Wholesale Dealer Prevails: Commission Disallowance Overturned

The disallowance of commission under section 40(a)(ia) of the IT Act was challenged by the appellant, a wholesale dealer, before the Tribunal. The Tribunal ruled in favor of the appellant, noting that as an intermediary, the appellant was not liable to deduct TDS on commission paid to retailers by the service provider. The Tribunal emphasized the limited role of the appellant in transactions, leading to the deletion of the disallowance. Consequently, the appeal was partly allowed, overturning the decision of the Assessing Officer and the CIT (A).

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Issues:
Disallowance of commission under section 40(a)(ia) of the IT Act.

Analysis:
The appellant challenged the disallowance of commission and addition of undisclosed interest income made by the Assessing Officer (AO) before the ld. CIT (A), which was confirmed due to non-appearance of the appellant. The only issue in this appeal was the disallowance made by the AO under section 40(a)(ia) of the IT Act concerning the payment of commission.

The appellant, an individual and wholesale dealer, was engaged in the purchase and sale of mobile accessories, sim cards, and recharge coupons. The AO disallowed the commission payment to sub-dealers/retailers of a certain amount due to non-deduction of TDS under section 194H. The ld. CIT (A) confirmed the disallowance as the appellant did not attend the proceedings. The appellant contended that a similar issue was decided in their favor by the Tribunal for the assessment year 2011-12, and provided the relevant Tribunal order.

The Tribunal noted that in a previous decision, it was held that the appellant, acting as an intermediary, was not liable to deduct TDS on commission paid by the service provider to retailers. The Tribunal emphasized that the appellant's role was limited to recording transactions and passing services, with no control over commission or retail prices. Therefore, the disallowance under section 40(a)(ia) was deleted following the consistent view that when the appellant is an intermediary, TDS deduction responsibility lies with the service provider directly paying the commission.

Based on the previous Tribunal decision and the nature of the appellant's role as an intermediary, the disallowance made by the AO under section 40(a)(ia) was deleted for the assessment year in question. The appeal of the assessee was partly allowed, and the order was pronounced on 24/10/2018.

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