TaxTMI 
TaxTMI 
2020 (10) TMI 510
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....ed its return of income on 30th November 2016, declaring total income of Rs. 17,90,29,340. In the course of assessment proceedings, the Assessing Officer while verifying the audited accounts of the assessee noticed that the assessee has claimed the following adjustment against the gross sales. Sales Rs. 178,78,77,006 Less: Sales Return Rs. 25,08,87,210 Sales Rebate Rs. 71,04,23,345 Rs. 96,13,10,555 Net Sales Rs. 1672,65,66,452 4. Insofar as the amount of sales return is concerned, the Assessing Officer accepted the claim. However, insofar as the sales rebate is concerned, the Assessing Officer called upon the assessee to furnish the break-up of such rebate granted to the dealers/distributors with supporting details. After verifying the details furnished by the assessee, he noted that the sales rebate comprise of the following:- Conditional Discount Scheme such as back end tender / SI / project, sales out price protection, special program, etc. Rs. 42,13,01,780 Reimbursement of octroi and insurance on actual basis Rs. 4,13,94,781 Refurbish and Rebate on defective products Rs. 6,76,00,752 Voluntary discount (on achievement of target sales) Rs. 13,3....
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.... discussed earlier, the disallowance made was also upheld by the learned Commissioner (Appeals) accepting the reasoning of the Assessing Officer. 8. The learned Authorised Representative submitted, the assessee imports electronic goods such as note books, tablets, pad-phones, mobile phones and accessories for re-selling in India. He submitted, technology relating to these products gets upgraded/developed very fast and within a short period of launch of a particular product, it becomes obsolete. Therefore, the company conceives various rebate/discount schemes to push sales of such obsolete/slow moving products. Drawing our attention to Note-17 of the Profit & Loss Account, a copy of which is at Page-3 of the paper book, the learned Authorised Representative submitted, major revenue during the year was generated from sale of notebooks, tablets, pad-phones, mobile phones and accessories, which have a fiercely competitive market. Due to quick technological advance, these products become out dated/obsolete within a very short span, therefore, have to be sold at a discounted price. The learned Authorised Representative submitted, the assessee does not have any principal-agent relationsh....
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....vations of the Assessing Officer and learned Commissioner (Appeals) submitted, the contract between the parties are not conclusive, therefore, the true nature and character of the transaction has to be examined to find out whether it is a transaction of sale between two principals or there is a principal-agent relationship. In this context, he relied upon the decision of the Hon'ble Supreme Court in Durga Prasad More, 83 ITR 540 (SC). To emphasis upon the fact that the contract of sale does not end with the sale made to the dealers/distributors, the learned Departmental Representative drew our attention to certain clauses of the contract between the assessee and Flipkart. The learned Departmental Representative submitted, as per the terms of the contract, the packaging of the goods is being carried out by the assessee. Further, the assessee also undertakes the liability to replace any defective goods. Drawing our attention to the copy of the invoice placed at Page-27 of the paper book, the learned Departmental Representative submitted, assessee's contention that there is a principal-to-principal relationship with Flipkart and the sale contract concludes upon sale being effected....
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....ell their products at a rate below the MRP. Likewise, the assessee from time-to-time has formulated rebate/discount schemes for dealers/distributors towards sale of such products. Undisputedly, the rebate/discount given by the assessee to the dealers/distributors have been treated as payment coming within the ambit of section 194C/194H of the Act while making disallowance under section 40(a)(ia) of the Act. 12. Before we deal with the correctness of the aforesaid disallowance, it is necessary to briefly deal with certain crucial facts. It is evident from the material on record that during the year under consideration, the assessee had provided conditional rebate/discount of Rs. 42,13,01,780 to 29 distributors/dealers to whom various products, such as, notebooks, zenphones, tablets, zenpads, eeebooks, accessories, etc., were sold for a total amount of Rs. 1768,78,77,006. It is further relevant to observe, out of the 29 dealers/distributors to whom products were sold, the assessee had entered into a written contract only with Flipkart. On a perusal of the agreement with Flipkart, a copy of which is at Page-5 of the paper book, it is seen that as per the terms of the contract, the as....
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....Insofar as the transaction with other dealers / distributors are concerned, the Revenue has not brought on record any material to negate assessee's contention that it is a concluded sale transaction between two principals and there is no element of agency involved. The sample invoices, credit notes, etc., placed in the paper book clearly demonstrate the aforesaid factual position. 14. Having dealt with the facts involving in the issue, now we will deal with the legal aspect. Undisputedly, the Assessing Officer has disallowed the rebate/discount given under section 40(a)(ia) of the Act on the reasoning that such payments come within the purview of section 194C/194H of the Act. A reading of section 194C of the Act would suggest that in respect of any payment made to a contractor/sub-contractor for carrying out any work, including supply of labour, would be subject to deduction of tax at source at the appropriate rate. In the facts of the present case, the assessee has entered into a sale contract, simpliciter, for sale of its products to dealers/distributors. Certainly, the transaction between the assessee and the dealers/distributors cannot be termed as a contract for work. The ass....
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.... held that for attracting the aforesaid provision, the element of agency has to be there. The Hon'ble High Court while providing by way of illustration, the nature of transaction between a dealer in car and its manufacturer has observed that a service in the course of buying or selling of goods has to be something more than the act of simply buying or selling of goods. Therefore, the discount/rebate given cannot be termed as commission. The Hon'ble Andhra Pradesh High Court in United Beveries Ltd. (supra) while dealing with identical nature of dispute has held that when the sale transaction between two parties is on principal-to-principal basis, there is no element of service being rendered by one party to another and discount given to retailers is only for promoting sales, therefore, cannot be termed as commission. The Hon'ble Jurisdictional High Court in Intervate India Pvt. Ltd. (supra) has expressed similar view that when the relationship between the seller and buyer is that of a principal-to-principal, the discount given cannot be termed as commission. On the contrary, the decision in case of PMS Diesels & Ors. (supra) cited by the learned Departmental Representative i....
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....)(ia) of the Act. 19. The leaned Counsel for the assessee submitted, volume discount is nothing but additional price support system provided to the dealers/distributors in respect of sale of certain specific products. The leaned Counsel submitted, in respect of such sale transactions, no third party is involved. Therefore, the provision of section 194H of the Act is not attracted. Further, he reiterated his submissions made in respect of ground no.2. 20. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 21. Having considered rival submissions and perused the material on record, we are of the view that our reasoning while deleting the disallowance under section 40(a)(ia) of the Act in respect of ground no.2 would equally apply to this issue as well, since, the Revenue has failed to establish any principle-agent relationship between the assessee and the dealers/distributors to whom volume discount was given. Therefore, following our detailed reasoning given in respect of ground no.2, we delete the disallowance made by the Assessing Officer. 22. In ground no.4, the assessee has challenged the disallowa....
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....ted that the expenditure is allowable. The part disallowance made by him is only on account of alleged non- deduction of tax at source while making such payment. According to the Assessing Officer, the reimbursement of octroi and insurance claimed is covered under the provision of section 194C and 194H of the Act. As discussed in detail while dealing with ground no.2 (supra), we have held that neither there is any contract for work between the assessee and the dealers/distributors as provided under section 194C of the Act, nor there is any principal-agent relationship between the assessee and the dealers/distributors to treat the payment made as commission in terms of section 194H r/w its Explanation. Therefore, we are of the view that since the payment made by the assessee are not covered under section 194C/194H of the Act, no disallowance under section 40(a)(ia) of the Act could have been made. At the cost of repetition, we must observe that considering the limited issue arising in the present appeal as to whether the reimbursement of octroi/insurance claimed is covered under section 194C/194H of the Act, thereby, requiring deduction of tax at source, we refrain from expressing a....
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....f any of the products sold by the assessee to the dealers/distributors is found to be defective requiring repair/refurbishing, as a matter of policy, instead of getting back such defective goods from the dealers/distributors and getting them repaired, the assessee asks the concerned dealer/distributor to repair at their end and sell. To compensate such repair cost, the assessee allows 30% additional discount in respect of the defective products by issuing credit note. Thus, it is very much clear, ordinarily it is the duty of the assessee to repair/refurbish the defective products. Basically, as a matter of convenience, assessee has outsourced such work to the dealers/distributors and allowed additional 30% discount. In our view, this additional 30% discount given by the assessee towards cost of repair is nothing but payment made towards contract for work as described under section 194C of the Act. In fact, in the submissions made before the Assessing Officer the assessee itself has stated that such discount was provided for cost of labour. Therefore, we are of the view, the payment made towards refurbish / repair clearly comes within the ambit of section 194C of the Act. The assess....
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....ann.com 208 (Ahmedabad - Trib.). 38. In rejoinder, the learned Counsel submitted, neither the Assessing Officer nor learned Commissioner (Appeals) had any doubt with regard to the genuineness or allowability of expenditure. A part disallowance under section 40(a)(ia) was made only because the assessee had not deducted tax at source. Therefore, the Revenue cannot raise a completely new plea at this stage regarding the allowability of expenditure. 39. We have considered rival submissions and perused the material on record. No doubt, the Assessing Officer has disallowed a part of the provision made towards sales rebate under section 40(a)(ia) of the Act by treating it as commission under section 194H of the Act. The learned Commissioner (Appeals) has also confirmed the aforesaid decision of the Assessing Officer. Therefore, the precise issue arising before us is the validity of disallowance made under section 40(a)(ia) of the Act by treating the expenditure claimed as payment towards commission. As discussed earlier, while dealing with the issue raised in other grounds which are more or less identical to the issue raised in this ground, we have held that as per the facts on record, ....