2015 (10) TMI 581 - AT - Income Tax

Addition on account of discount charges made by A.O. - CIT(A) deleted the addition - Held that - The issue of discounting charges have been extensively deliberated upon by the Tribunal in the group cases and it had dismissed the appeals filed by the AO.s for the AY.1997-98 stating Assessing Officer simply repeated the assessment and first appellate authority s order without discussing anything new about the matter on which the Tribunal gave direction.He simply noticed that the assessee did not produce any additional evidence to co-relate the financing charges with the business expenditure.As against that, the learned AR invited our attention towards various details furnished before the Assessing Officer during the course of such fresh proceedings. First letter of the assessee in the fresh proceedings is dated 05.09.2006 by which it furnished Fund flow statement, Balance sheet and profit and loss account for the year in question and for the earlier year,details of discount charges paid,statement of account, parties in support of receipt payment of discounting charges, copies of account of parties tracing the original funds, user of funds and repayment of charges with discounting charges etc. Another letter was filed before the Assessing Officer on 24.11.2006 producing complete books of account, details of finance charges paid with bifurcation of parties and rate of interest and a copy of assessment order passed by the A.O. for the preceding year in which similar deduction was allowed.The present assessment order was passed by the AO on 18.12.2006 after filing of the above referred documents by the assessee.It is surprising that the Assessing Officer did not make a whisper, in the assessment order of such details having been filed by the assessee What to talk of adversely commenting ,the A.0.even did not bother to incorporate or discuss such facts in the assessment order. This fact has been elaborately considered by the learned CIT(A), the discussion on which has been made in par as 1.10 to 1.14 of the impugned order. On the appreciation of the entire material /evidence placed by the assessee before the A.O. in the fresh round of proceedings,the learned CIT(A) has recorded a categorical finding that these expenses were incurred during the course of business. Apart from relying on the assessment order, the learned Departmental Representative could not controvert the findings given by the learned CIT(A)in support of the grant of deduction. We, therefore, uphold the impugned order in deleting the said addition - Decided against revenue.

Summary

Issues:
1. Disallowance of discount charges by Assessing Officer.
2. Failure to produce bills of discounting/finance charges.
3. Applicability of discounting charges as a deduction under section 36(1)(iii) of the Act.

Issue 1: Disallowance of discount charges by Assessing Officer:
The assessee firm, engaged in trading and investment in shares, filed its return of income declaring a total income of (-)1,33,47,190/-. The Assessing Officer disallowed the claim of interest expense of Rs. 1.32 crores. The matter reached the Tribunal, which directed the AO to re-examine the issue in line with consistency principles or similar cases. Despite this, the AO disallowed the discounting charges of Rs. 1.32 crores. The First Appellate Authority (FAA) allowed the appeal filed by the assessee, stating that the issue was similar to a group concern case where the disallowance was deleted. The Tribunal upheld the FAA's decision based on the identical facts of the case and the previous judgment.

Issue 2: Failure to produce bills of discounting/finance charges:
The AO contended that the assessee failed to produce copies of bills of discounting/finance charges during the assessment. However, the FAA considered the submissions of the assessee, noting that all transactions were routed through banking channels and necessary documentary evidence was produced in support of the claim. The FAA found the issue to be identical to a previous case where the disallowance was deleted, leading to the allowance of the appeal.

Issue 3: Applicability of discounting charges as a deduction under section 36(1)(iii) of the Act:
The Authorized Representative (AR) argued that in similar cases, the Tribunal had decided in favor of the assessees. The Tribunal reviewed the extensive deliberation on discounting charges in group cases and cited a specific case where the disallowance was deleted. The Tribunal highlighted the detailed evidence provided by the assessee to support the deduction claim, emphasizing that the expenses were incurred during the course of business. As the facts of the case were identical to the previous judgment, the Tribunal upheld the FAA's decision to allow the deduction of discounting charges under section 36(1)(iii) of the Act.

In conclusion, the Tribunal dismissed the appeal filed by the Assessing Officer, upholding the FAA's decision to allow the deduction of discount charges based on the evidence provided and the consistency with previous judgments in similar cases.