2020 (10) TMI 130 - AT - Income Tax

TDS u/s 194H - disallowing expenditure of commission u/s 40(a)(ia) for non-deduction of tax - HELD THAT - As relying on order of Tribunal for AYs 2011-12 2012-13 2017 (10) TMI 539 - ITAT MUMBAI The TDS provisions are applicable under section 194H in case it is held that the nature of the transaction entered into between the assessee and the distributor is that of commission but in case if it is decided that the nature of transaction is not commission but discount given on sales it cannot be regarded to be commission which is hit by the provisions of Section 194H - in the interest of justice and fair play to both the parties set aside this issue and restore it to the file of the AO with the direction that the AO shall redecide this issue afresh in accordance with law after going though the agreement which the assessee has entered into with the distributor as well as the sample subscription application form, whether the amount represents the expenditure incurred by the assessee towards commission or whether the said amount represents cash discount given by the assessee to the distributor for sale of talk time card - Decided in favour of assessee for statistical purposes. Short deduction of TDS - TDS u/s 194C or 194J - customer support charges - HELD THAT - This issue is squarely covered in assessee s favor by the order of the Tribunal for AYs 2011-12 2012-13 2017 (10) TMI 539 - ITAT MUMBAI wherein found no infirmity or illegality in the order of the CIT(A) in holding that provisions of Section 40(a)(ia) will not be applicable in the case of the assessee as there was nothing in the section to treat the assessee as defaulter where there is shortfall in deduction of TDS. In fact, this decision has subsequently been followed by the co-ordinate bench of this Tribunal in assessee s own case for AY 2010-11 2018 (6) TMI 547 - ITAT MUMBAI - Decided against revenue.

Summary

Issues:
1. Disallowance of expenditure in the nature of discount under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of customer support charges and other charges under section 40(a)(ia) rws 194J.
3. Disallowance of commission payments to distributors under section 40(a)(ia) rws 194H.

Analysis:

1. Disallowance of Expenditure in the Nature of Discount:
The assessee contested the disallowance of expenditure amounting to &8377; 56,48,42,447 under section 40(a)(ia) for non-deduction of tax. The grounds raised by the assessee included arguments that the expenditure was in the form of discounts to distributors, not commission, and therefore did not warrant tax deduction under section 194H. The Assessing Officer/CIT(A) was criticized for drawing an analogy with a different expenditure and for not considering the distributor's freedom in setting prices. The Tribunal noted that the issue was similar to previous years where the Tribunal had ruled in favor of the assessee. The order of the CIT(A) was set aside, and the issue was restored to the file of the AO for fresh adjudication.

2. Disallowance of Customer Support Charges and Other Charges:
Regarding the disallowance of customer support charges and other charges under section 40(a)(ia) rws 194J, the AO contended that higher TDS was required under section 194J instead of the 2% deducted under section 194C. The assessee argued that the services did not fall under professional or technical services and that the short deduction should not lead to disallowance. The CIT(A) deleted the disallowance of customer support charges based on previous Tribunal orders in favor of the assessee. The Tribunal upheld this decision, citing consistency with previous rulings.

3. Disallowance of Commission Payments to Distributors:
The disallowance of commission payments to distributors under section 40(a)(ia) rws 194H was confirmed by the CIT(A) based on previous rulings and the relationship between the assessee and distributors. The Tribunal acknowledged the similarity to previous cases and directed the issue to be restored to the AO for fresh adjudication in line with previous directions. The assessee's appeal was allowed for statistical purposes.

In conclusion, the Tribunal dismissed the revenue's appeal while allowing the assessee's appeal for statistical purposes. The judgment emphasized consistency with previous rulings and the need for fresh adjudication based on specific directions in similar cases.