2018 (2) TMI 504 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Trade Discounts and TDS; Appeals Partly Allowed

EPCOS India Pvt. Ltd. Versus ITO, Ward-11 (1), DCIT And Circle-11, Kolkata

The Tribunal upheld the CIT(A)'s decision in allowing commission expenses as trade discounts, deleting additions under section 40(a)(ia) for non-deduction ... Non-deduction of TDS u/s 194H r.w.s. 40(a)(ia) - nature of discount - amount of commission offered by the assessee - Held that:- Some services should be provided by the person or any other services in the course of buying and selling of goods. In the instant case, the assessee has been supplying goods to its dealers on principal to principal basis as evident from the agreement as discussed above. Therefore, we find that there was no relationship between the assessee and its customers as of principal and agents. Therefore, the amount of discount offered by the assessee cannot be termed as commission u/s 194H of the Act. There is no dispute that the discount was offered by the assessee to its dealers in relation to the sales made by it to them. Thus the provisions of section 194H does not apply to the impugned discount offered by the assessee - Decided against revenue Disallowance of the expenses of damage - CIT-A restricted addition to 10% - Held that:- AO cannot just brush aside the details filed by the assessee and draw a conclusion that the expenses are not incurred in connection with the business of the assessee. We note that sufficient details were duly filed by the assessee at the time of assessment proceedings in support of the cost incurred on the damages and no defect of whatever has been pointed out by the AO. The Ld. DR has also not brought anything on record contrary to the finding of Ld. CIT(A). Thus, we hold that the cost incurred for the damage of goods is directly connected with the business activities of the assessee and accordingly eligible for deduction u/s 37(1) of the Act - Decided against revenue Disallowance of provision of doubtful debts while computing the income u/s 115JB - Held that:- In the instant case, we note that the Ld. CIT(A) has admitted the fresh evidences in contravention to the provision of Rule 46A of Income tax Rules. We note that the necessary details of the provision created by the assessee in earlier years were not supplied by the assessee to the AO at the time of assessment proceedings. The issue of provisions for doubtful debts written back by the assessee for ₹ 1,16,27,000/- needs to be examined by the AO. In respect of issue it was agreed by both the parties that the issue must be restored back to the file of AO for fresh examination. Accordingly, we remit back the issue to the file of AO to examine afresh and to decide the issue in accordance with law. AO must give reasonable opportunity to the assessee before passing order on this point. Issues Involved:1. Allowance of commission expenses as trade discount.2. Deletion of addition under section 40(a)(ia) for non-deduction of TDS on commission payment under section 194H.3. Restriction of disallowance on expenses of damaged goods.4. Restriction of provision for doubtful debts for computing income under section 115JB.Detailed Analysis:1. Allowance of Commission Expenses as Trade Discount:The Revenue contended that the CIT(A) erred in allowing commission expenses amounting to Rs. 100,66,944/- as trade discount, arguing that these discounts were in the nature of commission and thus subject to TDS under section 194H. The assessee maintained that the discounts were offered on a principal-to-principal basis and not as commission. The CIT(A) found in favor of the assessee, citing the Supreme Court judgment in CIT vs. Ahmedabad Stamp Vendors Association, which held that discounts for bulk purchases do not constitute commission under section 194H. The Tribunal upheld the CIT(A)'s decision, affirming that the discounts were not commission and thus not subject to TDS.2. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of TDS:The AO had disallowed Rs. 100,66,944/- under section 40(a)(ia) for non-deduction of TDS on commission payments. The CIT(A) deleted this addition, reasoning that the payments were trade discounts and not commissions, thus not requiring TDS under section 194H. The Tribunal agreed with the CIT(A), referencing the Supreme Court's ruling that discounts for bulk purchases are not commissions and thus not subject to TDS under section 194H.3. Restriction of Disallowance on Expenses of Damaged Goods:The AO disallowed Rs. 87,35,561/- claimed by the assessee for damaged goods, citing lack of evidence. The CIT(A) restricted this disallowance to 10%, allowing Rs. 8,72,556/- as reasonable business expenses. The Tribunal found that the expenses were directly related to the business and should be allowed under section 37(1). It dismissed the Revenue's appeal and allowed the assessee's appeal, holding that the full amount claimed for damaged goods was justified.4. Restriction of Provision for Doubtful Debts for Computing Income Under Section 115JB:The AO disallowed Rs. 1,16,27,000/- claimed by the assessee as provision for doubtful debts under section 115JB, citing lack of supporting details. The CIT(A) allowed Rs. 93,46,000/- based on the assessee's past provisions. The Tribunal remanded the issue back to the AO for fresh examination, as the CIT(A) had admitted new evidence without following Rule 46A procedures. The Tribunal instructed the AO to re-examine the details and decide according to the law.Separate Judgments:- The Tribunal delivered a consolidated judgment for all cross-appeals due to identical facts and circumstances.- For ITA No. 2758/Kol/2013 (AY 09-10), the Tribunal upheld the CIT(A)'s decision on trade discounts and damaged goods but remanded the provision for doubtful debts issue for fresh examination.- For ITA No. 1895/Kol/2014 (AY 10-11), the Tribunal followed the same reasoning as in ITA No. 2758/Kol/2013.- The Tribunal allowed the assessee's appeals in ITA No. 688/Kol/2014 (AY 08-09) and ITA No. 1718/Kol/2014 (AY 10-11) based on the same grounds.- The Tribunal dismissed the Revenue's appeal in ITA No. 1325/Kol/2014 (AY 08-09) on the issue of damaged goods expenses.Summary:- Revenue's appeals in ITA No. 2758/Kol/2013 and ITA No. 1895/Kol/2014 were partly allowed for statistical purposes.- Assessee's appeals in ITA No. 2553/Kol/2013, ITA No. 688/Kol/2014, and ITA No. 1718/Kol/2014 were allowed.- Revenue's appeal in ITA No. 1325/Kol/2014 was dismissed.Order Pronounced:The order was pronounced in the open court on 02/02/2018.