2017 (2) TMI 808 - AT - Income Tax

Disallowance of alleged refunds to customers - rate difference and discount allowed to the customers - Held that - CIT(A) has given a finding that the amount has actually been refunded and the list of such customers to whom the amount has been refunded is identifiable and the same has been verified by him along with documentary evidence. The said findings remain uncontroverted before us. In terms of quantum and nature of refund, the same depends upon various factors such as initial advance received from the customers, loan approved and credited to the customer account, value of sales recorded, various charges debited to the customer account and off course, the rate difference and discount allowed to the customers. The same will vary from customer to customer and from product to product sold by the assessee. In absence of a specific finding, it is difficult to generalise that in all cases, the refund has arisen only on account of discount offered to the customer as held by the AO. It is only in a particular situation where the cash advance alongwith loan amount equals the sales and other charges, it can be said that the balancing figure relates to discount offered to the customer. In light of above, we confirm the order of the ld CIT(A) and sustain the deletion of addition made by the AO. - Decided against revenue Disallowance of financial service charges - in the absence of actual third party expenditure vouchers from salesmen supporting their respective claims, disallowance of 20% of these expenses was held reasonable and disallowed by the ld CIT(A) for want of verification - Held that - The incurrence of expenditure for business purposes cannot be disputed. Secondly, one can debate about the basis of 20% disallowance and whether the same is reasonable or not. In this regard, we were informed by the ld AR that the Revenue has accepted the said position of 20% disallowance in subsequent years while completing the assessments u/s 143(3) for A.Y. 2011-12 & 2012-13. In light of that, where the facts and circumstances are same and the Revenue has accepted the said position in subsequent years, we don t feel it would be appropriate to unsettle the position. We accordingly confirm the order of the ld CIT(A).- Decided against revenue Addition on account of commission on sale of implements - Held that - The AO has made the subject addition towards earning commission income by the assessee without any material/evidence and is thus on a presumptive basis. Mere suspicion or probability of earning commission income cannot form the basis for bringing the amount to tax in the hands of the assessee. There has to be something positive and tangible to subsantiate the said position taken by the Revenue which unfortunately is not apparent in the present case. In light of above, we donot see any infirmity in the order of the ld CIT(A) which is hereby confirmed. - Decided against revenue

Summary

Issues Involved:

1. Deletion of addition on account of disallowance of alleged refunds to customers.
2. Deletion of addition on account of disallowance of financial service charges.
3. Deletion of addition on account of commission on sale of implements.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Alleged Refunds to Customers:

The Revenue challenged the deletion of an addition of ?21,83,749/- made by the Assessing Officer (AO) on account of disallowance of refunds to customers. The AO observed that the refunds, which included cash payments exceeding ?20,000/- totaling ?5,39,360/-, violated Section 40A(3) of the IT Act, 1961, and lacked verifiable evidence. The AO disallowed the total refund amount, treating it as expenditure from discounts and rebates without proper documentation.

The CIT(A) found that the refunds were based on ledger accounts and that the AO did not find any discrepancies in these accounts. The CIT(A) noted that the refunds were made mostly to farmers who might not have bank accounts, and the practice had been consistent over the years without prior disallowance. The CIT(A) concluded that Section 40A(3) was not applicable as the refunds were not expenditure claims but returns of excess money received.

The Tribunal upheld the CIT(A)’s findings, confirming that the refunds were genuine and supported by ledger accounts and documentary evidence. The Tribunal dismissed the Revenue’s ground, sustaining the deletion of the addition.

2. Deletion of Addition on Account of Disallowance of Financial Service Charges:

The AO disallowed ?18,82,000/- claimed by the assessee as financial service charges, citing lack of supporting vouchers and arbitrary deductions. The AO argued that the expenses were not uniformly charged and lacked evidence of genuineness.

The CIT(A) acknowledged that the expenses were reimbursements to salesmen for promoting sales in remote areas. Despite the absence of third-party expenditure vouchers, the CIT(A) allowed the expenses, confirming a 20% disallowance for verification purposes.

The Tribunal agreed with the CIT(A), noting that the expenses were for business purposes and that the Revenue had accepted the 20% disallowance in subsequent years. The Tribunal confirmed the CIT(A)’s order, dismissing the Revenue’s ground.

3. Deletion of Addition on Account of Commission on Sale of Implements:

The AO assumed a 5% commission on sales of implements totaling ?31,60,000/-, resulting in an addition of ?1,58,000/-. The AO’s assumption was based on the belief that the assessee would not issue bills without charging a commission.

The CIT(A) found the addition to be presumptive and without basis, noting that income must be real and not assumed. The CIT(A) accepted the assessee’s explanation that no actual sales were made, and the bills were issued to help customers secure higher loans.

The Tribunal upheld the CIT(A)’s decision, emphasizing that the AO’s addition was based on mere suspicion without tangible evidence. The Tribunal confirmed the deletion of the addition, dismissing the Revenue’s ground.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, confirming the CIT(A)’s deletions of the additions on all three grounds. The order was pronounced in the open court on 15/02/2017.