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TMI Blog2016 (5) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the part of the assessee, but, it is a contractual and voluntary expenditure for which assessee has created the provision. Respectfully following the decision of this Tribunal in the case of Novopan Industries Ltd. Vs. DCIT, [2013 (9) TMI 377 - ITAT HYDERABAD ] and others wherein it was held that the exgratia cannot be regarded as bonus and requirement of the provisions of section 37 are fully satisfied. Hence, respectfully following the said decision, we delete the addition made invoking section 43B on exgratia. Disallowance made u/s 40(a)(ia) in respect of fee payable to the advocate - Held that:- M/s Bajaj Hindustan Ltd., who deducted the TDS and remitted the same properly. Therefore, we do not find any default on the part of the assessee and hence, we delete the addition made on this count. Disallowance made u/s 40(a)(ia) towards payment for purchase of printing material - Held that:- There is no doubt that the assessee has procured printing labels to its specification. The payment was made accordingly. In this connection, the Hon’ble P 2,46,487/- disallowed by the AO, 74,900/- is mere reimbursement of expenses. On analyzing the case laws submitted by the AR, we observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has erred in upholding the disallowance of ₹ 37,500/- made by Id. Assessing Officer in respect of fee payable to the advocate by applying the provisions of sect ion 40(a)(ia) . 3. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeals)-V Hyderabad has erred in upholding the disallowance of ₹ 9,96,397 made by Id. Assessing Officer by applying the provisions of sect ion 40(a)( ia). The Id. AO has made disallowance of Payment for Purchase of printed material of ₹ 3,36,077 /- for the reason that print ing was done as per the specification given by the assessee. The Id. AO had also disallowed cur tained reimbursement of expenditure to C&F agents of ₹ 3,30,512 by observing that TDS is deductible on reimbursement of expenditure. Ld. AO also disallowed certain other payments in form of reimbursement/ fee of ₹ 3,29,808/- to recruitment agency and various other parties wrongly considering them as covered u/s 194C or u/s 194J. 4. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeals)-V Hyderabad has erred in upholding the disallowance of ₹ 1,88,67,445/- made by Id. Assessing Officer in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of return of income. The CIT(A) after considering the submissions of the assessee, confirmed the action of the AO. 6. Before us, the ld. AR of the assessee submitted that amounts of ₹ 10,158/- were paid before the due date of filing of return of income. He submitted that the ITAT is taking a consistent view that payment of ESIC made after statutory due date but prior to due date of filing of return of income is allowable as deduction. For this proposition, he relied on the following decisions: 1. ITO Vs. Prima Access Technologies Ltd., ITA No. 1677/Hyd/14, order dated 22/07/2015. 2. VBC Industries Vs. DCIT, ITA No. 143/H/13 and others dated 08/05/15 6.1 The AR submitted that the CIT(A) has wrongly considered the entire amount of ₹ 2,21,675/- as ESIC. However, out of ₹ 2,21,675/- only ₹ 10,158/- is ESIC and balance amount of ₹ 2,11,273/- is ex-gratia. He submitted that the provisions of section 43B or section 36(1)(va) does not apply on ex-gratia as held by ITAT, Hyderabad in case of Novopan Industries Ltd., Vs. DCIT, 1661/H/2008 and others dated 04/09/13. 7. The ld. DR on the other hand relied upon the orders of revenue authorities. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of ₹ 1,87,500/-, for which TDS was deducted by its sister concern while making payment to Shri Arun Jaitely, the balance amount being a provision of ₹ 37,500/- cannot be allowed as deduction since neither the assessee company nor Bajaj Hindustan Ltd. had deducted tax on such provision made by the assessee company. He, therefore, disallowed the said amount of ₹ 37,500/- u/s 40(a)(ia) rejecting the assessee's plea vide its letter dated 17/12/08 that M/s Bajaj Hindustan Ltd. had raised a debit note on 30/04/06 for the period from September 2005 to April, 2006 for ₹ 2,62,500/-. 10. Before the CIT(A), it was submitted that Bajaj Hindustan Ltd. wrongly debited assessee by ₹ 1,87,500 instead of ₹ 2,25,000/- and the balance amount of ₹ 37,500/- was debited on 18/05/06 in the subsequent AY. Further, it was submitted that since Bajaj Hindustan is making payment to advocate, it is liable to deduct TDS and not the assessee company as assessee company is merely reimbursing expense to M/s Bajaj Hindustan Ltd. He submitted that Bajaj Hindustan Ltd. had properly deducted TDS while making payment to the advocate. 10.1 The above submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by them for the assessee. In the case of reimbursement of expenses, the expenditure incurred is related to the person who has not made the original payment. The payment of expenditure is made by "X" party on behalf of "Y" party and later on the same is reimbursed to "X" party by "Y" party, the expenditure is pertaining to "Y" party and not pertaining to "X" party. Therefore, applying the ratio laid down in the case of ACIT vs. Crowe Boda & Co. Pvt. Ltd. in ITA No.4251/M/2009 vide order dated 30/3/2010, relied upon in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd., the issue is decided in favour of assessee. The relevant observations have already been reproduced above. In view of the above discussion, Ground No.1 of the assessee is allowed." By following the above decision, we are of the view that M/s Bajaj Hindustan Ltd., who deducted the TDS and remitted the same properly. Therefore, we do not find any default on the part of the assessee and hence, we delete the addition made on this count. 14. Ground No.3 pertaining to disallowance of ₹ 9,96,397/- made u/s 40(a)(ia) towards i) payment for purchase of printing material of ₹ 3,36,077/-, ii) reimbursem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The ld. AR relied on the following cases: 1. CIT Vs. Markfed Khanna Branch, 304 ITR 17. 2. CIT Vs. Girnar Food and Beverage Pvt. Ltd., 306 ITR 23. 3. CIT Vs. Glenmark Pharmaceuticals Ltd., 324 ITR 199 4. ITO Vs. Dr. Willmar Schwabe India (P) Ltd., (5 SOT 71) 5. DCIT Vs. Choice Sanitaryware Industries, 9 taxmann.com 120 16. The ld. DR relied on the orders of revenue authorities. 17. Considering the submissions of both the counsels and relying on the material, we are of the view that there is no doubt that the assessee has procured printing labels to its specification. The payment was made accordingly. In this connection, the Hon'ble P&H High Court in the case of CIT Vs. Markfed Khanna Branch, 304 ITR 17 held that where assessee purchased printed packing material from manufacturer for the purpose of packing to its finished products and no raw material was supplied by it to manufacturer, for manufacturing of such packing material, transaction was a contract of sale and not as works contract. Held, it was outside the purview of section 194C. In the present case before us also squarely false on the facts of the above judgment. By following the above ratio, we delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, when the learned tribunal has confirmed the order passed by the CIT(A) quashing and setting aside the order passed by the AO in deleting the disallowance of ₹ 6,93,372/- and ₹ 76,00,509/- claimed by the assessee u/s 40(a)(ia) of the Income Tax Act, no reason found to interfere with the same. No error committed by the learned tribunal in confirming the order passed by the CIT(A)." Respectfully following the said decision of the Hon'ble Gujarat High Court, we delete the addition made in this regard. 21. As regards payment of ₹ 56,321/- to M/s Acreaty Management Services, the ld. AR submitted that the said payment was for providing help to the assessee in hiring various employees and is not covered u/s 194C or 194J. Referring to the provisions of sections 194C and 194J, the ld. AR submitted that TDS u/s 194C or 194J was not required to be deducted on services provided by Acreaty Management Services and thus no disallowance u/s 40(a)(ia) should be made in this regards. 22. The ld. DR relied upon the orders of revenue authorities. 23. Considering the rival submissions and perusing the material on record, we are of the view that as per Circular No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fulfillment of certain targets and also in view of rendering of additional services and discharge of duties by the stockiest on behalf of the assessee company. The AO was of the view that in view of the facts of the case the decisions relied upon by the assessee were not applicable in the case of assessee. 28. The AO further observed that the additional services rendered by the stockiest are being remunerated in the form of target discount, incentive and super distributor's commission. Such additional remuneration, though determined on the basis of sales, it has no bearing on the original sales transactions of the stockiest as a dealer. The AO observed that the additional services and duties discharged by the stockiest are not in the nature of restrictions imposed for buying and selling the goods, as observed by the Supreme Court in the case of Bhopal Sugar Industries Ltd. Vs. STO, 3 SCC 147. The AO further observed that stockiest has in fact rendered additional services on behalf of the assessee company for a consideration, which is in the nature of commission though it is paid in different names. As the stockiest has acted and rendered additional services and incurred expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at the year end and not on the amounts paid during the year. For this proposition, he relied on the following cases: 1. Ushodaya Enterprises Vs. DCIT, 60 taxmann.com 85 2. SS Networks Vs. ITO, 53 Taxmann.com 534 3. N. Palanivelu Vs. ITO, 62 taxmann.com 269 4. Sri Narayan Moorthy Travels Vs. ITO, 61 taxmann.com 341 5. CIT Vs. Vector Shipping Services (P) Ltd., 38 taxmann.com 2013) 6. ACIT Vs. CK Motors, ITA No. 122/JU/14, order dated 25/09/14 7. Merilyn Shipping & Transports Vs. Addl. CIT, 144 TTJ 1 32. We have heard the arguments of both the sides and perused the record as well as the orders of revenue authorities and also the decisions cited. It is observed that brokerage or commission envisaged under section 194H is for the payment received by the person acting on behalf of another for services rendered in the course of buying and selling of goods. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods which will render any payment to them as commission. AO after reviewing the documents filed before him that the stockiests are not merely acting as a dealer in purchase and sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was appropriately held to be not payment of any commission in concurrent findings as recorded by CIT (A) and Tribunal. No substantial question of law had arisen. Revenue's appeal dismissed." 2. CIT Vs. Hyderabad Industries Ltd., ITA Nos. 917, 918 & 919/Hyd/09, order dated 02/07/12. The coordinate bench held as follows: 15. After hearing both the parties and perusing the record as well as the orders of the authorities below, it is observed that as found from the order of the CIT(A) as a matter of fact what was offered by the assessee to the stockists is nothing but discount. The assessee sold stock to the stockists who in turn sold it to the customers. Stockists are allowed discount and commission separately. The assessee issued credit notes to the stockists giving discount on the sales price, on the basis of various scheme, in respect of quality, target, turnover etc., on the basis of the performance of the stockists. As found by the CIT(A), what is offered by the assessee to the stockists are nothing but discount because the assessee sells the goods to the stockists, who is turn sells the goods to the consumer. In the sale transaction between the assessee and the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to various dealers are on principal to principal basis. Therefore, there is no question of the assessee paying any commission or brokerage or similar amounts to the parties for the services rendered by them. The assessee is selling its products to its dealers and the dealers are not selling them in the market on assessee's behalf for which the assessee is supposed to pay commission or brokerage. In fact, trade discount granted by the assessee to the parties in the invoice itself is the margin that the dealers may enjoy in carrying on the retail trade. Once the invoice is raised and the goods are delivered, sale is complete. The only transaction which remains is the payment of the invoice amount by the parties to the assessee company which is in the nature of trade debts. At the time of the sale also, the assessee is not crediting the personal accounts of the dealers with the amount of trade discount. The trade discount is directly debited in the trade discount account itself. There is no question of the assessee making any payment of commission or brokerage to the parties or crediting the accounts of the parties for similar amounts. Therefore, there is no occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant cases, the concessionaire became the owner of the milk and the products on taking delivery of the same from the Dairy. He, thus purchased the milk and the products from the Dairy and sold them at the MRP. The difference between the MRP and the price which concessionaire/Jays to the Dairy is his income from business. It cannot be categorized as commission. The loss and gain is of the concessionaire. The Dairy may have fixed the MRP and the price at which they sell the products 10 the -concessionaire but the products are sold and ownership vests and is transferred to the concessionaires. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missing." 5. National Panasonic (P) Ltd. Vs. DCIT, 3 SOT 16 (Delhi) The coordinate bench held as follows: "Rent" for the purposes of s. 194-I is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in the Chapter. Therefore, a payment is liable for tax deduction only under one section. Again, obviously the total payment received by the agent will also include rent as a part of the total cost, but that does not mean that the arrangement between the assessee and the agent is for the use of land or building. It is merely a component of total cost, the break up of which was given by the assessee to the authorities. But, it does not attract the provisions of s. 194-I and, hence, the CIT(A) was not justified in holding it otherwise. In the final analysis, s. 194-I does not apply at all to the payments made by the assessee to its C&F agents." Respectfully following the ratios laid down by the above judicial pronouncements, we conclude that the above payments are in the nature of trade discounts and not commission on which provisions of section 194H will apply. Accordingly, the additions made on this count are deleted. 33. As regards the ground No. 5 pertaining to disallowance of ₹ 14,21,891/- made by AO u/s 40(a)(ia) for payments made to stockiests, the AO observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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