The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the Assessing Officer (AO) providing to treat the discount charges on prepaid SIM Card as not allowable in terms of Section 40(a)(ia) of the Income Tax Act, 1961 is not allowable since no tax was deducted on the said transaction.
The Revenue appealed against the Order of Commissioner of Income Tax (Appeals) [CIT(A)] before the tribunal on the grounds that whether on the facts and in the circumstances of the case and in law, the CIT(A) is right in deleting the addition made on account of disallowance under Section 40(a)(ia) of the Income Tax Actamount to Rs.40,71,40,308/-.
The bench observed that the case of the assessee is that its relationship with the distributors is that of Principal to Principal.Accordingly, no tax would be deductible on the said discount charges. The case of the Revenue is that relationship between the assessee and its distributors would be that of Principal and the Agent.
Further, the difference between the maximum retail price and discounted price i.e., Rs.30/- in the aforesaid example (100-70), in the opinion of the Department, amounts to commission warranting deduction of tax at source in terms of section 194H of the Income Tax Act.
Since, no tax was deducted on the said transaction, the AO provided to treat the discount charges on prepaid SIM Card as not allowable in terms of section 40(a)(ia) of the Act. The CIT(A) followed the decision of various High Courts on the issue and deleted the disallowance.
The two-member bench consisting of Anubhav Sharma (Judicial member) and M. Balaganesh (Accountant member) upheld the order of CIT(A) as the issue was covered in assessee’s own case by the decision of the Tribunal in assessment year 2015-16.
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