TMI Blog2015 (3) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... k accounts then why the appellant did not pay them in cheques the discount instead of paying in cash. The contention of the Id. AR that cash discounts are offered to the customers to avail full bank loan and to facilitate margin money also do not hold much water because the question of margin money arises before the loan sanctioned and it should have been in the account of the loanee. Further, the appellant should have given in cheques before the loan was obtained by the customers as it happens in normal cases. This obviously raised serious doubt about the genuineness of the discounts given in cash by the appellant. The appellant also had not brought any plausible explanation as to why other than cash discounts are not offered to the customers which are normal practice in this type of trade. The aforesaid finding of ld.CIT(A) is not controverted by the assessee. The contention of the assessee is that such trade discounts are allowable and is prevalent in the similar line of business. During the course of hearing, a query was raised as to how come the payment of discount to the purchasers of the tractors was made in installments and even before or after the tractor has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly effective ground in this appeal is against the confirmation of disallowance of trade discount expenses amounting to ₹ 49,90,640/-. 3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was framed vide order dated 04/12/2009, thereby the Assessing Officer (AO in short) made disallowance of trade discount expenses of ₹ 49,90,640/-, disallowance of office expense of ₹ 5,571/- and disallowance of repair maintenance expense of ₹ 7,236/-. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions, partly allowed the appeal. While allowing the appeal, the ld.CIT(A) confirmed the addition made on account of trade discount expenses and other disallowances amounting to ₹ 5,571/- and ₹ 7,236/- were deleted. 4. The ld.counsel for the assessee reiterated the submissions as were made in the written submissions. He submitted that the authorities below have failed to take note of the fact that such trade discount expenses are allowable expenses. 4.1. On the contrary, ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the trade incentive under the sales promotion programme has been given on catalogue price of tractors, to the purchasers of tractors only on prompt payment received through Demand Drafts from the purchasers. Thus, the trade discount is in the nature of early payment discount. Unfortunately, both the lower authorities have failed to understand in the right perspectives that in this line of business i.e. dealership in tractors and other vehicles, in the market, the keen competition is prevailing on account of introduction of numbers of Companies of Tractors of various makes increased and therefore, for the survival of the business in such cut-throat competition in the open market, the appellant firm has to allow trade discount on sales of tractors but the said transaction of trade discount has been disbelieved by both the lower authorities capriciously, arbitrarily, merely on suspicion and doubt, in spite of all the details of trade discount on sales of tractors has been furnished. More particularly, the appellant firm has furnished on their records the complete names, addresses and identity proofs with the confirmations and affidavits of the purchasers, date of demand draft rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customers to their Bank for loan purposes and only after depositing the Demand Draft on sale of tractors, the appellant firm has given the trade discount in cash to all the customers at the prevailing rate of trade discount in the open market. Merely because the trade discount has been given in cash to the various customers, the learned AO disallowed the same purely on suspicion and doubts even though; the appellant has furnished before him the confirmation letters of such customers duly confirming of receiving trade discount in cash so as to meet the requirement of margin money on tractor banks loan taken by them. (4) Your honours, it is the settled law position that the trade discount on sales is not an expenditure at all. It is not rightly disputed by both the lower authorities that it the claim of trade discount on sale of tractors but treating the same as an in genuine expenditure, the same has been added to the income completely under misconception and misappreciation of the facts of the case. Merely because, the appellant firm has shown separately in the Debit side of Trading A/c, the amount of ₹ 49,90,640/- as trade discount, it could not be termed as an expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your honours that the books of accounts are the audited books of accounts and nowhere in the audit report, the independent auditor has pointed out any discrepancy/defect as to the genuineness of trade discount given to the customers at the time of sales of tractors. Not only that, the learned AO has not pointed out any defect or discrepancy so far as claim of trade discount during the verification of the audited books of accounts and other relevant records containing the entries passed for the trade discount at the sale of tractors. Kindly see pages 21 of 28 of appeal papers being the ledger of trade discount given to the various customers at the time sales with detailed explanations given to both the lower authorities. Unfortunately, the trade discount has been disbelieved on the another allegation of mismatch of trade discount in ledger account and so called cash book. As a matter of fact, during the course of assessment proceedings, all the ledger and cash and bank book, purchase and sales register and other relevant records were produced, demonstrating the customer wise tally of trade discount on sales. The learned AO has also asserted that the total trade discount tallies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistently in as much as the gross sales of goods and trade discount has been shown separately in Trading A/c, which has been accepted by the department in the earlier as well in the subsequent years. Kindly see pages 50 to 66 being the ITRs and computation of income from the AssttYear; 2006-07 to 2009-10 as well as regular assessment order u/s 143(3) of the Act for the AssttYear; 2009-10 passed by the same ITO rightly accepting the same method of accounting for followed consistently showing trade discount separately in the Trading A/c of the year. Alternatively, the sales/turnover for the relevant year would be shown net off trade discount i.e. ₹ 3,72,74,099 - 49,90,640/- = 3,22,83,549/- which would certainly not affect the G.P. ratio nor the N.P. ratio nor it would be the case of incorrect or incomplete books of accounts to deduce the correct income of the year under appeal. Your honour will certainly appreciate the contention that when the accounting system adopted by the appellant is not contrary to the prescribed accounting standards then the revenue authorities has no lawful reason to disallow the claim of trade discount for which, the detailed explanations with evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records of the appellant firm and much less, the normal Gross Profit margin prevailing in this line of business as dealers in tractors. It is further enlightened here that the purchases and sales as recorded in the audited books of accounts supported by the invoices/bills are duly accepted by the sales tax authorities under the Gujarat VAT Act, 2005. Considering the facts and circumstances and legal position involved in the appeal, I have, to request your honour to allow the appeal fully and oblige. Thanking you in anticipation and hoping to be excused for the trouble. I remain, Sir, Yours faithfully, Sd/- (M.S. Modi) Authorized Representative 5.1. There is no dispute with regard to the fact that the trade discount as given by a business-man is allowable expenditure. However, for claiming such expenditure the onus is upon the assessee to prove the expenditure has in fact been incurred. We find that the AO has given a finding that in the case of one Shri Manojbhai C. Shah, the sale was effected on 20/03/2007, however, the payment of so-called trade discount is made on 25/03/2007, 26/03/2007, 27/03/2007, 28/03/2007, 29/03/2007 30/03/2007 and all payments be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ledger account of trade discount given and the confirmation letters filed by the customers for having received the cash discount. The details of cash discount given by the appellant along with the date of sale of the tractors to the customers are given below: Sr.No. Name of the Purchaser Cost of tractor date of purchase Discount paid in cash Dates between discount paid 1. Rameshbhai Babarbhai Patel 504000/- 60000/- 29.4.2006 to 15.05.2006 2. Gamanbhai Maganbhai Choudhary 593000/-26.04.2006 75000/- 30/04/06 to 10.05.06 3. Janyantibhai Sakkarbhai Deshmuck 593000/- 10.05.2006 70500/- 12.05.06 to 21.05.06 4. Naginbhai Limjibhai Garasia 593000/-13.05.2006 68560/- 15.05.06 to 25.05.06 5. Dansubhai toRamubhai Gamit 593000/- 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70300/- 26.08.06 to 08.09.06 21. Zinabhai Naranbhai Patel 599640/- 60000/- 28.08.06 to 05.09.06 22. Ashokbhai Chhaganbhai Patel 602760/- 23.08.06 75000/- 29.08.06 to 10.09.06 23. Dhanibhai Devjibhai Choudhary 602760/- 18.08.06 70300/- 10.09.06 to 21.09.06 24. Kantobhai Jimlabhai Patel 543400/- 18.08.06 75400/- 12.09.06 to 28.09.06 25. Gamanbhai Maganbhai Choudhary 603520/- 25.08.06 60200/- 15.09.06 to 25.09.06 From the above table, it is crystal clear that the so called cash discount given to the customers were much after the sales were affected apart from in a couple of cases, a normal practice, discounts are offered to the customers by way of accessories and services. It is also fact that in few cases discounts are given in cash f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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