2016 (1) TMI 250 - AT - Income Tax

Disallowance of discount on sale of car to various customers - Held that - It is a normal practice in the business of selling new cars by the dealers of the car to grant discount in order to off-load stock and also to meet the target fixed by the manufacturers of the car. The discount is offered according to the market trends, competition by the other car manufacturers and also due various other marketing strategy and financial policies of the assessee. It is the prerogative of the assessee to decide as to how it has to conduct its business in order to survive and flourish in the market which cannot be questioned by the Revenue. The Revenue cannot dictate terms to the assessee on the issue of granting discount and making disallowance unless the genuineness of the transactions is doubted or established to be sham. In the given case before us that the assessee had granted discount to various customers on the sale of several model of the cars traded by the assessee. These transactions cannot be held as sham or not genuine. The Revenue has not brought out any convincing reasons to treat these transactions as not genuine. Therefore, we do not subscribe to the view of the Revenue for making such disallowances. - Decided in favour of assessee

Summary

Issues:
Disallowance of discount on sale of car to customers.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax(A)-III, Chennai, challenging the disallowance of discount on the sale of cars to customers amounting to Rs. 18,61,507. The Assessee explained that the discounts were given to mitigate competitive pressure, retain existing customers, and as a business promotion measure. However, the Assessing Officer disallowed the claim stating lack of evidence. On appeal, the CIT (A) upheld the decision citing reasons like no discounts after goods possession, selective discounting, and manufacturer's restrictions on discounts.

During the hearing, the Assessee argued that discounts were offered to avoid interest charges for delayed sales and to prevent unsold stock losses. It was contended that discounts were not mentioned in invoices to avoid paperwork issues with authorities. The Tribunal noted that offering discounts is a common business practice to off-load stock and meet manufacturer targets. The Tribunal emphasized that the Revenue cannot question the Assessee's business decisions unless transactions are proven to be sham. In this case, the Tribunal found no evidence to doubt the genuineness of the discounts granted to customers.

Ultimately, the Tribunal directed the Assessing Officer to delete the addition made for the disallowance of discounts, amounting to Rs. 18,61,507. The appeal of the Assessee was allowed, emphasizing the Assessee's prerogative in conducting business and the lack of evidence to question the genuineness of the transactions.

The judgment highlights the importance of substantiating claims with evidence, the common practice of offering discounts in business, and the authority of the Assessee in making business decisions. It also emphasizes the burden of proof on the Revenue to establish transactions as not genuine before making disallowances.