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2016 (5) TMI 61 - ITAT CHENNAI

2016 (5) TMI 61 - ITAT CHENNAI - [2016] 45 ITR (Trib) 250 - Addition u/s 40A(2)(a) - disallowance of trade discount allowed by the assessee to its sister concerns - whether trade discount is not an expenditure as discount was not made in sale bill but only in the way of book adjustment - Held that:- The issue has been elaborately considered by the Commissioner of Income-tax (Appeals) with reference to the findings of the Assessing Officer and the submissions of the assessee and following the var .....

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nnot be considered as an item of expenditure incurred by the assessee - Decided in favour of assessee

Depreciation on windmills - AO while completing the assessment restricted the depreciation on windmill to 7.69 per cent. as against the claim of the assessee at 80 per cent. holding that the assessee has not exercised option for claiming higher depreciation - Held that:- Going through the decision of jurisdictional High Court in the case of CIT v. ABT Ltd. [2014 (10) TMI 788 - MADRAS .....

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cising option in respect of the claim of depreciation, no separate procedure is required. In the case on hand before us, the assessee has claimed higher depreciation in the return filed under section 139(1) of the Act claiming higher depreciation at 80 per cent. on windmill which amounts to exercise of option for higher claim. Thus, respectfully following the said decision of the jurisdictional High Court, we uphold the order of the Commissioner of Income-tax (Appeals) on this issue and reject t .....

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Revenue is barred by 133 days. The Revenue filed an affidavit explaining reasons for the delay as under : "The order of the Commissioner of Income-tax (Appeals)-VI, Chennai in I. T. A. No. 766/13-14 dated July 17, 2014 for the assessment year 2010-11 in the above case was originally received in the Office of Commissioner of Income-tax, Puducherry on July 26, 2014 and forwarded to the Office of Deputy Commissioner of Income-tax, Company Circle-V(2), Chennai on September 23, 2014 by the Deput .....

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y report, the Office of Commissioner of Income-tax, Central-1 requisitioned and obtained the order of the Commissioner of Income-tax (Appeals) on November 3, 2014 (copy enclosed). Since the Commissioner of Income-tax, Central-1 who was having jurisdiction over the case, received the appellate order on November 3, 2014, the same date was mentioned in the certificate under rule 15. However, inasmuch as the Commissioner of Income- tax, Puducherry, has received the appellate order on July 26, 2014, .....

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als)-VI to the Office of Commissioner of Income-tax, Puducherry, who was holding jurisdiction at the time of institution of the appeal before the Commissioner of Income-tax (Appeals). Later the case was centralised and the Commissioner of Income-tax, Central-1 became the jurisdictional Commissioner of Income-tax. And since the Commissioner of Income-tax, Central-1 received the order of Commissioner of Income-tax (Appeals)-VI only on November 3, 2014, the limitation date for filing appeal was rec .....

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, Central Circle 1(2) as the charge of Central Circle-IV(2) merged with Central Circle-1(2).' 3. The delay was neither wilful nor intentional, but for the reasons aforesaid. 4. It is therefore prayed that this hon'ble Income-tax Appellate Tribunal may be pleased to condone the delay in filing the tax case appeal and thus render justice." 3. We have perused the reasons and are satisfied that there is a reasonable cause for the delay in filing of the appeal. Counsel for the assessee h .....

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s of manufacturing of detergent cakes, detergent powder and toilet soap and other chemicals. The assessee filed its return of income on October 15, 2009 admitting total income of ₹ 18,23,79,520 which was revised on January 13, 2011 admitting income of ₹ 12,87,49,070 after claiming deduction under section 80-IA of the Act. Assessment was completed under section 143(3) of the Act on March 25, 2013 determining the income of the assessee at ₹ 18,11,97,350. While completing the asse .....

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tion under section 40A(2) of the Act. On appeal, the Commissioner of Income-tax (Appeals) following various decisions of the High Court including the jurisdictional High Court in the case of CIT v. A. K. Subbaraya Chetty and Sons [1980] 123 ITR 592 (Mad) held that the Assessing Officer was clearly in error in disallowing trade discount under section 40A(2)(a) of the Act since trade discount allowed to sister concerns cannot be considered as an item of expenditure incurred by the assessee. 6. The .....

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se of CIT v. A. K. Subbaraya Chetty and Sons [1980] 123 ITR 592 (Mad) and submits that the provisions of section 40A(2)(a) have no application to the facts of the assessee's case as trade discount allowed by the assessee is not an expenditure for disallowance within the scope of section 40A(2)(a) of the Act. 8. Heard both sides. Perused orders of the lower authorities and the decision relied on. The Assessing Officer while completing the assessment disallowed trade discount allowed by the as .....

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isions including the decision of the jurisdictional High Court in the case of CIT v. A. K. Subbaraya Chetty and Sons [1980] 123 ITR 592 (Mad) held that discount allowed to sister concerns were not unreasonable and cannot be excessive having regard to the market rate. The Commissioner of Income-tax (Appeals) also held that the Assessing Officer was in error in disallowing the trade discount under section40A(2)(a) since trade discount allowed to sister concerns cannot be considered as an item of e .....

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Therefore, the appellant cannot be stated to have incurred any expenditure for which payment was made, so as to attract the provisions of section 40A(2)(a). The decision of the Madras High Court relied on by the learned authorised representative, namely, CIT v. A. K. Subbaraya Chetty and Sons [1980] 123 ITR 592 (Mad) clearly support the case of the appellant. Since the operative portion of this decision has already been reproduced in the earlier paragraph, the same is not repeated here. Very sam .....

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answered by the honourable court in paragraphs 12 and 13 of their order, which is reproduced below (page 555) : '12. Lastly, we fail to understand how the provisions of section 40A(2)(b) are, at all, applicable in the facts of the present case. Section 40A(2)(a) runs as under : "(2)(a). Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that .....

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assessee, i.e, an amount actually spent by the assessee as an expenditure. The expression used in this provision is "incurs any expenditure in respect of which payment has been or is to be made to any person" (emphasis supplied.) The emphasised words clearly show that actual payment must be made and there has to be an expenditure incurred before the provision can be said to be applicable. A trade discount, and admittedly it is not in dispute that the subject-matter of the claim is a t .....

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way of reducing the discount allowed from the sale amount. Hence, it is a case of less realisation of sale, rather than incurring any expenditure. Similar issue came up before the Madhya Pradesh High Court in CIT v. Udhoji Shrikrishnadas reported in [1983] 139 ITR 827 (MP). In this case the assessee appointed Lalchand Shyamsundar, as the sole selling agent for the beedis manufactured by the assessee. The firm was entitled to receive a commission of 10 per cent. on the sales. The Assessing Offic .....

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sessee was the commission. Even if the assessee sold bidis to the sole selling agents at a price less than the market rate, the difference between the market rate and the price at which the bidis were sold cannot, in our opinion, be termed as expenditure incurred by the assessee. On the finding reached by the Tribunal, it has to be held that the Income-tax Officer was not right, in adding ₹ 6,81,987 under section 40A(2).' Yet another case where the decision was on similar lines came be .....

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he expenditure as was considered by him as excessive or unreasonable was not to be allowed as deduction. We therefore have to consider whether there was any expenditure in this case. It was held by the Tribunal that the Assessing Officer made the addition solely on the ground that the assessee had charged less sale price from the sister concerns. The provisions of section 40A could not be invoked as no payment has been made to the sister concerns for any item of expenditure which the assessee mi .....

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o sister concerns at a lesser rate than non-sister concerns. 6.1.3 Respectfully following the decisions cited above, that the Assessing Officer clearly in error in disallowing the sum of ₹ 5,04,03,180 under section 40A(2)(a), since the trade discount allowed to its sister concerns cannot be considered as an item of expenditure incurred by the appellant, also no payment on the part of the appellant to the sister concern on this score to attract the provisions of section 40A(2)(a). The cases .....

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98.19 percentage of the total sales. Further even after allowing discount, the rate at which the goods were sold to sister concerns was more than the rate at which the sale was effected to others. Only in the case of M/s. Ultramarine and Pigments Ltd. the rate was slightly more. It is seen that, the purchaser was relatively new to the appellant and longer credit was allowed. It needs hardly any emphasis that bulk purchasers enjoy better bargaining power and therefore are able to get lower rate a .....

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ner of Income-tax (Appeals), we do not find any valid reason to interfere with his findings. The Revenue has not filed any evidence to rebut the findings of the Commissioner of Income-tax (Appeals), therefore we sustain the order of the Commissioner of Income-tax (Appeals) and dismiss the grounds raised by the Revenue on this issue. 10. The next ground of appeal of the Revenue is that the Commissioner of Income-tax (Appeals) erred in holding that the assessee opted to claim depreciation as per A .....

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igher depreciation. The assessee contended that it had already been opted to claim depreciation from the assessment year 2005-06 onwards for the windmill installed earlier. Hence, there is no need to exercise fresh option for the windmill installed in the previous year 2006-07. It was contended that once such option is exercised the assessee-company is deemed to continue in the same block of assets. However, the Assessing Officer restricted the depreciation at only 7.69 per cent. as against the .....

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