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2018 (3) TMI 736 - AT - Income TaxRevision u/s 263 - TDS u/s 194H on incentives passed on to the retailer - TDS liability - Held that - It is evident that passing on incentives by the wholesale distributor to the retail dealer, there is no principal and agent relationship and cannot be held to be commission or brokerage paid to the recipient. Provisions of tax deduction at source u/s 194H of the Act would not attract the tax and accordingly disallowance u/s 40(a)(ia) of the Act is applicable, thus the assessment made u/s 143(3) cannot be held to be erroneous since the incentives passed on by credit note to the retail dealers is neither commission nor brokerage as discussed above, the section 194H of the Act has no application in this case. In the instant case as observed from the Ld. Principal CIT s order, the A.O. has called for the details of the ledger accounts of the incentives and the details of salaries paid to its employees. In respect of salaries paid to employees, the A.O. did not make any addition in the consequential order passed u/s 143(3) r.w.s. 263 of the Act dated 29.12.2017. In respect of the incentives passed on to the retailers, the A.O. has obtained the details of ledger accounts and examined the same. Therefore, it is established beyond doubt that the A.O. has examined the issue and taken one of the possible views. Not examining the entire transaction and sales by the assessee company to its retail dealers and sales by its dealers till to the end users and verification of principal agent relationship etc. at best can be treated as inadequate enquiry but not lack of enquiry. Once the A.O. has conducted the enquiry and completed the assessment and the enquiry conducted was inadequate, there is no case for revision u/s 263 for inadequate enquiry. Lack of enquiry is a reason for taking up the case for revision u/s 263 of the Act but the inadequate enquiry cannot be a reason for taking up the case for revision u/s 263 of the Act. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 194H of the Income Tax Act regarding TDS on trade incentives. 2. Validity of the revision order under Section 263 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Applicability of Section 194H of the Income Tax Act regarding TDS on trade incentives: The primary issue revolves around whether the trade incentives provided by the assessee to its retail dealers qualify as "commission or brokerage" under Section 194H of the Income Tax Act, which would necessitate the deduction of TDS. The assessee, a wholesale distributor of Nokia mobiles and accessories, passed on incentives to retail dealers based on their sales performance. The Principal Commissioner of Income Tax (CIT) argued that these incentives should be treated as commission, thus requiring TDS deduction under Section 194H. However, the assessee contended that these incentives were merely trade discounts, not commissions or brokerage, and thus Section 194H was not applicable. The Tribunal examined the nature of the incentives and the relationship between the assessee and the retail dealers. It was noted that the incentives were passed on to the retailers based on their purchase volumes, and no services were rendered by the retailers to the assessee. The relationship between the assessee and the retailers was that of principal to principal, not principal and agent. Consequently, the Tribunal held that the incentives could not be classified as commission or brokerage under Section 194H. The Tribunal supported its decision by citing several judicial precedents, including the cases of CIT Vs. United Breweries Limited (387 ITR 150(AP)) and DCIT, Circle-7, Kolkata Vs. M/s. BCH Electric Ltd. (ITA No.1336/Kol/12). These cases established that trade incentives provided in the course of principal-to-principal transactions do not constitute commission or brokerage, and thus, do not attract TDS under Section 194H. 2. Validity of the revision order under Section 263 of the Income Tax Act: The second issue concerns the validity of the revision order passed by the Principal CIT under Section 263 of the Income Tax Act, which set aside the original assessment order and directed a fresh assessment. The Principal CIT argued that the original assessment was erroneous and prejudicial to the interests of the revenue because the Assessing Officer (A.O.) did not disallow the incentives under Section 40(a)(ia) for non-deduction of TDS. The Tribunal evaluated whether the A.O. had conducted an adequate inquiry into the nature of the incentives. It was observed that the A.O. had indeed called for and examined the details of the incentives passed on to the retailers and employees during the original assessment proceedings. The Tribunal emphasized that the A.O. had taken one of the possible views based on the evidence presented, and thus, the assessment could not be deemed erroneous merely because the inquiry was considered inadequate by the Principal CIT. The Tribunal further referred to the Supreme Court judgments in CIT (Central) Ludhiana Vs. Max India Ltd (166 Taxman 0188 (SC)) and CIT Gujarat-2 Vs. Quality Steel Supplies Complex (84 Taxman.com 234 (SC)), which support the view that inadequate inquiry does not justify revision under Section 263. The Tribunal concluded that since the A.O. had examined the issue and taken a plausible view, the revision order under Section 263 was not sustainable. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the revision order passed by the Principal CIT under Section 263. It held that the incentives provided by the assessee to its retail dealers were not commissions or brokerage under Section 194H, and thus, did not require TDS deduction. Consequently, the disallowance under Section 40(a)(ia) was also not applicable. The original assessment order was upheld as it was not erroneous or prejudicial to the interests of the revenue.
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