2021 (12) TMI 306 - AT - Income Tax

Addition made towards discount allowed to customers - Year of assessment - addition of discount pertains to sales made in earlier financial year on the ground that same partakes nature of prior period expenses - HELD THAT - Assessee has allowed discount to customers on the basis of refund of special additional duty and such discount was agreed to be paid as and when assessee received refund of special additional duty from department. We further noted that the assessee has received refund of special additional duty during impugned assessment years which includes duty pertains to sales made in earlier financial year. As per contractual arrangement between the parties discount allowed to customers pertains to sales made in earlier financial year accrued for year under consideration when the assessee has received refund of special additional duty - discount allowed to customers on sales made in earlier financial year accrued for year under consideration and thus, same is deductible as and when the assessee has allowed to its customers. Since, the assessee has allowed discount to customers on the basis of refund of duty, and same has been received during impugned assessment year, the assessee has rightly claimed deduction for same in current financial year. The Assessing Officer without appreciating facts simply disallowed discount allowed to customers. CIT(A) without assigning any reasons has simply confirmed additions made by the Assessing Officer. Hence, we direct the Assessing Officer to delete addition made towards discount allowed to customers. -Decided in favour of assessee.

Summary

Issues:
Assessment of discount allowed to customers as expenditure for the year under consideration.

Analysis:
The appeal was against the order of the CIT(A) regarding the disallowance of a discount granted to a customer, M/s. Kankriya Enterprises Pvt. Ltd. The Assessing Officer disallowed a portion of the discount amounting to ?21,22,807, stating it pertained to the previous financial year and was not allowable for the current assessment year. The assessee argued that the discount was linked to the refund of special additional duty on imports and should be allowed as expenditure for the current year.

The CIT(A) upheld the Assessing Officer's decision, stating that only expenses incurred during the financial year 2015-16 were allowable. The CIT(A) did not find merit in the assessee's argument that the discount accrued for the current year when the refund was received. The assessee contended that the discount was accrued for the current year when the refund of duty was received, and therefore, should be allowed as a deduction for the current year.

During the hearing, the assessee reiterated that the discount allowed to customers was based on the refund of duty and should be allowed as and when the refund was received. The Department, however, supported the CIT(A)'s decision, emphasizing that the discount amount in question pertained to sales made in the previous financial year and should not be allowed as a deduction for the current year.

The Tribunal found that the discount allowed to customers was indeed linked to the refund of duty and was agreed to be paid upon receipt of the refund. The Tribunal noted that the refund of duty was received during the current assessment year, which included duty from sales made in the previous financial year. Therefore, the discount accrued for the current year and should be deductible accordingly. The Tribunal disagreed with the Assessing Officer and the CIT(A), directing the Assessing Officer to delete the addition made towards the discount allowed to customers.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the discount granted to customers based on the refund of duty should be considered as a deductible expenditure for the current assessment year.