TMI Blog2009 (8) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... plicability of Section 40-A(2)(b). - 356/2009 - - - Dated:- 25-8-2009 - A. K. SIKRI and VALMIKI J. MEHTA, JJ. Dr. Rakesh Gupta, Mr. Tarun Kumar, Mr. B.B. Bhagat, Advocates for the Appellant. Ms. Prem Lata Bansal, Advocate, for the Respondent. JUDGMENT VALMIKI J. MEHTA, J. - By this appeal under Section 260-A of the Income Tax Act, 1961 the assessee challenges the orders of the Income Tax Appellate Tribunal dated 24.10.2008 whereby the Tribunal has reduced the Commission to be allowed for sale of the goods by the assessee to its sister concern from 8% as allowed by the CIT(A) to 5% and as against 11% claimed by the assessee and 3% allowed by the Assessing Officer. 2. The facts of the case are that the appellant is a partnership firm engaged in the business of export of rice. A return of income for the year 2004-2005 was filed on 01-11-2004 declaring a total income of Rs. 87,47,807/-. In the profit and loss account filed along with the return the assessee firm had debited an amount of Rs. 1,26,45,614/- on account of trading discount allowed during the year under consideration and which amount was mainly on account of the trade discount of Rs. 1,25,05,062/- al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The CIT accordingly held as under: "The above submissions of the appellant have been considered. It is seen that the AO did not give due credit or consideration to the arguments and submissions of the appellant which were statedly based on the requirement of business expediency. On the other hand it cannot be said that the AO was entirely incorrect in making the impugned addition. While analyzing the issue at hand it was seen that the g.p. rate of the appellant has gone up from 18.5% in the last year to 19.6% during the year under consideration. It is not a disputed fact that the sister concern has lifted goods aggregating to Rs. 11.11 crores from the appellant firm and, therefore, as per prevailing business norms it was imperative on the part of the appellant firm to offer a better discount to the sister concern. However, this offer of higher discount was not because the other party was a sister concern but because of the high quantum of purchases made by the sister concern from the appellant. In such circumstances a higher discount to the sister concern cannot be treated as unjustified. Besides the fact that the sister concern offered credit facilities to the appellant al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic customers. It is, however, pertinent to note here that the total sales of the assessee had increased marginally to Rs. 13.20 crores in the year under consideration as compared to Rs. 10.89 crores in the immediately preceding year as pointed out by the AO on page No. 9 of his order and as the discount at the rate of 3% only was allowed on such domestic sales made in the immediately preceding year to other parties, the increase in such discount to 11% as allowed by the assessee firm on domestic sales made to M/s. United Overseas appears to be quite excessive." The ITAT further gave no weightage to the issue of credit balance of M/s. United Overseas the sister concern in the book of the assessee firm and further held that the expenditure as claimed fell under Section 40A(2) inasmuch as expenditure in question on account of discount was separately claimed by the assessee and it was not a case wherein sale price was charged net of such discount. 6. The counsel for the appellant has principally urged before us the following contentions:- (i) On the principle of consistency discount at 11% ought to be sustained inasmuch as the same was allowed in the previous year; (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the facts and circumstances of the case, Tribunal erred in law in interpreting Section 40A(2) and holding it applicable to the appellant, when trade discount is not expenditure paid and in any case, when it was lesser sales realization." 9. We now answer the said questions in the light of the facts of the present case. 10. The ITAT has clearly erred and its findings cannot be said to be those of a reasonable person. The conclusions are clearly perverse and are liable to be set aside by this Court in exercise of its powers under Section 260-A. Firstly, it is quite clear that a trade discount of 11% was allowed in the assessment year 2003-2004 and that too when the sales to the sister concern was Rs. 2.09 crores as compared to Rs.8.30 crores made to others. More so, when in the present assessment year the sale to the sister concern was 11.11 crores and to others it was Rs.2.09 crores, thus clearly justifying the trade discount at 11% which ought to be maintained as per the earlier year. Secondly, it is not unknown in trade circle to give bulk discount for bulk sales. The very fact that out of the total domestic sales of 13.20 crores, the sales to the sister concern is R ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
