TaxTMI 
TaxTMI 
2022 (3) TMI 292
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....ct of the following items:- (i) Discount under the Conditional Discount Scheme - Rs. 7,99,20,387/- (30% of Rs. 26,64,01,291) (ii) Volume Discount- Rs. 6,07,15,612/- (30% of Rs. 20,23,85,374/-) (iii) Octroi and Insurance Expenses Rs. 1,95,79,691 (30% of Rs. 6,52,65,636/-) (iv) Provisions for sales rebate - Rs. 55,33,096 (30% of Rs. 1,84,43,654/-) 3.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of trading of note books, tablets, pad phones and accessories. The ld. AO observed that the assessee had reduced a sum of Rs. 69,31,68,513/- on account of sales rebate from the total sales of Rs. 1277,88,29,467/-. The break-up of the total sales rebate of Rs. 69,31,68,513/- is as under:- (i) Conditional Discount Scheme (ground No.2 before us) Rs. 26,71,93,971/- (ii) Volume Discount on achievement of target sales (Ground No.3 before us) Rs. 20,66,53,421/- iii) Reimbursement of octroi and insurance on actual basis (Ground No.4 before us) Rs. 6,52,65,636/- iv) Provision for sales rebate relying on percentage of sales rebate to s....
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....er. 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 relationship with any of the dealers/distributors and once the assessee sells/delivers the goods to the dealers/distributors, sale is complete. ....
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.... 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 to Flipkart is also incorrect as the assessee has raised the invoice in the name of end user i....
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....-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 assessee is required to sell goods/products as per the purchase order to ....
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....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 assessee simply sells its products to dealers/distributo....
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.... 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 Breweries 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 is contextually diffe....
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....a)(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 ....
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....ssee as business expenditure. The Assessing Officer himself has not disputed 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, t....
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....ision:-Pavankumar M. Sanghvi vs. ITO, [2017] 81 taxmann.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 ra....
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....tional discount given to dealers/distributors to get the defective product repaired at their end. According to the assessee, to avoid getting the products back from the dealers/distributors getting them repaired and again re- selling them, the assessee asks the dealers/distributors to repair the products at their end and makes good the cost of such repair by reimbursing at fixed rate of 30%. The ld. AO was of the view that had the dealers/distributors would not have repaired the products, the assessee would have hired the services of a professional to undertake repairs. Therefore, the assessee would have been liable to deduct tax at source while making payment for such repairs to the professional as it would be covered under section 194C/194J of the Act. The assessee having failed to deduct tax at source, the ld. AO disallowed 30% amounting to Rs. 4,06,83,549, under section 40(a)(ia) of the Act. The disallowance was also sustained by ld. CIT(A). 4.2. At the outset, the ld. AR before us stated that this issue had been decided against the assessee by this Tribunal for A.Y. 2016-17 in ITA No. 943/Mum/2020 dated 05/10/2020. But he stated that terms agreed upon by the assessee with d....
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....d at the instance of the assessee, then the 30% discount on the original cost price of the product would be nothing but reimbursement of the repair work done by the dealer on which no TDS could be made applicable as the reimbursement portion does not represent the income of the recipient. 4.3. We find that at the outset, this decision has been decided against the assessee by this Tribunal in A.Y. 2016-17 as referred supra. But the ld. AR before us had brought several fresh facts which was apparently either not argued before this Tribunal or stated before the lower authorities while adjudicating the issue under consideration. Hence, we deem it fit and appropriate in the interest of justice and fair play, to set aside this issue to the file of the ld. AO for denovo adjudication in accordance with law. In the said set aside assessment proceedings, the ld. AO shall factually examine all the contentions of the assessee and take a reasoned view uninfluenced by either his views taken in the assessment order or by the order of the ld. DRP or by this Tribunal in A.Yrs. 2016-17 and 2017-18. This direction is given in view of the fact that this issue being a repetitive issue as pointed out....
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....Average) 1 Axis Integrated System 37.58% 2 Inmacs Management Services 53.52% 3 Asian Business Exhibiters & conferences Ltd. 4.04% Mean 31.71% 5.3. The ld. TPO arrived at the arm's length price (ALP) adjustment on account of provision of marketing support services to the tune of Rs. 56,33,036/- as under:- Particulars Amount (INR) Marketing and Advertising cost 3,18,08,173 Mean of comparable margins 31,71% Margin to be earned 1,00,86,372 Total marketing support fees receivable 4,18,94,545 Total marketing support fees actually received 3,62,61,509 Adjustment Amount 56,33,036 5.4. This ALP adjustment was upheld by the ld. DRP and hence, the ld. AO added the same in the final assessment order. 5.5. We find that the total international transactions carried out by the assessee with its AE are as under:- S. No Nature of Transaction Amount (in Rs.) Method adopted 1 Import of finished goods 1231,86,01,503 TNMM 2 Purchase of marketing samples 1,09,02,602 TNMM 3 Purchase allowance 2,44,79,179 TNMM 4 Import of fixed assets 18,98,605 Other ....
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....alculated with reference to pass through cost, we find that the ld. AR stated Marketing expenses (details are enclosed in page 341 of the Paper Book filed before us) mainly comprise of services availed from third parties such as cost of marketing materials, advertising, courier charges, insurance etc. The assessee neither performs any additional functions with respect to such costs nor such activities involve any service element of the assessee. 5.10. Per contra, the ld. DR stated that argument regarding marketing expenses referred in page 341 of the paper book are being raised by the assessee for the first time. He argued that whether costs can be treated as pass-through costs is a fact specific exercise and the onus is on the assessee to demonstrate why the costs should be allowed as pass-through costs. The intercompany agreements and actual conduct should clearly document that it does not perform any functions or assume any risks in relation to such costs. Hence, factual analysis and the conduct of the assessee needs to be carefully ascertained, before allowing any cost to be considered as pass-through cost. In the instant case, the assessee has not claimed any costs as pass-....
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....CS is majorly engaged in provision of services in the nature of management consultancy, corporate finance, audit, tax and legal advisory services and it employs professionals who are highly educated and have a vast experience in the field of taxation, costing, finance and accounts to provide high quality services. Thus, the Assessee prayed that this company is not functionally comparable and should be excluded. We have considered the facts of the case in the submissions made. As per annual report, the company is providing services in the field of Risk Management and Business process reengineering which are in the nature of Business Support Services. Hence, the company is functionally comparable to the assessee. Hence, it has been rightly selected by the TPO as comparable. The objection of the assessee in this case is therefore rejected." 5.13. We find lot of force in the argument of the ld. AR that activities of Axis are not comparable to marketing support services, since Axis is engaged in liasoning with Government and regulatory authorities and further Axis out sources substantial activities to third parties. Similarly, the ld. AR also argued that Inmacs is engaged in....