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TMI Blog2017 (2) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... amount equals the sales and other charges, it can be said that the balancing figure relates to discount offered to the customer. In light of above, we confirm the order of the ld CIT(A) and sustain the deletion of addition made by the AO. - Decided against revenue Disallowance of financial service charges - in the absence of actual third party expenditure vouchers from salesmen supporting their respective claims, disallowance of 20% of these expenses was held reasonable and disallowed by the ld CIT(A) for want of verification - Held that:- The incurrence of expenditure for business purposes cannot be disputed. Secondly, one can debate about the basis of 20% disallowance and whether the same is reasonable or not. In this regard, we were informed by the ld AR that the Revenue has accepted the said position of 20% disallowance in subsequent years while completing the assessments u/s 143(3) for A.Y. 2011-12 & 2012-13. In light of that, where the facts and circumstances are same and the Revenue has accepted the said position in subsequent years, we don’t feel it would be appropriate to unsettle the position. We accordingly confirm the order of the ld CIT(A).- Decided against revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re thereafter refunded in cash to the customers after a few months. In respect of 21 cases, refund amount exceeds ₹ 20,000/- totalling to ₹ 5,39,360/-. The assessee didn t maintains any receipts from the customers regarding the amount refunded to him. With these observations, the AO confronted the matter to the assessee on 24.10.2011 stating that these expenses incurred in cash exceeding to ₹ 20,000/- is in violation of provisions of section 40A(3) of the IT Act, 1961. After considering the asssessee reply and and nature of entries made in the books of account of the assessee, the AO held that the refund amount has generated due to discount and revision of price by issuing credit note in favour of the customers and after deducting charges for registration, insurance and loan processing charges. Thus, the nature of refund is expenditure on account of discount allowed to the customers for different reasons. Any refund in cash of amount exceeding ₹ 20,000/- is in violation of provisions of section 40A(3) of the IT Act, 1961. Thus ₹ 5,39,360/- is inadmissible for the two reasons one expenditure incurred in violation of section 40A(3) and second there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund given to the customers is based on ledger accounts and AO did not find fault with any of the entry in the ledger accounts therefore refund based on such ledger accounts cannot be questioned. Refund is of the balancing figure which is arrived at by certain debit and credit entries. If these debit and credit entries are not found to be incorrect, balancing figure cannot be questioned. Appellant also argued that this is the practice being followed since last many years and assessing officer did not make any disallowance in earlier years. Considering the facts of the case and no mistake found in the ledger accounts representing transactions with the customers, I do not find any merit in disallowance of refund of excess money received from customers. Assessing Officer also submitted that some of the payments were made in cash in excess of ₹ 20,000/- in violation of section 40A(3) which are disallowable. Appellant submitted that disallowance of section 40A(3) can be made in respect of expenditure claimed and not against any other payment. Since the refund is on account of excess money received on sale of goods, disallowance under section 40A(3) will not be applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verifying the facts has rightly deleted the addition which is just and correct in law. 2.3 The ld DR is heard who has taken us through the findings of the AO and relied upon the said findings. 2.4 We have heard the rival contentions and perused the material available on record. The ld CIT(A) has given a finding that the amount has actually been refunded and the list of such customers to whom the amount has been refunded is identifiable and the same has been verified by him along with documentary evidence. The said findings remain uncontroverted before us. In terms of quantum and nature of refund, the same depends upon various factors such as initial advance received from the customers, loan approved and credited to the customer account, value of sales recorded, various charges debited to the customer account and off course, the rate difference and discount allowed to the customers. The same will vary from customer to customer and from product to product sold by the assessee. In absence of a specific finding, it is difficult to generalise that in all cases, the refund has arisen only on account of discount offered to the customer as held by the AO. It is only in a particular s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer to help them in getting loans. Moreover, such expenses are not supported by any kind of documents to establish its genuineness. From the details of expenses given by the assessee and reproduced above it is very much apparent that expenses are taken in round figure with the intent to inflate the expenses. In view of the above facts and circumstances of the case considering the nature and in the absence of evidence, financial charges of ₹ 18,50,000/- pertaining to the year under consideration and ₹ 32,000/- pertaining to earlier year total ₹ 18,82,000/- was disallowed by the AO. 3.1 Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) who after considering the assessee s submissions has given his findings as under: I have considered the facts of the case, assessment order, appellant s written submissions, AO s remand report and appellant s rejoinder. Assessing Officer disallowed financial charges paid by the appellant for arranging loans for customers. Appellant submitted that these are reimbursement of expenses incurred by salesman for pushing the sales to various customers situated in remote places. Appellant submitted detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in the past years and as submitted herein before have been always allowed. The ld AR further submitted that the AO has wrongly understood the nature of expenditure. He has mentioned as to charging of processing charges from the customers. It may be clarified that processing charges have been debited to the customers account in some cases and that amount has been transferred to K.S. Capital Services Private Ltd. for their processing charges of finance by Kotak Mahindra Bank. The recipient company is assessed to income tax and the amount so transferred stands duly credited in their accounts and considered in their assessment. Such processing charges are not for all customers, it is only in respect of such customers who have availed off the finance by Kotak Mahindra Bank. Insurance and registration charges are charged on actual basis, not arbitrarily. The reimbursement amount paid to the salesmen is for the specific expenditure incurred by them and such expenditure has not been charged from the customers. It is the nature of sales promotion expenses. The payment to the salesmen is actual and not inflated. As submitted herein above, the payment voucher is prepared by the Cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale of implements amounting to ₹ 31,60,000/-, the assessee has submitted that bills for implements are issued to help the customers in getting loan of higher amount. In fact no such sales are made. Therefore, a reverse entry to this effect is made in the books of accounts. The assessee has not made any purchase of the implements and only sale bills have been issued to enable the customers to get higher amount of loan. As per AO, if the contention of the assessee is accepted, it is also a fact that a business man would never issue a bill without making any charge from the customers. There is another possibility that such implements could have been sold through some other dealer or implements. In either case, the assessee would get some remuneration for the service rendered by him. In view of this fact it was assumed by AO that the assessee has received 5% commission on the total sales booked for implements resulting into addition of ₹ 1,58,000/- (31,60,000 x 5/100) to the income of the assessee. 4.1 The findings of the ld. CIT(A) is as under: I have considered the facts of the case, assessment order and appellant s written submission. Assessing officer made t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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