TaxTMI 
TaxTMI 
2023 (7) TMI 373
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....2. On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in exercising his jurisdiction for initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO had passed the assessment order after conducting due enquiries and examination of the issue by taking a legally plausible view hence the said order is not erroneous and prejudicial to the interest of the revenue. The Appellant prays that the order passed under section 263 is not in consonance with the law laid down by the Act and hence liable to be quashed. 3. On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in initiating proceedings under section 263 of the Act, on the ground that the Appellant has not deducted tax at source on commission on sales of INR 36,34,10,000/- debited to profit and loss account without appreciating that the Ld. AO accepted the Appellant explanation that the said commission was of nature of discount and was not liable to tax withholding. The Appellant prays that the order passed under section 263 is liable to be quashed. 3. The brief facts of the case are as follows: Assessee is a company engaged in the manufactur....
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....ollowing judicial decisions: * Malabar Industrial Co. Ltd [2000] 243 ITR 83 (SC) * Daniel Merchants P. Ltd. 2017- TIOL-455-SC-IT * Rajmandir Estates P Ltd. (2017) 245 Taxman 127 (SC) * Ashok Logani (2012) 347 ITR 22 (Delhi) * Gee Vee Enterprises (1975) 99 ITR 375 (Delhi) * Vedanta Ltd. (2021) 279 Taxman 358 (Born) * V. K. Bharathi (2019) 102 taxmann.com 255 (Kar) * Rajalakshmi Mills Ltd. v. ITO (2009) 121 ITD 343 (Chennai)(SB) * Lokesh M. (2021) 187 ITD 342 (Bang) 10. In view of the above discussion, the assessment order u/s 143(3) is erroneous and prejudicial to the interests of Revenue in terms of section 263. The assessment order is accordingly, set aside for this purpose and the AO is directed under section 263, to make a fresh assessment in accordance with law, after considering the above. The AO shall examine the issues discussed above and conduct necessary inquiries in accordance with law and CBDT guidelines. The AO shall consider disallowance u/s 40(a)(ia) on the transactions discussed above. He shall give the assessee an opportunity to furnish necessary evidence to establish his claim and explain why the proposed additions be not made to income. The AO ....
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.... the assessee to its distributors is discount or commission. Therefore, it was contended by the learned DR that a similar view may be taken for this Assessment Year also. 6. We have heard the rival submissions and perused the material on record. For the relevant Assessment Year, the assessment was selected for scrutiny. During the course of assessment proceedings, the AO questioned the impugned transaction of the expenditure amounting to Rs. 36.34 Crores. The relevant portion of the notice issued under section 142(1) dated 22.11.2018 directing the assessee to explain the commission expenditure reads as follows: "Commission expenditure to the extent of Rs. 36.34 crores has been incurred during the AY under consideration. Please explain in brief the nature of expenditure and also if TDS has been applied." 7. In response to the above question, the assessee filed reply vide its letter dated 11.12.2018. The assessee furnished the sample agreements and contested that it was not liable to deduct tax at source under section 194H of the Act. The reply submitted by the assessee vide its submissions letter dated 11.12.2018 reads as follows: "Note on special discount: The special disco....
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....pany to the distributors by way of Debit Notes issued to them towards distributing the various schemes in the market in a particular period. The discount to be offered may van from one distributor to another distributor. The Company outlined the important features of the discount schemes for your favourable consideration: * The discounts are based on the volume of goods purchased in a particular period by the distributors as per the guidelines provided to the sales teams. * At the end of each period, as per the discount scheme, the Company identifies the volumes purchased by a particular distributor to calculate the eligible discount. This discount is provided to the distributors by way of debit notes. The Company verifies the claim as per the debit note issued by the distributor and grants the discount on satisfaction of the claim * The sale price discount is not offered on the face of the invoice due to the practical issue of determining the actual quantity purchased by the distributor which is ascertained at the end of the particular scheme period which cannot be determined during the time of initial sale of goods. In this context, we wish to highlight the judgement of....
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....gets. but certainly they cannot be called commission. They are various sales promotion schemes, which keep on coming and going. They may be area specific, class of customer-specific, period-specific, etc. They are never permanent and, therefore, incentives earned from such schemes cannot be said to have been earned in the course of buying and selling the goods. The fact that these schemes do not form part of the agreement, itself suggests that they are not permanent and the profits of the dealer do not predominantly depend on these schemes. There may be a period during which no scheme may be in operation at all. But even in absence of a scheme, the course of buying and selling goes on. The quantum of incentives earned by a dealer may be dependent on the quantum of certain sales, but the normal buying and selling goes on irrespective of the schemes and, hence, these incentives cannot be termed as commission in the normal course of buying and selling the goods as envisaged in s.194H of the Act. Accordingly, in the light of the foregoing discussion, we hold that the assessee had not made any commission payment to any person and hence there was no question of deducting any tax at sourc....
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.... and loss account. These amounts are not subject to withholding tax provisions under the Act as the payments do not qualify as commission but as discounts, and accordingly, should not be disallowed under section 40(a)(ia) of the Act. Your goodself in the show cause notice mentioned that the relationship between the Company and the distributor is in the nature of Principal-agent. Accordingly, the distributor are getting discount in lieu of commission and it should be subjected to TDS under section 194H. In this regard, we wish to submit the following: Transaction with distributors is in the nature of sale and not agency Key features of the arrangement with the distributors for your favourable consideration: * The Company sells the goods to the distributors wherein the title, risks and reward stand transferred to such distributors on actual delivery of the goods. * The goods sold by the Company to such distributors is reduced from the Company's inventory and reflected accordingly in its accounts as sales. * The recovery against the Company's sales is not contingent upon the sales made by the distributors. * The Company only gives a discount to the distributors o....
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....ed for your goodself reference as Annexure 4- Further, your goodself had placed reliance on the decisions of Hon'ble Delhi tribunal in case of Idea Cellular Limited (`ICL') and Hon'ble Calcutta High Court in case of Bharti Cellular Limited (`BCL'). In this regard, we would like to bring to your kind attention that the facts of the above said case are different from the facts of the Company. The facts of the above mentioned cases were as follows: * The goods sold by the distributors were owned by the assessees'. * The distributor were not allowed to remove, make obscure or delete marks placed on prepaid SIM card/recharge coupons. * The terms of the agreement further provided that without written consent of the ICL and BCL, the distributors could not directly or indirectly. o market, solicit, sell, offer and accept offers for telephonic services that compete with the assessee's telephonic services, o induce or refer any actual or prospective subscriber of the assessee's telephonic services to subscribe to any competitive telephonic services, o provide any company's or customer's information/data to any competitive entity. * The ma....
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.... about applicability of withholding tax. Accordingly, based on the principle laid down by the Apex court, we wish to submit that sale undertake by the Company is on principal to principal basis and the discount given to the distributor does not warrant withholding as per the provision of section 194H of the Act." 10. From the above show cause notices issued by the AO and the replies submitted by the assessee, it is clear that the AO has examined the impugned transaction in detail during the course of assessment proceedings for the year under consideration. The assessee, during the course of assessment proceedings, had also admittedly placed on record the distribution agreement and the debit notes. From this, the only inference that can be drawn is that AO has taken a conscious decision in not making the disallowance under section 40(a)(ia) of the Act. Therefore, the PCIT's reasoning that the AO has not examined the issue in accordance with law and has not conducted necessary enquiries, is incorrect. Since the AO has taken a plausible view, the said Assessment Order cannot be subjected to revision under section 263 of the Act. In this context, we rely on the judgment of the Hon'b....