TaxTMI 
TaxTMI 
2023 (8) TMI 1741
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....,198 and further transfer pricing adjustment of Rs. 11,193,854. 03. Brief facts of the case shows that assessee is a company engaged in the business of trading of notebooks, tablets, pad phones and Accessories. It filed its return of income on 30/11/2018. ROI was picked up for scrutiny. 04. During the course of assessment proceedings, the learned AO noted that assessee has adjusted Gross turnover with the sales returns and sales rebate. The sales return was of Rs. 593,789,320 and sales repairs was of Rs. 993,522,306/-. This was reduced from Gross sales. Assessee was asked to furnish the details of sales rebate granted by to its dealers and distributors during the year under consideration. Assessee submitted the details stating that :- a. it has granted conditional discount of Rs. 783,149,122 which comprises of period wise and product-wise schemes floated by the assessee to push sales for already launched models and slow-moving items. The learned assessing officer held that the discount floated by the assessee is in fact in the nature of commission on which tax is required to be deducted under section 194H of the act. b. It has granted volume discount on achi....
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....ssing officer rejected the contention of the assessee and held that assessee has incurred these expenses in the garb of sales rebate which are nothing but commission or contractual payment where the assessee should have deducted tax at source under section 194C/194J and section 194H of the act. Accordingly, he held that a sum of Rs. 370,175,198 being 30% of Rs. 1,233,917,327 was disallowed under section 40 (a) (ia) of the income tax act. 07. The assessee has also entered into international transaction of provision of marketing support service fees amounting to Rs. 62,584,571/- as performed number 3CEB which was benchmarked by the assessee by adopting the transactional net margin method combining all other transaction of import of finished goods, purchase of marketing samples, purchase allowance and deemed international transactions. The fact shows that the assessee has provided marketing support services to its associated enterprise for which assessee gets a fee from its AE with of 14% mark up on the cost. The AO/TPO found that the mark-up on the cost of provision for marketing services are not according to the Indian market and therefore the benchmarking analysis of the assesse....
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....2015-16 and rejected the argument of the assessee. However, the assessee before the DRP categorically stated that the coordinate bench in assessee's own case for assessment year 2016-17 and 2017-18 has rendered in favour of the assessee. However, the learned dispute resolution panel held that the learned AO has been directed to file an appeal against the said order under section 260A of the IT act before the honourable Bombay High Court. Accordingly, the learned DRP held that the assessee is required to deduct tax at source on sales rebate and refurbish rebate on defective products. The assessee also challenged that the distributors were in receipt of such sales rebate and discount have already offered such income and pay taxes at applicable rates thereon filing the return of income and therefore the disallowance should not be made in the hands of the assessee. The learned dispute resolution panel once again relying on the direction for assessment year 2015-16 wherein it has been held that that apart from making a statement that no details and evidences have been filed by the assessee to show that the distributors have filed the return of income including the above income. However,....
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....rned assessing officer for this year same is not required to be sent back. On the issue of the transfer pricing, it is submitted that the issue is squarely covered in favour of the assessee wherein it has been held that the marketing support service fee be aggregated with the other services and the income of the assessee and therefore should not be benchmarked separately. Accordingly, it was submitted that the issue squarely covered in favour of the assessee on the transfer pricing issue also. 012. The learned departmental representative supported the order of the learned dispute resolution panel and the learned assessing officer. However, he objected to the fact that the issue with respect to the refurbish and rebate of defective products cannot be decided here and same is required to be sent back to the file of the learned assessing officer as has been made by the coordinate bench in earlier years. 013. Issue of TDS on refurbish Rebate/allowances learned authorized representative submitted that the issue may be decided here itself. He further stated that when the issue was set-aside by the coordinate bench before the learned assessing officer for assessment year 2015-16 the....
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....y 2022. Therefore, the coordinate bench order for assessment year 2000 1516 was also passed considering the order for assessment year 2016-17 and 2017-18 which were available at the time of the passing of the order. 015. We find that coordinate bench for assessment year 2015-16 in ITA number 7831/M/2019[2022]137 taxmann.com 407 (Mumbai-Trib.) has considered the issue that whether the amount of expenditure incurred on the conditional discount scheme, volume discount scheme, octroi and insurance expenses and provisions for sales rebate whether taxes required to be deducted or not. As per paragraph number 3.3 of the order it followed the decision of the coordinate bench in assessee's own case for assessment year 2016-17 and held that these items are exactly identical and the facts prevailing in the year under consideration. Both the parties agreed before us that for this year also similar facts exist. Though, it was stated that the revenue is in process of filing an appeal before the honourable High Court, however no such order was placed before us. In view of this we are duty-bound to follow the decision of the coordinate bench in assessee's own case in absence of any change in th....
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....mitted, 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. The assessee does not enter into any sales with the end u....
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....e 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.e., Rashi Enterprises. Thus, he submitted, in the given f....
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....tributors 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 be placed by Flipkart. As per Para-(iii) of the agreement, t....
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....l 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/distributors who, in turn, sell them to the end users. Therefore, ther....
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....ere. 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 is contextually different, hence, would not be applicable to the facts of the pres....
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....sessee 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 disallowance under section 40(a)(....
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....as 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, thereby, requiring deduction of tax at source, we refrain from ....
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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 fa....
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.... year 2015-16 in view of certain additional facts. The coordinate bench despite the issue already decided against the assessee in the earlier year did not follow that decision and held that as the learned authorized representative before us has brought several fresh facts which were not argued before the tribunal for earlier years and therefore the issue was set-aside to the file of the learned assessing officer to decide a fresh. It was stated before us that the learned assessing officer has decided this issue as per order dated 27/4/2023 passed under section 143 (3) read with section 254 read with section 144C (13) of the act 1961 wherein on the refurbish and rebate on defective products the expenditure paid disallowance of Rs. 4,02,78,144/- is repeated. We also appreciate that as the assessment order is passed on 27/4/2023, the assessee might have challenged the same before the learned CIT-A. Further the assessment order is also passed in pursuance of direction of the coordinate bench and therefore such order also binds us. Cordinate bench held as under :- "4. The ground No. 5 raised by the assessee is challenging the disallowance made u/s. 40(a)(ia) of the Act by disal....
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....avit of Shri Suhas Joshi, Sr. Manager-Accounts working with the assessee company wherein the said Senior Manager-Accounts had affirmed that the assessee does not ask or insist upon the dealers/distributors to actually repair the damaged products and that the repairs done by the distributors is absolutely an independent task undertaken by them. The ld. AR also pointed out that the outcome of the repair work whether the same was successful or not, was not the look out of the company and accordingly, it could not be stated that the amount paid by the assessee by way of 30% flat discount of the original price was towards the cost of the repairs for the product. The ld. AR also drew our attention to the agreement with Flipkart enclosed in page 53 of the paper book wherein it has been agreed that in case of defective products, the assessee is required to either remove the defect or replace the product and that neither of these two tasks were performed by the assessee. Instead, the assessee and the distributors had agreed for a compensation at 30% of the price of the product. The ld. AR argued that issuing credit note to the dealers/distributors amount to novation of the contract requirin....
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....iving the aforesaid discount, the assessee does not ascertain as to what extent the products sold to the dealer/distributors are actually damaged c. the assessee does not ask or insist upon the dealer/distributors to actually repair the damage products d. the work of repair, if done, is an independent task undertaken by the dealers and distributors. The repairing contract in such case would be between the dealer/distributor and the person carrying on the repair work on principal-to-principal basis. e. The cost of repair may be moronic were less than 30% of the price of the product. The outcome of the repair works whether successful or not is not the outlook of the assessee. f. The assessee has obtained declaration from its two key distributors with whom the assessee having substantial transactions. These declarations were filed before the assessing officer in the set-aside proceedings for the assessment year 2000 1516 which confirms that (1) that the discount is in the nature of refurbish and rebate given by the assessee has nothing to do with the repairs of the defective products, (2) there is no obligation on the distributor to utilise the disc....
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....the assessee is allowed with above directions. 021. Ground number 3 of the appeal is with respect to the addition of Rs. 11,193,854/-on account of transfer pricing adjustment by determining the arm's-length price of the market supports fees received from the associated enterprise separately instead of adopting the aggregation approach of the assessee. The coordinate bench in the assessee's own case for assessment year 2015-16 has decided this issue in favour of the assessee. We find that for assessment year 2015-16 as per paragraph number 5 of the order these controversies dealt with. As per paragraph number 5.7 of the order the learned authorised representative categorically objected that the marketing support services and distribution functions are to be aggregated as provision of marketing support services and integral part of the main transaction of the distribution business. The coordinate bench in paragraph number 5.8 has categorically held that from the functions performed by the assessee, both distribution and marketing functions are performed by the assessee for promoting sale of products in India and therefore the marketing services becomes an integral part of the dist....