2016 (5) TMI 954 - AT - Income Tax

Tribunal Partially Allows Appeal, Disallowances Modified

M/s Bajaj Consumer Care Ltd. (now known as Bajaj Resources Ltd.) Versus Dy. Commissioner of Income tax, Circle – 1 (3), Hyderabad

The Tribunal partially allowed the appeal, deleting disallowances related to ESI payment, ex-gratia, legal fees, printing materials, and reimbursements to ... Addition u/s 43B - Held that:- The assessee had paid ESIC payment of ₹ 10158/- before filing the return of income. The Hon’ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT ] held that the amendments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Various benches of ITAT and coordinate benches of this Tribunal have followed the above decision and held that the amendment to section 43B brought out by the Finance Act, 2003 is retrospective in nature and justified 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 ESI Payment With regard to other issue, the assessee has created a provision for exgratia to the extent of ₹ 15.73 lakhs and paid ₹ 13.62 lakhs before filing of the return. AO has treated the above provision of expenses as statutory due to the employees 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 expenditure for which assessee has created the provision. Respectfully following the decision of this Tribunal in the case of Novopan Industries Ltd. Vs. DCIT, [2013 (9) TMI 377 - ITAT HYDERABAD ] and others wherein it was held that the exgratia cannot be regarded as bonus and requirement of the provisions of section 37 are fully satisfied. Hence, respectfully following the said decision, we delete the addition made invoking section 43B on exgratia. Disallowance made u/s 40(a)(ia) in respect of fee payable to the advocate - Held that:- M/s Bajaj Hindustan Ltd., who deducted the TDS and remitted the 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. Disallowance made u/s 40(a)(ia) towards payment for purchase of printing material - Held that:- There is no doubt that the assessee has procured printing labels to its specification. The payment was made accordingly. In this connection, the Hon’ble P&H High Court in the case of CIT Vs. Markfed Khanna Branch [2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT], held that where assessee purchased printed packing material from manufacturer for the purpose of packing to its finished products and no raw material was supplied by it to manufacturer, for manufacturing of such packing material, transaction was a contract 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 on the facts of the above judgment. By following the above ratio, we delete the addition made on this count. Reimbursement to C&F agents - Held that:- As clarified in Circular No. 1 of CBDT, the TDS provision 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 expenses, without any profit elements, the C&F agents are acting as agents for the principal. Hence, TDS will not be applied on such reimbursements Services of recruitment agencies - TDS liability - Held that:- We are of the view that as per Circular No. 714, dated 03/08/1995, the services of recruitment agencies are in the nature of professional services rendered and hence, it will be 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. Payment to professionals - Held that:- As contended by the assessee that out of ₹ 2,46,487/- disallowed by the AO, ₹ 74,900/- is mere reimbursement of expenses. On analyzing the case laws submitted by the AR, we observe that all the cases were relating to reimbursement of expenses relating to payments to sister concerns or to agents. Whereas in the present case, the reimbursement was paid to professionals, who had met some expenditures. We understand that the professional 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 as per Circular No. 714, dt. 03/08/1995. We, therefore, sustain the addition made by the AO. Disallowance made in respect of annual and quarterly discounts paid/payable to stockiest u/s 40(a)(ia) - Held that:- The above payments are in the nature of trade discounts and not commission on which provisions of section 194H will apply. Accordingly, the additions made on this count are deleted. Disallowance made u/s 40(a)(ia) for payments made to stockiests - Held that:- The Assessee has already made TDS payments on the similar payments and termed these as commission. It cannot contest that these are incentives to dealers and could not substantiate its claim. We conclude that these are in the nature of commission only. Also, the provision made for ₹ 1,94,000/- will attract TDS as per the provisions of TDS, and TDS has to be remitted as soon as payment is made or credited, whichever is earlier. In the present case, the assessee cannot identify the parties to whom commission payment was to be made. The liability cannot be created without identifying the actual liability as well as identifying the creditor. In our view, the assessee has no option but to reverse it. Issues involved:1. Disallowance of Rs. 2,21,675 under Section 43B.2. Disallowance of Rs. 37,500 under Section 40(a)(ia) for legal fees.3. Disallowance of Rs. 9,96,397 under Section 40(a)(ia) for various payments.4. Disallowance of Rs. 1,88,67,445 under Section 40(a)(ia) for annual and quarterly target discounts.5. Disallowance of Rs. 14,21,891 under Section 40(a)(ia) for commission incentives to stockists.Issue-wise detailed analysis:1. Disallowance of Rs. 2,21,675 under Section 43B:The Assessing Officer (AO) disallowed Rs. 2,21,675 for delayed payment of ESI contribution and ex-gratia. The assessee argued that only Rs. 10,158 related to ESI while the remaining Rs. 2,11,273 was ex-gratia, not subject to Section 43B. The Tribunal noted that the ESI payment was made before the return filing due date and cited the Supreme Court's decision in CIT Vs. Alom Extrusions Ltd., confirming that amendments to Section 43B are retrospective. Hence, the ESI payment was allowable. For the ex-gratia, the Tribunal referred to the decision in Novopan Industries Ltd. Vs. DCIT, concluding that it was a contractual liability, not statutory, and deleted the disallowance.2. Disallowance of Rs. 37,500 under Section 40(a)(ia) for legal fees:The AO disallowed Rs. 37,500 for legal fees, claiming TDS was not deducted. The assessee contended that Bajaj Hindustan Ltd. raised a debit note later due to an accounting omission and had deducted TDS on the total amount. The Tribunal found that Bajaj Hindustan Ltd. had properly deducted and remitted TDS, following the decision in M/s Mahyco Monsanto Biotech (India) Ltd. Vs. Additional CIT, and deleted the disallowance.3. Disallowance of Rs. 9,96,397 under Section 40(a)(ia) for various payments:- Printing Materials: The AO treated the payment for printed labels as a job work contract under Section 194C. The Tribunal, relying on CIT Vs. Markfed Khanna Branch, held that it was a purchase transaction, not a job work, and deleted the disallowance.- C&F Payments and Professionals: The AO disallowed reimbursement expenses, including service tax, for not deducting TDS on gross amounts. The Tribunal, citing Circular No. 1 of 2014 and various judgments, held that TDS was not required on service tax and pure reimbursements without profit elements, deleting the disallowance.- Recruitment Services: The Tribunal upheld the disallowance for payments to M/s Acreaty Management Services, considering them professional services under Section 194J.- Professional Fees: The Tribunal sustained the disallowance for reimbursement of expenses to professionals, applying TDS provisions on the gross amount as per Circular No. 714.4. Disallowance of Rs. 1,88,67,445 under Section 40(a)(ia) for annual and quarterly target discounts:The AO treated these payments as commission under Section 194H. The Tribunal, referring to multiple judgments including CIT Vs. Intervert India Pvt. Ltd. and CIT Vs. Hyderabad Industries Ltd., concluded that the relationship was principal-to-principal, not principal-agent, and the payments were trade discounts, not commissions. Thus, the disallowance was deleted.5. Disallowance of Rs. 14,21,891 under Section 40(a)(ia) for commission incentives to stockists:The AO disallowed the amount, treating it as commission under Section 194H. The Tribunal noted that the assessee had already deducted TDS on similar payments, confirming these as commissions. The provision made for Rs. 1,94,000 was also upheld for TDS applicability, sustaining the disallowance.Conclusion:The Tribunal partly allowed the appeal, deleting disallowances related to ESI payment, ex-gratia, legal fees, printing materials, and reimbursements to C&F agents, while upholding disallowances for recruitment services and certain professional fees. The major disallowance for target discounts was deleted, but the commission incentives disallowance was sustained.