Case Law Details
Nokia India Pvt. Ltd Vs ACIT (ITAT Delhi)
It was noted by the AO that assessee had offered trade incentives to the distributors amounting to Rs.191,75,43,450/-which included Rs.130,38,78,222/- offered to HCL Infosystems Ltd. The assessee was asked to show-cause as to why the amounts not be disallowed u/s 40(a)(ia) on account of non-deduction tax at source. Assessee made the detailed submissions inter alia contending that the provision of section 194H, 194C, 194J were not applicable to the case because the payment was not for any contractor of services or work, there was no relationship of agency. The submissions of the assessee were not found acceptable to AO. AO thereafter, for the reasons stated in the order held that the expenditure of Rs.130,38,78,222/- was liable to tax and the provision of section 40(a)(ia) got attracted. Since assessee had failed to TDS on the expenditure, the amount was liable for disallowance u/s 40(a)(ia). He accordingly disallowed Rs.130,37,78,222/-. As far as the payment to HCL Infosystems Ltd. is concerned, AO held that the amounts paid were in the nature of commission and therefore the assessee was liable to deduct tax u/s 194H of the Act. Since assessee had not deducted TDS on the payment made to HCL Infosystem Ltd., provision of section 40(a)(ia) were attracted and he accordingly, disallowed the amount of Rs.61,36,65,228/-.
The issue in the present ground is with respect to disallowance u/s 40(a)(ia) of the Act on account of non-deduction of TDS. We find identical issue arose before the Co-ordinate Bench of Tribunal in assessee’s own case in A.Y. 2010-11 and the same was decided by the co-ordinate Bench of tribunal by observing as under:
“We have heard both the parties and perused all the relevant material available on record. It can be seen from Clause 2, 7, 8, 9, 14 and 19 of the “Agreement for the Supply of Cellular Mobile Phones” between HCL and the assessee that relationship between the assessee and HCL is that of principal to principal and not that of principal to agent. The discount which was offered to distributors is given for promotion of sales. This element cannot be treated as commission. There is absence of a principal-agent relationship and benefit extended to distributors cannot be treated as commission under Section 194H of the Act. As regards to applicability of Section 194J of the Act, the Assessing Officer has not given any reasoning or finding to the extent that there is payment for technical service liable for withholding under Section 194J. Marketing activities have been undertaken by HCL on its own. Merely making an addition under Section 194J without the actual basis for the same on part of the Assessing Officer is not just and proper. The Ld. DR’s contention that discounts were given by way of debit notes and the same were not adjusted or mentioned in the invoice generated upon original sales made by the assessee, does not seem tenable after going through the invoice and the debit notes. In fact, there is clear mentioned about the discount for sales promotion. Thus, on both the account the addition made by the Assessing Officer does not sustain. Ground No. 2 is allowed.”
We therefore, following the order of the Co-ordinate Bench for A.Y. 2010-11 and for similar reasons hold that the disallowance u/s 40(a)(ia) of the Act was not warranted in the present case.
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