2015 (3) TMI 884 - AT - Income Tax

Disallowance of trade discount expenses paid in Cash - sale of tractors to farmers - onus to prove genuineness of discount - difference in the expenditure recorded in the ledger account and the cash-book - Held that - In the instant case, the appellant has not able to demonstrate, why it has offered cash discount to the customers sometimes after one month from the sale effected. It is also seen from the discount offered that the rate varies from 8 to 8.5%. This kind of cash discount is naturally unusual in this trade. More so, the appellant is a dealer and the margin for sale of tractors would normally will not be more than 10 to 15%. The appellant also heavily invested which incur interest component of such capital. Ina the tight scenario offering it 8 to 8.5% cash discount definitely not a viable business proposition. As the AO rightly observed that entry in ledger account do not tally with the cash book clearly indicates that the cash discount expenses was invented by the appellant much after the sales were affected. When the tractors were sold to the customers, they had already had bank accounts then why the appellant did not pay them in cheques the discount instead of paying in cash. The contention of the Id. AR that cash discounts are offered to the customers to avail full bank loan and to facilitate margin money also do not hold much water because the question of margin money arises before the loan sanctioned and it should have been in the account of the loanee. Further, the appellant should have given in cheques before the loan was obtained by the customers as it happens in normal cases. This obviously raised serious doubt about the genuineness of the discounts given in cash by the appellant. The appellant also had not brought any plausible explanation as to why other than cash discounts are not offered to the customers which are normal practice in this type of trade. The aforesaid finding of ld.CIT(A) is not controverted by the assessee. The contention of the assessee is that such trade discounts are allowable and is prevalent in the similar line of business. During the course of hearing, a query was raised as to how come the payment of discount to the purchasers of the tractors was made in installments and even before or after the tractor has been sold. The ld.counsel for the assessee could not give any satisfactory reply to the query. In our considered view, the assessee failed to prove the expenditure with satisfactory explanation, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld - Decided against assessee.

Issues Involved:
1. Disallowance of trade discount expenses.
2. Violation of principles of natural justice.
3. Rejection of detailed statement of facts and evidence.
4. Allowability of trade discount as a business expense.

Detailed Analysis:

1. Disallowance of Trade Discount Expenses:
The primary issue in this appeal is the disallowance of trade discount expenses amounting to Rs. 49,90,640/-. The Assessing Officer (AO) disallowed these expenses on the grounds of discrepancies between the ledger account and the cash book, and the fact that trade discount payments were made in cash and often in amounts below Rs. 20,000/-. The AO also noted that the trade discount payments were made before or after the sale of tractors, which raised doubts about their genuineness. Despite the assessee's submission of detailed statements, confirmation letters, and identity proofs of the purchasers, the AO found the trade discount transactions to be non-genuine and afterthought.

2. Violation of Principles of Natural Justice:
The assessee contended that the Commissioner of Income Tax (Appeals) [CIT(A)] failed to provide an opportunity to be heard and to rebut the issues involved, which is a violation of the principles of natural justice. The assessee argued that the CIT(A) overlooked the detailed statement of facts and various documents submitted, and summarily rejected them while accepting the AO's version.

3. Rejection of Detailed Statement of Facts and Evidence:
The assessee submitted that the CIT(A) erred in overlooking and rejecting the detailed statement of facts, various documents, and evidence placed in the written submissions. The assessee provided detailed explanations and evidence, including bank statements, confirmation letters from customers, and other supporting documents to substantiate the trade discount expenses. However, the CIT(A) upheld the AO's findings, stating that the cash discount payments were made much after the sale of tractors, and the entries in the ledger account did not tally with the cash book, indicating that the expenses were invented after the sales were effected.

4. Allowability of Trade Discount as a Business Expense:
The assessee argued that trade discount expenses are allowable deductions as they are incurred wholly and exclusively for the purposes of business. The assessee cited various judgments to support the claim that trade discounts are not expenditures but reductions in sales price, and therefore, should be allowed as deductions. However, the CIT(A) and the Tribunal found that the assessee failed to prove that the trade discount expenses were genuine and incurred for business purposes. The Tribunal noted that the assessee could not provide satisfactory explanations for the discrepancies and the timing of the discount payments.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the disallowance of trade discount expenses amounting to Rs. 49,90,640/-. The Tribunal found that the assessee failed to prove the genuineness of the expenses and provide satisfactory explanations for the discrepancies noted by the AO. The appeal was dismissed, and the order pronounced on 19th March 2015 at Ahmedabad.

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