TaxTMI 
TaxTMI 
2025 (5) TMI 2219
X X X X Extracts X X X X
X X X X Extracts X X X X
....(Act'), partly confirming the adjustments proposed by the Deputy Commissioner of Income Tax, Circle 26(2), New Delhi (jurisdiction realigned from Circle 17(1), New Delhi) ("AO') in the assessment order passed u/s 143(3) of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1-Disallowance u/s 40(a)(ia) of the Act on account of non-deduction of tax at source on the discount extended to prepaid distributors 1.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO in making an addition u/s 40(a)(ia) of the Act on account of non-deduction of tax at source on the discount of INR 19,54,27,145 extended to distributors of prepaid SIM cards/talktime. 1.2. On the facts and in the circumstances of the case and in law, the learned CIT(A)/AO has erred in concluding that taxes are deductible at source under section 194H of the Act on the discount extended by the Appellant to its distributors of prepaid SIM cards/talktime. 1.3. On the facts and in the circumstances of the case and in law, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r and (ii) disallowances of depreciation on provision for assets restoration cost obligation. On further appeal Ld. CIT(A) partly allowed the appeal confirming addition on the issue of disallowances u/s 40(i)(ia) of the Act with respect to discount to prepaid distributor and disallowances of depreciation on provision for asset restoration costs obligation. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. 3. With respect to ground No. 1 of the appeal the Ld. counsel for the assessee submitted that the issue in dispute has been decided in favour of the assessee by the Hon'ble Supreme Court in the case of Bharti Cellular Limited vs ACIT reported in (2024) 160 taxmann.com 12 (SC) dated 28.02.2024 including assessee's own case vide civil appeal no. SLP (C) No. 020764/2018, SLP(C) No. 014023/2019, SLP(C) No. 0117652/2020, 014050/2020 etc. The Ld. counsel further submitted that Coordinate bench of the Tribunal in the group case of the Vodafone India limited has allowed the identical ground following decision of the Hon'ble Supreme Court to the case of Bharti Cellular Limited vs ACIT. On the contrary Ld. DR relied on the order of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which accrues in the hands of the appellant at the time of purchase of the Sim card from the appellant. Therefore, it is liable for tax deduction at source. In view of the above discussion as well as the decision of Hon'ble Jurisdictional High Court of Delhi I uphold the addition of Rs. 19,54,27,145/-. 9.10 During the discussions at the appellate stage the counsels of the appellant brought up the issue of mechanism of tax deduction specifically the question as to at what point the TDS is required to be deducted. 9.10.1 I have considered the issue. I find no difficulty in answering the same. To my mind the appellant is required to book the revenue from sale of Sim cards at the MRP instead of at discounted value and simultaneously make an entry equivalent to the discount as commission expense accruing to the concerned distributor. As this commission income accrues to the distributor at the same instant, relevant entries pertaining to TDS are also required to be made simultaneously and the tax so determined is required to be deposited in accordance with law." 5. We find that identical issue of discount extended to distributors, representing difference between....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Tribunal, vide its order dated 24-02- 2023, has held that the TDS is not deductible from the discount paid on prepaid cards. The relevant observations are extracted below:- "3.30. In view of the above observations, we hold that the decision rendered by us in assessee's own case for A.Y.2008-09 In ITA No.2285/Mum/2014 dated 12/10/2022 would be squarely applicable to the facts of the assessee's case before us for the year under consideration also. The relevant operative portion of the said order of this Tribunal is reproduced hereunder:- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS) in ITA Nos. 1041, 1042, 1953-1955/Pun/2013 and ITA Nos. 1867 19 M/s. Vodafone India Ltd. 1870/Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement befo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of Bharati Airtel Ltd. vs. DCIT [372 ITR 33) and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors was not commission and therefore not llable to deduce the TOS under Section 1948. The Tribunal noted that there was no decision of this Court on this issue on that date. 6. Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd where same Issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant Revenue observed thus:- "3. Having heard the learned Counsel for the parties and having perused the documents on we do the Tribunal. The Tribunal, as noted. besides holding that the Commissioner's order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....015, 169/2015, 170/2015 and 171/2015 which were admitted by the Hon'ble Rajasthan High Court on 18/10/2016 relates to assessee herein for Rajasthan Circle in respect of the identical issue. The question no.1 raised before the Hon'ble Rajasthan High Court is as under:- 1. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s. 194-H of IT Act, as the relation between assessee and distributor is that of Principal to Agent? 2.8.4.1. We find that the Hon'ble Rajasthan High Court after considering the plethora of judgements on the impugned issue of various High Courts (which includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the Id. DR before us herein) had rendered its decision as under:- "Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. 61. In view....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted that the orders of Hon'ble Rajasthan High Courts and Hon'ble Jurisdictional High Courts and Hon'ble Karnataka High Court had not attained finality as they had been appealed by the revenue, in our considered opinion, cannot be a deterrent for this Tribunal to follow those High Court orders. We find that the similarly worded distribution agreement had been subject matter of adjudication and examination by the Hon'ble Rajasthan High Court and Hon'ble Jurisdictional High Court wherein the Hon'ble High Courts had taken a categorical view that the relationship between assessee and distributor is only that of Principal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to. Agent and accordingly there is no obligation for the assessee to deduct tax at source in terms of section 194H of the Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hange in facts and circumstances, therefore, respectfully following the above decisions of the Tribunal in the case of the Appellant, the disallowance of INR 68,19,45,415/- made under Section 40(a)(ia) of the Act in respect of the upfront discount extended to Pre-paid Distributors is deleted. Ground No. 2. to 2.4. raised by the Appellant are allowed." 6. Respectfully following the finding of the Tribunal(supra), we setaside the finding of the Ld. CIT(A) on the issue-in-dispute and hold that tax was not required to be deducted u/s 194(H) of the Act, on the discount allowed to the prepaid distributors and consequently disallowance u/s. 40(a)(ia) of the Act is deleted. The ground No.1 of the appeal of the assessee is allowed. 7. Ground No. 2 of the appeal of the assessee relates to disallowance of depreciation on provision for Assets Restoration Cost (ARC) obligation. The facts in brief qua the issue-in-dispute are that the assessee was into the business of providing mobile telephonic service. The provision of such services interalia involves setting up of large number of transmission towers for providing sufficient network coverage in the licensed territory. During the course o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the assessee. According to him this was an unascertained liability as at the time of acquisition of the asset, it was not possible for anybody to say with certainty as to what will be the expenditure required to restore the asset to its original form at the time of vacating it. Thus, any allocation made in that regard at the time of acquisition of the assets was only in the nature of the provision for an unascertained liability, which was not allowable under the provisions of the Act. Accordingly, he disallowed the claim of the assessee for the depreciation. On further appeal Ld. CIT(A) following his own decision in the assessee case for the immediately succeeding year i.e. 2008-09 upheld the disallowance of depreciation claimed on ARC obligation. The alternative prayer of the assessee was also rejected with the same reasoning that said provision was unascertained liability and therefore not eligible for deduction u/s 37(1) of the Act. 9. Before us the Ld. counsel for the assessee submitted that similar disallowances of depreciation on ARC obligation was made by the Assessing Officer in subsequent assessment year 2009-10, which was challenged before the Tribunal but the Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tification of actual damage at the end of the lease term and the true or concrete expense to be incurred in repair and restoration. The said qualification would, in any case, have to be read in conjunction with the primary obligation to restore the premises to its original condition. The obligation to repair and restore forms the core of the contractual obligation which stood placed upon the assessee. It was therefore entitled to provision for such an expense provided it was considered probable and could be quantified on the basis of a reasonable estimation. The usage of the phrase if any damage is caused did not transform that obligation into a contingent liability. We thus find ourselves unable to countenance the view expressed by the Ld.AO and the Tribunal in this respect. 36. A provision can be validly made, provided it be in line with the prescriptions set out in AS-29. That accounting standard is not concerned with events of certainty or an ascertained liability as the AO and the Tribunal understood. In our considered view, the stand taken by the respondents firstly proceeds on the incorrect premise of the liability being one which already exists and in respect of wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Madras High Court had an occasion to review in Vedanta Ltd. As was held by that High Court, the words laid out or expended are not confined to an immediate expenditure but would also comprehend an expenditure which may arise in the future. Their Lordships noted that the assessee in that case was placed under the contractual obligation to expend monies on site restoration and the creation of the provision itself being based on empirical principles. It thus held that all that Section 37(1) requires is that the expenditure should be "laid out" or "expended" for the purposes of business. 39. The Madras High Court also had an occasion to notice a whole body of precedent which had, while speaking of provisions for liabilities being made, clearly interpreted the words laid out or expended as including an expenditure likely to be incurred in the future. It was thus held that the provision so made, on the basis of and informed by commercial prudence would clearly qualify the prescriptions of Section 37. 40. We are thus of the considered opinion that the provisioning for ARC qualified the prescriptions of AS 29 and the assessee was thus justified in accounting for the ....