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TMI Blog2017 (12) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... s, partly allowed. Allowance of expenditure incurred on account of discount given to the dealers - Held that:- The perusal of the details would reflect that in none of the cases even after paying discount which the Assessing Officer felt was higher, the assessee had made the profits. The total turnover of the assessee for the year under consideration was about ₹ 32 crores and the total expenditure booked by the assessee on account of discount is ₹ 1 crore which less than 5% of the total sales. The assessee as businessman had taken business decision to make a policy for the distribution of its goods and to pay discount to different dealers in this regard. Such business decision cannot be negated by the Assessing Officer on the surmise that as per the Assessing Officer, the discount paid by the assessee was higher. The assessee is best judge of its business arrangement and in the absence of any evidence found that the expenditure has not been incurred, merely on the ground that the rate of discount paid is higher, the expenditure cannot be disallowed in the hands of assessee. Claim of bad debts - Held that:- Where the assessee has filed the outstanding statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act whereas the amount of disallowance u/s 14A exceeds the exempt income earned by the assessee. 3. The learned CIT(A) has erred on facts and in law in upholding the restriction of the claim of depreciation on civil foundation work for windmills to 10% as against 80% claimed by the assessee. The learned CIT(A) failed to appreciate that, civil foundation work is an integral part of windmills. 4. The Revenue in ITA No.916/PUN/2015 has raised the following grounds of appeal:- 1 The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2 On the facts and in the circumstances of the case and in law, the Ld.Commissioner of Income-tax (Appeals) has erred allowing the expenditure on account of discount given to dealers by ignoring the fact that the assessee has inflated expenditure on account of accelerated discount to adjust the profit without having any fixed policy or consistency. 3 On the facts and in the circumstances of the case and in low, the Ld.Commissioner of Income-tax (Appeals) has erred in allowing the claim of bad debts when the assessee has failed to substantiate before the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend income of ₹ 1,07,061/- and had claimed financial expenditure to the tune of ₹ 1.29 crores. The Assessing Officer was of the view that the provisions of section 14A of the Act were squarely applicable and the argument of assessee that the investment was not linked to the loans obtained from the bank, was rejected and the Assessing Officer computed the disallowance to be made under section 14A of the Act, wherein sum of ₹ 3,44,322/- was disallowed on account of interest expenditure as per Rule 8D(ii) of the Rules and sum of ₹ 40,751/- was disallowed on account of proportionate administrative expenses as provided in Rule 8D(iii) of the Rules. Accordingly, an addition of ₹ 3,85,073/- was made in the hands of assessee. 7. Similarly, in assessment year 2010-11, the disallowance under section 14A of the Act was made at ₹ 2,66,058/-, wherein the disallowance under Rule 8D(ii) of the Rules to the extent of ₹ 2,19,363/- and the disallowance under Rule 8D(iii) of the Rules was ₹ 46,695/-. 8. The CIT(A) upheld the additions made by the Assessing Officer. 9. The assessee is in appeal against the order of CIT(A). 10. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current assets, cannot be the basis for denying the availability of interest free funds available with the assessee i.e. share capital and reserves surplus for making investments in tax free securities. Accordingly, we hold so. In view thereof, there is no merit in making any disallowance under Rule 8D(ii) of the Rules. However, we uphold the disallowance made under Rule 8D(iii) of the Rules on account of administrative expenses. Accordingly, the addition of ₹ 40,751/- in assessment year 2009-10 and ₹ 46,695/- in assessment year 2010-11 is upheld. The ground of appeal No.1 raised by the assessee in assessment years 2009-10 and 2010-11 is thus, partly allowed. 14. The ground of appeal No.2 raised by the assessee without prejudice to the disallowance made under section 14A of the Act does not stand in view of our allowing the claim of assessee and hence, the same is dismissed. 15. The learned Authorized Representative for the assessee had withdrawn the ground of appeal No.3 in assessment years 2009-10 and 2010-11 and hence, the same are dismissed as withdrawn. Further, the assessee had also withdrawn the ground of appeal No.1 raised in assessment year 2011-12 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abulated form, which is reproduced by the Assessing Officer at pages 11 to 14 of the assessment order. The assessee was asked whether any written agreements were entered into by the assessee with the dealers vis- -vis rate contract. In reply, the assessee pointed out that the guidelines are mentioned in policy manual, copy of which was submitted before the Assessing Officer. The Assessing Officer has reproduced Distributor Policy Manual-2006 at pages 15 to 22 of the assessment order. The Assessing Officer noted that in policy manual, nowhere discount was reflected in the policy manual. The Assessing Officer asked the assessee to justify its stand of giving discount. The explanation given by the assessee in this regard that the discount to the customers was by way of motivation to sell the products of the assessee, was not accepted by the Assessing Officer and he was of the view that the assessee had inflated the expenditure by lowering the profit on account of accelerated discount given to the parties which was not acceptable. The Assessing Officer disallowed the discount of ₹ 1,28,33,151/-. 20. Before the CIT(A), the assessee furnished the details product-wise i.e. sale p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned profit percentage, ranging between 13% to 28.83%, which was not denied by the Assessing Officer. Referring to the provisions of section 37(1) of the Act, the CIT(A) held that disallowance could be made where there was finding that expenditure was either of capital or personal expenditure or in the alternate, the same had not been incurred for the purpose of business. The CIT(A) referring to the order of Assessing Officer, pointed out that there was no whisper in the assessment order that the discount given was not real or that the discount was not necessitated by business consideration. The disallowance made by the Assessing Officer on the ground that the assessee had failed to prove that the expenditure was incurred for the purpose of business was negated by the CIT(A), in view of the detailed submissions filed by the assessee during the course of assessment proceedings explaining the rates of discount, also furnishing the detailed list of discount paid to parties and also the profit made after discount. Further, the CIT(A) observed that the Courts have held that the Assessing Officer cannot put himself in the shoes of the businessman in order to decide how the assessee shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said item manufactured by the assessee is consumable item, which is utilized in different fields, industries and in order to sell its goods, the assessee had established a distribution network. The assessee was operating in very highly competitive field, where the life cycle of the product which was manufactured by the assessee, was between one to three years. In other words, the manufactured items had to be sold as quickly as it was manufactured. So to boost its sales, the assessee had a distribution policy in place, which was applicable to all the distributors all over India which were engaged in selling cupplings. The role of the distributors was not only to sell the goods but to collect the payments and also to provide pre and after sales services, carried out sales promotion activities and gave feedback about the business prospects of the items, competition and sales activities to the assessee. The assessee was dealing in certain standard products and it was offering discounts ranging from 5% to 15% of the sales price to its distributors and the dealers. There were certain non standard products which had higher price and even had higher profit margins, on which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the Assessing Officer was that the assessee has not shown that the debt written off was in the initial years shown as part of its income. The assessee had furnished the explanation before the Assessing Officer for writing off the said debts, wherein in one case the outstanding amount was not cleared and in other cases, the amount was not paid because of short delivery / quality defects. 28. The CIT(A) noted that the outstanding shown by the assessee was against the sale invoices which were shown as income in the respective years. The Assessing Officer referred to the ledger account furnished to him during the course of assessment proceedings which were filed at pages 66 to 70 of the Paper Book, which provide the relevant sale bills and data/s in respect of which debt was taken into consideration as income. The CIT(A) applying the ratio laid down by the Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC) noted that the requirement of proving that the debt was irrevocable was no longer fastened on the assessee, who had written off the said debt in its books of account to claim the deduction of bad debts. The assessee since had written off th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed that it was selling some specialized products to OEM customers like BHEL and NTPC. The said customers had big projects and were using the assessee s products in the said projects. The orders placed by the OEM customers had to be executed within specified time. The assessee claimed that even though the material was supplied in time, some of the projects got delayed. Because of L.D. late delivery, clause in the order, OEM customers debited L.D. charges in such delayed cases and deducted the same from the payment to the assessee. In view of the carrying on its business with the said OEM customers, the assessee accepted the L.D. charges levied on it. The Assessing Officer however, disallowed the claim of assessee. 34. The CIT(A) allowed the same because of expenditure being incurred wholly and exclusively in the course of business and also held that the impugned charges were not in the form of penalty covered under Explanation (1) to section 37(1) of the Act. 35. In the totality of the above said facts and circumstances and after hearing both the learned Authorized Representatives, we find no error in the order of CIT(A) in holding that the late delivery charges paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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