2016 (5) TMI 61 - AT - Income Tax

Addition u/s 40A(2)(a) - disallowance of trade discount allowed by the assessee to its sister concerns - whether trade discount is not an expenditure as discount was not made in sale bill but only in the way of book adjustment - Held that - The issue has been elaborately considered by the Commissioner of Income-tax (Appeals) with reference to the findings of the Assessing Officer and the submissions of the assessee and following the various High Court decisions including the decision of the jurisdictional High Court in the case of CIT v. A. K. Subbaraya Chetty and Sons 1979 (10) TMI 60 - MADRAS High Court held that discount allowed to sister concerns were not unreasonable and cannot be excessive having regard to the market rate. The Commissioner of Income-tax (Appeals) also held that the Assessing Officer was in error in disallowing the trade discount under section40A(2)(a) since trade discount allowed to sister concerns cannot be considered as an item of expenditure incurred by the assessee - Decided in favour of assessee Depreciation on windmills - AO while completing the assessment restricted the depreciation on windmill to 7.69 per cent. as against the claim of the assessee at 80 per cent. holding that the assessee has not exercised option for claiming higher depreciation - Held that - Going through the decision of jurisdictional High Court in the case of CIT v. ABT Ltd. 2014 (10) TMI 788 - MADRAS HIGH COURT we find that the issue is squarely covered in favour of the assessee as the hon ble High Court held that if the assessee exercised option in terms of second proviso to rule 5(1A) of the Income-tax Rules at the time of furnishing of return of income, it will suffice no further letter of request or intimation with regard to exercise of option is required. Since the returns were filed in accordance with section 139(1) of the Act and the form prescribed therein make a provision for exercising option in respect of the claim of depreciation, no separate procedure is required. In the case on hand before us, the assessee has claimed higher depreciation in the return filed under section 139(1) of the Act claiming higher depreciation at 80 per cent. on windmill which amounts to exercise of option for higher claim. Thus, respectfully following the said decision of the jurisdictional High Court, we uphold the order of the Commissioner of Income-tax (Appeals) on this issue and reject the grounds raised by the Revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Applicability of section 40A(2)(a) to trade discounts.
3. Entitlement to higher depreciation on windmills.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue's appeal was delayed by 133 days. The delay was attributed to the transfer of jurisdiction and administrative lapses. The Revenue explained that the appellate order was initially received by the Commissioner of Income-tax, Puducherry, and subsequently transferred to the Commissioner of Income-tax, Central-1, who received it on November 3, 2014. The appeal was filed on February 4, 2015, resulting in a delay. The Tribunal found the reasons for the delay to be reasonable and not intentional. The counsel for the assessee did not object to the condonation. Therefore, in the interest of justice, the delay was condoned, and the appeal was admitted for hearing.

2. Applicability of Section 40A(2)(a) to Trade Discounts:
The first issue was whether section 40A(2)(a) applied to trade discounts. The assessee, engaged in manufacturing detergent products, allowed trade discounts to its sister concerns, which the Assessing Officer disallowed, citing profit shifting. The Commissioner of Income-tax (Appeals) held that trade discounts are not expenditures and thus not covered under section 40A(2)(a). This was supported by the jurisdictional High Court's decision in CIT v. A. K. Subbaraya Chetty and Sons [1980] 123 ITR 592 (Mad), which stated that trade discounts allowed by book adjustment do not constitute expenditure. The Tribunal upheld this view, noting that the trade discounts were not unreasonable or excessive compared to market rates. The Tribunal also referenced similar decisions from the Delhi High Court and the Madhya Pradesh High Court, reinforcing that trade discounts are not expenditures under section 40A(2)(a). Consequently, the Tribunal dismissed the Revenue's grounds on this issue.

3. Entitlement to Higher Depreciation on Windmills:
The second issue involved the assessee's claim for higher depreciation (80%) on windmills. The Assessing Officer restricted depreciation to 7.69%, arguing that the assessee had not exercised the option for higher depreciation. The assessee contended that it had already opted for higher depreciation in previous years, and no fresh option was needed for new windmills. The Commissioner of Income-tax (Appeals) supported the assessee's claim, referencing a similar decision in another case. The Tribunal referred to the jurisdictional High Court's ruling in CIT v. ABT Ltd. [2015] 370 ITR 159 (Mad), which held that claiming higher depreciation in the return of income suffices as exercising the option. The Tribunal found that the assessee had claimed higher depreciation in its return, fulfilling the requirement. Thus, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s order and rejected the Revenue's grounds on this issue.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the Commissioner of Income-tax (Appeals)'s decisions on both issues. The order was pronounced on September 16, 2015.