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TMI Blog2025 (4) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission and Cash Incentives" and, therefore, called-upon the assessee to file relevant evidences including nature of expenditure, to whom said expenditure has been aid and the parties of the payment. In response, the assessee vide letter dated 20.10.2010 submitted complete details of expenditure and also explained the nature and parties of sales promotion and cash incentives paid to various retailers along with Delcredere Agent Agreement dated 20.03.2007 between the appellant-company and M/s. Rhizone Distilleries Private Limited for marketing the IML products manufactured by the principal i.e., M/s. Rhizone Distilleries Private Limited. The assessee had also filed the basis for payment of commission and cash incentives and further filed relevant TDS details in respect of commission amount of Rs.14,89,892/- paid to various marketing agents employed by the appellant-company for promoting brand of M/s. Rhizone Distilleries Private Limited. The Assessing Officer after considering relevant details submitted by the appellant-company observed that, although, the assessee has furnished relevant Delcredere Agreement along with payment details of commission and cash incentives to various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... address proof. The Assessing Officer after considering the relevant evidences filed by the assessee including the confirmation from the parties observed that, in few confirmation letters there are discrepancies and, therefore, observed that, the assessee is unable to prove the genuineness of the payment made to various retailers and, therefore, observed that this is a clear case where the assessee company has tried to circumvent the law to avoid to pay tax and, therefore, by following the Judgment of Hon'ble Supreme Court in the case of McDowells and Co. Ltd., vs., Commercial Tax Officer [1985] 154 ITR 148 (SC) held that, the assessee has designed a tax avoidance plan and, therefore, rejected the explanation of the assessee and made addition of Rs.3,71,85,810/- towards commission and cash incentives paid to retailers. 3. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee reiterated it's submissions made before the Assessing Officer and also filed relevant evidences including Delcredere Agreement between the appellant-company and the principal viz., M/s. Rhizone Distilleries Private Limited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llotment of said license to different vendors, the persons discontinued the business and goes to a different place and, therefore, non-response by the persons to the notices, cannot be considered as a 'reason' for disallowance of huge expenditure when all other evidences filed by the assessee goes to prove that the expenditure incurred under the Head "Sales Promotion and Cash Incentives" is paid to the retailers on behalf of the Principal and the assessee has got reimbursement of the said expenditure from the Principal. This fact is further strengthened by the fact that, Principal has issued Form-16 where they have deducted TDS @ 2% which is applicable to contractual payments and going by the above facts, it is undisputedly clear that, Assessing Officer went on wrong premise that the appellant-company has received commission from the Principals and the same has been distributed to various retailers, which attracts provisions of sec.194H of the Act. Therefore, the learned CIT(A) observed that, the Assessing Officer has erred in disallowing expenditure incurred under the Head "Sales Promotion and Cash Incentives". 5. Aggrieved by the order of the learned CIT(A), the Revenue is now i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with M/s. Rhizone Distilleries Private Limited and M/s. Som Distilleries & Breweries Ltd. As per the agreement between the appellant company and the principals, the appellant-company is engaged in the activity of promoting IML brands manufactured by the Principals right from the stage of assessing the marketing conditions, ascertaining the stock position from Andhra Pradesh State Breweries Corporation and also promoting the brand of the assessee on retailer sales, for which, the appellant-company was paid commission and also reimbursement of cash incentives paid to various retailers on behalf of the Principals to the retailers and that the same cannot be considered as "commission" within the meaning of sec.194H of the Act. In this regard, he relied upon decision of ITAT, Visakhapatnam Tribunal in the case of United Breweries Ltd., vs., ITO [2015] 62 taxmann.com 341 (Visakhapatnam- Trib.). Learned Counsel for the Assessee, referring to the observation of the Assessing Officer with regard to enquiries conducted u/sec.133(6) of the Act by issuing letters to various persons submitted that, although, the letters were issued by the Assessing Officer in few cases which are returned un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... among the retailers and their representatives, for which, the appellant-company has been paid commission and also reimbursement of any expenditure incurred for payment of cash incentives and sales promotion expenditure to retailers. During the financial year relevant assessment year under consideration, the appellant-company has received Rs.3,91,82,326/- from M/s. Rhizone Distilleries Private Limited and M/s. Som Distilleries & Breweries Ltd., which includes commission payment, on which, TDS @ 10% has been deducted as per sec.194H and reimbursement of sales promotion and cash incentives paid to distilleries retailers, on which, TDS @ 2% has been deducted as per sec.194C of the Act. The appellant-company has paid sales promotion and cash incentives of Rs.3,71,85,000/- to retailers and also paid Rs.14,84,892/- to the Agents as commission. The appellant-company has deducted TDS as per sec.194H of the Act on commission payment to Agent, however, not deducted any TDS on sales promotion and cash incentives paid to the retailers. The Assessing Officer disallowed commission and sales incentives paid to the retailers u/sec.40(a)(ia) of the Act on the ground that the appellant-company has fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission and Sales Incentives" paid to various retailers is devoid of merit and cannot be accepted. 10. Further, the Assessing Officer himself has admitted in his assessment order and more particularly, in para 3.5 that, the appellant-company has substantiated the basis of payment of sales incentives to various retailers. Further, the Assessing Officer himself admitted the fact that, the appellant-company has deducted TDS on commission paid to the Agents who are engaged in the activity of promoting the brands of the Principal's. However, the Assessing Officer has committed a fundamental error in coming to the conclusion that, the expenditure incurred by the appellant-company under the Head "Commission and Sales Incentives" is disbursement of commission received by the appellant-company from the Principals which is evident from the fact that, the Assessing Officer rests his discussion only on the ground that the appellant-company has received commission from M/s. Rhizone Distilleries Private Limited and the same has been distributed to various retailers. However, the fact remains that the appellant-company has received commission income of Rs.5,76,022/-, on which, TDS has been deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il dealers through it's Delcredere Agreement depending upon the quantity of Beer lifted by each retailer, amount so paid, did not fall in category of "commission" requiring deduction of TDS u/sec.194H of the Act. This legal proposition is further supported by the decision of Hon'ble High Court of Andhra Pradesh and Telangana in the cases of CIT (TDS) vs., United Breweries Ltd., (supra) where it has been clearly held that there being no relationship of Principal and Agent between the Assessee and the Retailers from incentives paid by the assessee to retailers through Delcredere Agreement in order to boost it's sales could not be treated as commission for the purpose of sec.194H of the Act. In the present case, there is no dispute with regard to the fact that, the appellant-company has paid sales incentives to the retailers on behalf of the Principal's and the same has been reimbursed by the Principal to the appellant-company. Since there is no Principal and Agent relationship between the appellant-company and the retailer traders, the provisions of sec.194H cannot be applied. Therefore, in our considered view, the Assessing Officer is erred in invoking the provisions of sec.194H of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of business of the assessee and the trade practice, the Assessing Officer cannot disbelieve the arguments of the assessee only on the ground that notices issued u/sec.133(6) of the Act are returned un-served by the postal authorities. We are of the considered view that, when the assessee has filed various evidences including confirmation from the parties to prove the genuineness of expenditure, in our considered view, merely for the reason of non-service of notice, adverse inference cannot be drawn against the genuine expenditure incurred by the appellant-company. 13. Further, the Assessing Officer has took support from the decision of Hon'ble Supreme Court in the case of McDowells and Co. Ltd., vs., Commercial Tax Officer (supra), but, in our considered view the decision of Hon'ble Supreme Court in the case of McDowells and Co. Ltd., (supra) cannot be applied to each and every case, because nowhere in the said Judgment it was held that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may subjected to is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of the legitimacy or g ..... 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