2016 (2) TMI 297 - AT - Income Tax

Disallowance of claim of discount to customers on sale of two wheelers - Held that - The genuineness is not established by the evidence that assessee sought to rely upon. We are of the opinion that on the basis of the sample evidences furnished by assessee, in the absence of any policy of discount or acknowledgement by the customers in the invoices, the Modus Operandi adopted by assessee seems peculiar. Therefore, in the interest of justice, we are of the opinion that the claim of discount is required to be examined fully and if necessary by detailed enquiries by the Department on the basis of the evidence available on record. If assessee is not in a position to substantiate the claim, AO is free to examine whether the same Modus Operandi is followed in earlier years or in later years and can examine the current customers whether any discount is genuinely offered by assessee on each and every motorcycle being sold. Only after proper enquiries and satisfying, whether assessee s claim of discount is genuine or not, the claim can be allowed. Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Disallowance of claim of discount to customers on the sale of two-wheelers amounting to Rs. 46,69,869/-.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Discount:

Facts of the Case:
The assessee, a dealer of automobiles, filed its return of income for AY 2004-05. During assessment proceedings, the Assessing Officer (AO) found that an amount of Rs. 46,69,869/- towards discount given on the sale of motorcycles was debited in the Profit & Loss Account. The AO requested details and supporting evidence for the discount, but the assessee failed to produce satisfactory evidence, leading to the disallowance of the claim. The assessee then appealed to the Commissioner of Income Tax (Appeals) [CIT(A)].

Proceedings Before CIT(A):
The assessee submitted 41 bills and confirmations as additional evidence under Rule 46A of the I.T. Rules, which the CIT(A) forwarded to the AO. The AO reported that only 41 cases involving Rs. 32,070/- were confirmed, and out of 20 customers contacted, 10 admitted to receiving the discount while the other 10 denied it. Based on these findings, the CIT(A) held that discounts are common in the automobile industry and allowed the claim, noting that the Commercial Tax Officer had also accepted the discounts in determining the turnover.

CIT(A) Judgment:
The CIT(A) emphasized that discounts are a standard business practice to attract customers and withstand competition. The CIT(A) noted that the Commercial Tax Officer had assessed the income considering the discount amount and that it is common for customers to be unaware of the discount details as they rely on local mechanics or representatives. The CIT(A) concluded that the AO had not provided concrete evidence to disprove the discount claim and allowed the appeal in favor of the assessee.

Revenue's Appeal:
The Revenue appealed against the CIT(A)'s decision, arguing that the assessee failed to substantiate the discount claim and that the confirmation of only 41 cases out of 11,515 sales was insufficient. The Revenue contended that the entire modus operandi was unverifiable and lacked genuineness.

Tribunal's Analysis:
The Tribunal examined the issue and found the assessee's claim of discounts peculiar and unconvincing. It noted that discounts are typically given during specific periods or promotions and should be reflected in the sales invoices. The Tribunal observed that the assessee claimed discounts uniformly on all sales without proper documentation or customer acknowledgment, raising doubts about the genuineness of the claim. The Tribunal also highlighted that the Commercial Tax Department's acceptance of the discount did not necessarily validate its genuineness for income tax purposes.

Tribunal's Judgment:
The Tribunal set aside the orders of the CIT(A) and AO, directing the AO to conduct detailed enquiries to verify the genuineness of the discount claim. The Tribunal emphasized the need for proper evidence and customer acknowledgment and allowed the Revenue's appeal for statistical purposes, remanding the case back to the AO for a thorough examination.

Conclusion:
The Tribunal concluded that the assessee's claim of discounts lacked sufficient evidence and required detailed verification. The appeal was allowed for statistical purposes, and the case was remanded to the AO for further investigation. The order was pronounced in the open court on 29.1.2016.

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