9911796707
TMI Blog2022 (3) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) has also approved the aforesaid decision of the Assessing Officer. Therefore, the limited issue before us is the validity of disallowance under section 40(a)(ia) - Decided in favour of assessee. Disallowance u/s. 40(a)(ia) by disallowing the expenditure on account of refurbish and rebate on defective products - HELD THAT:- AR before us had brought several fresh facts which was apparently either not argued before this Tribunal or stated before the lower authorities while adjudicating the issue under consideration. Hence, we deem it fit and appropriate in the interest of justice and fair play, to set aside this issue to the file of the ld. AO for denovo adjudication in accordance with law. In the said set aside assessment proceedings, the ld. AO shall factually examine all the contentions of the assessee and take a reasoned view uninfluenced by either his views taken in the assessment order or by the order of the ld. DRP or by this Tribunal in A.Y 2016-17 and 2017-18. This direction is given in view of the fact that this issue being a repetitive issue as pointed out by the ld. AR, would have the recurring effect in all the years for the assessee. So, it would be relevant to bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme (ground No.2 before us) ₹ 26,71,93,971/- (ii) Volume Discount on achievement of target sales (Ground No.3 before us) ₹ 20,66,53,421/- iii) Reimbursement of octroi and insurance on actual basis (Ground No.4 before us) ₹ 6,52,65,636/- iv) Provision for sales rebate relying on percentage of sales rebate to sales of past years (Ground No.6 before us) ₹ 1,84,43,654/- v) Refurbish and rebate on defective products (Ground No.5 before us) ₹ 13,56,11,831 Total ₹ 69,31,68,513 3.2. We find the disallowance made by the ld. AO u/s. 40(a)(ia) of the Act in respect of Ground No. 2, Ground No. 3, Ground No. 4 and Ground No. 6 as referred supra were subject matter of adjudication by this Tribunal in ITA No. 943/Mum/2020 in assessee's own case for A.Y. 2016-17 dated 05/10/2020 wherein the facts relevant to the same and the decision rendered thereon are reproduced below:- "7. In ground no. 2, the assessee has challenged the disallowance made under section 40(a)(ia) of the Act out of the expenditure on account of discount given to the dealers/distributors under the conditional discount scheme. As discussed earlier, during the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete within a very short span, therefore, have to be sold at a discounted price. The learned Authorised Representative submitted, the assessee does not have any principal-agent relationship with any of the dealers/distributors and once the assessee sells/delivers the goods to the dealers/distributors, sale is complete. The assessee does not enter into any sales with the end users. Therefore, the sale contract between the assessee and the dealers/distributors ends on delivery of goods to them. That being the case, there is no principal- agent relationship. In this context, he drew our attention to the agreement entered with Flipkart India Private Ltd. (in short "Flipkart"). Drawing our attention to various clauses of such agreement, the learned Authorised Representative submitted, the agreement makes it clear that once the assessee sells goods to Flipkart, sale is complete. Therefore, there is no principal-agent relationship, but it is a principal- to-principal sale. That being the case, the provisions of section 194H of the Act would not be applicable. Drawing our attention to the tax invoice and credit note, the learned Authorised Representative submitted, these are simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Departmental Representative submitted, assessee's contention that there is a principal-to-principal relationship with Flipkart and the sale contract concludes upon sale being effected to Flipkart is also incorrect as the assessee has raised the invoice in the name of end user i.e., Rashi Enterprises. Thus, he submitted, in the given facts of the case, Flipkart has acted as an agent between the assessee and the end user to whom the product has been ultimately sold. The learned Departmental Representative submitted, as per the terms of the contract with Flipkart, the assessee has to indemnify for any loss or defect in the product sold. That shows that there is no principal-to- principal relationship in respect of the sale made. He submitted, merely relying upon the contract one cannot determine the true nature and character of the transaction, but all other ancillary and incidental facts have to be seen. In support of this contention, the learned D.R. relied upon the decision of the Hon'ble P&H High Court in PMS Diesels & Ors v/s CIT, [2015] 374 ITR 562 (P&H). 10. In rejoinder, the learned Authorised Representative submitted, the learned Counsel for the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had entered into a written contract only with Flipkart. On a perusal of the agreement with Flipkart, a copy of which is at Page-5 of the paper book, it is seen that as per the terms of the contract, the assessee is required to sell goods/products as per the purchase order to be placed by Flipkart. As per Para-(iii) of the agreement, the assessee is required to deliver the product to Flipkart in accordance with the specifications and prices as specified in the purchase order. Further, the terms of the agreement makes it clear that the total ownership to the products shall pass on to Flipkart at the time of delivery of such products to Flipkart. Para-(iv) of the agreement provides that Flipkart has to provide the assessee relevant information in order to supply products as sought by Flipkart from time-to-time. It further says that Flipkart shall make payment to the supplier in a timely manner as provided in the agreement. Para-(v) of the agreement sets out the obligation of the assessee towards Flipkart. Para-(vi) of the agreement provides for pricing and discount. Whereas, Para-(vii) provides for invoicing and payment. As per the aforesaid clause, the assessee is required to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into a sale contract, simpliciter, for sale of its products to dealers/distributors. Certainly, the transaction between the assessee and the dealers/distributors cannot be termed as a contract for work. The assessee simply sells its products to dealers/distributors who, in turn, sell them to the end users. Therefore, there is no element of work as defined under clause (iv) of Explanation to section 194C of the Act. Therefore, under no circumstances, section 194C of the Act would be applicable to the discount/rebate. 15. Insofar as applicability of section 194H is concerned, a reading of the said section would make it clear that while making any payment which is in the nature of commission/brokerage other than insurance commission, would be subject to deduction of tax at the appropriate rate. Explanation to the aforesaid provision defines commission or brokerage to include any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered or for any service in the course of buying or selling of goods. Thus, the primary conditions for qualifying as commission or brokerage are, the person receiving such payment must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship between the seller and buyer is that of a principal-to-principal, the discount given cannot be termed as commission. On the contrary, the decision in case of PMS Diesels & Ors. (supra) cited by the learned Departmental Representative is contextually different, hence, would not be applicable to the facts of the present case. 16. It is relevant to observe, in course of hearing the learned Departmental Representative drawing our attention to Page-27 of the paper book had submitted that the assessee has not directly sold its products to Flipkart but has sold to end users as the invoice is raised in the name of end user. However, on a perusal of the facts on record, we find the aforesaid submission of the learned Departmental Representative factually incorrect. A reference to Page-27 of the paper book would reveal that it has nothing to do with any sale effected to Flipkart but is in respect of a sale made to another distributor/dealer, Rashi Peripherals Pvt. Ltd. and such sale is co-related with the credit note issued in the name of the said party. In view of the aforesaid, we hold that the rebate/discount given by the assessee to the dealers will not coming either within the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers/distributors to whom volume discount was given. Therefore, following our detailed reasoning given in respect of ground no. 2, we delete the disallowance made by the Assessing Officer. 22. In ground no. 4, the assessee has challenged the disallowance under section 40(a)(ia) of the Act made by the Assessing Officer in respect of reimbursement of octroi and insurance to dealers/distributors. 23. As could be seen from the facts on record, the assessee had reimbursed octroi paid on the products sold by the dealers/distributors as well as insurance claimed against ASUS products to the dealers/distributors on actual basis. The Assessing Officer was of the view that such reimbursement amounting to ₹ 4,13,94,071, is in the nature of commission as the liability to pay octroi and insurance claimed is solely on the dealers/distributors. Therefore, any reimbursement of octroi and insurance is in the nature of commission and will be covered under section 194C/194H of the Act. Accordingly, he disallowed an amount of ₹ 1,24,18,434, out of the expenditure claimed by invoking the provisions of section 40(a)(ia) of the Act. 24. The learned Commissioner (Appeals) also sustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, we must observe that considering the limited issue arising in the present appeal as to whether the reimbursement of octroi/insurance claimed is covered under section 194C/194H of the Act, thereby, requiring deduction of tax at source, we refrain from expressing any opinion whether the expenditure is allowable as a business expenditure at the hands of the assessee. This ground is allowed. 34. In ground no. 6, the assessee has challenged the disallowance of ₹ 1,40,91,023, being the provision for sales rebate under section 40(a)(ia) of the Act. 35. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has created provision for an amount of ₹ 4,69,70,076, towards sales rebate on the basis of ratio of percentage of sales rebate to sales of past years. Justifying such claim, the assessee has submitted before the Assessing Officer that the quantum of provision is computed after reversing the preceding years provision. The Assessing Officer, however, was not convinced with these submissions. He observed, the provision is nothing but a commission to incentivize the dealers/distributors. He observed, such working of provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed as payment towards commission. As discussed earlier, while dealing with the issue raised in other grounds which are more or less identical to the issue raised in this ground, we have held that as per the facts on record, a principal- agent relationship between the assessee and the dealers/distributors is not discernible. Therefore, the rebate/discount given cannot be treated as commission under section 194H of the Act. Our aforesaid reasoning rendered in context of ground no. 2, would equally apply to this ground as well. Therefore, the disallowance made under section 40(a)(ia) deserves to be deleted. As regards the contention of the learned Departmental Representative that the provision is not allowable as expenditure, we are afraid, we cannot entertain such claim at this stage. As could be seen from the facts on record, the Assessing Officer has not raised any doubt with regard to the genuineness or allowability of expenditure. He has disallowed part of such expenditure simply for the reason that tax has not been deducted at source in terms of section 194H of the Act. Learned Commissioner (Appeals) has also approved the aforesaid decision of the Assessing Officer. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been decided against the assessee by this Tribunal for A.Y. 2016-17 in ITA No. 943/Mum/2020 dated 05/10/2020. But he stated that terms agreed upon by the assessee with dealers is that the dealers have to completely undertake the repair works at their end if there occur any repairs and assessee would compensate the dealers by giving 30% flat discount on the price of the product sold to them, to take care of the same on their regular sales. The ld. AR pointed out that this fact was not argued before the Tribunal in A.Y. 2016-17. Accordingly, he pleaded that the decision rendered by this Tribunal in A.Y. 2016-17 becomes factually distinguishable. He also drew our attention to the sample invoice and credit note raised by the assessee which apparently revealed that the assessee merely compensates dealers/distributors @30% of original price of the defective product. The ld. AR also placed reliance on an affidavit of Shri Suhas Joshi, Sr. Manager-Accounts working with the assessee company wherein the said Senior Manager-Accounts had affirmed that the assessee does not ask or insist upon the dealers/distributors to actually repair the damaged products and that the repairs done by the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the ld. DRP or by this Tribunal in A.Yrs. 2016-17 and 2017-18. This direction is given in view of the fact that this issue being a repetitive issue as pointed out by the ld. AR, would have the recurring effect in all the years for the assessee. So, it would be relevant to bring all the facts pertaining to this issue on record. Accordingly, the ground No. 5 raised by the assessee is allowed for statistical purposes subject to above mentioned directions. 5. The Ground Nos. 7-10 raised by the assessee are challenging the Transfer Pricing (TP) adjustment made in respect of provision of Marketing Support Services (MSS). 5.1. We have heard rival submissions and perused the materials available on record. The assessee is a private limited company incorporated on 5/07/2011 and began its operation from mid-February 2012. The assessee is a subsidiary of ASUS Technology Pte. Limited. ('ASUS Technology'), Singapore. The assessee is engaged in the business of distribution of ASUS Group's products in India. The assessee purchases Notebooks, Eeepcs, Tablets, Padphones and Accessories from ASUS Technology and sells the products locally in India with no additional manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,179 TNMM 4 Import of fixed assets 18,98,605 Other method . 5 Provision of marketing support service fees 3,62,61,509 TNMM 5.6. As could be seen from the business of the assessee, as stated supra, while undertaking distribution activity, the assessee also provides Marketing Support Services to its AE for which the assessee is compensated at cost plus mark-up. For the purpose of benchmarking, the assessee aggregated Marketing Support Services transactions with the transactions of distribution business. The ld. TPO benchmarked Marketing Support Services transactions separately and made the addition after selecting 3 comparable companies. 5.7. The ld. AR argued that marketing support services and distribution functions are to be aggregated as provision of marketing support services is an integral part of the main transaction of distribution business. He argued that none of these functions could be performed in isolation. He specifically drew our attention to the fact that the assessee also undertakes selling and distribution activity and in the process, purchases finished products and accessories from AE and distributes it for the purpose of marketing. Thus, both the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any costs as pass-through costs either before the ld. AO/TPO or the DRP. This issue is being raised for the first time before this tribunal. Therefore, the ld. DR argued that this request of the assessee should not be accepted. He further stated that however, if this tribunal is of the opinion that pass-through costs are to be allowed, then the issue may be set-aside to the file of the ld. AO/TPO to analyse this issue afresh after calling for all the relevant documents/information from the assessee and also after studying the actual conduct of the parties involved. He stated that here again, the onus is on the assessee to satisfy the ld. AO/TPO as to the exclusion of pass-through costs for determining profit margin. 5.10.1. Since, we have already held that all the transactions are to be aggregated as stated supra, this aspect of the argument of the ld. AR becomes academic and is hereby left open. No opinion is given by us in this regard. 5.11. We find that the ld. AR further argued that exclusion of the following two comparables from the final list of comparables chosen by the ld. TPO:- (i) Axis Integrated Systems Ltd., (ii) Inmacs Management Services Ltd., 5.12. We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and legal advisory services which is not functionally comparable with marketing support services rendered by the assessee. We find that Axis Integrated Systems Ltd., was sought to be excluded in the Coordinate bench decision of this Tribunal in the case of DSM Nutritional Products India Pvt. Ltd., vs. DCIT reported in 118 Taxmann.com 363 for A.Y. 2014-15 wherein it was held that though the Revenue stand is that the consultancy and liasoning service segment is comparable to the assessee, however, on deeper scrutiny, we find that said consultancy and liasoning services provided by this company is in relation to foreign trade, customs, excise and GST related matters. Further, the company provided such services to independent clients/agencies, unlike the assessee which is purely a captive service provider. This Tribunal also observed that similar view was expressed by Delhi Tribunal in the case of Li & Fung (India) P. Ltd., vs. ACIT reported in 96 Taxmann.com 151 which was challenged by the Revenue before the Hon'ble Delhi High Court. While dealing with the issue, the Hon'ble Delhi High Court had categorically observed that no comparison can be drawn between the captive s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
