1994 (4) TMI 119 - AT - Income Tax

Summary

Issues:
1. Allowability of trade discount given in kind as a revenue deduction.
2. Treatment of expenditure on gold medallions as sales promotion expenses under section 37(3A) of the Act.

Analysis:
1. The Assessing Officer disallowed the assessee's claim for revenue deduction of an aggregate sum debited under 'Discount and allowances' as it consisted of gold medallions distributed as trade discount. However, the CIT(A) allowed the claim, stating that the discount in the form of gold medallions was reasonable and directly related to the quantity of pesticide sold. He relied on the permissibility of trade discount in kind and the reasonableness of the expenditure based on the higher discount received from the manufacturer in the relevant year.

2. The Departmental Representative argued that the expenditure on gold medallions should be treated as sales promotion expenses under section 37(3A) of the Act. The representative contended that the purchase of gold medallions lacked proof and should be considered a sales promotion expense. Conversely, the assessee's counsel supported the CIT(A)'s decision, emphasizing that business expenditure can be in kind and the genuineness of the purchases was established through cheque payments.

3. The Tribunal found that the Department's argument regarding the genuineness of the purchases was unfounded, as the Assessing Officer had details of the expenditure and failed to investigate further. The Tribunal agreed with the CIT(A)'s reasoning that trade discount in kind was permissible, the expenditure was reasonable, and the purchases were genuine. It differentiated between sales promotion expenses and post-sales phenomena like trade discounts, stating that sales promotion aims at the market as a whole, while trade discounts focus on individual sales transactions.

4. Ultimately, the Tribunal dismissed the departmental appeal, upholding the CIT(A)'s decision to allow the revenue deduction for the trade discount given in the form of gold medallions. It rejected the argument to treat the expenditure as sales promotion expenses, clarifying the distinction between sales promotion activities and post-sales phenomena like trade discounts or sales commissions.