2013 (6) TMI 817 - AT - Income Tax

Disallowance made u/s. 40A(3A) - Held that - Assessee is a distributor does not, in fact, make any purchase either of goods or services on the acceptance of delivery of the SIM cards or other service products and resultantly does not incur any expenditure in its respect. Once the payments are not of the nature of expenditure, there is no question of there was no question of disallowance of any expenditure by invoking provisions of Section 40A(3) of the Act.

Summary

Issues:
Appeal against deletion of disallowance made under section 40A(3A) of the Income-tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)-Gandhinagar, Ahmedabad regarding the deletion of a disallowance under section 40A(3A) of the Act amounting to Rs. 35,13,352 for the assessment year 2009-10. The appellant, a distributor of IDEA Cellular products, was subjected to scrutiny assessment resulting in an addition of the aforementioned amount by the Assessing Officer. The Commissioner allowed the appeal of the assessee, leading to the Revenue's appeal before the Tribunal.

The Revenue contended that the deletion of the addition under section 40A(3) by the Commissioner was unjustified, while the assessee's representative supported the Commissioner's decision. The Commissioner based the deletion on the argument that the assessee, as a distributor, did not actually make purchases of goods or services but acted as a selling agent for IDEA Cellular, making payments in cash. The Commissioner relied on previous decisions and held that since the payments were not in the nature of expenditure, disallowance under section 40A(3) was not applicable.

The Tribunal examined the facts and cited a Co-ordinate Bench decision which emphasized the relationship between the distributor and the service provider as one of principal and agent. It was established that the distributor acted on behalf of the service provider and received payments as commissions for services rendered, rather than incurring expenses. The Tribunal found the facts of the present case similar to the referenced decision and upheld the Commissioner's order based on the precedent set by the Co-ordinate Bench.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete the disallowance under section 40A(3). The judgment was pronounced in open court, and the appeal by the Revenue was ultimately dismissed.