2015 (5) TMI 508 - AT - Income Tax

TDS u/s 194H - Disallowance of discounts/ incentives paid to its buyers - CIT(A) deleted the addition - whether discounts/ incentive was in the nature of commission so as to attract TDS and disallowance can be made u/s 40a(ia)as held by CIT(A)?- Held that - As relying on case of the Idea Cellular 2010 (2) TMI 24 - DELHI HIGH COURT we endorse the finding of the ld CIT(A) that the payment made by the assessee to its sub-distributors constituted commission and tax had to be deducted at source on such payment and we find that Vodaphone company deducted TDS u/s 194H of the Act, on the payment of ₹ 16,15,873/- as the payments are in the nature of brokerage or commission paid to the assessee. Further the assessee in its written submissions has admitted the fact that the payment to the extent of ₹ 15,84,800/- were in the nature of commission, which were passed on to the dealers and retailers. The ld CIT(A) has rightly observed that CIFF ID incentives are the payments made by the assessee to its employees etc and DMS and Market expenses are also the expenditure made by it and it is only the First Call First Recharge (FCFR) incentive which is the Commissions which was passed on to the dealers/ retailers. And so this amount/ discount/ incentive alone attracts provision of TDS u/s 194H of the Act, we endorse this finding of the ld CIT(A). However we find force in the argument of the ld DR that the ld CIT(A) gave show-cause notice to the assessee and called for the details of the commission disbursed to its dealer to non-deduction of TDS, but we find that ld CIT(A) has not given any opportunity to the AO before embarking into such an exercise. The ld CIT(A) has given relief to the assessee of ₹ 9,94,673/-, because the discounts/ incentives / commission disbursed was less than ₹ 2,500/-. And has directed an addition of ₹ 3,06,460/- because the discounts and incentives to the dealers were more than ₹ 2,500/-. In such circumstances it would be just and proper to set aside the order of the ld CIT(A) and remand the matter back to the file of AO to examine and verify whether the commission/ discount/ incentive given by the assessee to its dealers are correct and we direct that AO shall examine and verify this fact aspect and the amount disbursed if it falls below ₹ 25,00/- it shall not attract TDS and the amounts disbursed which is more that ₹ 2,500/- shall attract TDS and shall be disallowed. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of Rs. 15,84,800/- made by the Assessing Officer (AO) on account of discounts/incentives paid to buyers.
2. Conversion of the nature of business activities of the assessee firm.
3. Disallowance of Rs. 3,06,460/- by applying provisions of Section 40a(ia) of the Income Tax Act due to non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 15,84,800/-:
The AO observed that the assessee, a distributor of SIM cards and recharge coupons, had debited Rs. 15,84,800/- as discounts/incentives in its Profit & Loss account. The AO disallowed this amount, arguing that the assessee was a distributor of post-paid connections and not pre-paid connections. The AO also noted that the assessee failed to produce evidence of directions from the telecom company to disburse these discounts/incentives and relevant agreements/contracts.

Upon appeal, the CIT(A) held that the assessee was indeed a distributor of pre-paid connections, not post-paid ones, and that the expenses were genuine and business-related. The CIT(A) noted that the telecom company had deducted TDS under Section 194H on the commission payments. The CIT(A) concluded that the expenses claimed were allowable and deleted the addition of Rs. 15,84,800/- made by the AO.

2. Conversion of the Nature of Business Activities:
The CIT(A) observed that the assessee was working as an agent of the telecom company and that the relationship was on a principal-to-principal basis under the pre-paid agreement. The CIT(A) noted that the telecom company had replaced the pre-paid agreement with a new distributorship agreement to absolve itself from liability. The CIT(A) found that the expenses claimed by the assessee had no correlation with conditions imposed by the telecom company and were allowable based on business expediency and genuineness.

3. Disallowance of Rs. 3,06,460/- under Section 40a(ia):
The CIT(A) identified that Rs. 3,06,460/- of the total Rs. 15,84,800/- was in the nature of commission passed on to dealers and retailers, attracting TDS under Section 194H. The CIT(A) noted that the assessee had not deducted TDS on this amount and therefore disallowed the sum under Section 40a(ia). The CIT(A) gave a detailed breakdown of the expenses, distinguishing between amounts less than Rs. 2,500/- (which did not attract TDS) and those above Rs. 2,500/- (which did).

Remand for Verification:
The Tribunal endorsed the CIT(A)'s findings but noted that the AO was not given an opportunity to examine the details provided by the assessee. The Tribunal remanded the matter back to the AO to verify whether the commission/discount/incentive amounts disbursed by the assessee to its dealers were correct. The AO was directed to disallow amounts exceeding Rs. 2,500/- that did not have TDS deducted and allow amounts below Rs. 2,500/-.

Conclusion:
The Tribunal allowed the revenue's ground for statistical purposes, remanding the case to the AO for verification and re-examination of the disbursed amounts concerning TDS provisions.

Order Pronouncement:
The order was pronounced in the open court on 22.04.2015.