IN THE ITAT CUTTACK BENCH
Pareek Electricals
Versus
Assistant Commissioner of Income-tax
IT Appeal No. 354 (Ctk.) of 2012
[Assessment year 2008-09]
September 28, 2012
ORDER
K.K. Gupta, Accountant Member –
This appeal by the assessee mainly raises the issues dealt with by the learned CIT(A) being disallowance of expenditures claimed in computing the profits of the assessee, the assessee being a franchisee of BSNL (a Government of India Undertaking) selling its products viz., SIM cards, recharge coupons etc. The Assessing Officer during the course of scrutiny proceedings had disallowed a claim of expenditure being the discount allowed to the sub-franchisees on the ground that the assessee failed to deduct tax at source under the provisions of Section 194H on the discount of Rs. 1,74,00,814 on sales made to sub-franchisees. Similarly it did not deduct tax at source u/s.194-I when shop and godown were let out on a yearly rent of Rs. 1,92,000 to a Senior citizen being a lady.
2. The learned Counsel for the assessee initiating his arguments submitted that the assessee appellant is a partnership firm engaged in trading business of electrical goods including the business of recharge vouchers, SIM cards & mobile phone handsets and various services like cellular phone service, basic telephone service, data service, booking connection and other BSNL products, the firm has executed Franchiseeship Agreement with Bharat Sanchar Nigam Ltd. (BSNL) on dt.08-02-2007, dt.13-07-2007 and dt.28-01-2008. The assessee firm has its five branches in the State of Odisha at Berhampur, Keonjhar, Phulbani, Kendrapara, Rajgangpur (Rourkela). The assessee firm filed the Audited accounts by taking all the transactions of all the branches along with Head Office in to consideration. The assessee during the Assessment Year under consideration allowed discount to its Sub-Franchise/retailers at all the branches. The learned Counsel for the assessee submitted that the assessee firm, basing on the agreement, is duty bound to carry on the business of the products and services offered by the BSNL within the frame work of the Agreements. It is a matter of record that the assessee’s business has been restricted as per the Franchiseship Agreement for the area which has clearly revealed in the said agreement. The assessee firm distributed the BSNL products and services by depositing security amount in shape of unconditional bank guarantee reflected in Para-C of the agreement dt.08-02-2007 and also making payment in advance prior to lifting of the products of BSNL. The appellant firm is an agent of BSNL and the BSNL is the principal who has supplied the products to the appellant firm. The appellant firm has also appointed sub-franchise/retailers for the selling of products of BSNL as per the MRP fixed by the BSNL as principal to principal. As a matter of fact, the assessee firm has never sold any materials to the customer directly, whatever business has done by the assessee firm is only through sub-dealers/franchisee and retailers. There is no clause in the said Franchiseeship agreement to provide/allow any discount to sub-franchisee/retailers. However, at Clause-26.11 of the Franchiseeship agreement it has clearly been reflected that “the franchisee will distribute the services and products at a rate fixed by the BSNL to all its associated, its franchisee and/or retailers.” The learned Counsel for the assessee submitted that from the above, it is abundantly clear that in the aforesaid clause the MRP has been fixed by the BSNL (Principal) and the assessee firm can in no circumstances sale any products more than MRP, thereby the profit margin is only limited to the commission provided by the BSNL @ 6.5%. But, to compete in the market the assessee firm has given trade discount to the retailers/sub-franchisee. Therefore, the assessee firm has forgone its profit to the extent allowing the trade discount. It is an undisputed fact on record that the assessee firm has received commission @ 6.5% from the gross value of the purchase as revealed from the purchase invoices and on the said commission the BSNL has deducted tax (TDS) U/s. 194H of the IT Act.
2.1 The learned Counsel for the assessee further submitted it is a matter of fact that the assessee firm has given discount on sale of SIM Cards and other BSNL products raising from 3.5% to 4.5% keeping in view the market potentialities, situations and circumstances so as to compete in the market with the other competitors. The discretion is with the assessee firm in respect of allowing discounts to the sub-dealers/retailers for which the BSNL has nothing to say. It is also a matter on record that the assessee firm out of his own commission @6.5% received from the Principal, has paid discount on Bills raising from @ 4.5% to @5.5% as and where applicable, as per the market potentialities in order to compete in the market. The BSNL has already deducted TDS on the Commission given to the assessee firm U/s.194H of the IT Act as clearly revealed from the TDS Certificates issued by BSNL. In view of this, the learned Counsel for the assessee argued that due to such TDS deduction, there is no scope at all for non-disclosure of any turnover/business with BSNL to the IT Department. Once the TDS has been deducted from the commission, there should not be further deduction from any portion of same said commission by the assessee firm from the payment received from the sub-franchisee/retailers due to selling of the products and as such Sec. 40(a)(ia) of the IT Act does not attract as the nature of deduction is nothing but trade discount not necessarily construed as commission, thereby there is no scope of applicability of Sec-194H of the IT Act. He contended that the very meaning of commission and discount are not same as both are distinct and different in their respective way. Discount in general sense, an allowance or deduction made from a gross sum of an account whatever; WHEREAS, the commission is the recompense, compensation or reward of an agent, sales man, executor, trustee, receiver, factor, broker or bailee. He pointed out that there is no such agreement with the sub-franchisee/retailer for payment of discount on a certain specified percentage of the billing amount. Besides this, the assessee firm on the face of the Bill has allowed discount on the spot at the time of issuing the bill as a Trade Discount not necessarily construed as Commission. BSNL has never spelt anything so far as parted with the commission granted to the assessee firm to the Sub-dealer/ Retailer out of its own commission which is nothing but the profit of the assessee firm. In order to compete in the market the assessee firm has allowed trade discount thereby by reducing its income. The reduction of income out of @6.5% to any other lower percentage due to grant of discount to the retailers should not be amenable to TDS U/s. 40(a)(ia) of the IT Act as the commission which the assessee firm has received from the principal has already subjected to TDS U/s. 194H by the principal. The learned Counsel for the assessee vehemently argued that in view of the aforesaid facts and circumstances of the case, the applicability of the Sec. 40(a)(ia) of the IT Act is not at all attracted. The assessee firm has booked the purchases in the Trading Account after deduction of commission and disclose sales in addition of the commission, thereafter crediting the discounts in the P & L Account, which is less than @ 6.5% in the P & L Account, thereby the accounting method is a correct one being free from any irregularities. Besides this, any TDS made by the assessee firm has duly deposited in the Income Tax Department as there is no adversity so far as the deposit of TDS is concerned as per the order of assessment as well as the order of the learned CIT(A).
2.2 The learned AR of the assessee further submitted that the Assessing Officer that Assessing Officer has misdirected itself by way of misinterpreting the trade discount given by the Assessee firm to sub-franchisee/retailer as commission by placing reliance on the decision of Hon’ble High Court of Kerala in Vodafone Essar Cellular Ltd. v. Asstt. CIT [2010] 194 Taxman 518, Kerala. It is trite law that each case has its fate and fragrance. Therefore, time and again it has been held by the Hon’ble Apex Court that without examining the fact and issues of a case no reliance can be placed thereon. Hence Assessing Officer committed grave error both on fact and law in reaching into the conclusion by placing reliance on the decision which has no application to the facts and issues in the instant case. The learned AR of the assessee distinguished the facts in the case of Vodafone ESSAR Cellular Ltd., with that of the present assessee as under :
