISIONS OF S.19 4H OF THE ACT ARE RATHER ARBITRARY. 7.4.5. IN THE CASE OF CIT V. POPULAR AUTOMOBILES L TD. REPORTED IN 212 ITR 611, THE HONBLE HIGH COURT OF KERALA, IN ITS W ISDOM, HAS HELD THUS NO DOUBT, IT IS INTENDED TO ENHANCE AND IMPROVE TH E BUSINESS AND SALES OF THE ASSESSEE ; BUT IT IS NOT A SALES PROMO TION ACTIVITY. CLAUSE (I) OF SUB-SECTION (3B) SPEAKS OF ADVERTISEMENT, PUBLIC ITY AND SALES PROMOTION. READ IN THAT CONTEXT, SALES PROMOTION IS AN ACTIVITY WHICH WILL PROMOTE THE SALES OF THE ASSESSEE BY REASON OF THE ADVERTISEMENT AND PUBLICITY THAT WILL BE ATTENDANT ON IT OR BY RE ASON OF THE INCENTIVES OR OTHER ATTRACTIONS OFFERED TO ATTRACT CUSTOMERS F OR THE ASSESSEE'S PRODUCTS. 7.5.6. WITH DUE RESPECTS, WE WOULD LIKE TO POINT O UT THAT IN THE CASE ON HAND, THERE WAS NO ADVERTISEMENT AND PUBLICITY A ND IT WAS A PART OF SALES EXPENSES FOR WHICH PAYMENTS WERE MADE AND THA T THERE WAS NO INVOLVEMENT OF ANY SERVICE ELEMENT IN THE SAID TRANSACTIONS . WHEN THERE WERE NO INVOLVEMENTS OF ANY SERVICE ELEMENTS IN SUCH TRANSACTIONS, THE PROVISIONS OF S.194H OF THE ACT HAVE NO ROLE TO PLAY. AS SUCH, THE ITA NO.764/BANG/09 PAGE 15 OF 15 APPLICABILITY OF THE PROVISIONS OF S. 40(A) (IA) OF THE ACT ALSO DO NOT ARISE. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF MARCH, 2010. SD/- SD/- (GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 19 TH MARCH, 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.