2019 (11) TMI 1116 - AT - Income Tax

Tribunal remands case for fresh adjudication, emphasizes comprehensive review

The Tribunal set aside the CIT(A)'s order and remanded the case to the AO for a fresh adjudication. The AO was instructed to afford the assessee a proper ... Proceedings u/s 201(1)/201(1A) - Non deduction of TDS on the discounts offered by the Appellant to its distributor as in the nature of “commission” u/s 194H - appeal is against not getting proper opportunity before the AO treating the assessee to be in default for non-deduction of TDS - HELD THAT:- We note that assessee consistently pleaded that it had Principal to principal relationship between it (assessee) and its distributor in respect of prepaid SIM cards. So we are of the prima-facie view that the documents mentioned need to be considered by the AO for adjudicating the issue. And since there is a failure on the part of the earlier AR to produce the aforesaid documents before the authorities below which is an essential document to decide the issue, we are of the view that justice should not be denied to assessee for the failure on the part of the Ld. AR of the assessee. Also the endeavor of the AO should be the “Quest for Truth” which he should undertake while assessing an assessee and the AO to adjudicate the lis before him de novo and even he is at liberty to look into the authenticity/genuinity of the agreements which the Ld. CIT(DR) had expressed his reservations and doubts and in case the AO finds the agreements mentioned in para7 (a) to (d) supra are authentic and genuine, he shall admit the additional documents and decide the issues. So the impugned order of Ld CIT(A) is set aside and the matters are remanded back to AO and the AO is directed to decide de novo the issue/issues after hearing the assessee - Appeals of the assessee are allowed for statistical purposes. Issues Involved:1. Proper opportunity for the assessee before the Assessing Officer (AO) under Section 201(1)/201(1A) of the Income Tax Act, 1961.2. Nature of the relationship between the assessee and its distributors (Principal to Principal vs. Principal to Agent).3. Applicability of Section 194H of the Income Tax Act concerning TDS on discounts provided to distributors.4. Admissibility of additional evidence under Rule 29 of the ITAT Rules.Detailed Analysis:Issue 1: Proper Opportunity for the Assessee Before the AOThe main ground of appeal was that the assessee did not get a proper opportunity to present its case before the AO. The AO issued a notice under Section 201(1)/201(1A) on 28.09.2016, and the assessee responded on 17.01.2017, detailing the nature of its contractual arrangements with distributors. However, no further queries were raised by the AO until 11.01.2019, when a successor AO issued another notice. The assessee submitted the required documents but was not given adequate time to respond to further queries, leading to the AO passing an order on 07.03.2019, declaring the assessee as a defaulter. The Tribunal noted that the assessee was not given a fair opportunity to present its case, citing the Supreme Court's decision in Tin Box Company Vs. CIT, and remanded the matter for de novo adjudication.Issue 2: Nature of the Relationship Between the Assessee and Its DistributorsThe assessee contended that its relationship with distributors was on a Principal to Principal (P2P) basis, not Principal to Agent (P2A). The Tribunal examined the contractual terms and found that the agreements indicated a P2P relationship, where the distributor bore the risks and rewards of the transactions. The Tribunal emphasized that this distinction was crucial for determining the applicability of Section 194H, which pertains to TDS on commissions.Issue 3: Applicability of Section 194HThe AO had held that the discounts offered by the assessee to its distributors were in the nature of 'commission' under Section 194H, requiring TDS deduction. The assessee argued that since the relationship was P2P, Section 194H did not apply. The Tribunal noted that the AO had not considered the updated agreements which reflected significant changes in the contractual terms. The Tribunal directed the AO to re-examine the nature of the relationship and the applicability of Section 194H in light of the updated agreements.Issue 4: Admissibility of Additional Evidence Under Rule 29The assessee sought to introduce additional agreements that were not presented before the lower authorities, citing practical difficulties due to a merger and changes in the legal team. The Tribunal accepted the assessee's plea, noting that these agreements were essential for a fair adjudication of the case. The Tribunal directed the AO to consider these additional documents and verify their authenticity before making a final decision.Conclusion:The Tribunal set aside the order of the CIT(A) and remanded the matter back to the AO for de novo adjudication. The AO was directed to provide the assessee with a proper opportunity to present its case, consider the additional agreements, and re-examine the nature of the relationship between the assessee and its distributors. The appeals were allowed for statistical purposes, emphasizing the need for a fair and thorough examination of all relevant documents and facts.