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2018 (10) TMI 1165 - AT - Income TaxTDS u/s 194H - non-deduction of TDS on credit notes on account of sales promotion expenses - free or concessional foreign trips - addiional benefit scheme - addition invoking provisions u/s 40(a)(ia) - CIT(A) found the entire impugned amount is in the nature of reimbursement or incentive and held that the AO is wrong treating the entire expenditure as commission - principal and agent relationship - Held that - As observed from sample copies of schemes which shows that the scheme of Annual Purchase Bonanza-2011 is being operated by the C 31, 51, 713/- as pointed out by the CIT(A) in his order at page No.7. Ld. AR pointed to the page No.26 as it is a LPG distributor scheme reimbursement form of AP Traders of Kanpur placed at Sl.No.1 in the list at page No.25 containing the names of oil companies schemes entitled quantity 1, 05, 000/- and half of it i.e. 50% is 52, 500/- was born by the assessee and its contribution of 52, 500/- was credited to ledger account of C 11, 18, 000/- and the credit notes. As discussed above regarding the sample we note that a trip to Thailand offered to one person on achieving sale of 75 boxes or 2700 pieces and in our opinion it is not a commission and is additional benefit given to the C&F agents. Case of COMMISSIONER OF INCOME-TAX (TDS) VERSUS UNITED BREWERIES LTD. (SUCCESSOR TO UNITED MILLENIUM BREWERIES) 2016 (11) TMI 718 - TELANGANA AND ANDHRA PRADESH HIGH COURT followed. - Decided in favour of assessee.
Issues Involved:
- Whether the CIT(A) was justified in confirming the addition made by the AO on account of non-deduction of TDS invoking the provisions under section 40(a)(ia) of the Income Tax Act, 1961. Detailed Analysis: 1. Background and AO's Addition: The assessee, a Private Ltd. Company, declared a total income of ?1,26,85,320/-. During scrutiny proceedings, the AO found that the assessee debited ?70,60,956/- as sales promotion expenses but did not deduct TDS on this amount. Consequently, the AO added this amount to the total income of the assessee under section 40(a)(ia) of the Income Tax Act, 1961. 2. Assessee's Contention before CIT(A): The assessee argued that the expenses were genuine and TDS had been deducted on commissions paid to C & F agents. The expenses in question were reimbursements for sales promotion, not commissions, and thus did not attract TDS under section 194H. The CIT(A) considered the remand report of the AO and deleted the addition. 3. Revenue's Argument before ITAT: The Revenue contended that the payments were incentives, not reimbursements, and thus TDS was deductible. The AO's order was relied upon to support this argument. 4. Assessee's Defense before ITAT: The assessee reiterated that the expenses were reimbursements for sales promotion activities conducted by C & F agents and distributors. The payments were made under various heads such as schemes, trips, showroom incentives, telephone and staff expenses, conventions, sampling, travelling, hotel bills, and gifts. Detailed explanations and supporting documents were provided to substantiate the nature of these expenses. 5. ITAT's Observations and Findings: The ITAT observed that the CIT(A) found the expenses to be reimbursements or incentives, not commissions. The assessee had deducted TDS on fixed commissions paid to C & F agents, and there was no dispute on this aspect. The major disallowance of ?31,51,713/- was found to be reimbursements at a predetermined rate. The ITAT noted that the relationship between the assessee and C & F agents was on a principal-to-principal basis, not principal-agent. 6. Legal Precedents and Tribunal's Ruling: The ITAT referred to the case of United Breweries Ltd., where discounts offered were treated as sales promotion expenses, not commissions, due to the absence of a principal-agent relationship. Similarly, in the case of M/s Kan Tea Solutions Pvt. Ltd., incentives were treated as discounts, not commissions, and thus not subject to TDS. 7. Conclusion: The ITAT upheld the CIT(A)'s decision, finding no infirmity in treating the expenses as reimbursements or incentives. The AO's addition under section 40(a)(ia) was not justified as the provisions of section 194H were not applicable. The appeal filed by the Revenue was dismissed. Order Pronouncement: The order was pronounced in the open court on 27.07.2018, dismissing the Revenue's appeal.
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