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TMI Blog2019 (11) TMI 1116X X X X Extracts X X X X X X X X Extracts X X X X ..... he should undertake while assessing an assessee and the AO to adjudicate the lis before him de novo and even he is at liberty to look into the authenticity/genuinity of the agreements which the Ld. CIT(DR) had expressed his reservations and doubts and in case the AO finds the agreements mentioned in para7 (a) to (d) supra are authentic and genuine, he shall admit the additional documents and decide the issues. So the impugned order of Ld CIT(A) is set aside and the matters are remanded back to AO and the AO is directed to decide de novo the issue/issues after hearing the assessee - Appeals of the assessee are allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany must appoint a person who would act on its behalf in the course of rendering services to third parties and only then it can be said that there exist Principal to Agent (P2A) relationship. In the present case the arrangement between the assessee and Prepaid Distributors is not in the nature of P2A but Principal to Principal (P2P). In this context, attention is invited to the following: * The Distributor is not acting as an agent of the Assessee but as an independent contracting party, (Refer Clause 4 of the Agreement at page no 4), which specifically states that the Agreement between the Assessee and the Distributor is on a principal to principal basis i.e. the Distributor, is not an agent of the Assessee. This being the specific provision agreed by both the parties, it is not open to the Income-tax Officer to make a determination contrary to what the parties have provided. * In a principal agency relationship, the Principal is liable to take back the stock of products not used or sold by expiry date. However, in the present case it is agreed that inactive SIMs/Recharge Vouchers beyond expiry shall not be returned to the Assessee but shall be treated as used by the distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9). Thereafter the AO passed the order u/s 201 of the Act on 07.03.2019 whereby he held the assessee as a defaulter within the meaning of Section 201 of the Act in all the cases which are in appeal before us. On appeal, the Ld. CIT(A), taking note of the written submissions of the assessee, sought a remand report from the AO and while the AO submitted remand report, the assessee filed its written submission and also filed the distributorship agreement dated 29.09.2010 between the company and one distributor M/s. Kattayani (a sole proprietorship concern). Since as per clause 3 of the said agreement, the agreement was valid only till 31.03.2013, along with this agreement, extension letters of the contractual period dated 12.06.2014 (extending the agreement for a period of 3 years w.e.f. 01.04.2014) and a letter dated 19.09.2017 (extending the agreement for another period of 3 years w.e.f. 01.04.2017) were submitted. The aforesaid contractual extension letters are seen placed at page 40 to 41 of the PB. According to the Ld. Counsel, the Ld. CIT(A) while adjudicating the lis before him, referred and relied only on the clauses of this agreement dated 29.09.2010 and according to the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... across erstwhile entities which got merged together. Accordingly, during the hearings before Ld. CIT(A) in the month of May 2019 they (assessee) were unable to retrieve the necessary records (being the agreements applicable for the relevant financial years). The Ld. Counsel for assessee admitted that earlier AR [who handled the appeal before Ld. CIT(A)] could not point out the changes made later on in the agreements which is critical for adjudication of the lis and the omission to do so was not with mala fide intention. Therefore, he wanted the aforesaid documents to be admitted and then only according to Ld. Counsel, the lis involved in this case can be adjudicated or else there will be miscarriage of justice. Therefore he pleaded that the documents referred to in para 7(a) to (d) are sine qua non to decide the lis before this Tribunal. And the Ld. Counsel, fairly conceded that these documents for the reasons aforestated (Supported by Affidavit) could not be placed before the lower authorities. However, a perusal of the same would reveal that critical changes were in fact made in the agreements mentioned in para 7(a) to (d) and it will also show that the assessee had in fact mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing before this Tribunal ['A' Bench on 09.09.2019] wherein, on behalf of the Appellant, it had been brought to our attention that an application dated 13.08.2019 had been filed in terms of Rule 29 of the ITAT Rules for bringing on record the "Distributor Agreements" which were operative and applicable for the relevant financial years in consideration of these appeals. According to the Ld. Counsel for assessee before the Ld. CIT(A) an agreement of the year 2010 had been submitted, the terms of which had been interpreted by the Ld. CIT(A) while deciding the matter against the Appellant. According to Ld. Counsel, the issue involved in these appeals are whether the transactions [between assessee/Appellant and its distributor] of pre-paid SIM cards and talk time was a transaction which can be termed as principal to principal contract (and an agreement of sale) and not that of a principal and agent. So according to Ld. Counsel for the assessee, the interpretation of the terms of the relevant agreements would be imperative as it is only these terms which would be determinative of the relationship between the parties. It was also brought to our notice that the contractual terms had changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit. 2. That a survey was carried out on the business premises of the Company under section 133(2A) of the Income Tax Act, 1961 (Act) on 5.9.2016. Thereafter, a notice under section 201(1 )/201(1 A) of the Act were issued to the Company on 28.9.2016 for all the above mentioned years. A copy of the said notice and the questionnaire are enclosed as Annexure 1 for ready reference. In terms of the said questionnaire the Company was required to furnish the following details- (a) copies of audited balance sheet, profit and loss account Form 3 CD along with computation of income; (b) Details of bank accounts etc.; (c) Copy of TDS return filed giving details of TDS payments; (d) Party wise details of MRP, invoices amount and commission/discount allowed on recharge vouchers, starter packs for all telecom circles under the relevant TAN jurisdiction. 3. On 17.1.2017 the Company submitted a reply to the said notice and questionnaire. In para 6 of such reply the Company highlighted the features of the contractual arrangement between the Company and Distributors. The various clauses of the agreement were referred to in the said submissions (in para 6). A copy of the reply dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. Copy of such order/s is/are forming part of the appeal set before this Hon'ble Tribunal. 10. Thereafter, aggrieved with the ordcr/s dated 7.3.2019 the Company preferred appeals before the CIT(A). Before the CIT(A) written submissions were filed on which a remand report was sought. The AO submitted a remand report to which the Company filed its submissions. Before the CIT(A) the Company filed a "distributorship agreement" dated 29.9.2010 between the Company and one M/s. Kattayani (a sole proprietorship concern). As per clause 3 of the said agreement, the same was valid only till 31.3.2013. Along with this agreement extension letters dated 12.6.2014 (extending the agreement for a period of three years w.e.f. 1.4.2014) and letter dated 19.9.2017 (extending the agreement for another period of three years w.e.f. 1.4.2017) were submitted. These extension letters appear on pages 40 and 41 of the paper book filed before the Hon'ble Tribunal. While adjudicating the lis before him, the CIT(A) referred and relied on the clauses of this agreement only. No other agreement was filed before the CIT(A) nor directed to be filed by the CIT(A). 11. On legal advise the Company filed an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, do hereby solemnly affirm that the contents of the above affidavit are true and correct and nothing has been concealed therefrom." 15. We note that AO pursuant to a survey on 05.09.2016 issued notice u/s 201(1)/201(1A) of the Act (Annexure 1) and the assessee had filed the detailed reply to same vide letter dated 17.01.2017 (Annexure 2). A perusal of Annexure 2 reveals that the assessee had contended that its relationship between the distributor is that of Principal to principal, which facts are revealed from various averments given in the reply dated 17.01.2017 (Page 9 to 28) to AO/ ACIT (TDS), Circle-2, Kolkata which is reproduced for getting clarity on the aspect (i.e. against the doubt expressed by the Ld. CIT DR that the new agreements are an afterthought), so we need to know what was the stand of Appellant/assessee as early as on 17.01.2017 itself: "1. We are a cellular service provider in the circles of Kolkata. In the course of our business, we have entered into an agreement with various Distributors on Principal to Principal basis to cater the business of the Company. 2. In pursuance of an agreement, we supply SIM/RV to the Distributors at a discounted price wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee being concluded when the Distributor pays the price to the Assessee. > In a principal agency relationship, an agent never takes credit risk or other risks and all risks are born by the Principal whereas in the Assessee's case the Distributor bears the credit risk in cases where credit is extended by the Distributor to Authorised Retailers or end user. (Refer Clause 7 page 5 to 10) > In a principal agency relationship, the principal is liable to compensate the agent for any loss or damage suffered in discharging his functions as an agent (See Section. 222, 223 and 225 of the Indian Contract Act). However, in Assessee's case, if there is any loss due to theft, natural calamity, etc. per se Assessee is not liable to recoup the same. Only in some cases, on Prepaid Distributor making payment of processing fees, the Company may revalidate the products. (Refer Clause 7 page 5 to 10). > In a principal agency relationship, the Principal is liable to take back the stock of products not used or sold by expiry date. However, in the present case it is agreed that inactive SIMs / Recharge Vouchers beyond expiry shall not be returned to the Assessee but shall be treated as used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods he had sold, debiting himself with the prices named for them in the price list, and at the expiration of another month he paid the amount in cash without any regard to the prices at which he had sold the goods, or the length of credit he had given. On these facts it was held by the Court of Appeal in Chancery that though both the parties might look upon the business as an agency, N did not, in fact, sell the goods as agent of T & Co., but on his own account, upon the terms of his paying T & Co. for them at a fixed rate if he sold them, and the moneys he received for them were therefore his own moneys, which T & Co., had no right to follow.Reference may be made, in this connection to the following passage from Blackwood Wright., 'Principal and Agent', Second Edn. page 5: "In commercial matters, where the real relationship is that of vendor and purchaser, persons are sometimes called agents when, as a matter of fad, their relations are not those of principal and agent at all, but those of vendor and purchaser. If the person called an 'agent' is entitled to alter the goods manipulate them to sell them at any price that he thinks fit after they have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged appropriate tax liability on their income, and the action of treating us as 'assesses in default' u/s 201(1) of tire Act and recovering the amount of taxes would tantamount to recovering of tax twice in relation to the same income. > With effect from 1st July 2012, Section 201(1) of the Act has been amended and following para has been included: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax, in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) Has furnished his return of income under section 139 of the Act; (ii) Has taken into account such sum for computing income in such return of income; and (iii) Has paid the tax due on the income declared by him in such return of the income, And the person furnishes a certificate to this effect from an accountant in such form as maybe prescribed. > In view of above amendment, we request you to provide us the reasonable opportunity and time to submit the certificates of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aulter as per Section 201 of the Act and levied taxes on the assessee. Thus we note that though the impugned order of AO was passed on 07.03.2019, and the assessee's case [as early as on 17.01.2017] was that its relationship between its distributor is that of Principal to principal and therefore it shall not be liable to deduct tax as contended by the AO and thus not a defaulter u/s 201(1) of the Act. And according to assessee it did not file the agreements [new agreements stated in page 7(a) to (d) supra] before the AO since it was not asked for production by the AO. However Ld. Counsel Shri Deepak Chopra fairly conceded that there was a failure even to produce the relevant agreements (changed) before the first appellate authority and the decision of Ld. CIT(A) was based on an agreement dated 29.09.2010 and (extension) letters, which had changed and very much relevant for the Assessment Years under consideration. Thus according to him, the agreements mentioned in para 7(a) to (d) supra, has a direct and significant bearing on the transfer of risk and relationship between the parties (assessee/Appellant and its distributors) in respect of the pre-paid SIM cards and was therefore si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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