The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in a case involving the disallowance of discounts or rebates to holding company, directed the Assessing Officer (AO) to examine the transactions in light of agreements/MOUs before coming to any conclusion.
The appellant-company Bureau Veritas Consumer Products Services (India) Private Limited (BVCPS) is a wholly-owned subsidiary of Bureau Veritas SA; France and was incorporated in India in April 2003. BVCPS provides testing, inspection, and audit services to clients for a full range of consumer products/soft lines/textiles, toys and juvenile products, hardlines/hard goods, and household products throughout the supply chain.
The Assessing Officer held that the assessee has not been in a position to justify the payment of discount to the holding company in place of repayment of the same to customer on its own. According to the Assessing Officer, in common parlance, a discount is given by the service provider to a customer against agreed charges to promote business and obtain repeated orders. He further disallowed the entire claim, as, according to him, expenditure is not wholly and exclusively for business purposes and a device to transfer the profit to the holding company.
On second appeal, the Tribunal found that as per the agreement/MOUs, BV overseas entities entered into MSA with overseas customers for the provision of testing and inspection services. Simultaneously, BV overseas entities enter into aMOU with the appellant, instructing them to provide testing and inspection services to the overseas customers/agents/ affiliates/ supplier. The assessee provides services as required, from time to time and BV overseas entities computes the global sale of services made to the overseas customers and accordingly computed the volume discount payable to them. Such discount percentage is allocated amongst the affiliates of BV overseas entities which also included the assessee company based upon their proportionate sales vis-à-vis global sale and such discounts are recovered from its affiliates which also included the assessee company and finally, the rebate is passed upon to third party vendor.
Noting that the agreements/MOUs were before the lower authorities and the Assessing Officer has demonstrated that these are not sham transactions, the Tribunal observed that the Assessing Officer should have examined the transactions in light of agreements/MOUs and related documentary evidence before coming to any conclusion.
The assessee is directed to demonstrate that discounts/rebates have ultimately been passed on to customers and the Assessing Officer is directed to verify the same in light of Agreements/MOUs.
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