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TMI Blog2018 (2) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... cross-appeals filed by assessee as well as Revenue, the facts and circumstances are identical therefore all these appeals were heard together and are being disposed off by way of this consolidated order for the sake of convenience. 3. First we take up Revenue's appeal in ITA No.2758/Kol/2013 for AY 09- 10 as lead case. The Revenue has raised the following grounds of appeal: 1. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in allowing the commission expenses amounting to Rs. 100,66,944/- as trade discount. 2. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in by deleting addition u/s 40(a)(ia) amounting to Rs. 100,66,944/- which was added back by AO as non-deduction of TDS on the commission payment u/s 194H. 3. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in restricting the disallowances on expenses of damage goods to 10% i.e. Rs. 872556/- instead of Rs. 8735561/- even though assessee did not produce any evidence or details neither during assessment proceeding nor before appellate authority. 4. That on the facts and circumstances of the case and as per law Ld. CIT(A) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these are not normal discount offered by the assessee but represents the amount of commission. v) The terms and condition between the assessee and its customers is of principal and agent. In view of the above, the AO was of the view that an amount of discount offered by the assessee is nothing but commission expenses which is liable for deduction of TDS u/s 194H of the Act. Besides the above the AO also observed that similar kind of disallowances was also made in the assessment year 2008-09. Thus, the AO made the disallowance of Rs. 1,00,66,944/- only and added to the total income of the assessee. 7. Aggrieved, the assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the contract of sale between the assessee and its customers / dealers is based on principal-to-principal basis. Therefore, the transaction between the assessee and its customers represents the sale purchase activities. Thus, the discount offered cannot be terms as commission u/s 194H of the Act. The assessee in support of his claim has also relied on the judgment of Hon'ble Supreme Court in the case of CIT vs. Ahmadabad Stamp Future Association reported in 348 ITR 378 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers specially when the sale is happening on a principal to principal basis. Hence, I am inclined to agree with the appellant and direct the AO to allow deduction claimed for cash/trade discount amounting to INR 54,95,000/- and INR 45,71,944/- respectively while computing the total taxable income and this ground of appeal is accordingly allowed." Being aggrieved by the Ld. CIT(A) the Revenue is in second appeal before us. 8. The Ld. DR before us vehemently supported the order of AO. Ld. DR prayed before the Bench to confirm the order of AO. On the other hand, the Ld. AR before us filed the paper book which is running from pages 1 to 56 and submitted that the assessee company has offered the aforesaid cash/trade discount to the customers for purchasing the products in bulk quantity. Thus, the discounts were offered by the assessee company as per the contract of sale between the assessee company and its customer was based on principal to principal basis. The aforesaid discounts were allowed as business expenditure under the provision of section 37 of the Act for all the assessment years except the assessment year 2008-09, where the AO has stated that offering discount on sale wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come within the head 'business income' and, therefore, following the principle of consistency, it was held that this would have to be for the assessment year 1993-94 as well. An appeal filed by the Revenue before the Income Tax Appellate Tribunal was dismissed on 1st October, 2004". The Ld. AR in support of its claim also filed the copy of dealership agreement on sample basis which are placed on record. The relevant clauses of the agreement are reproduced as under: "2. The relationship between EPCOS and the Dealer will be strictly on principal to principal basis 3. The Dealer will not be entitled to represent EPCOS in any manner or fashion as EPCOS Agent and shall have no right or authority to make any commitments of EPCOS's behalf or bind EPCOS in any respect and for any purpose whatsoever and to assign any benefits, rights or obligation herein to any other person(unless otherwise specified). 18.1. EPCOS shall sell the said Products to the Dealer at List Price ruling at the time of delivery less normal Trade Discount on such List Price which will be notified to the Dealer, from time to time. The List Prices are the maximum prices. The Dealer is, however, free to charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no application." There is no dispute that the discount was offered by the assessee to its dealers in relation to the sales made by it to them. Thus the provisions of section 194H does not apply to the impugned discount offered by the assessee. Thus, we do not find any reason to interfere in the order of ld. CIT(A). Hence the ground of appeal filed by the Revenue is dismissed. 9. Next issue raised by Revenue in Ground no. 3 is that the Ld. CIT(A) erred in restricting the disallowance of the expenses of damage to 10% i.e. from Rs. 87,35,561/- to Rs. 8,72,556/-. 10. The assessee, in the year under consideration has claimed the expenses of Rs. 87,35,561/- under the head damages. On question by the AO about the nature of details of such expenses the assessee failed to file the necessary details. Therefore the AO made the disallowance of Rs. 87,35,561/- and added to the total income of the assessee. 12. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that on many occasions the goods sold to the customers were rejected on account of low quality. These goods were either brought back to the factory for repairing or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count in relation to rejected goods are freight, customs duty, octroi, excise duty and sales tax paid on returned goods and cost of scrapping. It is also seen that no material evidence has been brought on record by the AO to suggest that any of the expenses claimed under this head has been incurred other than the purpose of the business of the appellant. Under this circumstances, I am of the view that the AO is not justified in disallowing the entire claim of expenses of Rs. 87,35,567/- under this head. In the light of the above, discussion/findings, perusing the entire facts of the case and nature of expenses, I am of the considered view that 10% of expenses claimed under this head can reasonably be treated as disallowable expenses not incurred for the purpose of the business of the appellant. Therefore, I restrict the disallowance to Rs. 8,72,556/- being 10% of the total claim as against Rs. 87,35,567/- made by the AO. Thus, this ground of appeal is partly allowed. " Being aggrieved by this order of Ld. CIT(A) both Revenue and assessee are in appeal before us. 13. The Revenue is in appeal before us against the relief granted by the Ld. CIT(A) to the tune of 90% of damages e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book. On the other hand, the Ld. DR submitted that the explanation was filed by the assessee at the time of assessment without filing the documentary evidences. The assessee failed to file the details of the sales made to the parties which were returned back. The Ld. DR vehemently supported the order of the AO. 15. We have heard the rival contentions and perused the material available on record. In the instant case, the assessee has incurred cost of Rs. 87,35,561/- under the head damages. As per the assessee, the goods which were returned back by the customers on account of low quality to the factory. The cost incurred on the repairs of such goods was classified as damages. The cost of damages was inclusive of freight custom duty, octroi, excise duty, sales tax etc. The cost incurred by the assessee is placed on pages 40 to 60 of the paper book. The Ld. AR also drew our attention on the sample documents in support of expenses incurred on damages which are placed on pages 46 to 60 of the paper book. After perusal of the papers filed by the assessee we note that these documents have not been doubted by the lower authorities. 16. Indeed the assessee has not produced details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under MAT: Assessment Year Amount(INR) 1997-98 File not traceable 1998-99 13,99,000 1999-2000 NIL 2000-2001 File not traceable 2001-02 18,18,000 2002-03 96,000 2003-04 NIL 2004-05 NIL 2005-06 NIL 2006-07 NIL 2007-08 19,70,000 2008-09 25,77,000 2009-10 14,86,000 TOTAL 93,46,000 In view of the above, the assessee submitted that the amount of provision return back during the year should be allowed as deduction as per clause (i) of explanation 1 to section 115JB of the Act. The Ld. CIT(A) after considering the submission of the assessee deleted the addition in part made by the AO by observing as under:- "DECISIONS: I have carefully considered the submission put forth on behalf of the appellant along with supporting documents/details furnished and perused the facts of the case including the contention of the AO in the assessment order. It is seen that while calculating the book profit under the provisions of section115JB of the Act, the appellant has claimed deduction of an amount of INR 1,16,27,000/- under the head 'provision for doubtful debts written back.' The in his order passed under section 143(3) of the Act had disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 19. The Ld. DR before us submitted that no details whatsoever were furnished by the assessee during the assessment proceedings. The details filed by the assessee before the Ld. CIT(A) were admitted in contravention to the provision of Rule 46A of the Income Tax Rules. Thus, the Ld. DR prayed before the Bench to restore the impugned issue to the file of AO for fresh adjudication in accordance with law. On the other hand, the Ld. AR raised no objection if the matter is remanded back to the file of AO for fresh adjudication. 20. We have heard the rival contentions and perused the material available on record. In the instant case, we note that the Ld. CIT(A) has admitted the fresh evidences in contravention to the provision of Rule 46A of Income tax Rules. We note that the necessary details of the provision created by the assessee in earlier years were not supplied by the assessee to the AO at the time of assessment proceedings. In view of the above, we are of the view that the issue of provisions for doubtful debts written back by the assessee for Rs. 1,16,27,000/- needs to be examined by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal of assessee and following the same analogy we also allow this ground of assessee's appeal.
29. In the result, both appeal of assessee is allowed.
Coming to Revenue's appeal in ITA No.1325/Kol/2014 for A.Y. 08-09.
30. Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in restricting the disallowance of R.1,06,86,737/- on account of expenses on damage goods.
31. It is relevant to observe here that the facts in ground No. 1 of this appeal are similar to the facts in ground No.3 in ITA No.2758/Kol/2013 for A.Y. 2009-10 and the findings given in ITA No.2758/Kol/2013 shall apply to this case also with equal force. Hence, this ground of Revenue's appeal is dismissed.
32. In the result, Revenue's appeal is dismissed.
33. To summarize:-
ITA No.
A.Y.
Appeal by
Result
2758/K/13
09-10
Revenue
partly allowed for statistical purpose
2553/K/13
09-10
assessee allowed
1895/K/14
10-11
Revenue
partly allowed for statistical purpose
1718/K/14
10-11
assessee
allowed
688/K/14
08-09
assessee
allowed
1325/K/14
08-09
Revenue
dismissed
Order pronounced in the open court 02/02/2018 X X X X Extracts X X X X X X X X Extracts X X X X
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