Regent Granito India Ltd. Vs ACIT (ITAT Ahmedabad)- Dis allowance for the discount offered against defective materials supplied can not be sustained- In the present case, the A.O. has merely doubted that the assessee is writing off the amount and giving credit to the customers to reduce its profit but the A.O. could not corroborate the same by bringing on record at least some corroborative evidence. It is also to be noted that it is not a case of allowing discount simplicitor. Discounts were allowed on account of breakage or defects in quality.
If we purchase some thing & when the goods are delivered to our house and if we find that the goods delivered is in broken condition or is not of agreed quality, we will not settle for anything less than replacement of such broken / defective goods by a proper goods in proper condition and quality or to refuse the goods and return of price if already paid or nonpayment. Broken tiles have no scrap value and in fact, some cost has to be incurred for its disposal. As per the details noted by the A.O. on pages 4 – 5 of the assessment order, it is seen that in many cases, discount allowed is less than the sale value. The contention of Ld. A.R. of the assessee is that discount was allowed after reducing the scrap value from sale value where it was on account of such defect that it can fetch some scrap value. It is not a case of transaction with a related party and hence in the absence of any adverse corroborative material on record, it cannot be accepted that the assessee has allowed unreasonable/excessive discount that too to an unrelated party.
Dis allowance for the discount offered against defective materials supplied can not be sustained
Once the assessee had written off the amount receivable from the customer as bad debts in its books of account no dis allowance can be made on the ground that the assessee could not establish that the debts have become bad- It has been held by the Hon’ble Apex Court in the case of TRF Ltd CIT that after 01.04.1989, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is also held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Hence, this objection of the A.O. is not valid that the assessee could not establish that the debts have become bad and therefore, deduction claimed by the assessee is not allowable. It is not the case of the A.O. that the assessee had not written off the debt in question in its books of accounts. Hence, by respectfully following this judgement of Honourable Apex Court, we hold that he dis allowance made by the A.O. and confirmed by the Ld. CIT(A) is not justified because the assessee has actually written off the debts in its books of account. We delete this dis allowance and the ground No.2 of the assessee’ s appeal stands allowed.
