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2018 (9) TMI 1229 - AT - Income TaxTDS u/s 194C - amount reimbursed to regional distributors in respect of advertisement expenses incurred - amount paid from principal to principal - Held that - In the present Assessment Year, the assessee during the previous year paid ₹ 18,35,15,604/- to regional distributors on account of reimbursement of expenses against third party bills, incurred by them for advertisement in relation to the assessee s products sold by them on their own account. From the records it is seen that these expenses included manpower reimbursement to RDS, Salesman incentives and other reimbursement to RDS. Thus, the assessee raised the bill in the name of payee and the assessee also produced evidences before the Assessing Officer to establish that the parties to whom the reimbursement have been made had actually complied with the Provisions of Chapter XVII-V. Therefore, we are of the view that the CIT(A) has not looked into the evidences produced before the Assessing Officer as well as before CIT(A). - Decided in favour of assessee. TDS u/s 192 - amount paid towards salary, at average rate of tax, as well as short deduction of tax the interest levied on the basis of monthly shortage u/s 201(1A) - Levy of interest under Section 201(1A) - Held that - The rate of tax deducted at source was calculated at average rate of income tax computed on the basis of the rates on the estimated income of the payee for the relevant financial year. AO proceeded to compute the amount of tax to be deducted on month to month basis of average tax deducted. This needs to be verified as the Ld. AR made submission before us that the Assessing Officer has not given any credit for interest where there is no surplus payment of TDS, while charging interest on deficit amount. Thus, this issue is remanded back to the file of the Assessing Officer for verifying as to whether the interest clause is applicable or not and if applicable whether there is surplus payment of TDS or not. After verifying the same the Assessing Officer decide this issue. Provisions made for recruitment expenses - TDS liability - Held that - The assessee company made a provision for recruitment expenses, where TDS has been deducted at the time of actual payment or credit to the party. Thus, there is no default in TDS deduction. Therefore, the action of the Assessing Officer in treating the assessee as an assessee-in-default and levying interest under Section 201(1A) of the Act is not based on proper appreciation of the facts of the case. Ground of assessee is allowed. TDS u/s 194J - provision for commission to directors - Held that - The assessee made a provision for commission to directors at the end of the year, which can be paid strictly in accordance with Section 211 of the Companies Act, 1956 and TDS can be deducted and paid, when actual liability is ascertained, which generally happens after five/six months from the end of the financial year. Further, in Finance Bill, 2012, Section 194J of the Income Tax Act, 1961 has been amended and a clause (ba) to sub section (1) of the Section 194J effective from 1st July, 2012 has been Introduced wherein tax is required to be deducted on the remuneration paid to director, which is not in nature of salary, at the rate of 10% of such remuneration. Thus, the contention of the Ld. AR that this clause is applicable w.e.f. 1.07.2012 is just and proper. Ground of assessee is allowed.
Issues Involved:
1. Failure to deduct tax at source under section 194C for advertisement expenses reimbursed to Regional Distributors (RDs). 2. Levy of interest under section 201(1A) for non-deduction of tax under section 194C. 3. Levy of interest under section 201(1A) for short deduction of tax under section 192(1) on salary payments. 4. Levy of interest under section 201(1A) for non-deduction of tax on recruitment expenses. 5. Levy of interest for late deposit of TDS on commission to directors. 6. Penalty under section 271C for failure to deduct tax at source from reimbursement of advertisement expenses. 7. Failure to deduct tax at source on payments made for testing expenses. Detailed Analysis: 1. Failure to Deduct Tax at Source under Section 194C for Advertisement Expenses Reimbursed to RDs: The assessee argued that the reimbursement to RDs did not fall under section 194C as RDs were not advertising agencies and there was no income element embedded in the reimbursement. The Tribunal referred to its previous decision in the assessee's case for AY 2009-10, where it was held that no TDS provisions are attracted if it is a pure reimbursement without profit. However, it was noted that payments were structured to circumvent Chapter XVII-B provisions. The Tribunal allowed the assessee's appeal, directing the CIT(A) to consider the evidence that the reimbursements complied with Chapter XVII-B provisions. 2. Levy of Interest under Section 201(1A) for Non-Deduction of Tax under Section 194C: The Tribunal noted that the issue of interest is consequential to the main issue of non-deduction of tax under section 194C. Since the main issue was decided in favor of the assessee, the interest levied under section 201(1A) was also addressed accordingly. 3. Levy of Interest under Section 201(1A) for Short Deduction of Tax under Section 192(1) on Salary Payments: The assessee contended that the Assessing Officer wrongly computed tax on a month-to-month basis instead of the average rate of tax for the year. The Tribunal remanded the issue back to the Assessing Officer to verify if there was any surplus payment of TDS and to decide accordingly, ensuring the assessee is given an opportunity of hearing. 4. Levy of Interest under Section 201(1A) for Non-Deduction of Tax on Recruitment Expenses: The assessee argued that TDS was deducted at the time of actual payment or credit to the party, and thus there was no default. The Tribunal found that the Assessing Officer's action of treating the assessee as an "assessee-in-default" was not based on proper appreciation of facts and allowed the assessee's appeal on this ground. 5. Levy of Interest for Late Deposit of TDS on Commission to Directors: The assessee made a provision for commission to directors at the end of the year, with TDS deducted when the actual liability was ascertained. The Tribunal noted that the relevant provision under section 194J was applicable from 1st July 2012, and thus allowed the assessee's appeal, stating that the Assessing Officer's action was not justified. 6. Penalty under Section 271C for Failure to Deduct Tax at Source from Reimbursement of Advertisement Expenses: Since the quantum issues for both assessment years were decided in favor of the assessee, the penalty under section 271C was also consequentially addressed. The Tribunal allowed the appeal partly for statistical purposes. 7. Failure to Deduct Tax at Source on Payments Made for Testing Expenses: For AY 2012-13, the Tribunal found that payments made for testing expenses were for the purchase of material and not for services. Therefore, the addition made by the Assessing Officer and CIT(A) was not justified. The Tribunal allowed the appeal on this ground. Conclusion: The Tribunal allowed the appeals partly for statistical purposes, remanding certain issues back to the Assessing Officer for verification and proper adjudication. The Tribunal emphasized the need for the Assessing Officer to consider the evidence and ensure compliance with the principles of natural justice.
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