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TMI Blog2023 (1) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... arily prejudicial to the interest of the revenue. Power of Ld. PCIT on the one hand empowers to verify any order on the criteria of being erroneous in so far as prejudicial to the interest of the revenue. On the other hand, the same section cast a responsibility on the Ld. PCIT that if during the proceedings before him u/s. 263 if assessee is able to substantiate that issue is not verified by the AO but the same is not prejudicial to the interest of the revenue, Ld. PCIT being guardian of law should evaluate and consider the fact of the case based on settled legal position. As in this case as mentioned in the case of Infosys Technologies Ltd.[ 2013 (7) TMI 451 - KARNATAKA HIGH COURT] and benches of ITAT including jurisdictional bench have held that a claim of assessee which is not allowable under sec. 37 for CSR expenses can still be allowed u/s 80G. We find that assessee has already furnished the details relevant to sec. 80G deductions and same is in order, Ld. PCIT ought to have dropped objection on this front. In these terms we find that as far as issue of deduction u/s. 80G is concerned, the order of AO is not erroneous. Allowability of commission paid on sales to CSD - As far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is erroneous in so far as it is prejudicial to the interests of the revenue. 3. on the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating the fact that the issues which formed a part of revision under section 263 were already examined during the course of the assessment proceedings after considering the details/ submissions filed by the appellant. (B) Grounds on Merits: (I) Allowability of deduction under section 80G in respect of contributions towardsCorporate Social Responsibility (CSR): Rs. 52, 56,437: 4. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in directing the Assessing Officer to examine the allowability of deduction under section 80G in respect of donations made to eligible institutions and shown as part of CSR contributions, and to frame a fresh assessment in this regard. 5. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in observing that deduction under section 80G ought to have been disallowed in respect of contributions made towards CSR. 6. On the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a disallowance in respect of 5% of the commission expenditure incurred in connection with sales to CSD, after going through the details/ documents furnished by the appellant, including party-wise details, ledger extracts, income-tax returns. T.D.S certificate, etc. 13. On the facts and in circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating the fact that similar disallowance as made in the assessment order for the year under consideration has been made on a consistent basis since AY 2009-10 after verification of similar set of facts and documentation 14. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not taking into considering the facts and submissions made during the course of the proceedings under section 263 on each point raised in the notice under section 263. 15. On the facts and in the circumstances of the case and in law, the notice issued by the Principal Commissioner of Income-tax had several factual errors. And incorrect assumptions which were duly rebutted by the appellant in the submissions filed during the course of the proceedings under section 263. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was claimed u/s 80G amounting to Rs. 1,05,12,873/-. As per ld. PCIT the deduction claimed by the assessee u/s 80G can t be allowed and AO was failed to examine the issue hence, the order passed is erroneous in so far as it is prejudicial to the interest of the revenue Another objection of the ld. PCIT pertains to commission paid to agents on sale to CSD (canteen stores department). Assessee claimed commission of Rs. 24, 03, 65,153/- on sale to canteen stores Department (CSD). AO disallowed the 5% of commission claim as per last year. Sales to CSD was about 300 Crores against which commission works out to about 8%. The services stated to have been rendered by commission agents for canvassing and procurement of order, educate CSD staff etc. CSD's are defence ministry establishments where they purchases in a transparent method directly. There cannot be any middlemen in sales to CSD. Therefore AO should have examined some of the commission parties on actual services rendered. Also CSD's should have been asked for confirming the role/ involvement of commission agents. If there is no third-party evidence of rendering of services, there is no question of allowing any commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of. This objection of Ld. PCIT no more stands against the assessee as erroneous in so far as prejudicial to the interest of the revenue. In this regard we rely upon the following decisions in favour of assessee as under: 1). CIT, Central Circle vs. Infosys Technologies Ltd. (2014) 43 taxmann.com 251 (Kar.) 2) FNF India Pvt. Ltd. vs. ACIT (2021) 133 taxmann.com 251 (Bang.-Trib.) 3). JMS Mining Pvt. Ltd. vs. PCIT (2021) 130 taxmann.com 118 (Kol.-Trib.) 4.) Nayak Sea Food Pvt. Ltd. vs. PCIT ITA No. 490/Mum. /2021 8. In the light of above it can be said that issue was not examined by the AO and on this front order is erroneous but not necessarily prejudicial to the interest of the revenue. Power of Ld. PCIT on the one hand empowers to verify any order on the criteria of being erroneous in so far as prejudicial to the interest of the revenue. On the other hand, the same section cast a responsibility on the Ld. PCIT that if during the proceedings before him u/s. 263 if assessee is able to substantiate that issue is not verified by the AO but the same is not prejudicial to the interest of the revenue, Ld. PCIT being guardian of law should evaluate and consider the fact of the case bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that help in procuring orders from institutions, housing projects, malls, municipalities, etc. besides maintaining a retailer network. 3.8 In addition, the company also makes sales to Canteen Stores Department (CSD'), a Government of India enterprise under the Ministry of Defence. Sales to CSD are one of the major sources of revenue under the Consumer Durable segment, accounting for 15% of the revenue in the said segment. This coupled with the fact that CSD is a Government enterprise, the company is required to incur additional efforts on this stream. The company makes sales to 34 CSD depots which cater to 4000+ canteens, many of which are in the remote locations in various parts of the country. Despite the company's reach in several states through its regional offices, it is difficult to have focused teams dealing with the needs to CSD. Therefore, the agents play an important role in addressing these needs. These agents are more like services providers for the company to ensure proper merchandising of the company's products, maintaining availability of products, managing company's schemes, ensuring after sales services, following-up for timely payments etc. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no system of floating tenders in case of sales to CSDS. (b) The role of the agents may not be relevant at the time of listing the products on the CSD portal, but the same is relevant to understand the feedback, likely sales, stocks, so that the pricing can be listed accordingly. Further, the role of these agents is not restricted to sales, but goes much beyond. As stated above, these agents provide services in relation to ensuring proper merchandising of the company's products, maintaining availability of products, managing company's schemes, ensuring after sales services, following-up for timely payments etc. It is for these services that the agents are paid commission (c) Further, as regards the mention in the notice that the Assessing Officer should have examined role of such commission agents, it is submitted that the Assessing Officer in fact had undertaken such an examination. The details of services provided by these agents were already submitted by the company during the course of the assessment proceedings. 3.12 Considering the above, it is submitted that the presence of agents is important even in respect of CSD sales. In fact, several compete companies in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that commission is not paid in respect of all sales. It is payable only in cases where the sales are not made to distributors/ dealers. Where sales of consumer durables are made to distributors/ dealers of the company, the above services provided by them (which are similar to the services provided by agents in CSD sales) are compensated in the price at which the goods are sold to such distributors/ dealers and hence no separate commission is required to be paid to them. In the case of sales to CSD, there is no Involvement of dealers and distributors. Hence, the services relating to proper merchandising of products, maintaining availability of products, managing company's schemes, ensuring after sales services, etc., are required to be undertaken by service providers/ agents, that too since the CSD canteens are in many cases located at remote places across the country. Hence, the comparison made above that the balance sales of the company account for less than Rs. 20 Crores commission may not be correct considering the above facts: 3.18 Further, in the notice issued by your good self, it has been mentioned that Even otherwise 7.8% commission is so high in assessee's business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear includes provisions amounting to Rs. 6,01,77,085, out of which. (a) Provision of Rs. 2, 17, 80,859 is reversed on the first day of the next financial year they reducing the amount of expenditure claimed for that year. If the said provisions disallowed in the year under consideration, it will result in double disallowance of be same amount over a period of two years. (b) Provision of Rs. 3, 83, 96,225 which relates to the EPC business and the same ha erroneously being clubbed into the CSD commission. 11. In the light of assesses submission and copy of agreements with sales agent for CSD sales we find that the concern of Ld. PCIT is not on valid premises. Payments to agents were being made for number of services in the form of certain field work, logistics co-ordination and handling of the goods. These services are essential part of any FMCG company. We do not find any error in the order of AO and that is to there is complete transparency at the end of the assessee. Following the principle of consistency assessee and AO both are following the established norms of the industries and assessment procedures respectively. In view of above appeal of the assessee is allowed and order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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