2011 (4) TMI 1512 - AT - Income Tax

Summary

Issues involved: Appeal against orders related to disallowance of discount/rebate and penalty for assessment year 2002-03.

Dispute over disallowance of discount/rebate:
The assessee, a company engaged in exporting engineering goods, claimed deduction under u/s 80HHC of the Income Tax Act, 1961. The Assessing Officer disallowed a payment of Rs. 2,50,563, considering it a kick-back rather than a legitimate business expense. The assessee contended that the payment was a discount/rebate to the buyer and was a normal business expenditure. The Tribunal found that the payment was contractual and not illicit, distinguishing it from a similar case involving the “Food for Oil” program. As the payment was returned to the buyer, the disallowance was overturned, and the appeal was partly allowed.

Penalty imposition challenge:
The penalty imposed under section 271(1)(c) was based on the disallowance, which was subsequently overturned. Therefore, the Tribunal quashed the penalty, leading to the allowance of the appeal.

Conclusion:
The Tribunal allowed the appeal against the disallowance of discount/rebate and the consequent penalty imposition, emphasizing the contractual nature of the payment and the lack of evidence supporting it being illicit. The orders dated 15th January 2009 and 23rd July 2009 were set aside, and the appeals were partly and fully allowed, respectively.