M/s. Hyderabad Industries Limited, Hyderabad V. DCIT, Circle-2(2), Hyderabad

ITA 889/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2777 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: K PRABHAVATHI
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, J UDICIAL MEMBER ITA NOS.889 & 890/HYD/2012 ASSTT. YEARS : 2007-08 &2008-09. M/S. HYDERABAD INDUSTRIES LTD., HYDERABAD. PAN:AAACH 2676 Q V/S. ACIT, CIR-2(2), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.K. PRABHAVATHI DEPARTMENT BY : SHRI D. SUDHAKAR RAO DATE OF HEARING 1 4 - 3 - 2013 DATE OF PRONOUNCEMENT 10-5-2013 . O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS DATED 28-03-2012 OF CIT (A)-III, HYDE RABAD PERTAINING TO THE ASSESSMENT YEARS 2007-08 AND 2008-09. SINCE COMMON ISSUES ARE INVOLVED FOR CONSIDERATION AND ASSESSEE IS ALSO COMMON, THESE ARE TAKEN UP TOGETHER AND DISPOSED OF BY THIS COMBINED ORDE R FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED COMMON GROUNDS FOR BOTH THE ASSESSMENT YEARS. SINCE GROUNDS ARE COMMON AND FACTS ARE ID ENTICAL, WE WILL DEAL WITH FACTS AS TAKEN FROM ITA NO.889/HYD/12 PERTAINING TO THE ASSESSMENT YEAR 2007-08. ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 2 3. THE SOLE DISPUTE IS WITH REGARD TO DISALLOWANCE MADE U/S 40(A)(IA) FOR NON DEDUCTION OF TAX U/S 194H OF THE ACT. 4. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPUTE ARE, THE ASSESSEE, A COMPANY, IS ENGAGED IN THE BUSINESS OF PRODUCTIO N OF ASBESTOS CEMENT SHEETS, AEROCON PANELS, AAC BLOCKS, MATERIA L HANDLING AND PROCESSING PLANT AND EQUIPMENT, THERMAL INSULATION PRODUCTS ETC. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31-10-2007 DECLARING NIL INCOME UN DER NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS OF RS.19,78,60,4 03/- U/S 115JB OF THE ACT. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID AN AMOUN T OF RS.8,61,11,475/- TOWARDS SALES INCENTIVES TO STOCKISTS WHICH HAS BEEN CLAIMED AS DEDUCTION. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WITH REGARD TO PROPOSED DISALLOWANCE OF SAI D AMOUNT DUE TO NON DEDUCTION OF TAX AT SOURCE. THE ASSESSEE EXPLAINED THAT THE SALES INCENTIVES ARE NOTHING BUT TRADE DISCOUNT GIVEN TO TH E STOCKISTS. THE DISCOUNTS WHICH ARE GIVEN AS PART OF NORMAL TRADE ARE ACCO UNTED THROUGH INVOICES AND DISCOUNT GIVEN OVER AND ABOVE ACCOR DING TO DIFFERENT SCHEMES APPROVED BY MANAGEMENT ARE ACCOUNTED T HROUGH CREDIT NOTES. IT WAS SUBMITTED THAT THESE DISCOUNTS GO TO THE ACCOUNT OF DIRECT CUSTOMERS AS WELL AS STOCKISTS WHO ACT AS DIRECT CUSTO MERS OF THE COMPANY IN CERTAIN TRANSACTIONS EXCEPT WHERE ORDE RS FROM CUSTOMERS ARE THROUGH THE STOCKISTS FOR WHICH COMMISSION IS P AID TO THE STOCKISTS AND NO DISCOUNT IS PAID TO THE STOCKIEST ON SUCH TRA NSACTIONS. IT WAS SUBMITTED THAT SALES ARE MADE TO STOCKISTS DIRECTLY W HO IN TURN SELL THE MATERIAL TO THEIR CUSTOMERS AND THE ASSESSEE IS NO T AT ALL INVOLVED IN SUCH DIRECT SALES MADE BY ITS STOCKISTS TO THE IR CUSTOMERS. ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 3 5. IT WAS SUBMITTED THAT DIFFERENT TYPE OF DISCOUNTS APA RT FROM CASH DISCOUNT IS GIVEN ON THE INVOICES SUCH AS EXTRA DISCOUNT OF WORK, STOCKISTS PRICE LIST RATE, ADDITIONAL DISCOUNT FOR IMPROVIN G SALES FOR LIFTING OF MATERIAL, TARGET DISCOUNT OVER ANNUAL SALES. IT WAS FURTHER SUBMITTED THAT THE DISCOUNTS GIVEN ARE ADJUSTED AGAINST THE PURCH ASE COST OF MATERIAL FROM THE ASSESSEE AND DOES NOT FORM AN INDEPEN DENT SOURCE OF INCOME TO THE STOCKISTS IN THE BOOKS OF ACCOUNT WHILE TH ESE DISCOUNTS ARE REDUCED FROM THE SALES TURNOVER ACHIEVED IN THE BOO KS OF THE ASSESSEE. ALL THESE DISCOUNTS ARE GIVEN TO THE STOCKISTS ON DIRECT PURCHASES MADE BY THEM FROM THE ASSESSEE. THE ASSESSEE FURTHE R SUBMITTED, WHERE SALE IS MADE TO STOCKISTS SALES TAX/VAT IS P AID THEREON AND GOODS ARE SOLD TO THE STOCKISTS ON PRINCIPAL TO PRINCIPAL TRANSACTION. REDUCTION IN PRICE DOES NOT AMOUNT TO COMM ISSION AS THERE IS NO THIRD PARTY INVOLVED. IT WAS SUBMITTED T HAT STOCKISTS APART FROM MAKING DIRECT SALES TO THEIR CUSTOMERS ALSO PROCURE OR DERS WHICH ARE EXECUTED DIRECTLY BY THE COMPANY ON WHICH COMMISSION IS PAID BY WAY OF CREDIT NOTE ON PERIODICAL BASIS AND AGREED RATE S ON WHICH THE TAX IS DEDUCTED AT SOURCE AS PER PROVISIONS OF SECTION 194H OF THE ACT. IT WAS SUBMITTED THAT SO FAR AS DISCOUNT IS CONCERNED, IT IS BE ING IN THE NATURE OF ABATEMENT OF SALE PRICE IT CANNOT BE TERMED AS COMMISSION THEREBY REQUIRING DEDUCTION OF TAX AT SOURCE. THE ASSE SSING OFFICER OPINED THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND TH E STOCKIEST AND NATURE OF TRANSACTION WOULD SUGGEST THAT THE BENEFI TS PASSED ON BY THE ASSESSEE BY WAY OF CREDIT NOTE ARE OF INCENTIVE NATUR E. SO FAR AS THE ASSESSEES ARGUMENT OF SALE TO THE STOCKISTS ON ACCOUNT OF PAYMENT OF SALES-TAX/VAT IS CONCERNED, THE ASSESSING OFFICER OPINED THAT IT WAS AN ARRANGEMENT MADE BY THE ASSESSEE TO REDUCE THE SALES-TA X LIABILITY. THE ASSESSING OFFICER ULTIMATELY COME TO CONCLUDE THAT THE SALES INCENTIVES PAID TO STOCKISTS CANNOT BE ALLOWED AS DEDUCTIO N IN ABSENCE ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 4 OF DEDUCTION OF TAX AT SOURCE U/S 194H AND ACCORDINGLY DISA LLOWED THE SAME U/S 40(A)(IA) OF THE ACT. THE ASSESSEE CHALLENGED TH E DISALLOWANCE BY PREFERRING AN APPEAL BEFORE THE CIT ( A). 6. IN COURSE OF HEARING BEFORE THE CIT(A), THE ASSESSEE REPEATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND FURTH ER SUBMITTED THAT SIMILAR DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2006-07, HAS BEEN DELETED BY THE CIT(A) . THE CIT ( A) ON PERUSING THE APPEAL ORDER PASSED FOR THE ASSESSMENT YEAR 2006-07 N OTICED THAT THE CIT(A) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E BY MAINLY RELYING UPON THE ORDER DATED 28-3-2008 PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL DELHI BENCH IN CASE OF CIT V/S. IDE A CELLULAR LIMITED. THE CIT(A) FURTHER NOTICED THAT THE AFORESA ID DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH WAS REVERSE D BY THE HONBLE DELHI HIGH COURT IN CASE OF CIT V/S. IDEA CELL ULAR LIMITED (325 ITR 148) BY DECIDING THE ISSUE IN FAVOUR OF THE REVENU E BY HOLDING THAT SECTION 194H IS APPLICABLE TO TRADE DISCOUNTS AND DISTRIBUTO RS ALSO. WHEN THE CIT(A) BROUGHT THIS FACT TO THE NOTICE OF TH E ASSESSEE, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF IDEA CELLULAR (SUPRA) WOULD NOT APPLY TO THE FACTS OF THE ASSESSEE AS IN THAT CASE PRINCIPAL AGENT RELAT IONSHIP WAS ESTABLISHED WHEREAS IN CASE OF THE ASSESSEE, IT IS A PRINCI PAL TO PRINCIPAL RELATIONSHIP. THE CIT (A) HOWEVER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT IN VIEW OF THE D ECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF IDEA CELLULAR (SUPRA ) THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) I S JUSTIFIED. 7. BEING AGGRIEVED OF THE AFORESAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS:- ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 5 1. THE CIT (A) III ERRED IN CONFIRMING THE DISALLOWAN CE THE DISCOUNTS GIVEN TO STOCKIEST AND OTHER PURCHASERS O F THE GOODS WITH WHOM THE APPELLANT HAD PRINCIPAL TO PRINCIPAL TRANSACTIONS. THE ASSESSING OFFICER FAILED TO NOTICE THE WELL-KNO WN DISTINCTION BETWEEN DISCOUNT AND COMMISSION AND ERRED IN EQUATI NG THE TWO. CONSEQUENTLY THE ASSUMPTION OF THE CIT(A)-III THAT IT WAS MANDATORY TO DEDUCT TAX AT SOURCE U/S 194H OF THE A CT ON THE AMOUNT PASSED ON TO THE CUSTOMERS BY WAY OF DISCOUN T IS ERRONEOUS AND THE DISALLOWANCES FOR THE SAID REASON IS UNWARRANTED. 2. THE CIT (A)-III OUGHT TO HAVE FOLLOWED THE ORDER PASSED BY THE CIT WHO HAD DECIDED THE SAME ISSUE INVOLVED IN THE PRESENT APPEAL IN FAVOUR OF THE APPELLANTS FOR THE ASSESSME NT YEAR 2005- 06 AND 2006-07. 3. THE CIT (A) OUGHT TO HAVE ALLOWED THE TRADE DISC OUNT IN FAVOUR OF THE APPELLANTS. 8. THE LEARNED AR SUBMITTED THAT THE ISSUE IS COVER ED BY THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 IN ITA NO.917,918 AND 919/HYD/2009 DATED 2- 7-2012. THE LEARNED AR IN THIS CONTEXT, SPECIFICALLY INVITED OUR A TTENTION TO PARAGRAPH- 15 OF THE ORDER WHEREIN THE TRIBUNAL HE LD AS UNDER:- 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 MA TTER OF FACT WHAT WAS OFFERED BY THE ASSESSEE TO THE STOCKISTS I S NOTHING BUT DISCOUNT. THE ASSESSEE SOLD STOCK TO THE STOCKI STS WHO IN TURN SOLD IT TO THE CUSTOMERS. STOCKISTS ARE ALLOW ED DISCOUNT AND COMMISSION SEPARATELY. THE ASSESSEE ISSUED CR EDIT NOTES TO THE STOCKISTS GIVING DISCOUNT ON THE SALES PRICE, ON THE BASIS OF VARIOUS SCHEM E, IN RESPECT OF QUALITY, TARGET, ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 6 TURNOVER ETC., ON THE BASIS OF THE PERFORMANCE OF T HE STOCKISTS. AS FOUND BY THE CIT(A), WHAT IS OFFERED BY THE ASSESSEE TO THE STOCKISTS ARE NOTHING BUT DISCOUNT BECAUSE THE ASSESSEE SELLS THE GOODS TO THE STOCKISTS, WHO IS TURN SELLS THE GOODS TO THE CONSUMER. IN THE SALE TRANSA CTION BETWEEN THE ASSESSEE AND THE STOCKISTS THERE CANNOT BE PAYMENT OF COMMISSION TO THE PURCHASER HIMSELF. BR OKERAGE OR COMMISSION ENVISAGED UNDER SECTION 194H IS FOR T HE 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 AN Y PAYMENT TO THEM AS COMMISSION. IN THE CIRCUMSTANCE S, WE CONCUR WITH THE CONCLUSION AND FINDINGS OF THE CIT (A) THAT WHAT WAS OFFERED TO THE STOCKISTS IS NOTHING BUT DI SCOUNT UNDER PROVISIONS TO SEC.194H WILL NOT APPLY. IN THE CIRCUMSTANCES, THE CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE OF DISCOUNT PAID BY THE ASSESSEE TO TH E STOCKISTS TO THE EXTENT OF RS.113068338/-. WE DISMI SS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, SUPPORTING THE CONCLUSION DRAWN BY THE REVENUE AUTHORI TIES SUBMITTED THAT THE LAW AS IT STANDS NOW BY VIRTUE OF THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN CASE OF CIT V/S. IDEA CELLU LAR (SUPRA) AND OTHER DECISIONS, THE TRADE DISCOUNT GIVEN BY THE ASSESSEE I S NOTHING BUT COMMISSION PAID TO THE AGENTS REQUIRING DEDUCTION OF TA X AT SOURCE U/S 194H OF THE ACT. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS THE CONTENTION OF THE LEARNED AR THAT ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 7 THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE. HOWEVER, THE CIT (A) HAS RELIED ON TH E DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. IDEA CELLULAR (SUPRA) TO HOLD THAT THE TRADE DISCOUNT GIVEN TO DIST RIBUTORS IS NOTHING BUT COMMISSION TO THE AGENTS COMING WITHIN THE TDS PR OVISIONS CONTAINED U/S 194H OF THE ACT. THE HONBLE KERALA HIGH COURT IN CASE OF VODAFONE ESSAR CELLULAR LIMITED V/S. ACIT (332 ITR 255) ALSO HELD SIMILAR VIEW. IT IS THE FURTHER CONTENTION OF THE ASSESSEE THAT THE FACTS INVOLVED IN THE CASE OF IDEA CELLULAR (SUPRA) IS D ISTINGUISHABLE AS IN THAT CASE THE PRINCIPAL AGENT RELATIONSHIP WAS ESTAB LISHED WHEREAS THERE IS NO SUCH PRINCIPAL-AGENT RELATIONSHIP IN THE CASE OF THE ASSESSEE. HOWEVER, THESE FACTS NEED TO BE PROVED BY THE A SSESSEE BY BRINGING CORROBORATIVE MATERIAL ON RECORD. THE ASSESSEE HAS TO PROVE THAT A PRINCIPAL TO PRINCIPAL RELATIONSHIP EXISTS WITH THE STOCKISTS TO WHOM DISCOUNTS WERE GIVEN. THOUGH IT IS A FACT THAT TH E CO-ORDINATE BENCH IN EARLIER YEARS IN CASE OF THE ASSESSEE HAS DECIDED TH E ISSUE IN FAVOUR OF THE ASSESSEE, HOWEVER, SUCH DECISION OF THE CO-OR DINATE BENCH IS ON APPRECIATION OF FACTS INVOLVED IN THOSE YEAR S. NO MATERIAL HAS BEEN PRODUCED BEFORE US TO DEMONSTRATE THE FACT TH AT THERE IS NO PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE STOCKISTS IN SO FAR AS TRADE DISCOUNT IS CONCERNED. THE ASSESSEE HAS TO PRO DUCE THE TERMS AND CONDITIONS FOR APPOINTMENT OF STOCKISTS AND OTH ER CORROBORATIVE MATERIAL LIKE THE AGREEMENT, IF ANY, E NTERED WITH STOCKISTS, TERMS OF PAYMENTS ETC., TO ESTABLISH THE FACT THA T THERE WAS NO PRINCIPAL-AGENT RELATIONSHIP. IN THAT CASE ONLY THE ASSESSEES CLAIM THAT IT WILL NOT COME UNDER S. 194H OF THE ACT CAN BE ACCE PTED. SINCE ALL THESE FACTS HAVE NOT BEEN BROUGHT ON RECORD, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE CIT (A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE ISSUE AFRESH A ND TAKE A ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 8 DECISION IN THE MATTER AFTER CONSIDERING ALL THE MATERI ALS AND EVIDENCES AVAILABLE ON RECORD AND ANY FURTHER MATERIAL WHICH TH E ASSESSEE MAY PRODUCE. THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. HENCE, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.890/HYD/12 ASST. YEAR 2008-09 :- 12. IN VIEW OF OUR DECISION IN ITA NO.889/HYD/ 2012 PERTAINING TO THE ASSESSMENT YEAR 2007-08, THE ORDER PASSED BY THE CIT (A) IN THIS CASE IS ALSO SET ASIDE AND THE MATTER IS REMITTED BACK T O THE FILE OF THE ASSESSING OFFICER WITH THE SAME DIRECTION AS GIVEN IN APPEA L NO.889/HYD/2012 (SUPRA). 13. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2013 . SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 10 TH MAY, 2013 JMR* COPY FORWARDED TO: 1. 2. 3. 4. 5. M/S. HYDERABAD INDUSTRIES LIMITED, SANATNAGAR, HYDERABAD. ACIT, CIR-2(2), HYDERABAD. CIT (A)-III, HYDERABAD. CIT CONCERNED, HYDERABAD. THE DR B BENCH ITAT, HYDERABAD. ITA NOS.889 & 890 OF 2012 HYDERABAD INDUSTRIES LIMITED ,HYD. 9