TaxTMI 
TaxTMI 
2023 (7) TMI 373
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.... order passed under section 263 is liable to be quashed. 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 ....
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....l to the interests of Revenue in terms of section 263. 9. This view is supported by the following 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)(i....
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....rther submitted by the learned DR that for the Assessment Years 2013-14 and 2014-15, the Tribunal had restored the matter in an appeal filed by the assessee to the AO to determine whether the payments made by 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 i....
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....to-principal basis. From the above, your goodself would appreciate that all constituents necessary for a sale transaction are present in the Company's case and the same cannot be labelled as an agency arrangement. Sale Price Discount by way of debit notes are discounts and not commission The "Sale Price Discount" is offered by the Company 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 gra....
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....ling of goods, as envisaged in section 194H of the Act. The relevant extracts of the judgement have been reproduced below, for your reference: "In the light of the above discussion, then what are the incentives which the dealer gets and which are termed as commission by the lower authorities? Well, in our considered view, they are nothing more than incentives or motivators, which may drive the dealer to achieve certain targets. 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 q....
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.... of Bharti Cellular" 9. In reply to the above show cause notice, assessee submitted its contentions on 17.12.2018. Relevant portion of the assessee's submissions is reproduced below for ready reference: "3. Note on special discount to distributors amounting to INR 36.34 crore incurred by the Company during the AY During the year, the Company gave special discount to national distributors and regional distributors who are also its customers amounting to INR 36,34,10,000/- to its profit 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....
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.... both the parties as principal to principal. These discounts are made known to the dealers even before they purchase goods from the Company and quantification thereof is possible only at the end of the quarter/period as specified in the agreement. The dealers fulfilling the qualification conditions become eligible to get discount at the end of the notified period, processed by way of debit notes. The said discount is not in the nature of 'commission' payments warranting deduction of tax at source under section 19411 of the Act. Sample copies of the agreements along with debit notes raised by the distributors have been enclosed 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 own....
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....5% is paid their agents/distributors upon realisation of sale receipts; • Terms and conditions are in the nature principal and agent and not as principal to principal basis; and • Applicable taxes shall he withheld We wish to submit that in the case of the Company, the distributor agreement mentions the following: • Agreement only states the word discount; • Payment is made in the form of trade discount, which is a deduction from sale price and applicable sales tax are levied after such trade discount and not upon realisation of sale receipts; • Terms and conditions is that of a supplier and distributor. Also states, once goods arc sent to distributor by TECH.., all associated risks and rewards shall be transferred. • Distributor is independent to sell the goods procured from TECII, at any price. • Agreement does not state 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 with....