2017 (2) TMI 275 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Disallowance of Expenses

The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO regarding the disallowance of expenses under the heads of discount and ... TDS u/s 194H - non deduction of TDS on expenses under heads discount and activation charges u/s 40(a) (ia ) - whether discount/activation charges have not been given on sales but have been disbursed out of receipts received on account commission and activation charges, received from BSNL clearly covered under section 194H ? - Held that:- Since no dealer or sub-dealer was appointed either by Bharat Sanchar Nigam Ltd. (BSNL) or by the assessee, for the purpose of marketing the products and/or service of the Bharat Sanchar Nigam Ltd., the entire sales were to customers, either directly or through shopkeepers, who rendered services to the customers. Moreover, the entire sales were in cash. No commission was paid by the assessee to the customers. Then, Section 194H of the Act does not cover such discounts as under consideration herein and that being so, obviously the provisions of Section 40(a)(ia) of the Act was wrongly applied. Accounting-wise, the face value of the recharge coupon was debited to the purchase account, whereas the commission given by BSNL was credited to the commission account. At the time of sale, on the other hand, the face value of the recharge coupon was credited to the sales account and the cash receipts was debited to the cash account. The discount offered was debited to the discount account. When purchasing the SIM cards and recharge coupons from BSNL, the assessee had to deposit the money in advance. Undisputed, it is to customers directly and to petty shopkeepers, that the SIM cards and recharge coupons were sold in cash. The customers and shopkeepers were offered discount on the face value of the SIM cards. Apropos the recharge coupons, on the other hand, a small margin was kept by the assessee out of the commission/discount offered by BSNL. Then, activation charges were given by BSNL to the assessee on new connections, and a major portion thereof was given to the customers as discount. As discussed, it was on the basis of the mistaken presumption of existence of relationship of principal and agent, that the discount offered by the assessee to its customers was considered by the Assessing Officer as commission. This, however, is not so, to reiterate it was only discounts offered to the customers, on a principal to principal basis, on which, no TDS was either required to be made or was actually made. - Decided in favour of assessee Issues Involved:1. Deletion of additions made by the AO on account of disallowance of expenses under heads discount and activation charges.2. Deletion of addition made by the AO on account of disallowance of discount and activation charges under Section 40(a)(ia) of the IT Act.3. Deletion of addition made by the AO on account of collection of money from customers for services provided by the telecom operator, deemed as payment of commission to an agent/sub-agent under Section 194H of the IT Act.Issue-wise Detailed Analysis:1. Deletion of Additions Made by the AO on Account of Disallowance of Expenses under Heads Discount and Activation Charges:The AO disallowed expenses under the heads discount (Rs. 76,46,656) and activation charges (Rs. 39,52,845) due to the assessee's failure to provide sustainable evidence that the money was actually parted with to various customers/retailers. The CIT(A) deleted the addition, noting that the assessee provided daily collection reports and other relevant documents. The CIT(A) emphasized that the AO did not find any discrepancies or conduct further inquiries to verify the genuineness of the claims. The Tribunal upheld the CIT(A)'s decision, citing the absence of any contrary arguments or evidence from the Revenue.2. Deletion of Addition Made by the AO on Account of Disallowance of Discount and Activation Charges under Section 40(a)(ia) of the IT Act:The AO argued that the discount and activation charges were not given on sales but were disbursed out of receipts received from BSNL, thus falling under Section 194H of the IT Act. The CIT(A) disagreed, referencing the ITAT's previous order which held that there was no principal-agent relationship between the assessee and the customers. The Tribunal reiterated that the discount offered was in the nature of trade discount given at the time of sale, and not commission. Therefore, Section 194H did not apply, and no TDS was required.3. Deletion of Addition Made by the AO on Account of Collection of Money from Customers for Services Provided by the Telecom Operator, Deemed as Payment of Commission to an Agent/Sub-agent under Section 194H of the IT Act:The AO contended that the assessee was acting as an agent for BSNL, collecting money from customers for services provided by BSNL, and thus the payments to retailers should be considered as commission. The CIT(A) and the Tribunal disagreed, stating that the relationship between the assessee and the customers was on a principal-to-principal basis. The Tribunal cited previous judgments, including those from the Gujarat High Court and the Supreme Court, which supported the view that such discounts do not constitute commission under Section 194H.Conclusion:The Tribunal dismissed the departmental appeal, upholding the CIT(A)'s deletion of the additions made by the AO. The Tribunal found no merit in the Revenue's arguments and confirmed that the facts and circumstances of the case remained unchanged from previous years, where similar issues had been decided in favor of the assessee. The decision was pronounced in the open court on 07th November 2016.