Assessee selling pre-paid vouchers liable for TDS under Section 194H on trade discounts treated as commission

ITAT Rajkot held that assessee selling pre-paid vouchers to distributors at discounted rates was liable for TDS u/s 194H on trade discounts treated as commission. CIT(A) dismissed assessee's appeal, ruling distributors acted as agents requiring TDS deduction. However, assessee contended it had already deducted appropriate TDS on such discounts/commission. ITAT noted Department failed to verify this crucial aspect and restored matter to CIT(A) for verification of whether assessee had actually deducted TDS at appropriate rates, as claimed. Appeals allowed for statistical purposes pending verification.

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Issues Involved:
The judgment involves appeals filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) regarding demand raised for non-deduction of tax at source under Section 194H of the Act on sale of pre-paid vouchers and cards to distributors at a rate lower than face value.

Issue 1 - ITA No. 400/Rjt/2018 (A.Y. 2009-10):
The assessee contested the actions of the Ld. A.O. treating them as liable for making no TDS and interest charging on discount payment u/s 201(1) / 201(1A), raising a demand of Rs. 5,03,229. The appeal highlighted errors in law and facts, lack of reasonable opportunity, and order being bad in law, illegal, and beyond statutory authority. The appellant sought cancellation of the order.

Issue 2 - ITA No. 401/Rjt/2018 (A.Y. 2009-10):
The assessee challenged the rejection of the rectification application by the Ld. CIT(A) without a speaking order, confirming tax liability without proper opportunity, and in violation of natural justice. The appeal also raised concerns about the order being beyond statutory limitations and inadequate opportunity provided at both assessment and appellate stages. The appellant requested rectification and annulment of the order.

Judgment Details:
The assessee, engaged in telecom operations, sold pre-paid vouchers and cards to distributors at a lower rate than face value during the relevant year. The Assessing Officer held the assessee in default for non-deduction of tax at source on the difference between face value and amounts received, treating it as commission paid to distributors. The Ld. CIT(A) upheld this decision, considering distributors as agents of the assessee. Additionally, a rectification application was dismissed despite the assessee deducting taxes on trade discounts. The appeals were filed against these orders.

The main contention was that the assessee had complied with TDS provisions by deducting taxes at appropriate rates while giving trade discounts. The Department failed to analyze this aspect, leading to the restoration of the matter to the Ld. CIT(A) for verification. Supporting documents were provided to demonstrate TDS deduction on trade discounts. Consequently, both appeals were allowed for statistical purposes, and the matter was referred back for necessary verification.

This Order was pronounced in Open Court on 05/01/2024.

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