Stockist/Dealer Discounts Are Not Commission Under Section 194H: ITAT Mumbai

DCIT Vs Wockhardt Limited (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai, decided the Revenue’s appeal against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] for Assessment Year (AY) 2016-17. The appeal arose from an order passed by the Income-tax Officer (TDS) under Sections 201(1) and 201(1A) of the Income-tax Act, 1961.

A survey under Section 133A(2A) was conducted at the assessee’s premises on 14.02.2017 to verify compliance with the TDS provisions contained in Chapter XVII-B of the Act. During the survey, certain discrepancies were noticed, leading to scrutiny proceedings. Thereafter, the Assessing Officer determined a total liability of Rs.53,60,41,868, comprising Rs.28,11,99,937 under Section 201(1) and Rs.25,48,41,931 as interest under Section 201(1A).

The Assessing Officer treated the assessee as having defaulted in deducting tax at source in relation to three categories of payments:

• Discounts allowed to stockists, alleging they constituted commission liable to TDS under Section 194H.
• Bonus and incentive payments made to stockists, contending that such payments, being granted subsequent to sales, were in the nature of commission covered by Section 194H.
• Interest provided on delayed payments to Micro, Small and Medium Enterprises (MSMEs), contending that since the assessee itself described the expenditure as interest, tax was deductible under Section 194A.

The assessee challenged the order before the CIT(A). It submitted that there had been no change in either the facts or the law from earlier assessment years and therefore the principle of consistency should be followed. It also relied upon decisions of the ITAT and CIT(A) in its own case for AYs 2010-11 to 2015-16, wherein identical issues had been decided in its favour.

The CIT(A) examined the submissions and recorded that the issues had already been decided in favour of the assessee by the ITAT and by the appellate authority for the preceding assessment years. The Assessing Officer himself had acknowledged in the assessment order that the assessee had relied upon those earlier decisions. Respectfully following those orders, the CIT(A) allowed the assessee’s grounds of appeal and held that there was no liability to deduct tax at source in respect of the impugned transactions for the assessment year under consideration. Consequently, the assessee could not be treated as liable under Sections 201(1) and 201(1A).

Aggrieved by the relief granted by the CIT(A), the Revenue appealed before the Tribunal. The Revenue reiterated that:

• The relationship between the assessee and its stockists was not on a principal-to-principal basis because the assessee continued to bear liability in relation to expired goods and quality issues, making the stockists agents for the purpose of Section 194H.
• Bonuses and incentives paid after the sale were in the nature of commission and therefore attracted Section 194H.
• The provision for interest on delayed payment was taxable under Section 194A because the assessee itself had categorised the expenditure as interest.

Before the Tribunal, the assessee submitted that the identical issues had already been adjudicated in its own favour for AYs 2010-11 to 2015-16. Details of the earlier Tribunal orders, including their ITA numbers and dates of pronouncement, were placed on record. The Departmental Representative relied upon the Assessing Officer’s order but was unable to produce any contrary judicial decision.

The Tribunal observed that the issues relating to discounts paid to stockists and interest on delayed payments to MSMEs were squarely covered by the decisions of the coordinate benches in the assessee’s own case for the preceding assessment years. It found that the facts remained identical and held that the rule of consistency should be followed.

Respectfully following the earlier Tribunal orders, the ITAT held that the additions made by the Assessing Officer were liable to be deleted. As a result, the Tribunal upheld the order of the CIT(A), dismissed all the grounds raised by the Revenue, and dismissed the Revenue’s appeal.

The order was pronounced in open court on 08 May 2025.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeal of the revenue was filed against the order of the Learned Commissioner of Income-tax (Appeals), Pune-12 [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2016-17, date of order 28.01.2025. The impugned order was emanated from the order of the Ld. Income-tax Officer (TDS) (OSD), Circle 2(3), Mumbai, (in short, ‘the A.O.’) passed under section passed under section 201 (1) / 201(1A) of the Act, date of order 21/03/2023.

2. The revenue has taken the following grounds of appeal:-

“I hereby direct the DCIT (TDS)-2(3), Mumbai, to file an appeal to the Appellate Tribunal, Mumbai against the order of No. ITBA/APL/S/250/2024-25/1072618951(1) dated 28.01.2025, in the above case on the following ground(s):

1. “On the facts and in the circumstances of the case and law, the Id. CIT(A) has erred in holding that the transaction of sale between the assessee company and stockiest was on principal to principal basis and therefore discount offered would not come under ambit of 194H, without appreciating the fact that the entire liability in goods had not been transferred to the stockiest and that the company had to still carry liability in terms of expired goods and quality of goods etc, and therefore the stockiest were working as agents of assessee company, to promote and effect sales on behalf of assessee.”

2. “On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in holding that bonus and incentive offered by the assessee company to stockiest were also in nature of discount and therefore not covered under Section 194H, without appreciating the fact that such bonus/incentive are offered subsequent to sales and therefore are essentially are offered subsequent to sales and therefore are essentially in nature of commission as envisaged u/s 194H.”

3. “On the facts and circumstances of the case and law, the Id. CIT(A) has erred in holding that provision of interest made was in nature of liquidation damages and therefore connected to sales or purchase without appreciating the fact that the assessee itself categorized this expenditure as interest and therefore the same is covered u/s 194A of the Act.”

3. The brief facts of the case is that a survey was conducted under section 133A(2A) at the assessee’s premises on 14/02/2017 for the purpose of verification of compliance of provisions of Chapter XVIIB of the Act. During the survey, the discrepancies were found and accordingly, the assessee’s case was taken for scrutiny. After the scrutiny, finally the Assessing Officer a tax liability of Rs.53,60,41,868/- was determined, being tax of Rs.28,11,99,937/- under section 201(1) and interest of Rs.25,48,41,931/- under section 201(1A) in an order passed section 201(1) and interest under section 201(1A) totalling was determined. The aggrieved assessee filed an appeal before the CIT(A). The Ld.CIT(A) partly allowed the appeal by holding that the assessee will not be treated as liable to pay any interest on non-deduction of TDS as there is no liability in the first place to deduct TDS for the assessment year under consideration. Being aggrieved on the appeal order, the revenue filed an appeal before us.

4. We heard the rival submissions and considered the documents available on the record. Both the issues agitated before us are related to violation of section 194H and 194A duly considered by the Ld.CIT(A) in the impugned appeal order at paragraphs 4.5 to 4.7, which are extracted below:-

“4.5 Therefore, the Appellant submitted that since, there is no change change in the facts and the law, the Rule of Consistency should be followed and the proceedings initiated to review the TDS applicability on discount offered to stockiest, payment of bonus and interest on delayed payment to MSMEs should be dropped.

4.6 I have gone through the order of the AO, the Statement of Facts and the submission made by the appellant. It is an undisputed fact that the impugned issue is already decided by the Hon’ble ITAT, Mumbai and the Ld. CIT(A) in favour of the appellant for the AYs 2010-11 to 2015-16. The Ld. AO had also mentioned in his assessment order for the AY 2016-17 in Para 3.2 that “the assessee has also contended that ITAT vide order dated 11.12.2020 and CIT(A) vide order dated 29.09.2018 has decided the issue in favour of the assessee for AY 2010-11. Further, the assessee also submitted that the issue has been decided in its favour by the Ld. CIT(A) for AY 2011-12, AY 2012-13, AY 2013-14 and AY 2014-15.”

4.7 Hence, respectfully following the decision of Hon’ble ITAT and the Ld. CIT(A) for AY 2010-11 to 2015-16, the Grounds of appeal No. I to V of the appellant are hereby ALLOWED.”

5. In argument, the Ld.AR stated that the same issue was already dealt with by the Tribunal in assessee’s own case for A.Ys 2010-11 to 2015-16, the details of the orders are as below:-

6. The Ld.DR fully relied on the order of the Ld.AO, but he was unable to bring on record any contrary judgement against the submission of the Ld.AR.

7. In our considered view, we find that the issue related to the discount pad to stockists and interest on delayed payment to MSMEs are squarely covered by the orders of the co-ordinate benches of Tribunal. The facts are identical and the rule of consistency should be followed and respectfully following the orders of the Tribunal for the preceding assessment years, we have the same view and accordingly, the addition made by the Ld.AO is duly deleted. As a consequence, the grounds taken by the revenue are dismissed.

8. In the result, the appeal of the revenue bearing ITA No.1821/Mum/2025 is dismissed.

Order pronounced in the open court on 08^th day of May, 2025.