2016 (3) TMI 1229 - AT - Income Tax

Disallowance of discounts - Held that - Self contained code and allowability or non-allowability of any such expenditure are to be looked within the Act itself. There is no provision in the Act to disallow such discount. It is a matter on record that the Assessing Officer has not doubted the genuineness of these discounts. If there is any violation of such Rules, there may be consequential provision in the INS Rules itself, it is not for the Assessing Officer, acting as per the mandate of Income Tax Act, to disallow the said expenses. We also observe that in the same Rule of the INS, in the second part some consequential act in the case of contravention of the Rule has also been prescribed. With regard to learned CIT (Appeals) observation that the assessee is not supposed to give unnecessary discounts, we want to state that it is a businessman s prerogative to run his business the way he wants. The Income Tax Authorities cannot sit in the armchair of the businessman and guide him as to how much of expenditure he should incur. - Decided in favour of assessee. Adition on account of interest - Advances given to staff - business expediency - Held that - We find ourselves in agreement with the submission of learned counsel for the assessee that the advances given to staff are out of commercial expediency. Once a person is employed in a business, all his family needs are to be fulfilled from that business only and to retain the staff, business has to extend these kinds of facilities. In view of this the Assessing Officer is directed to delete the addition made on account of interest to these two persons.- Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of discounts given by the assessee.
2. Disallowance of interest amount.
3. Business expediency in giving advances to employees.

Issue 1: Disallowance of discounts given by the assessee:
The case involved the disallowance of discounts given by the assessee based on alleged violation of guidelines issued by the Indian Newspaper Society (INS). The Assessing Officer disallowed the discount claimed by the assessee, citing contravention of INS rules. However, the ITAT held that the Income Tax Act does not provide for disallowance solely based on non-compliance with such rules. The ITAT emphasized that the Act is self-contained, and the genuineness of discounts was not in question. The ITAT ruled that the Assessing Officer cannot disallow expenses based on violation of INS rules, directing the deletion of the disallowance.

Issue 2: Disallowance of interest amount:
The Assessing Officer disallowed an interest amount claimed by the assessee on loans given to employees, citing section 36(1)(iii) of the Income Tax Act. The ITAT noted that the loans were given to employees for family requirements, which the assessee argued was a business expediency. Relying on a Supreme Court judgment, the ITAT held that advances given to staff for personal needs out of commercial expediency are permissible. Consequently, the ITAT directed the Assessing Officer to delete the addition made on account of interest to the employees, partially allowing this ground of appeal.

Issue 3: Business expediency in giving advances to employees:
The ITAT addressed the issue of giving advances to employees for family requirements, emphasizing that such actions are considered business expediency. The ITAT ruled that to retain staff and fulfill their family needs, businesses may extend such facilities. Therefore, the ITAT directed the deletion of the addition made on account of interest to the employees, partially allowing this ground of appeal.

The ITAT, in its judgment, clarified the treatment of discounts and interest amounts under the Income Tax Act, emphasizing the importance of business expediency in certain financial transactions. The decision provided insights into the interpretation of rules and guidelines in tax assessments, highlighting the need for compliance with statutory provisions while considering the commercial realities faced by businesses.