2018 (10) TMI 984 - AT - Income Tax

Addition being the discount allowed by the Appellant to its customers - assessee could not furnish relevant material before the CIT (A), but has filed additional evidence in the form of a paper book before this Tribunal. - Held that - AO had made some enquiries from the customers to find out if they received any discounts from the assessee, but the assessee has not been confronted with the findings of such an ex-parte enquiry report. This is in clear violation of principles of natural justice. The assessee has now filed the confirmation from the parties and also relevant material in support of his claim that he has given cash discount to the customers and his explanation as to why it is not included in the invoices is that Mahindra & Mahindra does not allow such discount to be given and therefore, it could not be included in the invoices, but only to ward off the competition, the assessee was constrained to give the cash discount. We find that this evidence goes to the root of the matter and if it is proved that the assessee has given cash discounts, the same is allowable as expenditure. This material is filed before us for the first time. Therefore, we deem it fit and proper to admit the same and remand the issue to the file of the AO for verification - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of discount offered by the assessee to customers.
2. Violation of principles of natural justice in conducting enquiries without informing the assessee.

Analysis:
1. The assessee, a partnership firm, appealed against the CIT (A)'s order sustaining the addition of Rs. 1,34,44,000 as discount allowed to customers. The AO disallowed the claimed discount as unexplained expenditure after verifying invoices and conducting enquiries with customers. The AO found discrepancies and disallowed the entire discount amount. The CIT (A) upheld the AO's decision. The Tribunal found that the AO's enquiries were conducted without informing the assessee, violating principles of natural justice. The assessee submitted additional evidence to prove the discount was given, but Mahindra & Mahindra's policy prevented mentioning it in invoices. The Tribunal admitted the additional evidence and remanded the issue to the AO for verification, emphasizing the need for a fair hearing for the assessee.

2. The AO's actions in making enquiries with customers without informing the assessee were deemed a violation of natural justice by the Tribunal. The assessee was not given an opportunity to rebut the findings of these enquiries. The Tribunal considered this a fundamental procedural flaw and emphasized the importance of allowing the assessee a fair chance to present their case. The Tribunal admitted the additional evidence submitted by the assessee and remanded the issue back to the AO for proper verification and adjudication in accordance with the law, ensuring due process and fair treatment for the assessee.

This judgment highlights the significance of adhering to principles of natural justice in conducting assessments and the importance of providing the assessee with a fair opportunity to present their case and rebut any adverse findings. The Tribunal's decision to admit additional evidence and remand the issue for proper verification demonstrates a commitment to upholding procedural fairness and ensuring that assessments are conducted in accordance with the law.